“The decision means the bank has completely reversed the 2 percentage-point cut it made in the foreign currency reserve requirement in December 2008,” Bloomberg reported about the move, which is likely to soak up the liquidity provided to markets during the global financial crisis.
The requirement for lira reserves before the crisis was 6 percent. The bank raised the foreign currency reserve requirement from 10 to 11 percent, a move that may pull around $1.5 billion from the market. It also increased the requirement for lira reserves from 5 to 5.5 percent. Such an increase may mop up 2.1 billion liras ($1.4 billion) from the market.
Investment house Ekspres Invest estimated that the decision to terminate interest payments on lira reserves would cause a loss of at least 878 million liras for banks.
“We think the bank might increase the lira reserve requirement by another 0.5 percentage points in the next three months,” Özgür Altuğ, chief economist at BCG Partners in Istanbul, said in an e-mailed note. “While the size of the liquidity reduction is rather limited compared to the total loan stock, it is clear that banks’ ability to provide loans will be limited.”
Exporters not happy
Exporters have said they have been suffering from the strength of the lira, which has gained 6.2 percent against the U.S. dollar since June 1.
The Central Bank decision may help exporters to some extent by helping the dollar and the euro appreciate, but Mehmet Büyükekşi, head of the Turkish Exporters’ Assembly, or TIM, said the move was “completely insufficient,” according to CNBC-e television.
State Minister Zafer Çağlayan, however, said the decision was a positive one. “The Central Bank is independent and I am a Cabinet member, but maybe [the level of reserves that banks must deposit] could be increased some more,” Anatolia news agency quoted Çağlayan as saying. “The dollar’s position is seen by everyone. Proactive steps are important at this point.”
Commenting on the decision on lira interest payments, Ekspres Invest economists Can Demir and Güldem Atabay said the banking sector would take at least a 878 million-lira hit.
“With this change, the banks will not be paid any interest on reserves at all versus the 5 percent being paid … previously,” the economists said in a report.
Simon Quijano-Evans of CA Cheuvreux said the move should not come as a surprise as Turkey is “recovering quicker than most of its peers.”
In a note to investors, Quijano-Evans said the interest earnings for Turkish banks could drop no more than 1.5 percent of the sector-wide interest earnings. “In addition, banks are aiming to raise funds from bond issuance once the go-ahead comes from the regulators, which should more than compensate for the increase in reserve requirements.”
Source : http://hurriyetdailynews.com/n.php?n=bankers-take-a-hit-from-central-bank-2010-09-23 - Sept 23, 2010
