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CBRT Announces Sweeping Changes to Reserve Requirements Overnight

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Central Bank Simplifies Rules, Extends Credit Growth Limits

 

The Central Bank of the Republic of Turkey (CBRT) has implemented comprehensive updates to its reserve requirement (RR) regulations as part of an ongoing drive for simplification. The key moves include reducing reserve ratios for long-term foreign currency (FX) liabilities and extending the duration of its strict lending growth limits for another year.

Simplification of Foreign Currency and Precious Metals Ratios

 

The CBRT’s primary goal is to simplify the complex regulatory framework and standardize ratios across similar asset classes:

  • Temporary FX Exemption Ends: The temporary 0% reserve requirement applied to long-term foreign currency liabilities sourced directly from abroad will not be extended past the end of the year. This marks the end of a preferential treatment aimed at encouraging specific external financing.

  • Standardization of FX/Gold: The CBRT eliminated the ratio discrepancies between foreign currency deposits and gold deposit accounts.

    • The RR ratio for sight (vadesiz) and up to 1-month maturity FX deposits and participation funds was lowered from 32% to 30%.

    • The ratio for long-term FX accounts was set at 26%.

  • Precious Metals Ratios Adjusted:

    • RR for sight and short-term precious metals deposit accounts was increased from 28% to 30%.

    • The ratio for long-term precious metals accounts was updated to 26%.

Steep Reduction in RRs for Long-Term FX Liabilities

 

In a significant move to reduce the cost of long-term foreign currency borrowing for banks, the CBRT sharply cut the reserve ratios for foreign currency liabilities across various maturities.

Previous Maturity Previous RR Ratio New RR Ratio Change
Up to 1 Year Unchanged Unchanged Stable
Up to 2 Years 16% 10% $\downarrow 6$ p.p.
Up to 3 Years 11% 8% $\downarrow 3$ p.p.
Up to 5 Years 7% 3% $\downarrow 4$ p.p.
Over 5 Years 5% 0% $\downarrow 5$ p.p.

The reduction to 0% for liabilities exceeding five years is the most notable change, directly incentivizing banks to seek longer-term, more stable external funding.

Credit Growth Limits Extended and Scope Adjusted

 

In line with the tight monetary policy stance, the CBRT confirmed the extension of a key macroprudential measure aimed at slowing the flow of credit:

  • Credit Limit Extension: The implementation period for the credit growth limiting practice has been extended for one more year. This signals the Central Bank’s firm commitment to ensuring disinflation through the cooling of domestic demand, despite the recent strong GDP figures.

  • Finance Companies Scope: Finance companies that were included in the scope of the RR regulation in 2022 were excluded again for their liabilities to domestic banks. This is another move toward simplifying and refining the application of reserve requirements across the financial system.

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