Turkey’s banking industry could be damaged unless the central bank reverses last year’s decision to stop paying interest on required reserves, the head of one of the country’s biggest lenders claims.
Suzan Sabanci, chairman of Akbank, told the Financial Times that new rules requiring banks to lodge 15 per cent of short-term lira deposits with the central bank risked fundamentally weakening banks unless they received interest in compensation. “The government is trying to be cautious that the economy doesn’t grow too fast. And I agree with that,” she said. “But we need to be recompensed. They should start paying interest in six months’ time.” Read more
Ankara has sharply raised the proportion of short-term deposits lenders must keep with the central bank, while holding policy rates steady.
Turkey’s reserve requirements differ by maturity of deposit, and the central bank’s strategy has been to tighten requirements for potentially destabilising short-term deposits, while loosening them to encourage long-term deposits. The chart, right, shows how the structure of reserve requirements has changed since the new policy began in December (dark blue line), at which point all ratios were 6 per cent. Read more
Turkey’s central bank stepped in again this week to clear confusion over the effects of its unorthodox monetary policy, after the release of data that appeared to contradict comments made by officials. The trouble was caused by balance of payments data: it showed portfolio inflows of $2.3bn in January, higher than a year earlier and at odds with official claims that some $10bn of “hot money” had left the country since December, when the central bank began “quantitative tightening” to deal with macroeconomic imbalances.
Two clarifications from the central bank have cleared up the discrepancy. The balance of payments data showed foreign investors had sold out of Turkish equities since November, while increasing their exposure to debt instruments. But the figures did not include money market transactions, mainly in the form of swap operations. Here, the central bank said, there had indeed been an outflow of $11.5bn since November. Read more
Loan growth is slowing in Turkey, backing up claims by Turkey’s central bank governor that its unorthodox monetary policy is working.
Data from Turkey’s banking watchdog, BDDK, showed total banking sector loans rose 2.8 per cent to February 18. This equates to about 21 per cent over a year, well within the bank’s target 20-25 per cent loan growth. It also represents a significant drop from the annual rate of 35.6 per cent on the year to February 18. The actual annual volume of banking sector loans to February 18 was 550.3bn lira. Read more
Loan growth is losing pace and $10bn short-term capital has left Turkey since the start of its new interest rate policy in December, central bank governor Durmus Yilmaz said Friday. Despite this, the current account deficit – one of the principal targets of the measures – will continue to rise in the first quarter due to base effects. Mr Yilmaz added he did not foresee a change in policy when his governorship ends in April.
The statements add up to declaration of success – but there was a caveat. Oil prices, driven higher by events in Libya, created a “new situation”, Mr Yilmaz admitted. Turkey’s rate-cutting, reserve-requirement-raising policy has so far been possible thanks to falling inflation and fairly high unemployment. (Rate cuts in an inflationary environment would have been far more dangerous.) If oil prices were to remain high, they would create an inflation risk that might constrain Turkey’s monetary plans. For now, as long as Saudi Arabia and its oil reserves stay out of the current turmoil, many believe the oil price shock will be short-lived.
No reversal in Turkey. The central bank held rates at its latest policy meeting, hinting it would continue with its new monetary policy, data permitting. Since December, the Bank has been cutting rates and raising reserve requirements – a combination that they say has a tightening effect overall. Early indications suggest the policy is working.
The measures taken by the Central Bank since November are reducing macro-financial risks by leading to a more balanced growth path, mainly through a slowdown in import growth… Read more
Early indications suggest Turkey’s unorthodox monetary policy is working: the maturity of deposits held at banks seems to have lengthened since December and consumer credit is falling. With a weakening lira and falling inflation, it is likely the ultimate objective – of reducing the current account deficit – is also being achieved.
So, deposit maturities. I confess I don’t have exact maturity data, but my conclusion is implied by the chart to the right. The chart shows the split of lira-denominated deposits at both private and public banks in Turkey.
The thin yellow strip represents lira deposits by non-residents and since the data do not split them further we shall ignore them for this analysis. The blue area represents “sight” deposits (i.e. like a current account, you can grab your money and run). These, then, have the minimum possible maturity (zero). The red area are “time” deposits, which are placed with the bank for a certain time. They might be a month or ten years, the data do not tell us. But they definitely have a longer maturity than sight deposits. And the proportion of sight deposits has fallen substantially since December, from 15.9 to 14.5 per cent. Read more
Incentive realignment continues at the Central Bank of Turkey. Reserve requirements have been raised as signalled last week – though by more than many will have been expecting.
Turkey is trying to lengthen the maturity of deposits flowing into the country, as it explained at the outset of its new strategy in December: “The fact that maturities of liabilities are shorter than those of assets in the Turkish banking sector exposes the sector to liquidity and interest rate risk, which increases the sensitivity of the banking system to shocks,” it said.
Turkey’s central bank has just cut their benchmark rate 25 basis points, building upon moves last month that cut the same rate 50bp and raised reserve requirements. The two-pronged move was intended to weaken the lira, make exports more attractive and thus reduce the current account deficit – a blight on an otherwise booming economy.
The particular problem with Turkey’s bank reserves is their maturity profile, which is quite short-term, making the country vulnerable to external shocks. Rather than focusing on inflation and growth, a great deal of attention in Ankara must be focused on securing the next slice of funding. Encouraging longer-term maturities is a smart move; financial stability increases in proportion to the average maturity of deposits. Read more
As expected, Turkey’s central bank has cut its key rate as part of a two-pronged strategy to address hot money and inflation. The following information is from the Bank, courtesy of Google translate:
“The bank said the measures, taken in tandem with hikes to the lira required reserve ratio due to be announced on Friday, would not have an expansionary effect on monetary conditions,” reports Reuters. Read more