Turkey Limits Money-Market Funds as Savers Hunt for Yield

(Bloomberg) -- Turkish authorities imposed a limit on how much cash money-market funds can hold after savers flocked to the higher-yielding instruments to protect themselves against rampant inflation, draining bank deposits.

Money-market funds need to invest at least half of their holdings in deposit accounts at the nation’s commercial lenders, compared with a maximum 10 percent previously, according to a Capital Markets Board ruling on Tuesday night. Since the beginning of the year, the size of money-market funds more than doubled to 28.5 billion liras ($5.2 billion), according to data from Istanbul Clearing, Settlement and Custody Bank Inc., or Takasbank.

The rush to money markets comes as the government leans on lenders to lower interest charges, driving deposit rates to levels that barely compensate savers for inflation running at 20 percent. That forced them out of traditional bank deposits and fueled a rush for dollars. Money-market funds yield around 21 percent, according to Turkey Electronic Fund Trading Platform, compared with an average 19 percent on one-month deposits.

Lira deposits held by commercial lenders fell 29.2 billion liras this year though March 1, according to the Banking Regulation and Supervision Agency.

Stocks Gain

Tuesday’s ordinance will redirect around 9 billion liras worth of funds back into bank deposits and will mostly benefit small- and mid-scale banks, according to Selim Kunter, an analyst at Deniz Invest, a broker in Istanbul. Deposits redirected from money-market funds to any single bank can’t exceed 6 percent of the fund’s total value, according to the Capital Market Board ruling.

The Borsa Istanbul 100 Index advanced for a second day, led by the nation’s largest listed lenders. Turkiye Garanti Bankasi AS jumped as much as 2 percent, while Akbank TAS gained 1.7 percent, touching the highest level since Friday. Only one lender declined in the 13-member Borsa Istanbul Banks Sector Index.

“I see it as a positive step that will increase bank deposits,” said Murat Salar, the chief executive officer of Azimut Portfoy in Istanbul. “On the other hand, there may be a switch to foreign currencies, but banks may control that by adjusting deposit rates in line with their needs.”

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