The proposed amendments to the Banking Law No. 5411 (“Banking Law”); the Debit Cards and Credit Cards Law No. 5464; and the Financial Leasing, Factoring and Finance Companies Law No. 6361 were introduced to the Grand National Assembly of Turkey for discussions on February 6, 2020.
Expanding the scope of transactions considered as loans
- The proposal aims to expand the scope of transactions considered “loans” by (i) adding other financing methods to be determined by the Banking Regulatory and Supervisory Authority (the “BRSA”) to the financing of development and investment banks, and participation banks; and (ii) authorizing the BRSA to assume new financing methods that may emerge.
Re-determination of the scopes of risk groups
- The amendments now include the spouses and children of the persons that are already captured under a risk group to the risk group of the relevant bank.
- The proposal suggests that the banks owned by Turkey Wealth Fund (“TWF”), Turkey Wealth Fund Management Co. (“TWF ManCo”) or any sub-funds constitute an individual risk group.
Inclusion of Turkey Wealth Fund in the scope of transactions that are not subject to credit restrictions
- The amendment stipulates that transactions with TWF, TWF ManCo or their sub-funds, as well as bonds, other securities and similar debt instruments issued or guaranteed by these institutions will not be subject to credit restrictions.
Expanding the fields of activity of development and investment banks
- The proposed changes expand the areas where development and investment banks can procure funds, and to grant more authority to the BRSA to determine these areas.
- Accordingly, (i) in addition to participation banks, development and investment banks may also operate with interest-free methods and the BRSA may determine the principles and procedures for these operations; and (ii) partnerships invested in by participation banks and development and investment banks to provide interest-free financing are not considered to be in the risk group of the relevant bank.
Intensification of oversight and supervision in banking
- The proposal envisions increasing effectiveness of oversight and supervision processes and accelerating decision-making and implementation processes by having banks create prevention plans. Banks must prepare these prevention plans after determining any potential issues that might arise in their financial structures and their estimated response measures. The banks will submit the plans to the BRSA, and retain the prevention plans for any audits. The BRSA would have the authority to determine principles and procedures concerning the plans’ implementations. Furthermore, it authorizes the BRSA to take the necessary measures without waiting for the implementation of the banks’ prevention plans if, in the course of its supervision, the Board determined an occurrence or potential occurrence of circumstances leading to disruption in the banks’ financial structures.
- The draft law stipulates that the following will be considered “market manipulation”: banks’ transactions and practices intended to create or increase artificial supply, demand or price formation, including exchange rates; spreading incorrect and misleading information by various means, including online media; incorrect and misleading guidance for savings account holders; performing similar transactions to mislead or manipulate transactions in financial markets; and any other transactions and practices the BRSA may determine.
Stronger protection of banking secrets
- The planned amendment stipulates the prohibition of sharing client information with domestic and foreign individual or legal entities without an active request or instruction from the client, even if an explicit consent is obtained pursuant to the Law No. 6698 on Protection of Personal Data; and authorizes the BRSA to introduce additional restrictions on the transfer of client information abroad.
Delegation of authority to determine banking activity fees
- The amendments provide for the delegation of authority from the President of the Republic to the Central Bank of the Republic of Turkey (“CBRT”) in terms of determination of fees, expenses and commissions under any name whatsoever, collected by banks from any activity such as credits, deposits, foreign trades, transfers, cash management and credit cards.
Aggravation of penalties and measures within the scope of banking laws
- The draft law increases administrative fines applicable to the financial institutions that are subject to the Banking Law, the Debit Cards and Credit Cards Law No. 5464; and the Financial Leasing, Factoring and Finance Companies Law by up to a hundredfold.
- The amendment provides, if the shareholding limits determined pursuant to the Banking Law are exceeded, the deduction of the excess amount from the highest risk weight instead of the deduction of the excess amount from the principal capital in the equity capital calculation.
Authority granted to the CBRT to announce maximum contractual and default interest rates
- The proposed amendment annuls the three-month period granted to the CBRT to announce the maximum contractual and default interest rates, and instead enables the CBRT to determine the rates at any time and intervals it deems appropriate.
Increasing minimum capital amounts of factoring companies
- The proposal aims to strengthen the capital structures of factoring companies by increasing the minimum capital from TRY 20 million to TRY 50 million. In addition, the existing factoring companies must increase their capitals to TRY 50 million within one year from the effective date of the draft law, and this period may be extended up to two years by the BRSA.
The proposal, which is under discussion before the Grand National Assembly of Turkey, brings new tools that would enable the Turkish banking laws to be modernized through strengthened sectoral security and adaptation to the changing conditions. Accordingly, the proposal is expected to pave the way for the growth of Turkish banking industry with stronger market security.