Turkey loan guarantee fund a boon for banks' loan growth, earnings

May 11 (Reuters) - A Turkish government fund guaranteeing loans to smaller businesses has proven a windfall for the country’s banks, helping them to the strongest first-quarter loan growth in six years and sharply higher quarterly profits.

Turkey has been trying to shore up an economy battered by slowing growth and rising inflation after last year’s failed coup. President Tayyip Erdogan, who has declared himself an “enemy” of interests rates, wants cheap credit to spur lending and consumption.

In March the government increased the size of its Credit Guarantee Fund, which guarantees loans to small and medium-sized enterprises that could not otherwise get credit, by more than ten fold to 250 billion lira ($70 billion).

Loan growth surged 21 percent to 1.83 trillion lira ($510.37 billion) in March, regulatory data showed. In January-March, loan growth rose by 7 percent, marking the strongest first-quarter in six years.

As a result, profits at major listed lenders Isbank , Garanti, Akbank, Halkbank , and Yapi Kredi jumped 55 percent on average.

Bank shares have risen 25 percent so far this year. They are at their highest in more than two years and some analysts think they may have more room to run.

"Turkish banks' earnings growth momentum has been overlooked by the market," Credit Suisse said in a note last month, adding that banks' price-to-earnings ratio were coming off 2009 lows and appeared to be at attractive valuations. (

The Credit Guarantee Fund appears to be supporting earnings, Credit Suisse said.

Net profit at all Turkish banks rose 65 percent in the first quarter to 13.5 billion lira, data from Turkey’s banking regulator BDDK showed. ($1 = 3.5856 liras)

Reporting by Muhammed Bakir Dursun and Ezgi Erkoyun in Gdynia, Writing by Thyagaraju Adinarayan; Editing by David Dolan