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Legal Alerts
11/09/2021 https://www.esin.av.tr/wp-content/themes/esin/images/esin.jpg

Loan Classifications Modified In Favor of Financial Restructuring

Legal Alerts
Banking & Finance
General

Recent Development

The Banking Regulatory and Supervisory Authority (“BRSA“) amended the Regulation on Principles and Procedures Regarding the Classification of Loans and Reserves Set Aside for Such Loans (“Regulation”). The amendment entered into force with its publication in the Official Gazette No. 30510 on August 15, 2018.

What’s New?

  • Restructured loans are classified as and monitored in Group II if they are not considered non-performing loans. Non- performing loans are also monitored in Group II if they cease to be non-performing upon restructuring.
  • The amendment abolishes the requirement to automatically treat the loan repayment of which is due for more than 30 days as restructured loans and classify them as Group II.
  • The amendment facilitates the re-classification from Group I to Group II of loans restructured by the banks which apply TRFS 9. The relevant loans monitored in Group II as restructured loans for at least three months and meeting certain conditions can be re-classified as Group I by no longer being treated as a restructured loan.
  • Lastly, changes to the commercial terms of a loan or the refinancing thereof will not be considered restructuring, provided that the borrower is not experiencing financial difficulties. Such loans will continue to be monitored under Group I.

Conclusion

The amendments will likely result in a decline in the amount of Group II loans and the provisions banks are required to set aside for these loans, thus facilitating financial restructurings.