The Banking Regulation and Supervision Agency (“BRSA“) previously introduced temporary measures to weather the negative impacts of the COVID-19 pandemic on the banking sector. The BRSA issued a statement on December 8, 2020 that they extended the duration of some of these measures and ended others.
What Do the Decisions Say?
Measures extended to June 30, 2021
• Capital Adequacy: To calculate the amount subject to credit risk as per the Regulation on the Calculation and Evaluation of Banks’ Capital Adequacy, banks will be able to use the Central Bank of the Republic of Turkey’s average buying exchange rate for the 252 business days prior to the relevant calculation date for the calculation of the valued amounts, as well as reserve amounts to be set aside for cash and non-cash assets (excluding assets in foreign currency measured as historical cost).
• Equity: In case the net valuation differences of banks’ securities that fall within the “Securities Whose Fair Value Difference is Reflected on Other Comprehensive Income” are negative, the banks will be entitled to disregard these differences for the calculation of capital adequacy ratio under the Regulation on Banks’ Equity.
• Calculation of Foreign Currency Position: Banks will be able to calculate their foreign currency position according to the Regulation on the Calculation and Application of Foreign Currency Net Position / Standard Equity Ratio on a Consolidated and Non-Consolidated Basis by disregarding the value decrement of the securities they held in their portfolio before March 23, 2020.
• Classification of Loans:
1.Banks: As previously discussed in our Legal Alert dated March 31, 2020, the 30-day delay envisaged for credits to fall from the first category to the second category will continue to be implemented as 90 days. Banks will be able to set aside provisions for loans that continue to be classified in the first category despite the 30-day delay according to the risk models they use for calculating the expected credit losses under TFRS 9.
As previously discussed in our Legal Alert dated March 18, 2020, the 90-day default period for loans to be classified as non-performing loans will continue to be implemented as 180 days.
Moreover, for loans that continue to be classified in the second category despite the 90-day default, banks will be able to set aside provisions in accordance with their own risk models used in the calculation of expected loan loss under TFRS 9.
Loans that are restructured and classified as performing loans following the restructuring, and loans for which the principal and/or interest payments have been overdue for more than 30 days within the one-year monitoring period or which are restructured once again within this period will continue not to be classified as third category loans.
The obligation requiring banks to dispose of the assets acquired against loan receivables in three years following the date of acquisition will not be applied.
Banks can classify as performing loans any loans whose collateral is acquired by the bank instead of the loan receivable under a right to purchase, or loans whose payments are made by transferring properties to the bank. Restructured non-performing loans can be classified as restructured loan under the second category with a monitoring period of six months.
2. Financial Institutions: As previously discussed in our Legal Alert dated March 24, 2020, the 90-day default period for financial institutions to set aside special provisions will continue to be implemented as 180 days for factoring and financing companies and 240 days for financial leasing companies. Moreover, these financial institutions will be able to set aside provisions in accordance with their own risk models for receivables that are not transferred to the “Bad Debt Account” in spite of the 90-day default.
- Credit Card Instalments: As previously discussed in our Legal Alert dated March 31, 2020, banks and financial institutions were allowed to postpone the principal and interest payments in respect of consumer loans and car loans until December 30,2020, and they were allowed to disregard the delays in payments arising therefrom while determining maturity limits that range from 48 to 60 months. These payments can now be postponed until June 30, 2021.Card issuers can choose not to block a credit card in case of the cardholder’s default.As previously discussed in our Legal Alert dated March 31, 2020, banks will be entitled to grant grace periods to cardholders wherein the banks will not request any payment (including the minimum payment amount) from them.
The BRSA terminated the measures (i) concerning the transfer to account, the availability for disposal, and the physical delivery of daily FX purchases (including cash) equal to or exceeding USD 100,000 (or the equivalent amount in another currency) by real persons with value dates of one business day; and (ii) concerning the transfer to account, and the availability for disposal of daily gold purchases equal to or exceeding 100 grams by real and legal persons with value dates of one business day.
Measures to be Terminated on December 31, 2020
The BRSA decided that the COVID-19 measures other than those mentioned above will be terminated on December 31, 2020. Accordingly:
- As previously discussed in our Legal Alert dated March 30, 2020, deposit and participation banks will be exempt from their Liquidity Coverage Ratio, and development and investment banks will be exempt from their Liquidity Adequacy Ratio requirements until the end of this year.
- As previously discussed in our Legal Alert dated April 6, 2020, measures introduced by the BRSA to facilitate banks’ and financial institutions’ compliance with their reporting requirements will be valid until the end of this year.
- Banks will be allowed to not deduct the part of their standard ratio of the interest rate risk which is in excess of 20% from their equity while calculating their capital adequacy standard ratio until the end of this year.
- Banks will be allowed to not conduct the fair value calculation for financial collaterals, which usually must be done at least every six months, and be able to consider the fair values of the financial collaterals as of December 31, 2019 instead.
The BRSA clarified how the new measures that closely affect the banking sector will apply in the future and continued the flexibilities it has provided to the financial institutions as a response to the aggravated COVID-19 pandemic.