Reuters’ analysis found that large payments were made in currency-protected deposits backed by appropriate borrowing, and it’s possible the scheme is going on despite the cost.
According to the analysis in Reuters, the cost of currency-hedged deposits (KKM) is increasing by the day, but the practices and the discourses of the authorities show that the KKM system will persist for at least the next year, maybe longer, with no alternative.
While KKM’s $30 billion corporate payment deadline was completed before the completion of foreign exchange demand, which the market was concerned about, the introduction of a low-cost credit system to KKM also aided the process.
Following this sharp redemption by KKM, which is under the responsibility of the Central Bank (CBRT) as the majority consists of companies redeeming foreign currency, redemptions are relatively small until the end of next year’s month.
Monday 3rd, Tuesday 4th, 18th This month, $3 billion will be repaid to KKM in September after massive KKM payments of $30 billion over the past two months. Since the term is 6 months, until the end of the year, more precisely until February next year, the yield amounts are quite small.
Many analysts and bankers in the market had the risk and concern that there could be demand for foreign currencies at levels that the CBRT might not be able to meet in high KKM yields. Two main risk factors have been creating pressure and fears in the markets for months that FX may not be sufficient due to KKM redemptions in the summer and utility bills in the winter.
Despite these concerns, the total amount of KKM rose to 1.2 trillion TL. Even the fact that KKM is not declining in TL means there is no FX demand to disrupt the market due to redemptions.
KKM has charges to the Treasury and CBRT through two separate channels. This is because the accounts opened in TL are under the responsibility of CBRT through the conversion of Treasury foreign currency into TL. The cost to the Treasury was 23 billion TL in July and 60 billion TL this year. The cost of the CBRT has not yet been explained or data shared. 40 billion TL were allocated for KKM with the additional budget, but this amount was immediately exceeded.
A knowledgeable source said: “KKM’s cost has exceeded 60 billion lire and will continue to rise. It is a high price, but in the current situation it has to be borne. Currently, KKM in banks is required to be at the level of 20 percent of total DTH,” adding:
“The costs are high, but when that money goes into foreign exchange, we have bigger problems to contend with. If another application or policy is possible, that would be preferable, but it will remain so for a while. At least it will stay that way until Christmas.”
LOAN STARTED AGAINST KKM
According to bankers, companies and officials, companies gained access to 14-20 percent cheap loans with KKM collateral converted from foreign currency to TL at the end of the repayment period. The new loan, which came at a time when complaints were pouring in about access to credit and rate cuts, helped KKM’s yield renewal. Companies show interest in such loans by pointing out the tax and borrowing cost advantages.
The owner of an import and export company said: “It is no longer easy to get credit from banks. Currently, commercial interest rates are falling to 37 percent and 40 percent. We converted a deposit of over $10 million that had been in the bank for some time and opened a KKM account last week. Because if we exchange the foreign currency and pay it into the public bank, we get the same commercial loan for 18.5 percent. We’re paying exactly half the interest,” he said, adding:
“Over the past week I’ve heard that other companies have started exchanging foreign currencies because of this opportunity. I think we will probably see FX selling and KKM rise on the corporate side over the next few weeks. I am almost sure.”
According to the bankers, public banks provide credit in the range of 14 to 19 percent, while some private banks provide less than 20 percent. KKM uses the amount converted from foreign currency to TL as collateral for loans.
Easy start with selective loan constraint
A limited move has been taken with the credit-versus-KKM move to direct the credits to the desired areas. Although foreign exchange requirements for cheap loans are met in KKM, bankers state that there is no definition of net export in loans against KKM.
On the other hand, interest rate cuts were also implemented during the same period, and the CBRT gave the message that it would take steps to bring lending closer to the policy rate.
The government states that it will later reduce inflation with a policy aimed at the current account surplus. In this context, export-oriented net loans that provide for foreign exchange sales are priced close to the base rate; Similar business loans cost nearly 40 percent, while personal loans cost around 50 percent. Although there are some exceptions to these flat rate borrowing costs, net export-oriented credit is granted at a much lower cost under current policies. Representatives of the economy and the central bank criticized each other very sharply.
INSTITUTIONS PREFER LOANS AGAINST KKM
“Some of the institutions continued to prefer to borrow rather than use their KKM deposits in TL to create needed liquidity,” an official told Reuters.
The economic management sees KKM as an important tool for solving problems, but also wants the amount in KKM to be used for needs such as paying for investments in TL and in this way fulfills its function over time. While the aim is to shift more resources to selected areas of the economy, the fact that the needs of companies are not exactly in the same direction complicates the practices.
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