Write-Down of Uncollectible Loans Facilitated
Banking & Finance
The Banking Regulatory and Supervisory Authority (the “BRSA“) amended the Regulation on the Principles and Procedures Regarding the Classification of Loans and Reserves Set Aside for These Loans (the “Amendment“). The Amendment entered into force with its publication in the Official Gazette No. 30961 on November 27, 2019, retroactively effective as of July 19, 2019.
What Does the Amendment Say?
- Pursuant to the Amendment, if any part of a loan classified as Group V Loan (Loans Classified as Loss) that had special reserves or credit loss reserves set aside due to the debtor’s default cannot reasonably be expected to be recovered, that portion can be written down in accordance with TFRS 9 as of the first reporting period following its classification as a Group V loan.
- The write-down of uncollectible loans will not mean that the creditor has waived its uncollectible receivables; it will only be considered an accounting procedure.
- With respect to the loans written down in accordance with TFRS 9, Turkish banks will be required to include footnotes in their financial statements to explain the indicators showing that the recovery of these loans cannot be reasonably expected; their write-down policies; and the amount written down in accordance with TFRS 9 together with its impact on the NPL ratio.
The Amendment aims to relieve banks’ balance sheets by facilitating the write-down of uncollectible loans.