Demand for rediscount credits explodes, limits are insufficient

The update made by the Central Bank at the beginning of the month regarding the calculation of the rediscount credit interest rate has caused the rediscount credit interest rate to fall to the 23-24 percent level. While the attractive interest rate has caused exporter demand to increase quite rapidly, the daily 1 billion lira limit is not enough for banks.

Following the increases in the Central Bank's policy rate, complaints about interest rates rose, leading to a rush by exporters for rediscount credits, which were made attractive through a new regulation. As demand for rediscount credits, which can be utilized at 24 percent interest, exploded, banks filled their limits. Of the 3 billion lira daily credit limit set by the Central Bank, 2 billion lira is provided directly by Eximbank, and 1 billion lira is provided by banks. Banking sector sources stated that they cannot keep up with the demand and that there are queues at banks, emphasizing that bank limits are filled immediately. Sources close to Eximbank pointed out that they are utilizing the rediscount credit 'to the full' while emphasizing that the authority for limit increases lies with the Central Bank. The banking sector is requesting an update on some bank-specific limits.

PERIOD-END INTEREST RATES REACHED HIGH LEVELS

Since the new Central Bank and economic management took office, rediscount credit limits have been increased 10-fold. The rediscount credit limit, which was 300 million lira daily until mid-July, was first increased to 1.5 billion lira on July 25, and then to 3 billion lira on September 12. At the same time, during the limit increase, the Central Bank emphasized that the SME share in the utilization of rediscount credits would continue to be increased and that export performance would continue to be taken into account. However, the limit increases were not sufficient to solve the exporters' problems. This is because the Central Bank's interest rate hikes and the requirement to pay interest on rediscount credits in advance caused costs to increase significantly.

REDISCOUNT CREDIT INTEREST CALCULATION METHOD CHANGED

Rediscount period-end interest rates rose up to 45 percent, and exporters had to use rediscount credits at rates even higher than commercial loan interest rates. After the EKONOMİ newspaper reported on exporters' complaints about high interest rates, the Central Bank took a new decision at the beginning of October and announced that the financing cost for rediscount credits would decrease by 15 points. In the implementation instruction sent from the Central Bank to banks, it was announced that the rediscount credit interest calculation method had been updated and that the total interest, i.e., the period-end interest cost of rediscount credits, would not exceed the Central Bank policy rate level.

1 BILLION LIRA DAILY IS UTILIZED BY BANKS

Following this change, rediscount credit interest rates fell to 23 percent at Eximbank and up to 24 percent at banks with a 1-point commission. These attractive interest rates caused the demand for rediscount credits from exporters to increase very rapidly. According to information obtained from sources close to Eximbank, 2 billion lira of the 3 billion lira daily limit is utilized directly through Eximbank, and the remaining 1 billion lira is utilized through banks. However, banking sector sources pointed out that the 1 billion lira is distributed to banks at certain rates and that they cannot meet the high demand with this limit.

EXIMBANK IS UTILIZING 'TO THE FULL'

According to information obtained from Eximbank sources, the limits for the banking sector in rediscount credits have been increased significantly compared to before 2019. Before 2019, 1/7th of the daily limit was given to the banking sector, while 6/7ths were allocated to Eximbank. Now, one-third is with banks and two-thirds are with Eximbank. The 1 billion lira daily limit is distributed on a bank-by-bank basis. Sources close to Eximbank pointed out that the 2 billion lira daily limit is being utilized to the full, while noting that the decision-maker regarding the increase of the 1 billion lira in the banking sector is the Central Bank.

EXPORTERS ARE WAITING IN LINE FOR REDISCOUNT CREDITS

Banking sector sources indicated that rediscount credit interest rates are very attractive, but banks cannot provide sufficient utilization due to limitations. Emphasizing that the limit provided specifically for banks daily runs out in a short time and that there is a significant number of exporters waiting, a banking sector source pointed out that an increase in the daily limit is inevitable to be able to provide more rediscount credits.

OTHER EXPORT CREDIT LIMITS ARE LIMITED BY EQUITY

Sources close to Eximbank stated that rediscount credits are the transfer of Central Bank resources to the exporter through banks, and that because they are cost-effective, the banking sector also uses this type of credit as an anchor and tries to create customer efficiency. On the other hand, stating that there are other credits that Eximbank provides to exporters covered by its own equity, the source emphasized that the limit for this is limited by the size of the equity. Stating that Eximbank provides export credit at a 37 percent interest rate, and that if they provide it through banks, the bank applies a 38 percent interest rate with a 1-point commission, the sources reminded that Eximbank has 38 billion lira in equity.

CONTRIBUTION EXPECTATION TO RESERVES THIS YEAR IS 4.33 BILLION DOLLARS

According to Central Bank data, the contribution of rediscount credits to foreign exchange reserves has fallen to its lowest levels in recent years. According to the data, while the contribution of rediscount credits to foreign exchange reserves has been falling steadily since 2020, the amount fell to 23.06 billion dollars in 2020, 21 billion dollars in 2021, and 17.6 billion dollars in 2022. While the amount remains quite low this year, the contribution of rediscount credits to foreign exchange reserves in the first 7 months of the year remained at 2 billion 574 million dollars. In the first 7 months of last year, this amount was at the level of 12 billion 680 million dollars. The expectation is that this amount will reach the 4.33 billion dollar level by the end of the year.