Addendum to previous week's Hurriyet column on credit

In my column on credit developments in Turkey, I noted that credit was growing rather fast. While the statement is true in principle, there is a small problem, which I could not explain due to space constraints (since the column also appears on the hardcopy of Hurriyet Daily News, I need to adhere to a strict 3700-character limit).

FX lending was made easier by a new decree on June 16 of last year. Before that, banks were lending to their Turkish clients from their abroad branches to bypass the regulations. Since foreign branches are not included in credit data, the new decree, to the extent that it induced the banks to lend from their domestic branches, would have somewhat exaggerated credit growth. That is yet another reason we should not make too much out of credit quantity data, as I argue convincingly (I hope) in the column.

Of course, another byproduct of this change was that non-bank external debt rollover automatically fell after the decree. In fact, the CBT has adjusted for this change and found that if the new decree had not been enacted, the corporate external debt rollover would have been 100% (the official figure was a mere 65%) in the first quarter. But this would not have effected banks in any way, so the 50% bank rollover ratio does not need to be revised.

The column also allowed me to notice an important problem in the official credit and deposit statistics. To illustrate the issue at hand, I present the following graph:

As you can see, according to the data, with deposit rates higher than credit rates, traditional banking has been a loss-making activity in Turkey:) What's going on? I talked with a friend who is a retail banking executive, and she told me that the banks have to report the highest deposit rates, and to make guarantee themselves against last-minute surges in rates, they report a much higher rate than they offer.

As for credit, she is not sure what is going on either, as those figures are way too low, just as the deposit numbers are way too high, and to her knowledge, the banks don't report that data... If I am not lazy enough, I will ask one of my CBT friends about this one of these days...