Turkish State Banks Are Lending Along Party Lines, EBRD Says

(Bloomberg) -- Turkey's state-owned banks could be misallocating their resources by lending along party-political lines, according to the European Bank for Reconstruction and Development.

Government-controlled institutions appear to be increasing credit to areas that support the ruling party, the EBRD said in a report released Tuesday. Conversely, state-run lenders are reducing assistance where regional authorities hail from the opposition, it said.

Turkey's three main state-owned banks -- TC Ziraat Bankasi AS and Turkiye Vakiflar Bankasi TAO -- didn't return calls and emails seeking comment. A spokesman for Turkiye Halk Bankasi AS declined to comment.

President Recep Tayyip Erdogan's administration has relied on state-run banks to fuel credit to sustain economic growth. The Turkish leader fired his central bank chief at the weekend, and his finance minister resigned shortly afterward, following a currency crisis caused mainly by unpredictable and unorthodox monetary and economic policies.

“The existence of political-lending cycles implies that the newly available credit was not always allocated to the most-deserving companies,” the London-based lender said in a report on the role of governments in the economy amid the coronavirus pandemic. “The evidence so far suggests that productivity losses stemming from the misallocation of credit outweigh potential gains from the increased availability of credit.”

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While state banks have been pricing their loans on the basis of market rates, they are more likely to require collateral in provinces where support for opposition parties is higher, EBRD said.

On the flipside, government lenders are more willing than their private-sector rivals to lend to startups, companies less than two years old, and other less credit-worthy firms, it said.

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