BY ALAATTIN AKTAS
We are in big trouble. Namely, with regards to the FX-protected TRY deposit account (KKM), which was introduced as an invention begrudged by the world. Apart from sources transferred from the budget and the Central Bank (CB) to KKM owners, the actual disaster will emerge when the implementation ends.
KKM is an implementation applied to prevent FX (foreign exchange) rate hikes. This implementation was called ‘liraization,’ along with other steps taken by the government. Although it looks like promoting holding TRY, it has accustomed those who made savings in TRY in the past to the return of FX. ‘Lirazitation’ has turned into ‘dollarization’.
CB Governor Sahap Kavcioglu mentioned the importance of liraization and progress in his article on the CB’s blog. But what will happen when this implementation ends? The total amount in KKM has reached TRY 1.3tr as of September 2, according to the Banking Regulation and Supervision Agency. In particular, real person prefer a 3-month maturity in KKM.
We knew at the beginning how many of these accounts were opened directly in TRY and how many of them were opened through conversion from FX-deposit accounts. Then, the data was not released. But an estimated half of TRY and FX amounts are estimated to be kept in KKM. TRY 60.6bn was paid from the budget as the FX difference and TRY 10.2bn tax was renounced in March-July. KKM’s burden on the budget totaled TRY 70.8bn in five months.
However, this burden will be nothing compared to the destruction that will emerge when implementation ends. That destruction will be revealed reveal after we learn where the money in the accounts went. Let’s assume that the amount will total TRY 1.3tr in KKM, as it was on September 2.
Half of this amount, TRY 650bn, came from FX. Real and legal persons, which have made savings in FX for years, will naturally buy FX when the implementation ends, and they will receive this money.
But will those, who have made savings in TRY, shifted to KKM, and are accustomed to this attractive return of FX, head towards TRY deposits, which have a return below inflation, or FX deposits, with the TRY 650bn they receive? Isn’t the answer obvious? That’s why Turkey will face an extreme FX demand, even if KKM ends today and its value totals TRY 1.3tr.
Moreover, banks can charge an interest rate (IR) of ‘policy rate+3 points’ for KKM at most. The policy rate was 14% when KKM started. That’s why the highest IR was 17%. The upper IR fell to 16% when the policy rate was reduced to 13%.
Many banks have never charged a 17% IR before, nor do they charge a 16% IR now. These IRs are far higher than those in banks – banks keep them low.
People almost don’t look at the IR when they open or renew their KKM. IR doesn’t matter as the FX rate hike doesn’t remain below it. The FX rate hike is always higher and the difference between IR and FX rates is paid by the Treasury.
The Treasury and those who don’t open KKM accounts suffer.