Time to invest?

Garanti Bank Deputy GM Cemal Onaran says investment channels set to stir in 2018

Garanti Bank Deputy General Manager Cemal Onaran has said most of the loans given though government support schemes have so far met ‘business capital’ needs. According to Onaran, with the mobilization of the business world, investment channels will soon start to stir. Onaran’s findings and expectations about the Turkish economy are as follows:

Wheels start ng to cycle

The signals are good. Data confirms signals we have seen on the ground and identified as positive. The rate of dud checks fell by 39% compared with the previous year. Small and Medium Enterprises Development Organization (KOSGEB) and Credit Guarantee Fund (KGF) loans, which were introduced at the start of this year, helped people to get over the serious hurdle of cash shortages experienced last year. The maturity of the checks are starting to shorten. These loans did not only cause the companies to relax. Regular salary payments of companies with cash flow problems also brought relief to individuals. Dynamism has spread everywhere.

Looking at the details, the cycle started on the textile side, which is an important building block in creating employment and contributing to the economy. When we go to the Bursa region, the reels turn out to be particularly good in the automotive sector, which mainly exports. Tourism has also become congested, but the improvement is now felt more and more. In the construction sector, the acceleration of housing loans and the increase in confidence in the economy has turned the tide. We will also see the effects of the revival and the dynamism in these four sectors on growth. The growth rate in the first half of the year is 5%. We expect a growth rate of more in the third quarter of the year. Over the full year, we estimate that the growth rate will be close to 7% and above at least 6%.

TRY 50 b ll on to accelerate nvestments

There is always a running process in the economy. We believe the investment channel will be activated after a while as the business world mobilizes. In Turkey, the investment side was rather active, especially in the energy sector for a while. Significant projects were signed. There has not been a huge investment project so far in 2017, but we are looking forward to seeing such projects in 2018 and 2019.

In the KGF loans, a limit of TRY 250 billion was defined and TRY 200 billion was extended. The Treasury is holding the remaining TRY 50 billion and is planning to use it to increase employment as well as to finance investments and projects that will increase exports. With this bail out kicking in, investment mobilization will also come to the fore.

There are studies being made on how the remaining TRY 50 billion of the KGF credits can be used by selecting specific fields and how the TRY 200 billion limit can be recycled.

Few repayment ssues

In our case, the repayment of credit granted through the KGF has started. Until now, almost TRY 2.5 billion has been repaid and the repayment performance is very good. Non-repayment issues are near zero. But we should open a parenthesis here. We have not changed our point of view on credit policies and KGF support. We supported the SMEs who had a warranty problem although their business and environment was good. Since the KGF filled the ‘warranty’ gap at that time, it was not expected that the problematic loan rates would already be above current levels.

Surprisingly, at the end of the six-month period, overdue receivables are below average. It has been suggested that loans were used to buy land, houses and cars, but if these claims were true, the non-performing loans would already be too high. The fact that collections are close to zero is the most important indication that these loans were used in the right places. When we say ‘the right places,’ we mean areas in which we all aim to ‘invest.’ We definitely want to see investments in factories and machines. In fact, a large part of the loans used in Turkey were spent on operating capital. KGF credits were also used for operating capital. The money was either spent on salaries or raw materials, whatever was needed for each business to run. If it was spent on luxury cars, for instance, we would have all seen a boom in non-performing loans.

We pr ce 2018 w th a pos t ve scenar o

It is reflected in the ratios as the wheels start turning and creating cash in the economy. The improvement in companies is spreading to the world of individuals as well. This was the factor in the fall of the problematic consumer loans. Fully 74% of employment is in SMEs. When you open the locks there, the employer pays their credit cards and loans. The management of the economy has touched on an accurate point here.

We price 2018 with a positive scenario. Estimated growth in the government’s medium-term program is 5%. This means that the world of SMEs will be very lively in the coming year. We made our 2018 plans through a scenario in which credit is growing, the wheels of the economy are turning and non-performing loan rates stay low. If the current work in the KGF loans is realized, we expect credit to grow by more than 20% in 2018.

2017 has been the year for SMEs and 2018 will be no different. Every year when the economy grows at 5% or more it is the year of SMEs. When the growth rate falls to 2-3% the SME world is starts to encounter problems. Since the equity capital of these companies is not strong, the vitality of the economy keeps them alive.

The most important component of interest is inflation. If the inflation decreases from 10% levels – and we think we will see this acceleration in the coming period – we will also see inflationadjusted rates. The critical point is inflation and the Central Bank of Turkey’s policy. At the point where the central bank transitions to normal funding instead of the late liquidity window, the deposit and credit markets will also come down.