Loans, managed f loat and GDP growth

A sustained managed float regime is unsustainable if you don’t have large FX reserves or if you don’t run a foreign trade surplus. Even if one decides that the currency shouldn’t be entirely left to float no guarantee can be given to anyone when it comes to the expected value (mean) of the exchange rate.

• Central Banks don’t defend a currency level. Nobody can say 1 USD = x TL is the target. This isn’t how monetary policy works even under a managed float regime. Moreover no one can simultaneously put forth a growth target –and an exchange rate target, and a loan growth target, and keep interest rates so low.

• The latest data shows total loans grew by 39.1% annually. This is unadjusted data, and reflects both inflation and currency depreciation. TL deposits may continue to fall and FX deposits to rise if the currency risk guaranteed TL deposit option doesn’t work.

• With inflation expected to peak at a minimum of 50% – that is, if domestic demand is curtailed in the second half of the year and there is no currency shock – a c. 55% (unadjusted) loan growth is warranted to allow real GDP is to reach its potential, i.e. c. 5%. Incredible, isn’t it?

• Annualized 13-week FX adjusted total loan growth stands at 18.76%. Private and public banks’ lending speeds are close to each other. This is what the government possibly meant when the Minister talked about a 25% loan growth target last week.

• By the same metric, public banks began 2021 with only 4.52% loan growth, whereas private banks were lending at a pace of 4.05%. The reason is the base effect; they on-lent a lot in 2020 during the high season of the pandemic.

• Consumer loans and credit card debt are now growing by c. 18% annually, whereas they started the year with 17.6%. This is clearly a function of the fact that credit growth moves very closely with local deposit growth.

• Overseas funding doesn’t make a positive contribution. In the past, the situation was entirely different. In the new market environment, TL deposits need to grow via high TL deposit rates, in which case the lending rate will be even higher, or loan growth will remain subdued.

• The most realistic possibility is that a fund-guaranteed credit boom reminiscent of 2017 is in the making. It is a delaying device, a half-measure that can only temporarily cure the symptoms of the crisis.