The Role of State in Credit Crunch

Only limited number of voluminous bagfuls of hot air have been spent by various economists about the alleged shortage of liquidity in the Turkish financial system that I have written in the past (see here, here, and here). Rather than repeating myself in a blog post by questioning the availability of cash in Turkish banking universe, this time I better focus on how our state-run banks have been performing and how much risk they are at in term of liquidity.

A liquidity meltdown following a credit crunch is how every great illusion ends in promising emerging markets. For a while concerns has grown over the threat of Turkish credit crunch, however, policymakers in Turkey overcome the issue in 2012 by providing one of the lowest growth rates recorded in any other emerging country excluding the recession periods. Since mid-2013 the government has had to struggle to survive from its most deepest political crisis starting with Gezi protests and continuing with graft scandal. As a result the banking sector’s loan growth slowed down due to concerns rising together with political risk, excluding the state-run banks. Not surprisingly loan brokers employed by the banks under the control of the government has seemed very comfortable while placing funds into the economy.

Credit Spread between Turkish State-Run and Private Banks

Then liquidity dies.

Liquidity Shortage in Turkish State-Run Banks

Above-showed chart is definitely not a say goodbye to your pension and deposit signal, but for now.

Loan ot Deposit Spread in Turkish State-Run Banks

Recently the whole country is informed about these state-run lenders are leading the loan package of $6.1 billion to finance the construction of the Istanbul’s third airport which is called “a monument of victory” by Prime Minister Erdogan.