Foreign Currency Indexed Deposit (KKM) accounts have reached a new peak

Foreign Currency Indexed Deposit

The total amount of Foreign Currency Indexed Deposit (KKM) accounts surpassed 2.7 trillion liras, rising by 91.3 billion liras during the week of June 23rd. KKM has recorded a consecutive 24-week increase.

The Banking Regulation and Supervision Agency (BDDK) has released banking data for the week of June 23rd. According to the data, the total amount of Foreign Currency Indexed Deposit (KKM) accounts reached a new peak at 2 trillion 719 billion 608 million liras.

During the week of June 23rd, KKM accounts experienced an increase of 91 billion 295 million liras.

With the latest data, KKM accounts have seen a consecutive 24-week increase. Over these 24 weeks, there has been an increase of 1 trillion 349 billion 599 million liras in the accounts.

On March 31st, the upper limit on interest rates for Foreign Currency Indexed Deposit (KKM) accounts was lifted. With this decision, while the minimum interest rate in KKM accounts continued to be aligned with the policy interest rate, banks started determining the upper limit.

Prior to this decision, the KKM interest rate, which was at 11.5%, has now exceeded an average of 40% as of this week.

What is Foreign Currency Indexed Deposit (KKM)?

Foreign Currency Indexed Deposit (KKM) is a type of deposit account offered by banks in Turkey. It is designed to protect the value of deposits against fluctuations in foreign exchange rates.

In a Foreign Currency Indexed Deposit, the principal amount is denominated in a foreign currency, typically a major currency such as the US dollar or euro. The interest earned on the deposit is also calculated based on the performance of the foreign currency, rather than being fixed or determined solely by the bank.

The interest rate on KKM accounts is usually tied to a reference rate, such as the policy interest rate set by the central bank. The minimum interest rate is typically aligned with the reference rate, while the upper limit of the interest rate can be determined by individual banks.

The purpose of KKM accounts is to provide depositors with a means to hedge against currency depreciation and inflation risks. By offering returns that are linked to foreign currency performance, KKM accounts aim to preserve the real value of deposits in the face of potential currency devaluation.

The increase in interest rates after March 31st has accelerated the growth in KKM accounts. Since that date, there has been an increase of 1 trillion 18 billion 545 million liras.

Lastly, in a decision published in the Official Gazette last week with the signature of President Recep Tayyip Erdoğan, the withholding tax exemption applied to foreign currency indexed deposit accounts was extended until December 31st, 2023.

Source BloombergHT

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