Türkiye’s central bank has announced that lenders will now be mandated to convert 10% of their foreign currency deposits into Turkish lira or increase their holdings of government bonds equivalent to the amount they failed to convert, according to the Official Gazette.
This part of the regulation will be effective from May 26 until July 28, the Official Gazette showed on Wednesday. After that, until the end of the year, banks whose conversion rate remains below 30% will have to hold more government bonds.
The regulations will not be applied to some banks whose foreign exchange deposits are below a level determined by the central bank. Bankers said the limit would be TL 1 billion ($51.27 million).
Separately, the monetary authority has also reportedly expanded its facility, requiring banks to maintain securities corresponding to loan growth to cover consumer and some other commercial loans.
If such loans increase by over 3%, several securities equivalent to the loans exceeding this growth rate will be blocked for a year, according to the letter dated May 15, sent to banks and reported by Reuters on Tuesday.
“Due to these regulations by the central bank, there will be some decline in consumer loans. The reason for that is that now there is a requirement to buy bonds if the loans are larger than a certain amount,” one banker said, speaking anonymously.
The central bank also required banks to hold 30% of securities for cash withdrawals on credit cards and jewelry expenses, effective for payments as of May 16.
Demand for foreign exchange and gold rose to record-high levels before Türkiye’s presidential and parliamentary elections on Sunday. Such credits are one of the leading financing tools for residents.
Cash withdrawals on credit cards and deferred cash payments saw the highest individual demand ahead of the elections because they offer the lowest borrowing cost at 1.36%.
Banks have said they began to decrease such loans, with a relatively low-interest rate of 20%, before the central bank’s decision. In addition, some banks reduced the maximum amount of cash withdrawals on credit cards, and many dropped the maximum deferral to six months from 12 months.
