Watchdog’s decision offers banks relief

The Banking Regulation and Supervisory Agency (BDDK) sent a written notice last week to banks informing them that they may weight foreigncurrency assets and required reserves held by the Central Bank at zero risk. The BDDK has not yet posted the notice on its official website, nor changed the regulation, but the measure was taken after positive discussions with the Basel committee. Banks have two kinds of foreign-currency assets, which will be affected accordingly:

1) Required reserves and the reserve option coefficient (ROK) held at the Central Bank: Previously, these amounts were given a weighting of 50 percent risk. Following downgrades of Turkish debt to below investment grade by rating agencies, it was expected that this risk weighting would increase to 100 percent. However, after the BDDK decision, a weighting of zero risk will be applied to these assets. The positive effect is expected to translate as 70 basis points above the capital adequacy ratio.

2) Eurobonds held by banks in their portfolio: As expected, the risk weighting of these assets will increase from 50 percent to 100 percent.

The negative effect of this change is expected to be 32 basis points. However, some banks have the option of eliminating this negative effect by changing the rating agency they are based on.

The net effect is expected to translate as a positive contribution of 38 basis points for banks. This will be more pronounced at state-run lenders Halkbank (+79 basis points) and VakıfBank (+68 basis points), as they have smaller eurobond portfolios and maintain more assets at the Central Bank.