Turkey revises banks’ reserve requirements to control loan growth

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Turkey’s central bank has revised some rules on banks’ required reserves in a bid to curb rising lending and encourage the conversion of foreign currency into local currency, according to Bloomberg.

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The monetary authority has said that commercial lending in cash by banks in local currency – excluding those involving small and medium-sized enterprises, as well as export and agricultural loans – will be subject to reserve requirements.

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Commercial loans extended for four weeks from April 1 will be subject to a 10% reserve requirement, the central bank said in a statement on Saturday.

It also increased the reserve requirements for personal accounts to lenders who did not achieve the goal of converting foreign currency accounts into pounds. The monetary authority increased the rate for foreign currency deposits by 500 basis points for banks with a conversion rate of less than 5% and by 300 basis points for those with a rate of between 5% and 10%.

The changes will take effect from the calculation date of May 27, while the retention period will begin on June 10, it is reported.

The revision of reserve requirements came after the central bank’s reference rate was kept at 14% for the fourth consecutive month, despite the fact that inflation exceeded 60%. Instead of adding to Turkey’s regulatory interest rate, the authorities are relying more on other policies that could bring more hard currency and boost central bank reserves.

The deepest trade imbalances and the most negative borrowing costs in the world, when adjusted for prices, have made the $ 800 billion economy increasingly vulnerable in a time of growing global tightening, led by the US Federal Reserve.

The Monetary Policy Committee said in a text of its April interest rate decision that it weighed on the prospect of increasing long-term investment lending in the face of the need to keep the current account balance under control. “In this context, the commission has decided to strengthen the overall macroprudential policy,” the bank said, signaling a possible move on reserve requirements.

The choice of unorthodox policies has limited the central bank’s funds, although so far this year. The country’s gross reserves, excluding gold reserves, amounted to about $ 69 billion in the week ended April 15, down about 5% from the end of 2021.

Other points in the central bank’s decision on required reserves include:

-For banks with a loan growth rate of more than 20% on May 31, compared to December 31, 2021, the difference between the outstanding balances of their loans on those dates will be subject to mandatory reserves of 20% for a period of six months, refers.
“The RRRs of the finance companies, which were 0%, will now be set at the same level as the banks and their liabilities to domestic lenders have been included in the scope of the required reserves,” the central bank said.

Source: Capital

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