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) | ||
| Maturity | New Ratios | Previous Ratios |
| Three months or less | 10.5% | 11% |
| Six months or less | 7.5% | 8% |
| Less than one year | 5.5% | 6% |
| One year or more | 10.5% | 11% |
| Borrower Funds of Investment and Development Banks | ||
| Maturity | New Ratios | Previous Ratios |
| All | 10.5% | 11% |
| Non-Core Liabilities (including deposits outside of Turkey) | ||
| Maturity | New Ratios | Previous Ratios |
| One year or less | 10.5% | 11% |
| Three years or less | 7% | 7.5% |
| More than three years | 4% | 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 ROC | Previous ROC |
| USD | ||
| 30% to 35% | 1.7 | 1.6 |
| 35% to 40% | 2.1 | 2.0 |
| 40% to 45% | 2.5 | 2.4 |
| Gold | ||
| Up to 15% | 1.6 | 1.5 |
| 15% to 20% | 1.7 | 1.6 |
| 20% to 25% | 2.1 | 2.0 |
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.
