Istanbul: Some Turkish banks have started to sell project finance loans to foreign lenders, three sources said, to free up cash as they face both higher funding costs and pressure to lend more cheaply from President Tayyip Erdogan. The deals, which could see US and Chinese banks taking over government-backed loans for energy and infrastructure projects, come as Turkey's lenders are also being squeezed by a rise in bad loans, reflecting the economic impact of a weakening lira and double-digit inflation. Domestic banks have played a pivotal role in Turkey's breakneck growth, helping finance some $89 billion in projects, including the big-ticket bridges, ports and railroads that have epitomised a construction boom under Erdogan's decade and a half in power. But banks are now caught between his demands for more cheap credit and tightening by the central bank. "These loans sales are aimed at three things: creating liquidity, freeing up the balance sheet and providing cheaper resources to enter new lending projects," one source said, declining to be identified because the information has not been made public. Garanti Bank, the Turkish arm of Spain's BBVA has so far sold $250 million worth of loans for as many as 10 projects in infrastructure, energy and healthcare, one of the sources told Reuters. Chinese and American banks are among the buyers, the source said. State-owned Halkbank is also in talks to sell some of its project finance loans, two of the sources said. In a statement, Garanti Vice President Ebru Edin said the bank formed a team two years ago to participate in the loan sales market, with the aim of managing asset quality, diversifying projects and generating additional income. "We think the deepening of this market is important. Through these trades, we see that foreign banks and funds have appetite for these projects and loans," Edin said, adding that such appetite was a "positive development". Halkbank declined to comment. Garanti had around $12.6 billion in project finance loans, while Halkbank has around $7.7 billion in project finance and structured loans, according to their 2017 annual reports. Erdogan, a self-described "enemy of interest rates", wants to keep cheap credit flowing, particularly to the construction sector, to stoke economic growth. His comments have undermined investor confidence in the central bank and sent the lira down by a fifth this year. The central bank has responded by raising interest rates by 5 percentage points since April, driving up the cost of bank funding to 17.75 per cent. The loan sales were largely motivated by a desire to secure funds more cheaply, one of the sources said. "This doesn't mean a deterioration in the banks' finances," the source said. "Banks are just looking for cheaper financing. The fact that foreign banks are interested shows the solidity of the projects, as well as the strength and orderliness of cash flow." The lira sell-off has also meant Turkey's banks are seeing more loans go bad as borrowers struggle to pay off euro- and dollar-denominated debt. For years, Turkish companies borrowed in hard currency, drawn by lower interest rates, but the lira crisis has made it more expensive to repay that. Ratings agency Moody's has said it expected problem loans to increase to well above 4 per cent in the next 12-18 months, from 2.9 per cent from May, which for banks, is costly. As of May, Turkish companies had $222.8 billion in long-term loans from abroad, almost all of that in dollars or euros, central bank data shows. Fixed-line operator Turk Telekom this month became the latest company to highlight the effect of the falling lira, reporting a quarterly net loss of $184 million, hit by the cost of servicing its foreign-currency debt. Yildiz Holding, the owner of global food brands including Godiva chocolate and McVitie's biscuits, signed a deal with its banks to refinance $5.5 billion in debt in May.