April 16, 2019 / 9:46 AM / 4 days ago

Turkey's last-resort lending facility tapped, funding costs rise

ISTANBUL, April 16 (Reuters) - An unnamed bank or banks resorted to borrowing at the Turkish central bank’s expensive “lender of last resort” facility on Monday, the first time in 10 months that it had been tapped, raising the average cost of funding in broader money markets.

The central bank said it provided 3 billion liras ($518.68 million) in funding through this liquidity window late on Monday, out of 75 billion lira in total funding it supplied the banking system through normal channels.

A single use of the facility is not concerning, but repeated use could point to liquidity problems and should be monitored, bankers said.

It was the first time the facility was used since the central bank normalised its policy operations in June last year, just before a punishing currency crisis set in. The central bank does not disclose the name of banks tapping the facility, which lenders typically avoid for fear of stigma.

The use of late liquidity funding, priced 3 percentage points above the 24 percent weekly repo policy rate, lifted the average cost of funding by 26 basis points to 24.36 percent.

The facility is an extension of the central bank’s lender-of-last-resort mandate and is an expensive form of overnight funding. The facility also allows banks to balance liquidity allocations, though bankers say this is rare.

Late last month, Turkish banks were under pressure to squeeze lira liquidity on a London swaps market in order to stabilize a selloff in the currency.

One banker said the facility may have been used because of a trade-logging error noticed too late to be funded through other venues. “Banks could have tapped funding through a stock exchange or swap facility with qualified collateral. That’s why I’m thinking this was due to a logging issue noticed too late into the day,” said the banker, who requested anonymity. ($1 = 5.7839 liras) (Reporting by Behiye Selin Taner, Nevzat Devranoglu, Can Sezer; Editing by Jonathan Spicer)

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