Turkish banking watchdog resolution restricts commercial cash loans

Turkey

On 7 July 2022, the Banking Regulatory and Supervisory Authority (BRSA) issued Resolution No. 10265, which amends and clarifies a recently passed resolution (10250 issued on 24 June) that applied a new restriction on commercial cash loans in Turkish lira. The resolutions – both the original and the amendment – aim at strengthening Turkey's financial stability, promoting the more efficient use of resources and ensuring the effective functioning of the credit system.

As a result of strong stakeholder reactions to the 24 June resolution (1025), the BRSA published Resolution No. 10265 in order to soften the restriction and clarify certain issues.

Background

As a solution to TRY devaluation, which has compelled companies to long sell foreign currency, the BRSA issued Resolution No. 10250, which imposed a borrowing restriction on companies under certain conditions. According to this restriction, companies, excluding banks and financial institutions, subject to independent audit in accordance with Decree Law No. 660 and related regulations cannot be considered for commercial cash loans in TRY, depending on the amount of their foreign currency assets. The BRSA also determined an exception to the restriction for some companies.

In addition, Resolution No. 10250 stated that companies with FX Assets of less than TRY 15 million will be exempted from the restriction provided that:

  • Independent audit firms determine their FX cash assets, total assets and the net sales revenue of the previous year;
  • These companies declare that the TL equivalent of their FX cash assets will not exceed USD 15 million in Turkish Lira during the term of the loan;
  • These companies provide the bank with the current value of FX cash assets, total assets and net sales revenue of the last 12 months as of the end of the previous month based on the previous month’s balance sheet within the first ten workdays of each month.

Scope of the restriction

Under the scope of the restriction, companies, excluding banks and financial institutions, will not be able to borrow commercial cash loans in TRY if they:

  • are subject to independent audit in accordance with Decree Law No. 660 and related regulations;
  • have FX Assets exceeding TRY 15 million; and
  • have FX Assets TRY equivalent exceeding 10% of the larger one of either the total assets or the net sales revenue of the last one year according to the most recent financial statements.

The above concerned companies will not be able to borrow commercial cash loans in TRY. Within this scope, FX Assets include gold, effective exchange, and foreign exchange deposits in banks.

As per Regulation No. 10250, the concerned companies are obliged to prepare consolidated financial statements in accordance with accounting and financial reporting standards published by the Public Oversight, Accounting and Auditing Standards Authority (POA). An evaluation will be based on their combined financial statement.

Resolution No. 10265

With the aim of clarifying issues not fully fleshed out in Resolution No. 10250, the BRSA published Resolution No. 10256, which also softens some of the rules introduced by the previous resolution.

Within this context, the issues that have been clarified are as follows:

  • Loans provided by leasing, factoring, and financing companies are included in the scope of the restriction.
  • Loans provided by the foreign branches of the banks are also subject to the Resolution No. 10256.
  • Subsidiaries and affiliates will be evaluated separately, not together with the parent company.

In addition, for FX Assets that do not exceed the TRY 15 million equivalent threshold, the concerned company is now required by Resolution No. 10256 to provide documentation to the bank no later than the evening of the last business day of the month following the end of each quarterly calendar year, instead of providing this information within the first ten workdays of each month as requested by the previous resolution.

Exception to the restriction

Resolution No. 10250 provides an exception to the restriction for companies that legally do not qualify for foreign exchange loans. As per Resolution No. 10256, a company declaring a foreign currency net position deficit, together with the position deficit amount, for the three-month period following a loan application made to the bank, will be able to borrow commercial cash loans in TRY limited to the declared position deficit in the three-month period following the loan application.

The accuracy of the declaration will be confirmed by independent auditing firms or certified public accountants and documented to the bank.

Conclusion

The restriction may be considered a precaution to position investments aiming to profit from devaluation. It appears that companies seeking to borrow commercial cash loans in TRY may prefer short selling foreign exchange, which could result in an increase in the value of the Turkish Lira.

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