Keeping the Turkish economy afloat is becoming increasingly difficult. To stop the downturn and stimulate a return to growth, Ankara has pushed the central bank to make a massive rate cut despite the still-unripe domestic and external conditions and sought to control hard-currency prices via public banks. As a result, the central bank and the treasury, used as the main conduits of those coercive policies, have suffered major losses of credibility and funds.

As part of the same approach, public banks were prodded to cheapen loans in early August, mainly in a bid to help destocking in the crisis-hit construction sector. Yet private banks, many of them of foreign ownership, were largely reluctant to follow suit, concerned over profitability and excessive risks. The government responded with measures that effectively reward banks that lend more, namely the three state-owned banks Ziraat, Halk and Vakif, while penalizing those reluctant on loan expansion. 

Under regulatory changes announced Aug. 19, the central bank drew a link between how much credit the banks extend and the amount of cash they must put aside as reserves and the interest it pays on those sums. Banks with higher loan growth rates were entitled to more favorable terms. 

The move, which amounts to punishing those cautious on lending, has fueled fears among foreign banks that play an important role in the Turkish banking system that more fiats could come down the road. Some of them are even reportedly pondering whether to continue operating in Turkey or pull out, wary that Ankara might sustain and expand measures that contribute to unfair competition.