Turkey’s currency-backed deposit scheme breaks 72-week low

Turkey’s foreign currency-backed Turkish lira deposits continued their steady decline last week as authorities plan to phase out the scheme, which has weighed heavily on the budget, during 2025.

Deposits under the scheme, known as KKM, fell to TL 1.11 trillion (nearly $31 billion) from TL 1.13 trillion in the week ended Jan. 3, data from banking watchdog BDDK showed on Thursday.

This marked the 72nd week of continuous KKM volume reduction, Finance and Treasury Minister Mehmet Simsek said.

“KKM shares fell from a peak of 3.4 trillion TL in August 2023 to 1.1 trillion TL,” Simsek wrote on social media platform X. “KKM’s share of total deposits decreased from 26.2% to 5.9% “, he added.”

Under the scheme, adopted in late 2021 to help reverse dollarization and counter a sharp fall in the lira, the central bank protected deposits by covering depreciation costs.

But the authorities are trying to gradually abandon this and transfer deposits to ordinary lira accounts, partly discouraging companies and individuals from reviving KKM accounts.

Last month, Simsek said the scheme would be terminated without any volatility in the markets. The central bank also announced that it will expire in 2025.

“We will continue our policies that will strengthen macro-financial stability and increase confidence in the Turkish lira,” Simsek wrote on Thursday.

The lira has gradually recovered in real terms after a sharp decline in 2021. It depreciated about 16.5% against the US dollar last year, the smallest annual decline since 2020.

The BDDK weekly bulletin also showed that loans to the banking sector increased by TL 57.4 billion to TL 15.96 trillion in the week to January 3.

The total volume of deposits decreased from almost 19 trillion TL to 18.66 trillion TL. Consumer loans increased by TL 7.7 billion, surpassing TL 2 trillion. Non-performing loans increased by TL 6.2 billion to TL 293.7 billion.