A drop in Turkish lira deposit rates looks set to be short-lived as the nation’s banks seek to attract savings away from those denominated in dollars and euros, Bloomberg reported.
Lenders have cut interest payments on short-term lira deposits every week since the rates soared to an eight-year high on June 23, according to central bank data. The cuts have spurred local companies and savers to pile back into foreign-currency deposits to protect themselves against any potential weakness in the lira, which would erode the value of their savings.
A return to hard-currency deposits that make up about 40% of savings threatens to compound an already precarious situation for Turkey’s banks. Lenders need to raise funding in local currency to keep stoking a government-fuelled credit boom that has pushed their lira loan-to-deposit ratios to record highs. That dilemma is exacerbated by double-digit inflation, which means banks need to keep offering savers attractive rates that will convince them to stay invested in the local currency.
“Ongoing dollarisation is one of the biggest obstacles for lower deposit rates,” said Bulent Sengonul, a banking analyst at Is Yatirim Menkul Degerler in Istanbul. “A continuation of dollarisation shows the fragility of the economic environment and depositors’ reluctance to turn to lira savings despite higher returns.”


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