CBRT publishes 2 new blogs on KKM

In the analysis titled "The Impact of Regulations Aimed at Encouraging Turkish Lira Deposits on Interest Rates," it was stated that under the new policy framework, the goal is to gradually convert FX-protected deposit (KKM) accounts and foreign currency-converted deposit (DDM) accounts belonging to individuals into TL deposits, to keep the transition to foreign currency (FX) denominated deposits at a minimum level, and to increase the share of TL deposits in banks.

It was reported that the total KKM and DDM balance, which rose to 3 trillion 408 billion TL on August 18, decreased by 694 billion TL to 2 trillion 714 billion TL in the period up to December 1 following the regulation, and that the share of KKM and DDM in total deposits fell from 26.2 percent to 19.2 percent.

The analysis noted that during the period in question, TL deposit interest rates rose from 24.9 percent to 44 percent, and it was conveyed that banks with a higher share of KKM, and thus more deposits that needed to be converted to TL, were expected to be more affected by the regulation and to increase their TL deposit interest rates more significantly.

Banks more affected by the regulation are applying higher interest rates

It was stated that banks significantly affected by the regulation were observed to apply an average of 2.5 percentage points higher interest rates on individual TL deposits after the regulation compared to banks that were less affected. It was noted that the fact that banks more affected by the regulation paid higher deposit interest rates supported the conversion of their customers' deposits into TL and raised deposit interest rates across the sector by an average of 3.4 percentage points.

In the analysis, which stated that the impact of the regulations aimed at reducing FX-protected accounts on pricing differed at the bank level, the following statements were included: "The fact that banks more affected by the regulation pay higher deposit interest rates supports the conversion of their customers' deposits into TL. The analysis results show that the regulation on August 20 supports macro-financial stability, the monetary transmission mechanism, and the monetary tightening process that began in June by encouraging the conversion of FX-protected accounts into TL deposits."

Steps to encourage TL deposits provide an option that compensates for value losses

In the blog titled "A Look at FX-Protected and Traditional Deposits from an Investor's Perspective," it was noted that the steps taken to encourage Turkish lira deposits provide KKM investors with an option that compensates for the value losses occurring in the Turkish lira, in addition to traditional TL deposits.

The article, which stated that KKM balances began to decrease with the increase in the relative attractiveness of TL deposits, mentioned the advantages of evaluating investments in TL deposits compared to KKM.

While it was noted that developments that reduce the price of the option or increase interest rate differentials increase the relative attractiveness of TL deposits, it was reported that the price of the option is influenced by the settlement value determined by the KKM interest rate and the exchange rate volatility shaped by exchange rate expectations.

The analysis included the view that the decisive policy steps taken have reduced exchange rate volatility and, consequently, the price of the option, while stating that monetary tightening has increased the attractiveness of TL deposits.

Steps taken are effective in the decline of KKM renewal rates

It was noted in the article that the macroprudential steps taken after August 20 to increase the share of TL deposits provide banks with flexibility in determining interest rate differentials while simultaneously encouraging them to increase TL deposit interest rates, and the following statements were included:

"Thus, by ensuring that the interest rate differential opens in favor of TL deposits, a gradual transition to TL deposits is supported. In summary, the relative returns of KKM and TL deposits are decisive in an investor's deposit preferences. The increase in the relative return of TL deposits through the policy steps taken by the CBRT is effective in the decline of KKM renewal rates, and a decrease in KKM balances is observed at maturity. The fact that the relative return differential moves in tandem with balance changes demonstrates the importance of returns from an investor's perspective."

News Source: 12punto