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Turkey: Bankers and state collide on reserve ratios

CEOs oppose increased reserve ratios; Threats to banks exceeding loan limits

Ersin Ozince, chief executive of Isbank

"What kind of police-type measures could be imposed against a bank? This is like a joke. Isn’t this a state of law?"

Ersin Ozince, Isbank

Turkey’s bank chief executives are up in arms over recent moves by the government and central bank to increase their reserve ratio requirements. The central bank controversially increased RRRs to 15% while lowering interest rates in an unorthodox policy mix that began last December. It also sought to limit loan growth at the banks. Essentially the government is looking to deter foreign capital flows to stop the currency appreciating, while also stopping loan growth to tame inflation.

Caught in the middle of this are Turkey’s banks, which are being asked to subsidize the government’s macroeconomic policy. Until last month they might have grumbled about these restraints in private. But since then open warfare has broken out.

Economy minister Ali Babacan lit the touch paper when he said that one or two banks had been increasing loans above the government limit.

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