Currency hedged deposits (KKM), which the new economic administration is trying to liquidate gradually with the rationalization of interest rates, are losing their attractiveness with each passing day. In the banking sector, the interest rate applied to TRY-denominated KKM accounts has fallen below 20 percent in public banks and as low as 12 percent in private banks.
As part of the economic administration’s exit strategy from currency-protected deposits, the minimum interest rate requirement for TL-denominated accounts was abolished at the end of September, followed by the removal of the minimum interest requirement for from foreign currency switched accounts last week, resulting in a decline in the KKM interest rates.
Last week, the Central Bank also lifted the interest rate cap on foreign currency return KKM accounts, but announced that it cannot be less than 85 percent of the policy rate. Therefore foreign currency return KKM account interest will remain at 34 percent. Standard TRY deposit rates continue to hover above 46 percent. According to information from two banking sources, the interest rate on deposits has increased to 48-50 percent for standard TRY deposits and KKM accounts switched from FX to TRY, depending on the amount. In the year-end balance sheet period, these ratios are expected to exceed 55 percent.
Central Bank takes consecutive steps
The Central Bank’s monetary tightening, simplification steps, regulations to increase the share of Turkish Lira deposits and exit steps from FX-protected deposits (KKM) continue. As part of the exit from KKM, the CBRT introduced reserve requirements after the first meeting in July, and in mid-September, it increased the reserve requirement ratios in KKM by differentiating them according to maturity. At the end of September, the CBRT abolished the minimum interest rate requirement for TRY-denominated KKM accounts. On September 18, the 8 percent annual commission differentiated according to the share of TRY in the KKM was terminated and the 8 percent annual US dollar commission differentiated according to the transition from rotating KKM accounts to TRY accounts and the renewal rate was introduced.
As a result of these steps, the share of standard TL deposits increased as targeted by the Central Bank, while the share of FX-protected deposits in total deposits started to decline. According to Banking Regulation and Supervision Agency (BRSA) data, the share of TRY deposits in total deposits reached 40 percent as of November 24, while the share of KKM accounts in total deposits fell below 20 percent. This situation also caused sharp changes in deposit interest rates. The interest rate applied by banks for TRY-denominated currency-protected deposits was reduced to 20 percent in public banks and 12 percent in private banks.
TRY 700 billion decline in 14 weeks
According to the calculation made from BRSA data, following the implementation of the targets for the conversion from KKM to standard TRY deposits, KKM accounts declined by TRY 669 billion 268 million until the week of November 24. From the end of May until the end of November 24, the increase in the size of the KKM accounts remained at TRY 240 billion. The total size of the total KKM accounts decreased to TRY 2 trillion 738 billion 680 million. The dollar equivalent of the KKM accounts decreased to USD 95.5 billion.
