Central Bank to Allow Free Determination of Interest Rates. According to the latest announcement from the Central Bank of the Republic of Turkey, a new communique has been issued to set the principles and conditions for deposit and loan interest rates and profit-and-loss participation ratios for participation accounts. The decision published in today’s Official Gazette is as follows. The Communique on Deposit and Loan Interest Rates and Profit-and-Loss Participation Ratios for Participation Accounts will enter into force on March 1, 2020. Under the Communique, banks will be free to set fixed or variable interest rates applied to deposits. However, the annual interest rate on demand deposits will not exceed 0.25%.
Variable interest rates can be applied to Turkish lira deposits with maturities longer than three months and to deposits with maturities longer than six months. The method for calculating variable interest for Turkish lira deposits and foreign currency deposit accounts may be determined by banks after approval by the Central Bank of the Republic of Turkey. Additionally, variable interest calculation methods for Turkish lira deposits may be based on inflation rates calculated from the Producer Price Index, Consumer Price Index and their subcomponents as announced by the Turkish Statistical Institute, money market interest rates, the Central Bank’s borrowing or lending rates, deposit interest rates set by banks, Government Domestic Debt Securities yields, Borsa Istanbul indices and price changes in baskets of equities traded on that exchange. These variable calculation methods must be notified to the Central Bank before implementation.
The variable interest calculation method will be clearly stated in the account passbook provided to the customer or in the contract with the customer. Interest rates for deposit accounts opened in Turkish lira cannot be indexed to foreign currency or precious metals.
Banks may freely determine interest rates for loans other than rediscount and advance facilities provided by the Central Bank. The maximum contractual and default interest rates applied to overdraft accounts will not exceed the ceilings set by the Central Bank under the Banks Cards and Credit Cards Law.
Profit-and-Loss Ratios for Participation Accounts
Profit-and-loss ratios for participation accounts, namely the profit share arising from operating the funds collected in participation accounts, will be freely determined by agreement between participation banks and account holders. Any losses arising in participation accounts will be borne by the account holders. Participation banks will not be obliged to share in losses except in cases of willful misconduct, fault or negligence on the part of the banks.
How Will Notification and Announcement Be Made?
How Will Notification and Announcement Be Made? Maximum interest rates for deposit and loan transactions and maximum profit-and-loss participation ratios for participation accounts, which banks set freely, must be reported to the Central Bank in accordance with the principles to be established before they are implemented.
Subject to not exceeding the maximum rates notified to the Central Bank, banks will announce the interest rates they will apply to deposit and loan transactions and the profit-and-loss participation ratios for participation accounts. These rates must be posted at all branches in a manner visible to the public, listed by maturity, and published on the banks’ websites.