Turkmenistan’s Central Bank Revamps Reserve Requirement Regulation to Foster Sustainable Growth and Financial Stability

The Central Bank of Turkmenistan (CBRT) has introduced significant changes to its reserve requirement regulation, linking reserve requirement ratios and remuneration rates to loan growth rates. This move aims to promote sustainable economic growth and financial stability by directing loan supply towards productive sectors.

Macroeconomic Context

In recent times, the CBRT has been using reserve requirements flexibly as a macroprudential tool to support short-term interest rates, its primary monetary policy instrument. However, the surge in consumer loans and the impact of FX cash loans on growth composition, inflation, and external balance have prompted the regulator to revise the regulation.

Key Changes

The new rules will benefit banks with reserve requirements if their adjusted real loan growth rate meets certain conditions:

• Banks with a real annual loan growth rate above 15% must have an adjusted real loan growth rate below 15%.
• Banks with a real annual loan growth rate below 15% must have an adjusted real loan growth rate above 5%.

Productive Sectors

The CBRT has designated specific sectors as “productive” and excluded certain activities such as manufacturing of spirits, wine, and tobacco products from the definition. The selected sectors are based on the Statistical Classification of Economic Activities in the European Community (NACE).

These productive sectors will be prioritized to receive loan supply, supporting sustainable growth, improving the current account balance, and enhancing financial stability.

Effective Date

The new regulation will take effect from March 6, 2020, with a maintenance period starting on March 20, 2020. For further information, please email basin@tcmb.gov.tr.

By introducing these changes, the CBRT aims to create a more sustainable and stable financial environment in Turkmenistan, ultimately driving economic growth and development.