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Legal Alerts

21/07/2020

The CBRT Increased Foreign Currency Reserve Requirements

Legal Alerts
Banking & Finance
Financial Institutions

Recent Development

The Central Bank of the Republic of Turkey (the “CBRT”) amended Communiqué No. 2013/15 on Mandatory Reserves (the “Amendment“).

What’s New?

Previously, the CBRT had taken many steps, including but not limited to reserve requirements, to combat the impact on the economy of the COVID-19 pandemic.

This time, the CBRT adjusted the reserve requirements in accordance with the normalization process.
Pursuant to the Amendment, reserve requirement ratios have been increased by 300 basis points in all foreign currency liabilities for all banks.

As of July 10, 2020, the following foreign currency reserve requirement ratios are applicable to banks that are not eligible to benefit from reserve requirement incentives:

Deposits and participation funds (except offshore bank deposits and participation funds)
Previous ratioCurrent ratio
a) without a term, at notice or with a term of up to one month, three months, six months and one year19%22%
b) with a one-year or longer term15%18%
Borrowers’ funds19%22%
 

Other obligations (including offshore bank deposits and participation funds)

Previous ratioCurrent ratio
a) with a term of up to one year (including one year)21%24%
b) with a term of up to two years (including two years)16%19%
c) with a term of up to three years (including three years)11%14%
d) with a term of up to five years (including five years)7%10%
e) with a term longer than five years5%8%

 

As of July 10, 2020, the following foreign currency reserve requirement ratios are applicable to banks that are eligible to benefit from reserve requirement incentives:

Deposits and participation funds (except offshore bank deposits and participation funds)
Previous ratioCurrent ratio
a) without a term, at notice or with a term of up to one month, three months, six months and one year12%15%
b) with a one-year or longer term8%11%
Borrowers’ funds12%15%
 

Other obligations (including offshore bank deposits and participation funds)

Previous ratioCurrent ratio
a) with a term of up to one year (including one year)16%19%
b) with a term of up to two years (including two years)11%14%
c) with a term of up to three years (including three years)6%9%
d) with a term of up to five years (including five years)2%5%
e) with a term longer than five years0%3%

Conclusion

Banks are retrospectively subject to amended reserve requirement ratios as of July 10, 2020.

With the Amendment, the CBRT aims to support financial stability. As a result, approximately USD 9.2 billion of foreign currency and gold liquidity is expected to be withdrawn from the market.