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

Author

Listed:
  • Tanju Capacioglu
  • Hakan Kara

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.

Suggested Citation

  • Tanju Capacioglu & Hakan Kara, 2024. "Taming Corporate Sector Currency Mismatches: Reflections from a Quasi-Natural (Macroprudential) Experiment," Working Papers 2406, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2406
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/en/tcmb+en/main+menu/publications/research/working+paperss/2024/24-06
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    More about this item

    Keywords

    Macroprudential regulation; FX mismatch; Natural hedging; Currency risk; Corporate sector; Banking sector;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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