Turkish Central Bank’s one-day $10 bln profit sparks questions

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Turkey’s central bank posting an unexpected one-day profit of nearly $10 billion at the end of 2021 has left many economists wondering what caused this overnight boon that will trickle down to the nation’s treasury, Bloomberg reported.

According to the daily balance sheet of the Central Bank of Turkey (TCMB), the bank’s annual loss was around TL 70 billion ($5 billion) on December 30, 2021. However, the TCMB ended the year with TL 60 billion ($4.3 billion) of profit.

Two officials familiar with the matter told Bloomberg on condition of anonymity that the move was in line with independent auditors’ accounting advice.

This unexpected turnaround was first reported on Monday by the bank’s former deputy governor İbrahim Turhan and ex-banker Kerim Rota, both members of the opposition Future Party (GP), but many economists had to speculate in order to explain the reason behind such a move.

Speaking to Bloomberg, Turhan argued that the sizable overnight profit boost could lie in the sale of foreign-exchange reserves to the Treasury, adding that the lira’s depreciation makes foreign reserves more valuable in local currency, but that can’t be logged in the profit column until the reserves are sold.

“The same amount of dollars would then have to be bought back to maintain the reserves level,” he said.

The TCMB’s unexpected move helped it to record a profit in 2021 despite the currency crisis toward year-end, and the Ministry of Treasury and Finance, the bank’s biggest stakeholder, will begin collecting dividends in February.

The central bank “was not going to be able to transfer profits to the Treasury based on the analytic balance sheet data on Dec. 30. But on Dec. 31, a transfer of more than 100 billion lira became possible,” Reuters quoted an anonymous banker as saying.

A sharp drop in the account in 2019 prompted similar speculation that the central bank would transfer funds to state coffers, which it did.

Such large overnight changes had not happened in the past and there was no publicly announced forex sale on Dec. 31, Haluk Bürümcekçi, founder of Bürümcekçi Research & Consulting, tweeted on Tuesday.

“It seems that with this operation, the central bank has closed the year with a profit and has come to a position to transfer profits to the Treasury in April,” he said on Twitter.

“I hope an explanation is made to the public in the coming days regarding how this big change was realized,” Bürümcekçi added.

The TCMB’s move came after President Recep Tayyip Erdoğan’s ruling Justice and Development Party (AKP) announced measures to contain the meltdown of the national currency.

Erdoğan on Dec. 20 unveiled an emergency plan to help the Turkish currency curb losses which stipulates that the country’s treasury will make up for losses incurred by holders of lira deposits should the lira’s declines against hard currencies exceed bank interest rates.

The lira was by far the worst performer in emerging markets in 2021, as well as in the last few years, as it lost 44 percent of its value against the US currency over the year.

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