Turkish Banks: Amendments to the reserve requirement regulation to encourage the new deposit scheme

The Central Bank of Turkey (CBT) announced amendments to the reserve requirement regulation last week to encourage the conversion of FX deposits to TL deposits under the recently announced new deposit scheme. Accordingly: Deposits converted from FX into TL under the new scheme will be exempt from reserve requirements. The CBT will pay 14% commission for twice the maximum reserve requirement rate applied to TL time deposits (currently at 8%; will apply 16% for converted amounts, meaning that the CBT will pay commissions for TL required reserves that do not exist). 1.5% annual fee will be charged over FX required reserves on FX deposits (current FX reserve requirement ratio is 25% for up to one year FX deposits; banks will pay a fee for a quarter of their FX deposits). However, banks will be exempt from this charge if the conversion from FX deposits to TL deposits under the new scheme reaches at least 10% by 21 January and at least 20% by 18 March. The initial market reaction to these amendments was negative last week. They remind investors of the asset ratio regulation introduced (and cancelled) in 2020. Such efforts to shape the balance sheets of banks do not necessarily evolve as targeted. Isbank, Yapi Kredi, Akbank and Garanti (in order) have relatively high shares of FX deposits in total deposits while Halkbank and Vakifbank have relatively low shares. TSKB does not collect deposits due to its business model. We think the current minimum 3 months maturity in the new deposit scheme is an important factor limiting conversion from FX deposits to TL deposits.   Credit Suisse