* Withholding tax on lira deposits cut
* Lira has lost 42 percent against dollar this year
* Central bank deputy governor to leave post, sources say
* Central bank to hold policy meeting on Sept. 13 (Recasts, adds Albayrak, Erdogan and economist)By Daren Butler and Tuvan GumrukcuISTANBUL, Aug 31 (Reuters) - Turkey accused Western creditrating agencies on Friday of deliberately attempting toundermine the banking sector amid attacks on the lira.The scathing comments from President Tayyip Erdogan and hisson-in-law, Finance Minister Berat Albayrak, came after agenciesMoody's and Fitch this week sounded more alarm about the stateof Turkey's banks, citing impact of the currency sell-off.The lira has lost 42 percent of its valueagainst the dollar this year, deepening concern about lenders'asset quality and their ability to ride out the crisis. Foryears, Turkish firms have borrowed in dollars and euros, drawnby lower interest rates.
The currency slump has driven up the cost of servicing thatdebt and investors fear that banks could be hit by a wave ofrising bad debt. Around $179 billion of Turkey's external debtmatures in the year to July 2019, according to JPMorganestimates. Most of that - around $146 billion - is owed by theprivate sector. "These rating agencies - in a way that has no precedent inthe world - right after every forex attack they have weighed inand made intensive efforts to create a pessimistic view of ourbanks," Albayrak said in a speech in Istanbul. He said banks'balance sheets were stronger than most of their global rivals.Erdogan, characteristically, was more scathing.
"If they have their dollars, we have our God. They can'ttopple Turkey with dollars," he told supporters in thenorthwestern province of Balikesir.
"Put this aside, leave those impostors, those racketeers.They have said a lot of things about us."
Erdogan said Turkey was taking steps to help the currency,and was seeing concrete results. Earlier on Friday thegovernment said it would lower the level of withholding tax onlira bank deposits, while raising it on foreign currencydeposits. The lira firmed some 1 percent after the move.It was at 6.5900 at 1400 GMT, rebounding strongly from anovernight low of 6.8994.
CHRISTIAN PASTORErdogan has repeatedly called on Turks to sell their dollarsand euros to buy lira. Friday's move by the government was aimedat making it less attractive for investors to holdforeign-currency deposits, although it was unclear if it wouldwork."A rise of 1-2 points on the tax on foreign deposits wouldnot be very detrimental," said Cem Baslevent, an economicsprofessor at Istanbul Bilgi University. "The reason people holdforeign currency is not because of the interest rate return, butthe expectation the exchange rate will rise."Data released by the central bank on Friday showed thatforeign exchange held by Turks fell to $152.8 billion as ofAug.24, from $159.9 billion on Aug.10 - suggesting people wereheeding Erdogan's call, or cashing in from the crisis.Initially sparked by worries about Erdogan's influence onthe central bank, the lira crisis has worsened over a rift withWashington over an American evangelical Christian pastordetained in Turkey on terrorism charges.Erdogan, a self-described "enemy of interest rates", wantsto see lower borrowing costs to keep credit flowing,particularly to the construction sector. Investors, who see theeconomy heading for a hard landing, want to see decisiveinterest rate hikes.Other data showed that the central bank's gross foreignexchange reserves fell to $72.9 billion as of Aug.20, from $79.1billion on Aug.10.
EYES ON CENTRAL BANKThe central bank is due to hold its next rate-settingmeeting on Sept. 13. Sources told Reuters on Thursday that oneof its deputy governors, Erkan Kilimci, is leaving the bank."Kilimci had no disagreements with the central bankadministration on any issues - including interest rates. Hisexpertise will be employed at another public position, that'sall," one senior source told Reuters.The central bank and the banking watchdog have taken aseries of measures to try to prop up the currency since itsrecent slide began, although it has not raised interest ratessince early June.
It has been under pressure from Erdogan not to increaseinterest rates, despite high inflation and the lira's slide.On Friday the bank said it would allow the sale ofnon-deliverable forward (NDF) contracts through the Istanbulstock exchange's derivatives market, widening the availabilityof the currency contracts. The main BIST 100 share index dipped 0.44 percenton Friday to 92,867 points. (Additional reporting by Behiye Selin Taner and Humeyra PamukWriting by David Dolan; Editing by Andrei Khalip)
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