Dynamics of Foreign Currency Lending in Turkey
AbstractOn June 16 2009, in what authorities called ``a surprise development'' the Turkish Government removed a provision from its existing laws that had allowed Turkish residents to borrow in foreign currency from banks operating in Turkey. The development ended a long era of foreign currency lending in Turkey at least in the sense of consumer loans. This paper studies the determinants and consequences of foreign currency lending for banks in Turkey in the run-up to this significant policy change. Our analysis uses detailed foreign and Turkish currency composition bank data for 21 commercial banks in Turkey between 2002 and 2010. We evaluate drivers of saving and lending in foreign currency(FX) in Turkey along with consequences for the banking system in particular and for the economy in general. We highlight possible risks to the Turkish banking system as a result of system's heavy exposure to both channels. In doing so, we show that the policy change was not necessarily a surprise but a cautionary step in the right direction to help keep Turkish banking system stable.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 36214.
Date of creation: 26 Jan 2012
Date of revision:
Dollarization; bank performance; bank profitability; Turkish economy;
Find related papers by JEL classification:
- O24 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-20 (All new papers)
- NEP-ARA-2012-02-20 (MENA - Middle East & North Africa)
- NEP-CWA-2012-02-20 (Central & Western Asia)
- NEP-IFN-2012-02-20 (International Finance)
- NEP-MON-2012-02-20 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brown, M. & Haas, R. de, 2010.
"Foreign Currency Lending in Emerging Europe: Bank Level Evidence,"
2010-135, Tilburg University, Center for Economic Research.
- Martin Brown & Ralph De Haas, 2010. "Foreign currency lending in emerging Europe: bank-level evidence," Working Papers 122, European Bank for Reconstruction and Development, Office of the Chief Economist.
- Honig, Adam, 2009. "Dollarization, exchange rate regimes and government quality," Journal of International Money and Finance, Elsevier, vol. 28(2), pages 198-214, March.
- Ali M. Kutan & Erick W. Rengifo & Emre Ozsoz, 2010. "Evaluating the Effects of Deposit Dollarization in Bank Profitability," Fordham Economics Discussion Paper Series dp2010-07, Fordham University, Department of Economics.
- Akyurek, Cem & Kutan, Ali M. & Yilmazkuday, Hakan, 2011. "Can inflation targeting regimes be effective in developing countries? The Turkish experience," Journal of Asian Economics, Elsevier, vol. 22(5), pages 343-355, October.
- Kutan, Ali M. & Ozsoz, Emre & Rengifo, Erick W., 2012. "Cross-sectional determinants of bank performance under deposit dollarization in emerging markets," Emerging Markets Review, Elsevier, vol. 13(4), pages 478-492.
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