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COVID-19: Treasury is Increasing Its Support to Credit Guarantee Institutions

Legal Alerts
Covid-19
Banking & Finance

Recent Developments

The Amendments (the “Amendments“) to the Decree on Treasury Support to Credit Guarantee Institutions (the “Decree”) entered into force through its publication in the Official Gazette dated March 30, 2020 and No. 31084.  The Amendments redefined the monetary limits stipulated in the Decree and increased the support provided to financial institutions through Turkish credit guarantee institutions (the ”Credit Guarantee Institutions”).

What’s New? 

Highlights of Amendments are as follows:

  • The Investment and Development Bank of Turkey is now included among the lenders to whom the Ministry of Treasury and Finance (the ”Ministry”) will provide support through the Credit Guarantee Institutions (the ”Lenders”).
  • The definition of “credits” under the scope of the Decree is extended to include consumer loans.
  • As per Provisional Article 6, until December 31, 2020, it is no longer a requirement for new surety applicants to demonstrate that they do not have any overdue debts to the tax administration or the social security institution.
  • The following matters will be included in the protocols to be signed between the Ministry and the Credit Guarantee Institutions (“Protocols“):
    • Additional conditions regarding credit products for financing consumers and corporates by Lenders.
    • Minimum information to be included in the Treasury Supported Surety System Compliance Audit Report (“Audit Report”).
  • The surety limits for each beneficiary entitled to benefit from the surety support of the Credit Guarantee Institutions in accordance with the Decree (”Beneficiary”) were redefined as follows:
    • Maximum TRY 100,000 for real person beneficiaries.
    • Maximum TRY 35 million, up from TRY 25 million, for SMEs. However, as per the provisional article, this limit will be maximum TRY 50 million until December 31, 2020.
    • Maximum TRY 250 million, up from TRY 200 million, for legal entity beneficiaries other than SMEs.  However, as per the provisional article, this limit will be maximum TRY 350 million until December 31, 2020.
  • The maximum total balance of the guarantees that Credit Guarantee Institutions can grant increased from TRY 250 billion to TRY 500 billion.
  • The maximum total amount of funds that the Ministry can transfer to Credit Guarantee Institutions increased from TRY 25 billion to TRY 50 billion.
  • The Ministry will reimburse compensation claims arising from credit transactions that the Lenders concluded in accordance with the maximum surety rate and compensation limit defined in line with the surety limit foreseen by the Credit Guarantee Institutions, provided that the claims meet the conditions listed in the Decree.
  • If the credits within the scope of the Decree are restructured by the Lenders, the grace period will be a maximum of 24 additional months instead of 12 months. Interest for the grace period will be accrued at the end of a maximum one year period.
  • The Credit Guarantee Institutions will assume that the Lenders’ credit assessment complies with the banking principles; the Lenders’ internal procedures; and the general banking practice. The Credit Guarantee Institutions will not conduct any further credit assessment. However, if a Lender’s assessment is not in accordance with the above rules and principles, and any credit is extended to a Beneficiary which does not meet the requirements in the Decree, the relevant surety will become void as of the date of its issuance. Further, if the Lenders conduct any transactions that are inconsistent with the Decree or the Protocol, the relevant sureties will also become void as of the dates of their issuance.
  • Compensation payments made for sureties that becomes void will be recalled. Further, the Ministry will be entitled to suspend the related sureties and cease the relevant compensation payments until the necessary review and inspections are concluded.
  • Each Lender must prepare an Audit Report every six months and submit the Audit Report to the Credit Guarantee Institutions until the end of the second month following the relevant reporting period. The Credit Guarantee Institutions will send the reports to the Ministry.
  • The Credit Guarantee Institutions will require the Ministry’s approval in order to cancel the unutilized limits granted to the Lenders and not to grant additional limits, based on the performance evaluations the Credit Guarantee Institutions conduct.

Conclusion

The Amendments aim, by further supporting the financial markets, to incentivize the lenders to extend their support to business should a financial recession occur due to the COVID-19 outbreak.