Central bank changes required reserve regulations

The Central Bank of the Republic of Turkey (CBRT) on Monday lowered the reference values it uses to determine required reserve ratios for banks, while introducing a consumer price index adjustment and other changes to loan growth calculations.

The central bank had previously announced that banks with a loan growth rate of 10-20% will be subjected to lower required reserves ratios and higher remuneration rates.

Reuters previously reported that the central bank would strengthen the link between lending and reserve requirements and adjust settings regularly to steer credit toward certain sectors.

The bank Monday said its changes to required reserve regulations aim to channel loan supply to production-oriented sectors rather than consumption-oriented ones.

The regulations will encourage long-term commercial loans that have a strong relation with production and investment, and long-term housing loans that have a weak relation with imports, the bank said in a statement.

According to an announcement in Turkey's Official Gazette, banks that have a CPI-adjusted loan growth rate of between 5% and 15% will be subjected to a 2% required reserve ratio on most lira deposits.

The changes also include the removal of some housing and consumer loans from banks' loan growth calculations, a move seen as encouraging commercial and long-term housing loans.

At the new top limit of 15% loan growth, housing loans with a maturity of five years or more, as well as loans, excluding consumer loans and credit cards, with terms longer than two years will be subtracted from the total loan growth.

Banks will need to remain at or above 5% growth after the annual change in 50% of consumer loans and credit cards is subtracted from the total loan growth rate.

The 2% required reserve ratio will apply to lira deposits of all terms, except deposits and participation funds with a maturity of one year or more, as well as other liabilities with more than a three-year maturity.

For banks that do not fall within the new reference values, required reserve ratios are set at 4-7% for deposits with maturities less than a year.