Central Bank statement on KKM and foreign currency deposits

An analysis was published by Fazilet Çavuşoğlu, Deputy General Manager of the Banking and Financial Institutions General Directorate, Cihan Fırat, Deputy General Manager of the Treasury and Corporate Operations General Directorate, and Erinç Menekşe, Assistant Specialist at the Banking and Financial Institutions General Directorate at the Central Bank of the Republic of Türkiye (TCMB).

In the analysis titled "Deposit Preferences and Developments in Protected FX Deposits (KKM)," it was stated that the recent increase in foreign currency deposit amounts has heightened interest in the development of savers' demand for the lira, and that the relationship between the increase in foreign currency deposit amounts and the process of reducing the KKM balance was evaluated in light of the data and interpreted within the framework of savings preferences.

The analysis concluded that the increase in foreign currency deposit amounts is consistent with the accelerating decline in the KKM balance and that the preference for TL in savings continues.

Pointing out that there was a rapid shift toward TL in deposit preferences in April and May due to the impact of tightening steps taken in March, the analysis included the following assessments:

"The foreign currency deposit balance declined from 210 billion dollars to 190 billion dollars by the beginning of June. During this period, the share of lira deposits held by individuals and legal entities showed a strong increase. In July and August, the increase in the lira share continued, albeit at a slower pace for individuals. As the lira share approaches historical averages (60 percent), a slowdown in this trend is expected. On the other hand, the lira share of legal entities, which has risen above historical averages (49 percent), is following a stable path. In an environment where the preference for the lira continues to strengthen, one of the reasons behind the increase in foreign currency deposits is the current account surplus recorded during the summer months. In the summer months when the economy runs a current account surplus, companies can seasonally increase their foreign currency deposit accounts. Another important factor driving the increase in foreign currency deposit accounts is the exit process from KKM, which has accelerated with the policy steps taken."

"DECLINE IN KKM ACCOUNTS HAS GAINED MOMENTUM"

The analysis stated that as of April 2024, as a result of the increasing demand for TL assets by domestic and foreign residents, improving reserves, and the steps taken by the TCMB to reduce the supply and demand for KKM, the decline in KKM accounts has gained momentum, adding: "Tax regulations introduced by the Ministry of Treasury and Finance for KKM accounts also supported this process. With the effect of these regulations, the encouragement of the reduction in the KKM balance led to a decrease in KKM renewals and increased shifts to lira and foreign currency at maturity. This development in shifts to foreign currency and lira is consistent with TCMB expectations and the objectives of the regulations. While the KKM balance decreased by over 14 billion dollars in the last 2 months, the amount preferred as foreign currency or gold at maturity was approximately 4.7 billion dollars. Despite a 14 billion dollar dissolution in KKM, foreign currency deposits increased by only 3.3 billion dollars."

INCREASE IN TL DEPOSIT SHARE IN THE LAST 2 MONTHS

The analysis, which noted that the downward trend continues when the total of KKM and foreign deposits is examined, reported that the share of TL deposits in total deposits rose from 48.4 percent to 51.8 percent in the last 2-month period.

The analysis stated that the foreign currency deposit balance has stabilized following the rapid shift from foreign currency deposits to lira deposits and the acceleration of the exit from KKM, and expressed that the decline in inflation in the coming period will support the increase in the share of lira deposits.