The Banking Regulation and Supervision Agency (“BRSA“) introduced amendments to the Regulation on the Procedures and Principles Regarding the Classification of Loans and Provisions to be Set Aside for These Loans (the “Regulation“) on July 6, 2021 (the “Amendment“).
In accordance with the Amendment:
- Banks will set written criteria for the reclassification of their non-performing loans.
- Prior to restructuring a non-performing loan, banks will assess the debtor repayment capacity and decide accordingly.
- Banks that do not apply TFRS 9, will classify and monitor
- electronic product bills traded on Türkiye Ürün İhtisas Borsası A.Ş., and
- government-backed commercial credit insurance policies
under the Second Group Securities.
- Banks are required to dispose of the properties acquired in return for non-performing loans in three years of the acquisition. This obligation now applies to “shares” and “other assets” acquired in return for non-performing loans. Further, the BRSA is now authorized to change the three-year limitation.
- Lastly, banks are now required to have fair market valuation for commodities, properties, shares and other assets they will acquire in return for non-performing loans in line with the principles and procedures specified in the Communiqué on Credit Risk Mitigation Techniques before they acquire such assets. They will need to record these assets over the lower of (i) the amount deducted from the non-performing loan and (ii) the fair market value less sales.
The BRSA clarified the classification of non-performing loans and the treatment of the assets acquired in return for them.