According to Reuters article published on May 10, 2023, Rates on some Turkish factoring companies' commercial loans have surged to as high as 70% ahead of this weekend's tight elections and maturities have shortened to about two weeks, three banking sector sources familiar with the matter said.
Despite soaring inflation, the central bank has slashed its policy rate to 8.5% from 19% since late 2021. The unorthodox policy is championed by President Tayyip Erdogan, who faces the biggest electoral challenge of his two decades-rule on Sunday, leaving credit markets on edge.
Sources said some factoring companies were giving loans with a 70% interest rate, up from 30% in February. The rates include some fees and commissions, with current maturities generally only covering the period up to the end of the election process, with a potential presidential vote run-off set for May 28.
The cost of commercial funding by both factoring firms and banks now averages 55-60%, up from 29-30% in February, said Arda Tunca, a factoring-sector consultant and independent economist.
"This includes commissions and fees for checks and payments processing. There are some rates as high as 70% but it is quite rare. For the first time, the rates offered by banks and factoring firms are aligned," he said.
"Banks don't want to lend until they see a clearer political and economic environment."
Maturities are for 20, 21, 22 days, and it is rare to see loans maturing beyond May 28, added Tunca, also columnist at PolitikYol. "Many fund managers are totally in cash as a precaution".
Erdogan's unorthodox policy is aimed at boosting exports, production and economic growth by slashing interest rates and by heavily managing the credit, foreign exchange and bond markets.
After a historic lira crash in late 2021 the government doubled down on its economic programme including pressing the central bank to continue cutting rates to 8.5% to reverse chronic current account deficits.
It also mandated banks to extend cheap loans to certain export- and growth-oriented sectors and to maintain required reserves and long-term bonds for the loans, and it also added new restrictions on some retail loans.
Corporates which are not able to get loans from banks are now borrowing from factoring firms with high level of interest, said another banking source.
The source said factoring companies and banks can use a funding facility at the Istanbul Settlement and Custody Bank (Takasbank) and these loans' interest rates are around 45%. Adding fee and commissions they reach 70%.
Takasbank loans are used by brokerage houses along with banks and factoring firms.
"Some brokerage houses either trimmed down the leverage ratio for their clients or closed their positions due to the increasing interest rates at Takasbank. This led to a big sell-off in the stock market in the last two weeks," a portfolio manager said.
Turkiye's stock index has fallen 18% so far this week, with a decline of 10% since April 24.
