Turkey: Central Bank warns bankers to abide by monetary rules
Turkey’s central bank warned private banks against actions that it said would lessen the effectiveness of official policies, as the bankers complained more and more about increasing monetary rules.
The rift seemed to deepen as audits by central bank staff found that lenders were offering rates “well above” market averages to lure lira deposits and avoid rules in place, according to a letter it sent to the Banks Association of Turkey that was viewed by Bloomberg on Monday.
The rule referred was regulation on lira-denominated securities that banks are required to hold based on their ratio of lira deposits. The central bank wants lira deposits to make up more than half of total deposits to change Turkey’s historical course as a highly dollarized banking system.
Lira deposits accounted for just 35% of total deposits in the banking system at the start of the year, but that ratio has risen to 46% as of Oct. 7, Governor Sahap Kavcioglu said last week.
Commercial lenders that hold less in lira deposits than required are being forced to buy long-term government debt and park those securities with the monetary authority until maturity. By offering higher-than-usual rates, lenders are trying to circumvent those regulations, which have led them to invest in large amounts of government bonds, according to the letter.
The central bank also said lenders were allowing customers to borrow liras as loans and place them in the FX-indexed savings program. Instead, the bank wants to increase conversion ratios from foreign-currency deposits to the FX-indexed tool to promote wider use of the local currency.
The central bank also reiterated that banks should not carry out significant foreign-exchange transactions with foreign banks in after-market hours. Such transactions, when trading volume is low, can have an outsized impact on the exchange rate.
The central bank warned that the auditors would continue their inspections for actions that go “against the spirit of our bank’s regulations” that fail to support financial stability.