The Turkish Central Bank has revised its regulations on reserve requirements in line with its new main objective of price stability through monetary tightening. The Bank has now applied the same reserve requirement ratios and remuneration rates to all banks, while also overturning the earlier practice of linking reserve requirement ratios and remuneration rates to real loan growth rates.
The Bank has hereby introduced a remuneration rate of 12% for all banks' Turkish lira-denominated required reserves, and has also decreased the commission rate applied to reserve requirements maintained against US dollar-denominated deposit/participation fund liabilities to 0% from 1.25%.
The Bank has changed the reserve requirement ratios for Turkish lira and foreign exchange (FX) deposits. On the Turkish lira side, it raised reserve requirement rates to 6%, from the previous 4%, for demand and one to three-month notice deposits. For notice deposits of up to six months, reserve requirements will be at 4%, while they will be at 2% for notice deposits of up to a year and 1% for those over one year.
For borrower funds of investment banks, the rate will be 6%, up from 4%; 3.5% for notice deposits of up to a year, 1% for those up to three years and 1% for those longer than three years.
Meanwhile, the reserve requirement rate will be 19% for demand and one to six-month notice FX deposits and 13% for such deposits with notice intervals longer than one year.
Precious metal deposits accounts' reserve requirement rates were raised to 22% from 17% for demand and notice deposits of up to one year and to 18% from the previous 13% for those longer than a year.
For borrower FX funds of investment banks, rates will be 21% for notice deposits of up to one year, 16% for those up to two years, 11% for up to three years, 7% for up to five years and 5% for longer.
The Turkish Central Bank’s press release of 27.11.2020 regarding its revised reserve requirements is as follows:
“In line with its main objective of price stability, the Central Bank of the Republic of Turkey revised the reserve requirement regulation to improve the effectiveness of monetary transmission mechanism.
To enhance transparency, predictability and effectiveness of the monetary policy, with the Monetary Policy Committee Decision of 19 November 2020, the operational framework of the liquidity management was changed to provide all short-term funding through the policy rate, and the monetary policy was tightened through an increase in the policy rate in line with the main objective of price stability.
This time, the CBRT decided to simplify the reserve requirement regulation to increase the effectiveness of the monetary transmission mechanism. Accordingly, it has been decided;
* to repeal the reserve requirement practice that links the reserve requirement ratios and remuneration rates to real loan growth rates,
** to apply the same reserve requirement ratios and remuneration rates to all banks,
*** accordingly, to set Turkish lira and FX reserve requirement ratios as follows
Turkish Lira Reserve Requirement Ratios |
|
|
Deposits and Participation Funds (Excluding deposits/participation funds obtained from banks abroad) |
|
|
- Demand, notice, up to (and including) 1 and 3-month |
6% |
|
- Up to (and including) 6-month maturity |
4% |
|
- Up to 1-year maturity |
2% |
|
- 1-year and longer maturity |
1% |
|
Borrower Funds of Investment Banks |
6% |
|
Other Liabilities (Including deposits/participation funds obtained from banks abroad) |
|
|
- Up to 1-year maturity (including 1-year) |
6% |
|
- Up to 3-year maturity (including 3-year) |
3,5% |
|
- Longer than 3-year maturity |
1% |
FX Reserve Requirement Ratios |
|
|
Deposits and Participation Funds (Excluding deposits/participation funds obtained from banks abroad and precious metal deposit accounts) |
|
|
- Demand, notice, up to (and including) 1 - 3 - 6 months maturities and up to 1-year maturity |
19% |
|
- 1-year and longer than 1-year maturity |
13% |
|
Precious Metal Deposit Accounts |
|
|
- Demand, notice, up to (and including) 1 - 3 - 6 months maturities and up to 1-year maturity |
22% |
|
- 1-year and longer than 1-year maturity |
18% |
|
Borrower Funds of Investment Banks |
19% |
|
Other Liabilities (Including deposits/participation funds obtained from banks abroad) |
|
|
- Up to (and including) 1-year maturity |
21% |
|
- Up to (and including) 2-year maturity |
16% |
|
- Up to (and including) 3-year maturity |
11% |
|
- Up to (and including) 5-year maturity |
7% |
|
- Longer than 5-year maturity |
5% |
iv. to apply remuneration rate of 12% to the TL-denominated required reserves of all banks ,
v. and to decrease the commission rate applied to the reserve requirements maintained against USD-denominated deposit / participation fund liabilities to 0% from 1.25%.
As a result of these changes, required reserves of the banking system is expected to increase by approximately TRY 12.3 billion and USD 5.7 billion in FX and gold, should the reserve option utilization rates remain unchanged.
On the other hand, intermediation costs will decrease as a result of the changes in remuneration and commission rates.
Changes in remuneration and commission rates will be effective from the maintenance period starting on 27 November 2020, while the changes in Turkish lira and FX reserve requirement ratios will take effect from the calculation date of 11 December 2020 with the maintenance period starting on 25 December 2020.”