Taming Corporate Sector Currency Mismatches: Reflections from a Quasi-Natural (Macroprudential) Experiment

Tanju Capacioglu and Hakan Kara

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: We analyze the impact of a unique macroprudential regulation, which has been implemented in Türkiye since May 2018. The regulation requires that, for firms holding total FX loans below USD 15 million, FX loans should be capped by their past three years’ FX revenues. The regulation aims to contain corporate FX mismatches through a natural hedging requirement by linking their FX borrowing to FX revenues. Using a rich data set at the firm-bank level and their matched universe, we find that, following the regulation, FX loans of the firms targeted by the regulation (exposed firms) declined more, and non-renewed FX loans were only partly replaced with local currency loans, suggesting imperfect substitution between local currency and FX borrowing. Exposed firms exhibit weaker investment but stronger export growth. The regulation has indirect effects on the composition of bank balance sheets in the form of increased currency swaps and/or reduced external FX borrowing. Overall, our findings suggest that macroprudential tools that directly target corporate balance sheet mismatches can be viable alternatives to lender-based restrictions in mitigating currency risk.

Keywords: Macroprudential regulation; FX mismatch; Natural hedging; Currency risk; Corporate sector; Banking sector (search for similar items in EconPapers)
JEL-codes: F31 F34 G30 G38 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ara, nep-ban, nep-cba and nep-ifn
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.tcmb.gov.tr/wps/wcm/connect/en/tcmb+en ... g+paperss/2024/24-06 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2406

Access Statistics for this paper

More papers in Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey Contact information at EDIRC.
Bibliographic data for series maintained by Sermet Pekin () and Ilker Cakar () and ().