Türkiye’s central bank took fresh steps on Tuesday to boost Turkish lira deposits, raising the ratio of bonds that banks must hold for foreign exchange deposits and requiring those with less than 50% lira deposits to hold even more bonds from 2023.
The Central Bank of the Republic of Türkiye (CBRT) raised the securities maintenance ratio required for foreign exchange (forex) deposits to 5% from 3% of deposits as of this month, and said further steps would be taken this year and next as part of its “liraization strategy.”
In 2023, lenders with less than half of deposits in lira will need to hold an additional seven percentage points of bonds, marking the latest regulatory change meant to backstop policy of interest rate cuts.
Yields on the treasury’s 10-year benchmark bond fell to 11.32% in response, from 13.12% on Monday. The lira was little changed at 18.5890 against the dollar.
“The 7 percentage points of additional bonds requirement is high, so it appears the central bank wants... banks to have at least 50% and if possible 60% of deposits in lira next year,” said a forex dealer at one bank.
Bankers told Reuters the new rules would require lenders to hold an additional TL 80-TL 100 billion ($4.3-5.4 billion) of bonds.
The bankers, requesting anonymity, also said individuals’ lira deposits were now 46% of total deposits, while commercial entities lira deposits were 47%.
Also from 2023, banks whose lira deposits are between 50-60% of the total must hold an additional two percentage points of bonds beyond the 5% set for this year, the central bank said.
The monetary authority has urged forex conversions with a series of rules beginning in December 2021, when the national currency depreciated sharply, after which lira deposits rose.
“The practice has strengthened banks’ balance sheets and supported financial stability,” the central bank said.
By the beginning of 2023, the level of securities banks must hold will be based on lira-deposit share targets.
Previously, the central bank required banks to hold an additional 7% of securities if they had a conversion rate from forex to lira of less than 5% of their deposits.
The Banking Regulation and Supervision Agency (BDDK) data shows individuals’ forex deposits amounted to TL 2.69 trillion ($144.74 billion) as of Oct. 7, while lira deposits totaled TL 2.02 billion.
In the same period, forex deposits of commercial entities were TL 1.61 trillion while lira deposits were TL 1.27 trillion.
Türkiye’s central bank is expected to cut its key policy rate again this week, according to surveys, after President Recep Tayyip Erdoğan called for more easing each month and said rates should be single digits by year-end.
The CBRT surprised markets as it cut its benchmark one-week repo rate by 200 basis points to 12% in the last two months.
The bank had embarked on a rate-cutting cycle more than a year ago as it lowered its one-week repo rate by 500 basis points to 14%, where it had left it steady in the first seven months of this year.
Monetary easing is part of the government’s new economic program that seeks to boost growth, investments, employment and exports by lowering borrowing costs, especially for exporters and small and medium-sized companies.
