Turkey: LCR regulations

Author: | Published: 20 May 2016
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Isil-Okten Zeynep
Işıl Ökten Zeynep Azizoğlu

In March 2016, the Basel Committee on Banking Supervision (BCBS) published separate reports assessing the compliance of Turkish prudential rules with minimum Basel requirements in relation to risk-based capital standards and the Liquidity Coverage Ratio (LCR). This is also known as the RCAP Assessment. Turkey received an overall compliant rating.

Throughout 2015 and early 2016, in the process of the RCAP Assessment, the Banking Regulation and Supervisory Agency (BRSA) made a number of amendments to the existing regulations to improve compliance with the minimum standards.

Below are the key takeaways of the amendments to the LCR framework, comprising the Regulation on Calculation of the Liquidity Coverage Ratio of Banks (Regulation) and a set of supplementary guidelines (LCR Framework).

Scope of application

Under the Basel standards, the LCR requirements must only be applied to internationally active banks. In contrast, the Turkish LCR framework applies to all commercial banks on both an individual and a consolidated basis. A notable amendment provides that lower ratios may be applicable to development and investment banks.

High-quality liquid assets (HQLA)

Some of the requirements for qualification as HQLA are prescribed under the guidelines instead of the Regulation. However, the guidelines are assessed and concluded as binding from a legal and practical point of view.

Overnight deposits to the Central Bank of the Republic of Turkey via the interbank money market have been removed from the list of eligible level 1 assets.

The debt instruments issued by the asset lease company established under Law No 4749 on Regulating Public Finance and Debt Management have been removed from the list of eligible level 1 assets.

Run-off rates for less stable deposits

The BRSA has set a 10% run-off rate for less stable deposits. Due to the importance of foreign currency deposits in Turkey (45% of deposits placed in banks are in foreign currency), the BRSA amended the regulation to classify foreign currency deposits as less stable deposits. Therefore, currently a uniform rate of 10% applies to all foreign currency deposits. However, this run-off rate may be subject to further adjustment, as the report draws attention to the BRSA's declared intention to do an analysis of the historic foreign exchange outflows to review the run-off rate.

Disclosure requirements

The BRSA also requires banks to disclose foreign exchange LCR information. In contrast, the Basel standards require disclosure presented in a single currency only.

Işıl Ökten and Zeynep Azizoğlu