Consumer credits get boost from Central Bank

THE CENTRAL BANK CBRT has temporarily put aside growth conditions for long-term loans and sectors selected for minimum reserve incentives to support the economy, which is expected to contract in the second quarter alongside consumption. The CBRT will allow banks to utilize minimum reserves, paving the way for growth in consumer loans. The decision will be binding until the liability period of December 25, 2020.

“To provide banks with flexibility in meeting the loan demand specific to this period, the Central Bank has decided to temporarily (until the year-end) suspend the enforcement of the rule of having an adjusted real loan growth rate below 15 percent for banks with a real annual loan growth rate above 15 percent to be able to benefit from reserve requirement incentives,” the CBRT said in a statement last week.

The Central Bank allowed banks to benefit from minimum reserve incentives under better conditions after changing the minimum reserve formula in loans with over 2-year maturities for specific sectors at the beginning of March. The sectors that benefitted included agriculture, forestry, fisheries, mining, quarrying, manufacturing, electricity, gas, heating and air-conditioning production and distribution, transportation, food services, and information and communication sectors. Alcohol and tobacco manufacturers, however, were not included.

CONSUMPTION̞-BASED GROWTH

Previously, the Bank only provided loan incentives to sectors selected with long-term housing credits. But with the regulation, the CBRT has expanded program until the year-end to consumption credits. The goal is to spur growth after after experiencing a slowdown due to the pandemic.

In its statement, the Bank said that it is continuing to use the reserve requirements flexibly and effectively as a macroprudential tool to support the Bank’s key monetary policy tool - short-term interest rates. “Circumstances of the coronavirus pandemic had adverse impacts on cash flows, increasing the loan demand of both individuals and firms. Measures put into effect ensured the efficient functioning of the credit mechanism, and the increased loan demand was met to a considerable extent. This trend is expected to continue for a while in the normalization process as well.”

The goal is to spur growth after after experiencing a slowdown due to the pandemic.