Drop in key Turkish central bank account raises eyebrows

A so-called “valuation” account at Turkey‘s central bank has fallen by a third over the last month, prompting concerns among some bankers that the bank may transfer some of the funds to government coffers.

The account was worth 47.2 billion lira as of November 20, according to the analytical balance sheet published on the central bank’s website, down from 69 billion lira a month ago.

Reuters News Agency, citing a person with knowledge of the matter, reported last month that Ankara was working on transferring some 100 billion lira ($17.5bn) from the valuation account to the Treasury.

Such a fund transfer would mark Turkey’s latest step to lean on the central bank to shore up its budget deficit, which has widened this year.

Central bank governor Murat Uysal said earlier this month such a plan did not exist. The central bank told Reuters on Friday there was no change in how it operated the valuation account.

The valuation account contains unrealised gains and losses arising from the revaluation of foreign currencies, gold and other assets and liabilities, based on price changes of the lira and gold on international markets.

It has proven volatile due to sharp moves in the Turkish lira, which lost as much as half its value in a crisis last year. The account was worth 45 billion lira at the end of 2018, and 55 billion lira at the end of 2017.

“We see inexplicable changes in the balance sheet, and we had seen similar changes in the transfer of contingency (legal) reserves. We interpret this as a preparation to transfer [funds] to the Treasury,” said a banker who requested anonymity due to the sensitive issue.

“If a similar trend continues through year-end in other budget items, the central bank’s profit will rise by 15-22 billion lira” which could be transferred to the Treasury, the banker added.

Turkey’s parliament passed a law in July allowing the central bank’s legal reserves, estimated at 40 billion lira, to be transferred to the Treasury.

“If the inexplicable changes in the analytical balance sheet of the central bank continues, the profit transfer to the Treasury may reach 60-70 billion lira within a few months, and may be [used] to finance the budget,” a second banker said.