Turkish lenders are complaining that tough targets imposed by authorities to curb a tool designed to support the lira are putting at risk banking sector profits.
Commercial lenders voiced their misgivings to top officials from Turkey’s central bank in a teleconference on Monday, people familiar with the matter said, asking not to be identified as the meeting wasn’t public.
The monetary authority declined to comment.
Lira Lifeline Became $124 Billion Problem That Haunts Turkey
The meeting follows new rules over the weekend that marked Turkey’s first step away from the so-called foreign exchange-protected accounts, known by the Turkish acronym KKM. Under the mechanism, lira depositors get state-guaranteed compensation for any depreciation that exceeds the interest on the accounts.
Designed as an emergency lira protection plan in the wake of a currency crisis in December 2021, KKM deposits over time grew to $124 billion, accounting for more than a quarter of all deposits held at Turkish banks.
The monetary authority on Sunday ruled that lenders must gradually convince depositors to convert their savings from KKM into regular lira accounts.
But banks told officials during Monday’s call that some of them will almost definitely fail to hit the ambitious conversion targets, in which case they will be required to buy additional amounts of low-yield government debt, the people said.
Winding down the program is key to simplifying Turkey’s monetary policy framework and strengthening the transmission mechanism, central bank officials told lenders on the call, the people said.
The yield on Turkey’s 10-year government debt fell by 95 basis points — the biggest drop in four months — to 21.1% on Monday. Lira bond yields remain far below Turkey’s consumer inflation, which currently stands at just below 50%, as years of regulations saddled banks with government-issued debt.
A newly installed economic administration led by Finance Minister Mehmet Simsek and central bank Governor Hafize Gaye Erkan have pledged to unwind those regulations, but warned the process will be slow and thorny.
