OUR Turkey is accelerating its plan to inject $5.5 billion in capital into large state-owned banks in a bid to boost lending again ahead of the May election. This is the last attempt of the Turkish President, Recep Tayyip Erdoganto stimulate economic growth less than two months before May 14 electionsThis is expected to be the biggest test for him in his 20 years at the helm of Turkey.

Capital strengthening of state-owned banks will be carried out by the sovereign investment fund of the neighboring country by providing 40 billion Turkish liras worth the equivalent of $2.1 billion to TC Ziraat Bankasi As and 30 billion Turkish liras worth the equivalent of 10.5 billion to each of Turkiye Vakiflar Bankasi TAO and Turkiye Halk Bankasi AS. It should be noted that the sovereign fund fully controls Ziraat, while it owns a controlling stake in the other two banks. The news sent bank stocks up, with Vakifbank up 4% and Halkbank up 6.9%. The banking index of the Istanbul Stock Exchange added 0.4%. As Xan Oksun, trader at Global Securities, comments, “The news that a new round of capital injections into state-owned banks is imminent caused a positive reaction from the market.” In addition, the sovereign wealth fund will provide another 4.5 billion Turkish lira, equivalent to $237 million, to the Islamic banking arm of Ziraat Ziraat Katilim.

Erdogan’s constant policy is to stimulate the economy through cheap loans. However, the devastating earthquake that hit the country last month is forcing Turkish banks to prioritize lending to affected areas. After all, state-owned banks usually offer loans at better terms and at lower interest rates than private banks. However, the devaluation of the Turkish lira has eroded their capital base, forcing the government to provide them with capital for the fourth time since 2019. The Sovereign Wealth Fund provided capital to state-owned banks in three separate periods in 2019, 2020 and 2022.