Borsa Istanbul's reference rate to remove interest risk

ISTANBUL

Borsa Istanbul's Turkish lira overnight reference rate (TLREF) will enable banks to manage interest rate risks, its CEO said on Thursday.

"Our banks have to hold billions of U.S. dollars abroad to provide long-term Turkish lira financing and manage interest rate risks of long-term Turkish lira loans," Murat Cetinkaya told Anadolu Agency.

He added: "As TLREF-based swap transactions become widespread, the banking system will not need to use the U.S. dollar to manage interest rate risk and send this resource abroad."

Banks at present have to hold huge amounts of the U.S. dollar, exceeding $25 billion, abroad.

Recalling that announcement of the world's most important reference rate London Interbank Offered Rate (LIBOR) will cease in 2021, he said Borsa Istanbul had gauged an opportunity for the lira and created the TLREF with support of the Central Bank.

"We consolidated liquidity and created TLREF which is Turkish lira reference interest rate in accordance with international standards," Cetinkaya said.

He noted rules of TLREF were formed by a permanent committee with members from the Treasury and Finance Ministry, the Central Bank, the Turkish Capital Markets Association and Borsa Istanbul.

The European Bank for Reconstruction and Development (EBRD) is also a partner of TLREF process, Cetinkaya said.

He said: "If we have a floating interest, which was agreed by each local and foreign institution, we will have the opportunity to manage our interest risk by making a fixed and floating Turkish lira interest rate swap agreement without having to exchange the Turkish lira with foreign currency."

Using the U.S. dollar for long-term Turkish lira loans by banks strengthens dollarization in the finance system, he said.

The first TLREF-based bond issuance was made on Wednesday by state-owned Ziraat Bank -- a quarterly, floating-rate coupon worth 750 million Turkish liras ($128.4 million).

Cetinkaya said that other banks were expected to issue similar TLREF-bonds.

* Writing by Gokhan Ergocun