Ebru Tuncay, Orhan Coskun

ISTANBUL, (Reuters) – Turkey’s state banks set performance targets for employees as they encourage clients to convert foreign currency into lira in line with a deposit protection plan that was introduced last month to end a currency crisis.

Reuters interviewed more than 50 bankers and customers who were familiar with the subject. They described a coordinated push to increase the adoption of the scheme. This was a plan President Tayyip Erdoan announced in December when the lira fell to a new record low.

One banker said that the conversion of forex to lira was an added performance criteria for employees. He also added that statistics were provided by rival banks in order to promote competition.

The banker stated, “We are called many times each day and asked how much have we converted,” requesting anonymity.

According to a second source, bank managers called clients holding at least $5,000,000 in foreign deposits to promote the program. Others approached smaller holders.

This person stated that the government had tweaked some aspects of the programme over the last month in order to make it more efficient. They are also looking at reducing the required minimum deposit period to be eligible to the current three-month limit.

The scheme provides Treasury and the central bank with guarantee deposits for foreign currency losses of three to twelve months. This is to stop a dollar flight amid rising inflation.

This scheme was combined with currency interventions in October that helped spur a strong lira rise. The currency was still down 44% at the end of the year, which is the lowest performance in emerging markets.

Treasury is responsible for administering the program. It also oversees state banks. The Treasury did not comment immediately on the targets of employees or the possibility that the minimum deposit durations might be shorter.

CALLING CLIENTS

Both public and private banks are able to encourage the plan. However, the nation’s three major state banks could play a key role in its success.

Ziraat Bank was the only one to decline to comment. Halk Bank and Vakif Bank were not able to respond to Friday’s requests.

Turkey has strict rules that prohibit banks from selling specific products to customers. One person who is familiar with the subject described the targets to be “unofficial”. However, bankers and clients accounts show employees are expected to support the scheme.

One exporter sector representative told Reuters that he tried to sell the program even though he said it wasn’t the right fit for a company that earns foreign currency income and pays raw material.

“It was a great effort to persuade me”, he stated.

Nureddin Nebati, Finance Minister, stated that 131 billion lira (or $9.7 billion) was deposited in the secured accounts by the end of last Week. Reuters reported that most of the money has been deposited into existing lira account and not dollars or euros.

To increase the uptake of the scheme, the government last week added corporate currency account to it.

CARROTS and STICKS

A series of unconventional interest rate cuts that Erdogan urged under his new economic policy, which emphasizes exports and credit, triggered the currency crisis.

Inflation soared above 36% in October due to Lira weakness, reducing Turks’ savings as well as causing budget problems for households and businesses.

Erich Arispe from Fitch Ratings said that while the plan offered some relief to the lira and slowed dollarisation, it did not solve the fundamental problem of policy uncertainty or deeply negative real rate.

In support of this scheme, the government waived interest caps on deposits in Lira that were converted to hard currencies. It also allowed accounts converted from unprotected Lira accounts with a 3% rate increase over the central bank’s 14%.

Additionally, the central banks offers higher interest on a part of foreign currency converted lira reserves. They will add 1.5% to dollar and euro deposits which are below the 10% threshold before April 15.

According to one banker, the state banks offered up to 19%, while private banks could offer up to 26% for protected lira account conversions from foreign currency.

Another senior banker explained that while smaller banks might meet the threshold, larger banks could still require client incentives.

($1 = 13.5099 liras)