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Turkey Makes Adjustments to Encourage Shift From FX-Protected Deposit Accounts

TURKEY
  • According to a decree published in the official gazette, commercial banks whose clients don’t convert a certain ratio of their KKM deposits to regular lira accounts will have to purchase additional government bonds. This is the first step of Turkey weaning individuals off KKM accounts which protect savers from lira depreciation. Ekonomi say that the changes are anticipated to increase lira deposit rates and decrease bond yields in the initial phase.
  • The target set for the banks is a conversion rate of at least 50% of deposits to be in regular lira accounts and at least 5% for those converted to liras from foreign currencies. The objective is “to contribute to strengthening macro financial stability by supporting Turkish lira time deposits,” the central bank said in a statement on Sunday. It pledged to continue rolling out similar steps.
  • Introduced in December 2021, the KKM scheme has prevented a further slide of the lira amid an unorthodox approach to monetary policy. KKM accounts currently total at roughly TRY3.4trln ($125bln), more than 28% of all bank deposits.
  • The central bank also raised the reserve requirement ratios for FX deposits, which will force lenders to park more foreign currency at the regulator, according to a separate decree cited by Bloomberg. The reserve ratio for FX accounts with maturities of up to a month was raised to 29% from 25%, while the ratio for accounts with maturities of as long as a year was set at 25%.
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