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

CMB Facilitates Alternative Financing Through Securitization

Legal Alerts
Capital Markets
General

Recent Development

The Capital Markets Board (“CMB”) amended the Communiqué on Asset-Backed and Mortgaged-Backed Securities No. III-58.1 (“AMBS Communiqué”) and the Communiqué on Covered Bonds No. III-59.1 (“Covered Bonds Communiqué”). The amendments entered into force with their publication in the Official Gazette dated November 11, 2018 and with No. 30592.

What’s New?

  • Pursuant to the amendments to the AMBS Communiqué, funds established by (i) banks, (ii) mortgage finance institutions (“MFI”) and (iii) broadly authorized intermediary institutions are now allowed to issue asset-backed securities (“ABS”) through the purchasing of covered bonds issued by banks and MFIs. This amendment resolves the previously ongoing debate as to whether covered bonds can be considered assets for asset backed security issuances.
  • In ABS issuances, covered bonds issued in Turkey or abroad by banks or MFIs can be included in the fund portfolio. Further, the transfer of these covered bonds to the asset portfolio of the issuer fund will not require a transfer agreement.
  • In case there is more than one originator institution transferring their assets to the funds, the issue ceiling for AMBS cannot exceed (i) twice the value of the founder’s total assets; or (ii) twice the aggregate proportionate amount of the assets of all originator institutions, by considering the assets each originator transfers to the fund.
  • ISIN code, issue date and issue value of the securities to be included in the fund portfolio will also be included in the accounting records.
  • An AMBS issued within the issue ceiling or issued by an MFI without establishing a fund must be redeemed for the issuer fund to be able to apply for a new issue ceiling.
  • The risk retention requirement for originator institutions and founders is also amended. In case there is more than one originator institution, each originator is subject to risk retention liability limited to each tranche associated with the assets it transferred.
  • In the issuance of mortgage-covered bonds, the portion exceeding 75% of the amount of the loan and the collateral provided for loans and receivables arising from housing financing were not considered. According to the amendment to the Covered Bond Communiqué, this ratio will now be 80%.
  • Both communiqués amended the applicable CMB fees. Prior to the amendments, the CMB fees varying between 0.05% and 0.2%, depending on the maturity of the AMBS or the covered bonds. However, an exemption is granted for the issuances of such securities until December 31, 2019, wherein the foregoing ratios will be 0%.

Conclusion

The amendments to the AMBS Communiqué and the Covered Bonds Communiqué facilitate the securitization of AMBS and covered bond issuances. Accordingly, banks will be able to take illiquid instruments out of their balance sheet, thereby relieving banks’ balance sheets that were adversely affected recently.