NEWS Finance        25/09/2020

BDDK raises banks' forex transaction limits

The Banking Regulation and Supervision Agency (BDDK), Turkey’s banking watchdog, in a move to allow increased access to the market and please local and foreign markets, has raised the limits of currency swaps and other derivative transactions that lenders execute with non-residents when receiving and paying with Turkish liras at the maturity date. The move came following the Turkish Central Bank’s raising of its policy interest rate by 200 basis points yesterday September 24th. Both moves aim to support the Turkish lira which has come under adverse pressure in recent weeks

 

BDDK’s revision increases the swap limit of Turkish banks from 1% to 10% of their equity when they buy Turkish Lira. The limit of banks for selling Turkish liras was also increased to 2% for transactions due in seven days, 5% for those due in 30 days, and 20% for those due within a year.

 

On the news of the Central Bank’s interest hike and the BDDK’s swap limit relaxation, the Turkish Lira, which was trading at around TL 7.70 to the US dollar, appreciated to TL 7.52, but has since fallen back to TL 7.65.

 

The BDDK issued the following press release regarding its raising of the limits of currency swaps and other derivative transactions that lenders execute with non-residents:

 

PRESS RELEASE    25/09/2020

 

As it was stated on the press release dated 12/04/2020, the total notional amount of banks’ currency swaps, forwards, options and other similar derivative transactions with non-residents, excluding the transactions with their non-resident financial subsidiaries and affiliates which are subject to consolidation,

 

** Where banks receive TRY at the maturity date(total amount of wrong-way derivatives transactions), have been limited not to exceed 1% of the bank’s most recently calculated regulatory capital, and

 

** Where banks pay TRY and receive FX in exchange at the maturity date (total amount of right-way derivatives transactions), have been limited not to exceed

o 1% of the bank’s most recently calculated regulatory capital for the transactions with the remaining maturity of seven days or less,

o 2% of the bank’s most recently calculated regulatory capital for the transactions with the remaining maturity of thirty days or less, and

o 10% of the bank’s most recently calculated regulatory capital for the transactions with the remaining maturity of one year or less.

 

These ratios, should have been calculated daily on solo and consolidated basis, options should have been taken into account with their delta equivalence in the calculation and derivative transactions whose effective date is after the transaction date should have been considered based on their effective date in the calculation and in this regard, unless current excess is eliminated, no further transactions of these types should have been executed within the maturity ranges with limit violations.

 

Upon BRSA Board decision no 9169 dated 25/09/2020, the above-mentioned ratios, should be applied as

 

** 10% for the aforementioned transactions where banks receive TRY at the maturity date (wrong-way transactions), and

** 2% where banks pay TRY and receive FX in exchange for the aforementioned transactions (right-way transactions) with the remaining maturity of seven days or less,

** 5% where banks pay TRY and receive FX in exchange for the aforementioned transactions (right-way transactions) with the remaining maturity of thirty days or less,

** 20% where banks pay TRY and receive FX in exchange for the aforementioned transactions (right-way transactions) with the remaining maturity of one year or less.”

 



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