Turkey to abolish asset ratio requirement for banks; shares rise

The Turkish banking regulator said it will abolish required asset ratios for banks, a measure that had coerced financial institutions into increasing lending and buying more Treasury bonds.

The ratio requirements will end on Dec, 31, the regulator said in a statement on Tuesday.

Turkey’s main BIST Banks index, which comprises the shares of the country’s largest banks, rose by 2.8 percent to 1,484.54 points in Istanbul trading.

Turkey introduced the ratio requirement in April as it sought to stimulate lending to consumers and businesses during the COVID-19 pandemic and to help the Treasury and Finance Ministry fund a widening budget deficit. The ratio is calculated by comparing deposits to loans, bonds and swaps.

The abolition of the ratio is at least as important as the central bank's decision to raise its benchmark interest rate to 15 percent from 10.25 percent last week and to simplify monetary policy, said Hakan Kara, the bank's former chief economist. Interest rates on lira deposits will now increase towards the benchmark rate at a faster pace, he said.

The regulator had cut required asset ratios for banks to 90 percent from 95 percent on Oct. 1. It said Tuesday’s decision was a further step in a normalisation process for the industry and economy.

Higher interest rates on deposits could help curb dollarisation of the economy and support the lira, which has dropped to successive record lows against the dollar this year. Foreign currency deposits now constitute about 57 percent of all bank deposits in Turkey compared with 50 percent in July.

(Story was updated with economist comment in the fifth paragraph.)

https://www.bddk.org.tr/ContentBddk/dokuman/duyuru_0872_01.pdf