Turkey’s Isbank denies boosting lira deposits to more than 50 percent

Isbank, one of Turkey's largest banks said it will not comply with central bank’s recent demand on commercial lenders of making up more than half of their total deposits in Turkish Lira.

“We don’t have a target of boosting our lira deposit to 50 percent,” Isbank’s general manager Hakan Aran said.

Opposing compulsory methods for increasing lira deposits, Aran said they need to respect customer preferences, Ekonomim news website reported on Monday.

“In that respect, we maintain our job technically, bearing whatever its consequences are,” Aran said.

Aran also emphasized that this target is not beneficial for the country’s economy.

In October, Turkey’s central bank increased the ratio of bonds that banks must hold for forex deposits, requiring lenders with less than 50 percent lira deposits to hold an additional seven percentage points of bonds, as part of a goal to change the course of the country’s highly dollarized banking system.

At the start of the year, lira deposits accounted for 35 percent of total deposits in Turkey’s banking system. The ratio rose to 46 percent as of Oct.7, the Central Bank Governor Sahap Kavcioglu announced last month.

Acting on the orders of Turkish President Recep Tayyip Erdogan who insists on low interest rates, the central bank adopted a rate-cutting policy despite increasing prices. Since last autumn, the central bank has lowered the benchmark one-week repo rate from 19 percent to 9 percent.

Erdogan says rate hikes are against his Islamic beliefs and insists that low interest rates lead to lower inflation, an opinion that jars with conventional economic theory that says higher interest rates slow inflation.

Turkey’s inflation rate accelerated to 85.5 percent last month from 83.5 percent in September, extending to a new 24-year high.