Turkey’s finance ministry is reportedly trying find a source of funding to inject into state-owned lenders.

People familiar with the issue have told Bloomberg that most of the financing would be aimed at the two largest state banks, Ziraat and Halkbank. A clearer plan should emerge after the local elections at the end of this month, the sources were also cited as saying.

At the government’s request, public lenders have been providing cheap loans to consumers and companies in a bid to address the stalling economy and economic ills that have spread since last summer’s currency crisis.

However, Moody’s recently warned that recent measures by Turkey to increase loan growth at state banks were credit negative for the lenders. It particularly cited Ziraat and Halkbank’s participation in a government plan to provide loans at below market rates to people struggling to pay credit card debts.

The total credit extended by government lenders jumped to TRY 24.7bn ($4.6bn) this year through February 22, while the books of those in the private sector fell to TRY 12.4bn, the news service reported.

Ziraat on March 1 announced that it had reduced its monthly mortgage rates and interest charges on consumer debt.

SMEs get more loan help
Moreover, Finance Minister Berat Albayrak announced on March 1 that banks would offer small- and medium-size enterprises a second loan package totalling TRY25bn.

Seventeen banks are participating in the package, Albayrak said, adding that TRY20bn of it would be backed by the Treasury.

The loans will have a maturity of 36 months and allow for six months without a principal repayment. The monthly interest rate will be 1.54% and the annual rate 18.48%.

In January, SMEs were provided with TRY25bn in a scheme involving 13 banks.

The latest data from the banking industry regulator BDDK shows that the country’s banks have unmistakably started to feel the pinch from the weaker economy.

The combined net profit of the Turkish banks plunged 29.4% y/y to TRY3.2bn in the first month of 2019. Loans provided by the industry grew by 12.6% y/y. The non-performing loans/total loans ratio increased to 4.03% in January from 2.94% a year ago.