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The Banking Regulation and Supervision Authority (the “BRSA”) and the Central Bank of the Republic of Turkey (the “Central Bank”) introduced certain legislative changes, to support financial stability and sustain the effective functioning of markets, following the plunge in the value of Turkish Lira.>
New Regulation on Restructuring of Loans
The Regulation on
Restructuring of Loans was published in the Official Gazette and entered into
force on August 15, 2018 (the “Restructuring Regulation”). Under the
Restructuring Regulation, the lenders may extend maturities, refinance loans
and extend new loans to help troubled companies, thus providing some comfort to
the real sector.
The Restructuring Regulation
mainly introduces precautions in relation to the restructuring of the loans
provided by banks, financial leasing companies, factoring companies and other
financial institutions (the “Lender”), to ensure that companies are able
to comply with their repayment obligations and continue providing employment
opportunities. Eligibility for benefitting from the Restructuring Regulation
will be determined on the basis that following implementation of the
restructuring or repayment plan, the borrower will actually be able to repay
its debts.
The financial restructuring
agreements between the Lenders and the borrowers will be executed within the scope
of the agreement which the Banks Association of Turkey (Türkiye Bankalar
Birliği) (the “TBB”) will prepare and execute with the Lenders as a
framework agreement for the restructuring of loans (the “Framework Agreement”).
The Framework Agreement may be tailored for different borrower groups,
classified by scale and industrial scope of activity, and shall mainly include:
(i) fundamental terms and conditions applicable to the financial restructuring
process mechanism, (ii) minimum qualifications for the borrowers, (iii)
obligations of the parties to the agreement, (iv) breach of the agreement, (v)
fundamental elements of the agreement to be executed between the Lender and the
borrower and the minimum framework outlining the rights and obligations of the
parties. The executed copies of the Framework Agreements will be submitted to
the BRSA, for review of compliance with the Banking Law numbered 5411 and the
Restructuring Regulation. The TBB will amend the agreement upon the request of
the BRSA and will re-submit the executed copy to the BRSA for its approval. The
Framework Agreement enters into force following the approval of the BRSA and can
only be amended with the prior approval of the BRSA.
Troubled companies may
refinance their loans under the umbrella of the Framework Agreement within two
years of its execution and such Framework Agreement will be in effect only upon
execution of the relevant financial restructuring agreement. The TBB may extend
such two year term. The terms and conditions for the eligibility of the
borrowers, to execute the financial restructuring agreements, will be
determined under the Framework Agreement. Accordingly, the financial status and
the eligibility of the borrower will be analyzed by institutions, set forth in
the Framework Agreement and approved by the BRSA.
Although the Restructuring
Regulation is quite similar to the financial restructuring legislation which
was enacted as a response to the financial crisis of 2001 in Turkey, we expect
the specific terms and conditions, as well as certain rights granted to the Lenders, e.g. demanding
borrowers to sell their assets to repay their loans, to be determined under the
Framework Agreement. For the time being, the Restructuring Regulation sets
forth that the Framework Agreements and the financial restructuring agreements
may take precautions by: (i) extending the maturity of the loan; (ii) renewing
the loan; (iii) extending an additional loan; (iv) lowering or waiving any kind
of receivables arising from the loan, interest, default interest, dividend
payments and other receivables; (v) partial or complete conversion to
contribution; assignment or transfer in kind, in cash or in exchange of a
collection requirement; partial or complete liquidation, sale or taking off-balance
of the loan, interest or receivables from dividend payments; (vi) executing
protocols with other banks and Lenders, with the aim of acting in concert. Upon
execution of the financial restructuring agreement, the statute of limitations
relating to the loans of the borrower will cut off.
Furthermore, in the event the
financial restructuring agreement is executed by the majority of the Lenders
corresponding to two-thirds of the receivables from the borrowers, then all
Lenders will be under the obligation to restructure the loan of the borrower.
This requirement was not provided in the restructuring legislation enacted with
the 2001 financial crisis, under which any Lender was able to block the
restructuring of a loan simply by vetoing.
Another regulatory change was
the amendment to the Regulation on Procedures and Principles for Classification
of Loans and Provisions to be Set Aside, published on August 15, indicating
that after monitoring of “loans under close monitoring due to significant
financial risk” (classified as Group II Loans) for a period of at least three
months, such loan may be reclassified as “loans of a standard nature”
(classified as Group I Loans), provided that it meets certain requirements.
Also amending the terms or partial or entire refinancing of the “loans of a
standard nature” (classified as Group I Loans) shall not fall within the scope
of a restructuring and shall continue to be monitored as a Group I Loan.
As a follow up to the above,
there were additional regulatory changes which shortened the maximum maturity
on consumer loans, allowed a restructuring of the outstanding amounts under
consumer loans and placed new limits on credit card instalments to control
consumer spending.
Restrictions on the Banking
Sector
The BRSA and the Central Bank
further introduced changes in swap, liquidity management and reserve
requirements of banks, aiming to ease the market concerns over the fluctuation
of the Turkish Lira.
The BRSA imposed a restriction
on foreign exchange swap operations, preventing Turkish banks to enter into
currency swap and other similar dealings (spot and foreign exchange forward
dealing transactions), where the activity exceeds 25% of the bank’s capital.
The rates will be calculated daily on a consolidated and individual basis, and
new transactions will not be performed or renewed until the current excess
amount is eliminated. The aim and the expected result of such restriction is to
preclude the Turkish Lira devaluation as a result of the transactions where
foreign actors become indebted in Turkish Lira and purchase foreign currency.
The Central Bank announced
that it will provide all the liquidity needed by banks, within the framework of
intraday and overnight standing facilities and raised the foreign exchange
deposit limits for Turkish lira transactions of the banks from Euro 7.2 billion
to Euro 20 billion. It set forth that the discount rates for collaterals
against Turkish lira transactions will be revised based on their type and
maturity, thus providing banks with flexibility in the management of
collaterals. Further, to provide flexibility in the banks’ collateral
management, upon request of the banks, the winning bids in one-week repo
auctions will be allowed to be fully or partially used in deposit transactions,
instead of repo transactions at the Central Bank Interbank Money Market with
the same interest rate and maturity.
The Central Bank also lowered
Turkish lira reserve requirement ratios by 250 basis points for all maturity
brackets and reserve requirement ratios for non-core FX liabilities by 400
basis points for up to three-year maturities. The banks’ current foreign
exchange deposit limits of around USD 50 billion may be increased and utilization
conditions may be improved if deemed necessary and banks are allowed to borrow
FX deposits in one month maturity in addition to one week maturity.
This information is provided
for your convenience and does not constitute legal advice. It is prepared for
the general information of our clients and other interested persons. This
should not be acted upon in any specific situation without appropriate legal
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