On 31 March 2020, the Central Bank of the Republic of Turkey (CBT) announced measures to restrain the adverse effects of the spread of coronavirus (COVID-19), which has created global uncertainty and has been classified as a pandemic in Turkey. Turkey's current credit scheme whereby public and private banks provide financing to companies (regardless of their size) under the support of the Treasury-Sponsored Credit Guarantee Fund will be supported further by the CBT's measures. By virtue of these measures, companies struggling with the negative impacts of COVID-19 are expected to access liquidity more easily.
In this regard, the measures described below have been undertaken to do the following: strengthen the monetary transmission mechanism by supporting the liquidation of Government Domestic Debt Security ("GDDS"); enhance the elasticity of bank liquidity management of the Turkish lira and forex; ensure the sustainability of cash flow to the real sector; and support exporters of goods and services overcome by the pandemic.
The CBT has adopted an approach focused on helping small and medium-sized enterprises (SMEs), which includes these measures:
- Off-the-self purchase transactions of the Open Market Operations ("OPO") portfolio that are conducted within limits set forth by the Monetary and Exchange Rate Policy for 2020 can be actualised in a front-loaded method, and can be updated following market conditions. These transactions are intended to increase market depth, encourage sound asset pricing and enhance the efficiency of the monetary transmission mechanism by providing banks with flexibility in liquidity management.
- Primary Dealer banks can sell GDDS purchased from the Unemployment Insurance Fund to the CBT under the conditions and amounts determined by the CBT or increase the liquidity facility foreseen within the framework of the OPO, within certain ratios of the scope of the Primary Dealership. This measure is intended to support financial stability by restricting the potential impact of the liquidity need of the Unemployment Insurance Fund over the market. The GDDS purchases will be considered out of the scope of limits set forth for the OPO. Criteria and detailed information will be provided separately.
- Pursuant to Turkish lira and forex transactions carried out within CBT, Asset-Backed Securities and Mortgage-Backed Securities will be included in the cover pool, which will support the increase in the liquidity of issue and the depth of capital markets, and enhance flexibility in the liquidity management of forex markets. The banks will be informed regarding the criteria for securities to be included in the cover pool and information on limitations to this facility.
- The limitations will be increased for the targeted additional liquidity facilities set forth to ensure the sustainability of credit flow to the real sector. In this regard, the CBT will hold Turkish lira currency swap auctions with a maturity of six months in addition to the targeted liquidity facilities of repo auctions with maturities up to 91 days and Turkish lira currency swaps with a maturity of one year. The related banks will be provided with Turkish lira liquidity against US dollars, Euros or gold, at an interest rate 125 basis points lower than the CBT's one-week repo rate via six maturity swap auctions.
- In order to help exporters of goods and services get easy access to financing and to support employment, credits will be available to Turkish lira-denominated export and forex earning services. Turkish lira-denominated rediscount credits will be extended to exporter companies according to the following principles:
- A limit of TRY 60 billion in total is determined for credits.
- The limit is allocated for the use by Turkish Eximbank, public banks and other banks for TRY 20 billion, TRY 30 billion, TRY 10 billion respectively.
- A minimum rate of 70% of credits will be allocated to SME's by banks other than Eximbank.
- Credit amount per company is TRY 25 million for SME's and TRY 50 million for other companies.
- Companies using forex-denominated rediscount credits, providing construction services overseas and participating in international fairs, will be entitled to benefit from this credit facility.
- An interest rate 150 basis points lower than the one-week repo rate applied by CBT will apply to these credits.
- Commissions of intermediary banks will be 150 basis points at maximum.
- These credits will have a maximum maturity of 360 days and will be granted upon satisfying the following conditions: an export or forex earning services commitment will be made and the level of the employment as of 1 March 2020 will be preserved during the credit period.
For more information about the decision, contact your regular CMS advisor or local CMS experts: Dr. Döne Yalçın or Alaz Eker Ündar.