Article 42(3) of the Capital Movements Circular dated May 2, 2018 (”Circular”) sets out that foreign currency denominated funds provided by banks and factoring companies to firms via purchasing existing or future trade receivables other than export and transit trade receivables are considered foreign currency denominated loans. However, the Circular was silent on (i) the scope of the FX loans; and (ii) the party of the underlying commercial relationship (i.e. buyer or seller) to be reported to the Risk Center of Turkish Banks’ Association (”Risk Center”) for the FX loans.
On July 20, 2020, the Central Bank of Republic of Turkey revised the Circular in line with the letter No. 394743 issued by Ministry of Treasury and Finance and provided clarifications regarding the following points:
- If existing or future domestic trade receivables denominated in foreign currency are purchased on a non-recourse basis, the transaction will not be considered a foreign currency denominated loan.
- For tracking the transaction, the bank or factoring company will report the loan disbursement to the Risk Center on behalf of the seller on the transfer date.
- On the maturity date of the purchased receivables, the transferee bank or factoring company will notify the Risk Center to deduct the relevant amount from the credit balance of the seller, regardless of whether the receivables are collected or not.
The amendments clarified the scope of Article 42(3) of the Circular.