Turkish deposit rates to rise further with new cenbank steps -bankers

Turkiye Is Bankasi AS

22/11/2023 12:07

By Nevzat Devranoglu and Ebru Tuncay
       ISTANBUL, Nov 22 (Reuters) - Turkish banks' deposit
rates, already above 45%, are expected to continue rising for
the remainder of 2023 as the central bank takes additional steps
to tighten liquidity and lenders spruce up their year-end
balance sheets.
    Central bank data shows the average return on 3-month lira
deposits rose to near 46% by Nov. 10 from 15.5% at the end of
2022. Isbank  ISCTR.IS  CEO Hakan Aran said on Wednesday the
3-month deposit rate was now above 50%.
    Since Turkish President Tayyip Erdogan was re-elected in May
the central bank has withdrawn some 1 trillion lira ($34.9
billion) of liquidity from the market, with the government
moving towards greater economic orthodoxy in a policy U-turn. 
    Former Wall Street banker Hafize Gaye Erkan, who was
appointed central bank governor in June, has overseen 2,650
basis-points of tightening with another rate rise expected on
Thursday.
    The bank's previous policy of cutting interest rates despite
high inflation triggered a currency crisis in 2021, after which
the government introduced a scheme that protects lira deposits
from forex depreciation.
    Excluding the KKM scheme, the share of lira deposits in the
banking system has risen 7 percentage points in the last three
months to above 38% amid government efforts to reduce
dollarisation.
    However, this in turn has increased lira liquidity which at
times weakens the rising trend in deposit rates, requiring the
central bank (CBRT) to step in.
    "There is a possibility of excess liquidity in the interbank
repo market again because of CBRT foreign exchange purchases,"
QNB Finansbank said, pointing also to increased swap funding and
a decrease in Treasury lira deposits at the central bank.
    "In order to balance this, additional liquidity measures may
be taken at the MPC meeting," the QNB report said, referring to
the central bank's monetary policy committee meeting on
Thursday.
    The central bank's current funding structure consists of
only 30 billion lira in open market transactions in lira, with
the remainder of the 1.7 trillion lira funding consisting of
swap transactions in foreign currency.
    The central bank has withdrawn 1 trillion lira from the
market since the May elections by increasing banks' required
reserves and is expected to continue with such steps.
    Deposit rates are also expected to rise as a result of the
central bank's interest rate hikes, with its policy rate
currently standing at 35%, up from 8.5% in May.
    Banks' efforts to boost the appearance of their balance
sheets at year-end are another factor expected to push deposit
rates higher.
    "As the end of the year approaches, balance sheet window
dressing will also be effective. Therefore, deposit interest
rates may go even higher," one banker said.
($1 = 28.6545 liras)

 (Reporting by Nevzat Devranoglu and Ebru Tuncay;
Writing by Daren Butler;
Editing by Kirsten Donovan)
 ((daren.butler@tr.com; +90-212-350 7053; Reuters Messaging:
daren.butler.thomsonreuters.com@reuters.net))