Ebru Tuncay and Orhan Koskun

ISTANBUL (Reuters – Turkey’s scheme to preserve lira deposits against depreciation has attracted more that 90 billion lira ($6.6 Billion) of savings. But, not as expected, very little has come from the conversion of currency, sources in banking said Thursday.

According to Reuters, a senior representative of President Tayyip Erdogan’s AK Party said that the scheme has not met expectations and Ankara is working to increase the currency’s appeal as it falls against the dollar.

Erdogan revealed the deposit scheme (KKM), which was intended to stop a currency crisis on December 20, after the lira fell to an all-time low of 18.4 per dollar. It offered to reimburse savers any losses due to the depreciation in the term.

Although the lira recovered after this move, it ended the year at 44% less than the dollar. The lira fell 5% further this week as inflation rose to an 19-year record high of 36.1%. This deepened negative real yields against the 14% policy rate.

Sources close to banking and officials who were familiar with the situation said that the vast majority had been transferred from hard currency accounts and converted into lira.

People are not converting much foreign currency. One banking source said that they prefer to deposit lira here, in essence.

“Separately,” the source said, “The weakening in the lira goes on. People prefer to hold foreign currencies in this climate,” said the source.

Nureddin Nebati, Finance Minister, stated this week that there were now 91.5 billion forex-protected funds under the scheme. He did not mention how much of it was made from forex.

EXPECTATIONS NOT MADE

BDDK’s banking watchdog estimates that the total amount of deposits in the bank system was 5.3 trillion Lira (388 billion dollars) by 2021. Some 65% of these were foreign currency deposits.

The data showed that the percentage of forex deposits by real people fell from 71% to 64% in the week ending Dec. 17, to 64% on Dec. 24, according to the latest data. It rose to 67% on Dec. 31.

According to a Hurriyet column, approximately $50 billion in forex deposits were expected to be drawn into new lira account accounts within the first month of the scheme. This was based upon presidential sources that were published shortly after it was announced.

A banking source also stated that there are significant moves in lira accounts, but relatively few from foreign currencies.

According to a senior AKP official, participation is quite high in this scheme and continues to grow each day. “But the expectations have not been entirely met.”

It is primarily those with lira that are benefitting from KKM accounts at the moment. However, the volume and number of people who converted to forex and have returned to lira for conversion is quite low.”

“Work is underway to develop long-term instruments for increasing trust in the Lira and attracting investment.

($1 = 13.6654 liras)