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Legal Alerts

FX borrowing restrictions in Turkey softened

Legal Alerts
Banking & Finance
Financial Institutions
FX borrowing restrictions in Turkey softened
Recent DevelopmentThe Council of Ministers published a decree amending the Decree No. 32 on the Protection of the Value of the Turkish Currency (“Decree No. 32“) in the Official Gazette No. 30312 on 25 January 2018.

The Central Bank of the Republic of Turkey (“Central Bank“) abolished the Capital Movement Circular No. 2002/YB-1 and dated 2 January 2002 and published a new capital movement circular (“Capital Movement Circular“) explaining the implementation of the amendments.

The Capital Movement Circular introduces new exceptions to the FX borrowing restrictions.

The Capital Movement Circular entered into force on 2 May 2018.

What does the Capital Movements Circular Say?
In our legal alert dated 26 January 2018, we explained the amendments to the Decree No. 32 and stated that Turkish resident persons must have sufficient FX income to utilize FX loans; otherwise, they will not be entitled to utilize FX loans except for several limited exceptions.
In our legal alert dated 6 March 2018, we opined that these restrictions would adversely affect acquisition finance and project finance.

The Capital Movement Circular now clarifies the FX loan borrowing restrictions.

New Exceptions to FX Borrowing Restrictions

In addition to the exceptions set out in our earlier legal alerts, Turkish resident persons will no longer need to have FX income to utilize FX loans from Turkey or abroad in the following cases.

  • FX loans to be borrowed by Turkish residents for the financing of renewable energy investments made under the framework of the Law No. 5346 on Use of Renewable Energy Resources for the Purposes of Generating Electricity.
  • FX loans to be borrowed by Turkish residents who won tenders launched in accordance with Privatization Law No. 4046 and other public tenders in which the price was determined in FX.
  • FX loans to be utilized by Turkish special purpose vehicles established for purchasing a target company’s shares in acquisition finance transactions.

Details Regarding the Utilization of FX Loans

FX Loans Utilized From Abroad

Turkish banks will be obliged to review the content of SWIFT messages transmitted regarding money transfers from abroad to their customers’ FX accounts. If they determine the transfer amount is a loan, they will consider this as FX loan obtained abroad and process it accordingly.

Turkish intermediary banks will be required to verify if the Turkish borrower complies with the FX borrowing rules.

Turkish residents will be required to provide a copy of the facility agreement and repayment plan to the Turkish bank acting as an intermediary. Further, this bank will also be required to monitor whether the repayment was made or not.

FX Loans Utilized From Turkey

Turkish residents will be able to borrow FX loans solely from banks and financial institutions. In this respect, Turkish companies will no longer be able to extend FX loan to other companies. Turkish banks and financial institutions will be obliged to notify the Undersecretariat of the Treasury regarding the persons breaching the prohibition through bridge loans or similar transactions.


FX denominated funds to be utilized through factoring transactions without recourse (save for those related to export and transit trade transactions) and factoring transactions with recourse will be considered FX loans and processed accordingly.

Other Issues

Turkish residents with FX income will be required to provide FX income declaration, the example of which is annexed to the Capital Movement Circular, to banks and financial institutions along with a report  prepared and approved by public accountants or certified public accountants based on the last three years’ unconsolidated financial statements. Each company will need to provide its FX income declaration form, regardless of whether they are a group company or a holding company. Nevertheless, when calculating the FX loan balance and FX income of a holding company or the group company of a holding company, the total FX loan balance and FX income of all companies under the holding company will be taken into regard.​

FX income obtained from Turkish residents will not be deemed FX income except for the income generated from the sales and deliveries deemed export and FX earning services and activities. However, certain TRY denominated incomes generated from abroad may be included in FX income.

The accountants will be obliged to verify whether the scope of a company’s FX income complies with the Capital Movements Circular.

Turkish banks and financial institutions will be required to notify the Banks Association of Turkey – Risk Center regarding FX loans utilized by Turkish resident persons and FX income declarations forms.

The loan limit for borrowers utilizing FX loans within their investment incentive certificate will be limited to the amount stated in their certificate. Central Bank selling rates at the time of utilization will be used in calculating the loan limit.

Restructurings made in accordance with the Regulation on Principles and Procedures Regarding Qualifications of the Loans and Provisions to be Set Aside will not be subject to the FX borrowing restrictions. However, foreign indexed loans will not be structured again as foreign indexed loans.

It was unclear whether disbursement into the borrower’s account with the lender foreign bank and the subsequent transfer of the loan proceeds to the borrower’s account in Turkey would satisfy the requirement that foreign loans must be utilized through Turkish banks. The amendments clarify this, stating this utilization satisfies the requirement if the lender foreign bank issues a statement that the proceeds were deposited into an account in the borrower’s name.

While the FX borrowing restrictions mainly apply to cash loans, the Capital Movements Circular clarified that non-cash loans will become subject to these restriction when they convert into cash loans (e.g., upon payment through a letter of guarantee).


The Capital Movements Circular clarified the implementation of the new FX borrowing restrictions, introduced additional exceptions, and softened restrictions.