Turkish central bank simplifies collateral framework for banks to support liquidity

By bne IntelliNews September 17, 2015

Turkish central bank simplified collateral framework to access the Central Bank’s Turkish lira and foreign exchange liquidity facilities and increased limit allocations for banks in a move to make preparations for the normalization of global monetary policies, the bank said on September 16 in a presentation called “Briefing on Simplification of the Collateral Framework and Changes in the Primary Dealer Liquidity Facility” at Primary Dealer Consultation Board Meeting.

The central bank’s move comes at a time when the concerns regarding the risks in the foreign borrowing conditions for the Turkish banking system have been voiced more often due to the FED’s expected rate hike and country-specific political risks. Fitch said on September 11 in a note named ‘Turkish banks’ external debt continues to increase’ that Turkish banks still has the largest share in foreign borrowing, and as a result still vulnerable to exchange rate fluctuations. Despite the recent deterioration in expectations, a significant problem has not been observed yet regarding Turkey’s external borrowing conditions, however, Turkey is still heavily dependent on external borrowing due to its chronic current account deficit problem.

Primary Dealership system will be continued to be supported by allocating higher bid limits at 1-week quantity repo auctions to primary dealers instead of offering favorable interest rate on borrowing facilities, the Central Bank said, adding that all changes will be valid as of September 28 and banks will be further informed about the details.

Central Bank supports banks’ Turkish Lira and foreign exchange liquidity management via providing Turkish lira liquidity against Turkish lira denominated collateral, Turkish lira liquidity against FX/foreign currency denominated collateral, Foreign Exchange liquidity against TRY-denominated collateral, Foreign Exchange liquidity against FX denominated collateral. The central bank also provides liquidity to the primary dealer banks at a favorable interest rate to support the primary dealership system.

The central bank underlined that efficient functioning of the financial system is crucial for the Central Bank of the Republic of Turkey.

The central bank said on August 29 that it decided to increase required reserve ratios for Foreign Exchange (FX) noncore liabilities, and the interest payments on lenders’ lira reserves held at the bank and the transaction limits of the banks in the central bank Foreign Exchange and Banknotes Markets in line “Road Map During the Normalization of Global Monetary Policies” announced on 18 August 2015.

Turkish banking industry as of end-Jul
  2014 2015 y/y
Net profit (TRY mn) 14,519 15,352 5.7%
Assets (TRY mn) 1,851,467 2,274,486 22.8%
Loans (TRY mn) 1,137,591 1,428,606 25.6%
Gross NPL (TRY mn) 8,162.54 10,967.60 34.4%
Gross NPL / Total Loans 0.72% 0.77% 7.0%
Capital Adequacy Ratio (%) 16.26 15.09 -1.18
source: bddk  

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