Turkey eases limits on foreign currency borrowings of companies

Hurriyet Daily News with wires

Economy Minister Ali Babacan said Monday in a televised press conference that lifting the restriction on Turkish companies, applicable to those with no foreign exchange revenues, would help reduce the country's foreign debt.

“The most important aspect of this new regulation is that those companies with no foreign currency revenues will be able to use foreign currency loans under certain limits,” Babacan said, adding the amount such companies could borrow from banks in Turkey must exceed $5 million and have a maturity exceeding one year.

The change will give companies better access to credit and help end a system under which companies borrowed in dollars or euros through foreign branches of Turkish banks, he also said, adding the regulations also lift a limit of 18 months on foreign borrowing for companies that have earnings in dollars or euros.

Turkey's long term external debt stock stood at $139 billion for the private sector at the end of 2008, of which $35 billion was borrowing through banks' overseas branches.

He said the new regulation will also prevent individuals using foreign currency or foreign currency-indexed credits both from local and foreign banks.

"We aim to remove completely the foreign currency risk that individuals face with this new regulation... We will be able to meet the financial needs of the manufacturers with keeping our foreign exchange savings within the local banking system as a result of this regulation," he added.

BANKERS MOVE WELCOME

Turkish Banking Association head Ersin Ozince, who attended the press conference with Babacan, welcomed the move, saying this was one of the most important regulation changes in years.

To circumvent current regulations companies borrowed through Turkish banks' overseas branches, a move which greatly increased Turkey's foreign debt level. "This anomaly created volatility and that will now be reduced with a more accurate picture of the corporate sector's debt level and overall foreign debt level," said Yarkin Cebeci, an economist at JP Morgan in Istanbul, in a note to his clients.

Another analyst agreed that easing restrictions will help companies to roll over their debts. "Turkish companies have a lot of external debts, an open foreign-exchange position. If they can borrow more easily it will help them roll over their debts. This may also stimulate banks to give credits more readily," said Erkin Isik, an economist at Fortis bank in Istanbul.

NEW REGULATION ON CREDIT CARDS

The new regulations also aimed at creating relief for individuals amid rising credit card debts.

The government invited credit-card debtors to apply to reschedule the payments they owe banks under a low- cost repayment schedule.

The new regulations will include vis-a-vis annual fees for credit cards, minimum payments and credit card debts. Banks have agreed to waive some of the fines and interest on the debts in a bid to slow an expansion of non-performing credit card debts, Babacan also said, adding the new payment schedules cover about $3.1 billion Turkish lira, or TL, ($2 billion) in non-performing loans on a total of 1.3 million cards. More than half of the debts are for less than 1,000 TL, he said.

For credit cards whose credit limit was more than 3,500 TL, the annual credit card fee cannot exceed 1 percent of the card’s limit. "For credit cards whose limit is 3,500 liras or less, the annual credit card fee may not be more than 35 liras," Babacan noted.

With the new arrangements, the banking watchdog Banking Regulation and Supervision Agency, or BDDK, may increase minimum payments up to 30 percent of the debt due or reduce it to 10 percent of the total debt, he said adding, credit card debts due as of May 31, 2009, may be paid back under a new payment plan.

According to the information given during the press conference, the total amount of non-performing credit cards currently stands at 3.1 billion TL, from 1.3 million credit cards used by almost 875,000 people.