In a bid to boost trade with Turkey, the Export-Import Bank of China has agreed to provide a three-year loan worth US$300mn to Garanti BBVA.
The deal, which renews a similar agreement struck between the banks in 2016, will see financing provided to Turkish companies for imports from China. The previous loan was also worth US$300mn and had the same tenor, but came to an end last year.
Speaking to GTR, a spokesperson for Garanti BBVA says that there will be no sector-based limitation and all types of companies will be funded, so long as they import from China.
The bank declined to comment on the main sectors that benefitted from the previous loan, but IHS Markit principal economist Andrew Birch tells GTR that around 40% of Turkey’s imports from China are made up of three main categories: televisions; chemical products such as manmade fibres; and machinery and equipment, a lot of which is construction based.
Turkey has been upping its imports from China recently, with World Bank statistics showing that China has become the nation’s biggest import partner over the past few years, moving ahead of Germany and Russia, to make up around 10% of total imports in 2017.
“When we signed the first agreement in 2016, we were the first commercial bank to raise the highest funding amount from China Exim. But following us, there were other Turkish banks that signed agreements with China Exim. It is obvious that China Exim has an interest and support in the Turkish market,” the Garanti BBVA spokesperson says.
Birch attributes this uptick in trade activity with Turkey to a few factors. For one, China’s Belt and Road Initiative, which has seen it provide vast sums of money for infrastructure projects around the world.
But he also says Turkey’s perpetual trade deficit means it relies heavily on imports: “Over the next 10 years, they will still depend a lot on imports for their own produced exports. And so that leaves a lot of opportunities for countries like China and others to continue to import to feed the Turkish production cycle.”
Returning growth in Turkey?
In August-September of 2018 the Turkish economy was plunged into a crisis. The lira lost more than 45% of its value while inflation rose nearly 18%.
Since then the Turkish government has been “aggressively” trying to re-loosen fiscal and monetary policies, and in the third quarter of 2019 the economy even returned to growth.
However, Birch says he doesn’t expect the economy to be “looking up” for the next couple of years.
One main issue is the lack of demand from Europe: “The key export market for Turkey remains the European Union. And the European Union right now is going through a downcycle. And so there’s not a lot of demand for Turkish exports. We see that in industrial production, which is lagging very significantly,” Birch says.
Meanwhile he adds: “A lot of indebted domestic banks and domestic corporates’ capital is being taken up by external repayments that have become more onerous with the now weaker lira.”
“This means that while economic policies might encourage them to spend more to increase activity, they still don’t have the capital to expand activity. Banks don’t have capital to lend and corporates don’t have the capital to invest.”