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Cheap credit could prove too pricey for Turkey’s fragile economy

Turkey’s strong private-sector banks are its biggest asset – undermining their profitability for short-term political gain will prove counterproductive.


Turkey's president Recep Tayyip Erdogan

Most politicians would like banks to hand out more cash to businesses and voters, particularly at times of economic malaise. Fortunately, most have either too much sense or too little clout to force the issue.

One notable exception is Recep Tayyip Erdogan.

A firm believer in the virtues of cheap credit – and an equally vehement denier of any link between low interest rates and inflation – the Turkish president is also happy to use his vice-like grip on the levers of power to put his theories into practice.

Faced with an economic downturn – largely of his own making – Erdogan has ordered Turkey’s state-controlled banks, which account for around a third of sector assets, to turn on the lending taps.

With bad debt levels rising, that is in itself a risky move. Unfortunately, it has not been enough for the Turkish president, who wants his country’s respected private-sector banks to take an equally relaxed approach to risk management.

Understandably, they have been reluctant to abandon the defence of balance sheets that remain, even after three years of market turmoil, remarkably robust.

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