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Iran War Fears Hit CBRT Reserves as FX Demand Rises

cbrt reserves 5march

Rising geopolitical tensions linked to the Iran war are beginning to weigh on Türkiye’s financial buffers. Data from the Central Bank of the Republic of Türkiye (CBRT) indicate that gross reserves fell sharply in early March, while net reserves excluding swaps declined significantly. Adjusted for the gold price effect, swap-adjusted net reserves have dropped by more than $19 billion since the beginning of the year, reflecting renewed pressure on the country’s foreign exchange position.

Sharp Reserve Decline in Early March

Weekly CBRT data initially showed a modest improvement in reserves during the week ending 27 February.

During that week:

  • Gross international reserves increased from $206.1 billion to $210.3 billion

  • Net reserves rose to $91.9 billion

  • Net reserves excluding swaps climbed to $78 billion

However, a significant portion of this increase was driven by the rise in global gold prices, which provided a positive valuation effect of approximately $3.75 billion.

When the gold-price effect is excluded, the underlying reserve dynamics appear weaker:

  • Gross reserves increased by only $430 million

  • Net reserves declined by roughly $830 million

  • Net reserves excluding swaps fell by about $1.1 billion

What the Iran War Means for Türkiye: Inflation, Energy Risks and Geopolitics

Iran War Shock Triggers Reserve Losses

According to estimates based on the CBRT’s Analytical Balance Sheet, reserve dynamics shifted sharply at the beginning of March.

As of 4 March, covering the first three business days of the week, reserves are estimated to have declined substantially:

  • Gross reserves: down $9.4 billion

  • Net reserves: down roughly $12.5 billion

  • Net reserves excluding swaps: down about $11.9 billion

During the same period, the gold-price effect was negative by around $0.7 billion.

After adjusting for this effect, net reserves excluding swaps are estimated to have declined by approximately $11.2 billion.

Since the beginning of the year, the cumulative decline in swap-adjusted net reserves—excluding the gold price effect—has exceeded $19 billion.

FX Deposits Continue to Rise

Rising geopolitical uncertainty and market volatility have also triggered renewed demand for foreign currency deposits.

Parity-adjusted FX deposits increased by more than $2.1 billion during the week.

The increase was driven by:

  • Households: about $811 million in FX purchases

  • Corporates: about $1.3 billion in FX purchases

Since the beginning of 2025, total FX deposits in the banking system have increased by approximately $27 billion.

Core Inflation Data Raises Questions Over TCMB Rate Path

FX-Protected Deposits Continue to Shrink

Meanwhile, the stock of FX-protected deposits (KKM) continues to decline as the system is gradually phased out.

Since the peak reached in August 2023, KKM balances have fallen by more than:

  • TRY 3.4 trillion

  • roughly $136.9 billion

After authorities ended renewals and new accounts for individuals in August 2025, only a limited residual balance remains in the system.

Dollarization Still Elevated

The combined share of FX deposits and KKM accounts in total deposits currently stands at 41.6%.

Although this represents a significant decline from the 68.4% peak recorded in August 2023, it indicates that dollarization in Türkiye’s banking system remains relatively high.

TRY Deposits Continue to Grow

Turkish lira deposits increased by approximately TRY 39 billion during the week, surpassing TRY 16.5 trillion.

This suggests that despite renewed FX demand, domestic liquidity in lira remains strong.

Rapid Growth in FX Loans

Another notable development is the continued expansion of foreign-currency lending.

FX loans increased by about $1.1 billion during the week.

Since March 2024, FX loans have expanded rapidly:

  • Total increase of approximately $71 billion

  • Growth rate of about 52.5%

  • Total outstanding FX loans reaching $205 billion

This trend suggests that corporates are increasingly relying on foreign-currency financing.

Foreign Investors Turn Net Sellers in Government Bonds

Foreign investors recorded net sales of $210 million in Turkish government bonds during the week ending February 27.

This marks a shift after a period of steady inflows earlier in the year.

Over the past two weeks, total net outflows from government bonds have reached approximately $1.2 billion.

In contrast:

  • Equities: foreigners recorded $65 million in net purchases

  • Eurobonds: $37 million in net purchases

Foreign investors have continued buying Turkish equities for 13 consecutive weeks, with total inflows exceeding $3.2 billion during this period.

Money Market Funds See Large Outflows

Significant volatility has also been observed in money market funds (MMFs).

During the week ending February 27, MMF assets increased by about TRY 151 billion, surpassing TRY 1.7 trillion.

However, during the first three business days of the following week:

  • Assets fell from TRY 1.7 trillion to below TRY 1.5 trillion

  • Net outflows exceeded TRY 240 billion

Within the Free Umbrella Fund category, MMF assets declined by about TRY 138 billion, falling to TRY 1.15 trillion.

FX Investment Funds Expand Rapidly

FX-denominated mutual funds continued to grow.

Their total assets increased by approximately $529 million, reaching $79.5 billion.

This represents rapid expansion compared with:

  • $25 billion at the beginning of 2024

  • $50 billion at the beginning of 2025

Including investment funds, the overall dollarization ratio in the financial system rose slightly from 43.5% to 43.8% during the week.

For comparison, the ratio had reached nearly 70% in mid-2023.

Markets React to Rising Geopolitical Risk

The recent decline in reserves suggests that markets are beginning to price in the geopolitical risks associated with the Iran war and rising energy prices.

Higher uncertainty has increased demand for foreign currency and triggered volatility across financial markets.

If geopolitical tensions persist, pressure on Türkiye’s foreign exchange reserves and financial stability could remain elevated in the coming months.

Source: Gedik Invest, CBRT data and Analytical Balance Sheet estimates

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