On July 7, 2022, the Banking Regulatory and Supervisory Authority (the “BRSA“) published a new Decision No. 10265 (the “Decision“) to clarify the implementation of the decision of the BRSA Decision No. 10250 dated July, 24 2022 (“Restriction Decision“) introducing Turkish lira borrowing restrictions for non-financial institutions that are subject to independent audit and to ensure the effective implementation of the restrictions under the Restriction Decision.
You may refer to our legal alert dated 27 June 2022 regarding the Restriction Decision.
With this Decision, the BRSA extended the scope of the decision in order to increase the effectiveness of the restrictions, while providing certain flexibility to the restrictions specified under the Restriction Decision.
Companies whose foreign currency assets (“FX Assets”) exceed TRY 15,000,000
- The restrictions in respect of these companies remain the same except for several clarifications. Financial statements that are taken as the basis for determining whether these companies can borrow Turkish lira loan will be the financial statements prepared in accordance with the Tax Procedural Law and submitted as attached to the tax declarations (including temporary tax declarations) to tax authority (including temporary tax periods).
- If these companies are obliged to prepare consolidated financial statements, the assessment will be made based on the financial statements audited by independent audit firms. However, foreign subsidiaries and affiliates will not be included in this assessment.
Companies not allowed to borrow foreign currency loans having foreign currency net position deficit for the three-month period following their loan application
- The Restriction Decision required these companies to submit documents approved by the authorized independent audit firms to the bank in order to borrow cash loans in Turkish lira. Following the Decision, these documents no longer need to be submitted on the application date. Instead, these Companies will be able to borrow new loans if they represent that they have foreign currency net position gap by providing the amount of position gap limited only to the foreign currency net position gap in the three-month period following the loan application date. The representations and undertakings must be confirmed by independent audit firms or certified public accountants (“CPA“) and documented to the relevant bank by the close of business on the last business day of the month following the end of quarterly calendar period.
Companies whose FX Assets do not exceed TRY 15,000,000, or do not exceed 10% of the higher of their net assets and their net sales revenue of the last financial year during the term of the loan that they will borrow
- With the Restriction Decision, these companies were required to submit the information regarding the current value of their FX Assets, net assets and net sales revenue over the last 12 months as of the end of the previous month pursuant to the previous month-end balance sheet within the first 10 business days of each month. This was in addition to the representation and undertaking required to be provided by these companies stating that the Turkish lira equivalent of their FX Assets will not exceed TRY 15 million, and if it exceeds such amount, it will not exceed 10% of the higher of their net assets and their net sales revenue for the last financial year during the term of the loan that they will borrow.
- The Decision softened this requirement and consequently these companies will be able to borrow Turkish lira loans, if they provide the aforementioned representation and undertaking with effect from June, 30 2022 and submit supporting documents to the relevant bank by the close of business of the last business day of the month following the end of each quarterly calendar period.
- The most recent financial statements submitted to the tax office (including the temporary tax periods) will be used to as evidence of these issues. Companies that are obliged to prepare consolidated financial statements will be able to use the most recent consolidated financial statements audited by independent audit firms, without the condition of being submitted to the tax office, and the foreign subsidiaries and affiliates of these companies will not be included in the calculation.
Determination of companies subject to independent audit
- Companies, that are subject to independent audit and whose audit obligation will commence at the end of 2022 for the first time, will be exempted from the regulation within the scope of the Decision.
- Although a company applying for a loan represents and undertakes that it is not subject to independent audit or that its audit obligation started at the end of 2022 for the first time, if the bank has misgivings about this, the Company will have one month to evidence this fact with documents approved by CPAs or independent audit firms. However, the loan will be extended based on the representation of the applicant company.
Sanctions for failure to provide required information and documents
- If the companies fail to submit the information and documents to the bank as approved by the independent audit firm or CPA within the specified periods, or it is determined that they are subject to the borrowing restrictions within the scope of the Decision pursuant to the information and documents submitted, (i) no new commercial cash loans will be extended to such companies and (ii) a 500% risk weighting will apply to Turkish lira cash loans extended as of July 30, 2022 to these Companies regardless of the method used to calculate the amount subject to credit risk, as well as the credit risk mitigation techniques, credit ratings and real estate mortgages, for the calculation of the capital adequacy ratio pursuant to the notification by the company in accordance with the procedures and principles by the BRSA.
Status of financial leasing, factoring and finance companies
The Restriction Decision was regulating the restrictions on Turkish lira cash loans to be extended only by banks. With the Decision, the loans to be extended to these companies by financial leasing, factoring and financing companies as of August 1, 2022 are now within the scope. The obligations imposed on the banks within the scope of the Decision will also apply to these companies.
Loans exempted from the Decision
- Loans utilized through corporate credit cards except cash withdrawals
- Loans converted into cash through the Direct Debit System (Doğrudan Borçlanma Sistemi)
- Supplier financing loans and other loans qualifying as irrevocable limit commitments and for which banks provide payment guarantees to third parties other than the company that are loan customers, and paid to suppliers by crediting the company as the buyer
- Non-cash loans that are indemnified and converted into Turkish lira cash loans
- Loans restructured in accordance with a framework agreement or loans that are used in this restructuring except loans that are not restructured in accordance with a framework agreement and are renewed through an amendment to the existing loan agreement after the date of the Decision or extended to partially or completely refinance existing loans will be considered new disbursements.
- Status of Affiliates and Subsidiaries: If it is determined that the company (the parent company) is not eligible for Turkish lira loan disbursement within the scope of this Decision, the loan restriction under this Decision will apply only to the parent company. For the loans to be extended to the other subsidiaries and affiliates of the parent company subject to consolidation, it will be determined whether they are subject to the loan limitation by considering the provisions specified in the Decision separately for each affiliate and subsidiary.
- Loans Extended by Offshore Branches: The Decision will also be applicable in case the foreign branches of Turkish banks make the loans.
- The Scope of FX Assets: Participation shares of exchange traded funds that are indexed to gold or foreign currency owned by the companies or that follow such indices are also included within the scope of FX Assets.
- The Scope of Turkish Lira Cash Loans: Within the scope of the swap transactions carried out by the companies with the banks, the amounts borrowed in Turkish lira by lending foreign currency (including gold) on the spot will also be considered a Turkish lira cash commercial loan.
- The Status of Commercial Loans and Existing Loans: The company’s obligation to submit documents regarding the cash commercial Turkish lira loan disbursements to be made as of the date of the Decision through credit transactions such as revolving, overdraft accounts (“KMH”) or corporate credit cards will also be carried out in accordance with this Decision.