July 17, 2019 / 8:54 PM / 4 months ago

Turkish parliament passes law on central bank legal reserves -state news agency

ISTANBUL, July 17 (Reuters) - Turkey’s parliament on Wednesday ratified an economy law including amendments to allocation of central bank legal reserves and debt restructurings, state-owned Anadolu news agency said.

The law says 10% instead of previous 20% of central bank profits will be set aside as legal reserves, while the accumulated amount from previous years will be transferred to the Treasury, Anadolu said.

The amendment was aimed at boosting a deteriorating budget. The deficit was 78.58 billion lira ($13.82 billion) in the first six months of the year. The government’s forecast for the 2019 year-end deficit is 80.6 billion lira.

The legal reserves, which are separate from the central bank’s foreign exchange reserves, are what the central bank sets aside from profits by law to be used in extraordinary circumstances.

The law also includes amendments to the required reserves, Anadolu said, adding that the central bank will now take into account the on and off balance sheet items of banks and other financial institutions when calculating required reserves.

The ratified law includes changes in debt restructuring, Anadolu said. Corporate loans could be restructured partially or as a whole by the lenders if the firms are evaluated to be capable to pay back the debt.

Turkey’s large construction and energy sectors, which had for years indulged in cheap foreign credit, continue to struggle to service billions of dollars of debt after sharp declines in the lira last year.

In April, the government announced a plan to repackage problem loans to a fund to free up banking resources as well as supporting industries that are burdened by the slowing economy.

However, efforts to clean up Turkey’s bad debt have stalled after bankers rejected or put on hold initial plans, according to people familiar with the matter.

Turkey also extended the wealth amnesty measures for assets brought into the country from abroad until the end of this year with the law, Anadolu said. ($1 = 5.6842 Turkish lira) (Writing by Ezgi Erkoyun; editing by Grant McCool)

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