According to the decision published in the Official Gazette, the authority to determine the maximum interest rate to be applied to foreign currency indexed lira accounts will belong to the Central Bank of the Republic of Turkey. According to another decision in the newspaper, Turks living abroad will be able to open a foreign currency-indexed lira time deposit account. The government also published the law in the Official Gazette on Saturday, which provides tax exemption to firms that exchange their assets in foreign currency. Under the program, participating companies will not have to pay income tax on their earnings when they fund FX-indexed lira deposits promoted by the government. According to the principles of the communiqués;
· The Central Bank is authorized to determine the maximum interest rate to be applied to the bank’s deposit account.
· Within the scope of supporting the conversion of Turkish Lira deposits and participation accounts converted into Turkish Lira at an exchange rate; In case the institutions convert the foreign currencies in their balance sheets dated 31/12/2021 into Turkish Lira until the application date of the fourth provisional tax period and the Turkish Lira assets obtained in this way are used in Turkish Lira deposits and participation accounts opened, the profits are exempt from corporate tax.
· Foreign currency deposit account and foreign exchange participation fund account balances of citizens residing abroad in US Dollars, Euros and British Pounds are converted into Turkish Lira at the exchange rate and YUVAM account is opened if the account holder requests it.
· YUVAM accounts can be opened with maturities of 3, 6, 12 and 24 months.
· The deposit and participation fund holder will be paid a higher rate and equal to the sum of the additional income when the interest/profit share accrued to YUVAM accounts is compared with the exchange rate at the account opening and at the end of maturity.
· In case the maturity rate is lower than the conversion rate, the bank pays principal + interest/profit share to the account holder.
· While the Central Bank will provide foreign currency protection to YUVAM account holders, additional returns may be provided at varying rates depending on the maturity of the accounts.
o 3 Months Maturity: 0%
o 6 Months Maturity: 1%
o 12 Months Maturity: 1.50%
o 24 Months Maturity: 2%
Communiques within the scope of products implemented to increase the demand for TRY under the Liraization strategy need to be shaped while the transformation continues. These products are within the scope of some extraordinary incentives undertaken by the Central Bank and the Ministry of Treasury and Finance at the expense of making serious concessions from public finance, and an increase in the exchange rate above the predicted interest rates will mean an increase in the burden on public resources.
In fact, foreign exchange protected deposits offer free options for both individuals and companies. There would be a certain incentive effect, especially as it involved companies, to generate a return equivalent to the exchange rate wherever the exchange rate went, and income from foreign exchange-protected accounts would be tax exempt. On the other hand, the Central Bank’s communiqué on the details and interest principles in the legislation may limit this demand. The communiqué from the Central Bank, which may limit the transition from foreign currency to TRY, stipulates that companies are prevented from using loans from banks by using foreign currency-protected Turkish lira deposits as collateral. The mixed structure of FX-indexed deposits may not have as much impact as expected in the FX transfer, due to the companies’ liquidity for 6 months and the complexity of collateral in the use of loans. In particular, FX-indexed deposit-based limits on the use of FX loans by companies may lead to less conversion. If additional legislation is created regarding this, it may be within the scope of requests and returns from the sectors.
It is seen that the Central Bank is authorized to control interest rates in all maturities in the interest communiqué. This shows that the ceiling, which is determined as the policy rate + 3 in a 3-month term, may also be possible in other long-term maturities where bank interest rates are higher. If the demand for foreign currency is suppressed and the interest rate on TRY-based deposits is limited, the real returns of foreign currency-indexed deposits will remain negative in an environment where inflation hovers between 40-50%. In 2022, inflation will be at the highest level of a generation and the demand for the lira will be created by non-interest instruments, making it difficult to forecast the exchange rate. Since the dollarization weight is still over 60%, we are far from observing a game-changing effect on the conversion effect of FX-indexed deposits.
Kaynak Tera Yatırım-Enver Erkan
Hibya Haber Ajansı