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Legal Alerts

08/09/2016

Turkish Central Bank Decreases Reserve Ratio Requirements Further

Legal Alerts
Banking & Finance
General

Recent development

Committed to providing the markets with liquidity following in the wake of recent political and economic developments in Turkey, the Central Bank of Turkey (the “Central Bank“) further reduced Turkish banks’ reserve requirements for Turkish lira liabilities by 50 basis points on September 7, 2016. This follows another reduction of TRY reserve requirements by 50 points on August 10, 2016 (please click here).

New TRY reserve requirements

The Central Bank has reduced the reserve requirement ratios for banks’ Turkish Lira (“TRY“) liabilities by 50 basis points for each maturity bracket:

 

Core Liabilities (excluding deposits outside of Turkey)
MaturityNew RatiosPrevious Ratios
Three months or less10.5%11%
Six months or less7.5%8%
Less than one year5.5%6%
One year or more10.5%11%
Borrower Funds of Investment and Development Banks
MaturityNew RatiosPrevious Ratios
All10.5%11%
Non-Core Liabilities (including deposits outside of Turkey)
MaturityNew RatiosPrevious Ratios
One year or less10.5%11%
Three years or less7%7.5%
More than three years4%4.5%

 

Since 2011, the Central Bank has applied an “optional reserve mechanism” that allows banks to hold certain portions of their TRY required reserves in USD and/or gold reserves (currently up to 60% for USD and 30% for gold). The amount of USD/gold corresponding to 1 TRY is determined though the reserve option coefficient (“ROC“), which is applied gradually depending on the ratio of the use of USD and/or gold for TRY reserves. Accordingly, if the ROC is determined to be 2, the banks must hold USD and/or gold equal to 2 TRY for 1 TRY in their required reserves. The Central Bank increased the ROC for certain brackets, as shown below:

Banks’ USD or Gold Held for TRY reserves (%)New ROCPrevious ROC
USD
30% to 35%1.71.6
35% to 40%2.12.0
40% to 45%2.52.4
Gold
Up to 15%1.61.5
15% to 20%1.71.6
20% to 25%2.12.0

Conclusion

In the aftermath of the attempted putsch, the Central Bank has continued its measures to fortify the financial system by providing unlimited liquidity to banks, as well as adjusting TRY reserve ratio requirements and the ROCs. The Central Bank estimates that it will make TRY 1.2 billion, as well as USD 670 million, worth of liquidity available through these changes, assuming that the reserve options are exercised at their current levels.