Turkey's new credit guarantee scheme enters into force

By Fatih Erkan Dogan

ANKARA

A recently enacted new credit guarantee scheme went into force on Friday increasing the amount of capital provided by the Treasury for the compensation of non-performing loans up to 25 billion liras ($6.66 billion).

The approved amount is expected to boost overall balance of loans for industry and businesses to 250 billion liras ($66.6 billion) as the losses from possible non-performing loans are guaranteed to be compensated by the Treasury, according to an announcement in the Official Gazette.

The new law also refers to "institutes which provide guarantee with support from the Undersecretariat of Treasury" suggesting the government is likely to establish an another institute in the coming period in addition to the Credit Guarantee Fund, which is currently the only establishment in the country which provides financial support for small to medium-sized enterprises.

The non-performing loans ratio of Turkey was 3.17 percent in 2016 according to data from the World Bank -- significantly lower than the world median of 3.91 percent -- indicating Turkish banks are the ones least likely to face loss due to non-performing loans.

During the days when the bill for new scheme was being negotiated at the parliament, Deputy PM Mehmet Simsek said it would cover non-performing loans at up to 7 percent of all loans -- an increase from the current 3 percent.

Turkey’s AK Party government recently announced different measures to reinvigorate the country’s economy which slowed down in the wake of July 15 coup bid and rising geopolitical tension in the region.