EXCLUSIVE Turkish Bank Employees Forced to Strengthen Sourcebook Defense System

A merchant counts Turkish lira banknotes at the Grand Bazaar in Istanbul, Turkey, March 29, 2019. REUTERS/Murad Sezer

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ISTANBUL, Jan 18 (Reuters) – Turkey’s major state-owned banks have set performance targets for their employees as they urge customers to convert foreign currencies into lira under a deposit protection plan introduced last month to stem a currency crisis, according to people familiar with the effort.

More than half a dozen bankers, clients and others familiar with the matter interviewed by Reuters describe a concerted push to boost adoption of the scheme, which President Tayyip Erdogan unveiled when the lira fell to a record low in the mid-December.

“Forex to pound conversion has been added as a performance criterion for employees,” said one banker, who added that they were shown statistics from competing banks to encourage competition.

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“We get called several times a day and are asked how much we’ve converted,” the banker said, requesting anonymity like the others given they weren’t authorized to speak publicly.

A second person familiar with the matter said bank chief executives were calling customers with at least $5 million in offshore deposits to pitch the new program, while others were reaching out to those who held smaller holdings.

The government has changed the program a few times over the past month to speed it up and is considering shortening, from three months now, the minimum term for deposits to be eligible, the person said.

Under this program, the Treasury and the central bank guarantee deposits with a maturity of three to 12 months against foreign exchange losses in an attempt to stop a flight to the dollar in the context of a surge in the inflation. Read more

Along with currency interventions last month, the program helped trigger a sharp rise in the lira. Yet the currency ended the year down 44%, the worst performance among emerging markets.

The Treasury, which administers the program and oversees state banks, did not immediately comment on employee targets or possibly shorter minimum deposit periods.

CUSTOMER CALL

While both private and state-owned banks have incentives to promote the plan, it is the country’s three major state-owned banks that could hold the key to its success.

Of these, Ziraat Bank declined to comment, while Vakif Bank (VAKBN.IS) and Halk Bank (HALKB.IS) did not respond to inquiries sent Friday.

Turkish rules prohibit banks from offering specific products to customers and a person familiar with the matter called the targets “unofficial”, but banker and customer accounts showed that employees had to do their best to reinforce the program.

A private export sector told Reuters that bankers who visited him tried hard to sell the program, even though he explained that it was not suitable for a company that pays for raw materials and earns income in foreign currencies.

“A lot of effort has gone into trying to convince me,” he said.

Finance Minister Nureddin Nebati said 131 billion lira ($9.7 billion) had been deposited in the protected accounts by the end of last week. Most, however, come from existing lira accounts, not dollars or euros, Reuters reported. read more read more

To boost adoption, the government added corporate currency accounts to the program last week.

CARROTS AND STICKS

The currency crisis was triggered by a series of unorthodox interest rate cuts demanded by Erdogan as part of a new economic policy that emphasizes exports, credit and investment.

The weak pound in turn pushed inflation above 36% last month, depleting Turkish savings and upending household and business budgets.

Fitch Ratings analyst Erich Arispe said the plan relieved the lira, slowed dollarization and reduced risks to bank funding, but did not solve the core problem of political uncertainty and deep negative real rates.

To support the program, the government also waived an interest cap on lira deposits converted from hard currency and allowed those converted from unprotected lira accounts to bear a 3% surcharge on top of the central bank rate of 14%.

The central bank is also offering higher interest on part of the lira reserve requirement converted from foreign currencies, and will charge a 1.5% fee on dollar and euro deposits if they miss a conversion threshold of 10 % by April 15. read more

To woo customers, state banks were offering up to 19% and private banks up to 26% on protected lira accounts converted into foreign currencies, according to one of the bankers.

But while it may help smaller banks meet the conversion threshold deadline, larger banks may still need more customer incentives to get there, another senior banker said.

($1 = 13.5099 lira)

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Additional reporting by Nevzat Devranoglu in Ankara; Written by Ali Kucukgocmen; Editing by Jonathan Spicer and Tomasz Janowski

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