Recent Development
The Central Bank of the Republic of Türkiye (the “CBRT“) has introduced a new framework under the Capital Movements Circular (the “Circular“) governing the on-lending of external financing obtained by public institutions and organizations from international organizations to Türkiye-resident legal entities in the form of foreign currency loans.
What’s New?
- Article 54/A of the Circular: FX loans extended by public institutions and organizations to Türkiye-resident legal entities
Under the existing Article 54 of the Circular, public institutions and organizations were permitted to extend foreign currency loans, through banks, solely to their own affiliates and only within the scope of obligations arising under international agreements; whereas the newly introduced Article 54/A, the CBRT has now expressly permitted public institutions and organizations to on-lend, in foreign currency, financing obtained from international organizations to Türkiye-resident legal entities, irrespective of any shareholding or affiliation relationship, with the transfer to be effected through banks. In this context, the intermediary bank is responsible for verifying compliance of the utilization with the rules set out in Article 14 of the Circular, and the utilized amount is recorded as part of the borrower’s credit balance by the intermediary bank and reported to the Risk Center. Article 54/A further sets out the procedural framework applicable to such loans, including (i) the requirement to submit the relevant agreements to the intermediary bank at the time of transfer, (ii) the ability to utilize the loan in tranches consistent with the amount and tenor set out in the underlying agreement, and (iii) the requirement that principal repayments, together with interest and other payments, be transferred through banks.
- Article 50(6) of the Circular: FX-denominated non-cash credit facilities
Complementing the new on-lending regime under Article 54/A, the newly added paragraph 6 of Article 50 permits foreign currency-denominated non-cash credit facilities to be extended to Türkiye-resident legal entities in connection with such foreign currency loans made available by public institutions or organizations within the scope of external financing obtained from international organizations and payments under such non-cash facilities may also be effected in foreign currency, at the request of the relevant public institution or organization.
Conclusion
These amendments have now introduced a systematic framework governing the procedures and principles applicable to the transfer of financing obtained by public institutions and organizations from international organizations to companies in Türkiye. In this way, a new operational framework has been established for the extension of international organization-backed financing to Türkiye-resident legal entities through public institutions and organizations.
