Turkey: Corruption Claims And Effects İn Turkish Banking Law

Last Updated: 15 January 2014
Article by Safak Herdem

The latest corruption claims in banking sector of Turkey may show considerable effects which have already started to spread several areas of the Turkish economy. With the arrestment of general manager of a state bank, all attentions draw to Turkish anti-corruption law and concerns increasing among government officials and investigators.

Impacts to the Economy

The effects of corruption claims on the economy side are quite gloomy. Following the alleged corruption claims, the value of Turkish Lira has decreased and lowered around TRY 2.15 against the USD as of 28 December 2013. Latest statements by the Central Bank made it clear that, the Bank itself will intervene and inject currency of minimum USD 450 million on a daily basis until the end of 2013 in order to rein in the upward swing of the USD. However the concerns for Turkey's future do not express itself only on the foreign currency exchange rates but on the inflation rates as well. Turkish Central Bank had envisaged an inflation rate of 5% with a margin for deviation up to 2%. Accordingly, the average annual inflation rate for 2013 is expected around 7%.

What is more significant for the banking sector is the new policy adopted by the Turkish Government, which is aiming to reduce the spending rates of credit provided by the banking sector. Moreover, the increasing costs of loan for the Central Bank due to high exchange rates and the higher interest rates for the treasury bonds inevitably means higher borrowing rates for the banks which adds an additional burden to the sector.

Although, the macro-economic stability that maintained in Turkey for many years, it has now a new aspect and effects following the alleged corruption claims. But what is important for bank managers and partners when they encounter of a corruption claim?

Pursuant to the article 67 of the Banking Law Law No 5411, the Banking Regulation and Supervision Agency should take measures if the bank's decisions, transactions and practices are in violation of this Law No:5411 and the applicable regulations and in case the Banking Regulation and Supervision Agency determines as a result of an investigation that;

  • the bank has not taken, either partially or completely, the requested remedial measures within the period given by the Banking Regulation and Supervision Agency or within maximum 12 months otherwise, or, even if taken these measures, either partially or completely, the financial structure has not been strengthened or, it is considered that it cannot be strengthened even if the measures are taken,
  • the continuation of the bank's activities will endanger the rights of the owners of deposit or participation funds as well as the security and stability of the financial system,
  • The bank has not fulfilled its obligations as they fall due,
  • The total value of liabilities of the bank exceeds the total value of its assets
  • The dominant partners or managers of the bank fraudulently use the resources of the bank directly or indirectly in their own or others' interests in such a manner that the sound operation of the bank will be at stake, thus causing a loss for the bank,

Then the Banking Regulation and Supervision Agency shall be authorized, with the affirmative votes of minimum five members, to revoke the operating license of the bank or to transfer the shareholder rights except dividends and the management and supervision of the banks to the fund, for the purposes of transferring, selling or merging them partially or fully, on the condition that the loss will be deducted from the capital of the existing partners.

The dominant partners and managers of the banks whose operating license has been revoked or which has been transferred to the Savings Deposits Insurance Fund by the reason of fraudulently use the resources of the bank directly or indirectly in their own or others' interests shall return and compensate for the resources used as well as the damages that arise from such misuse, within the time period given by the fund, by excluding the provisions of the Banking Law regarding personal liability of dominant partners and managers.

In practice, the implementation of this provision show itself as; showing bank assets as guarantee, extending loans to a person clearly has no creditability as of the loan extending date, opening deposit and such accounts in domestic and foreign banks and financial institutions, showing such accounts as guarantee can be listed as financial corruption cases. If it is determined according to the investigations by the fund that the managers and auditors a bank, or its general manager and assistant general managers, or its authorized signatory officers have caused the transfer of the bank to the Savings Deposits Insurance Fund, such person shall be held personally liable to the extent of the damage they have caused to the bank and National Courts may declare any such person's bankrupt.

The procedures for the request of repayment and compensation of resources used as well as the amounts to be repaid and compensated shall be determined by the fund within the frameworks of the investigation to be carried out by the Banking Regulation and Supervision Agency at the relevant bank.

In case of a revocation of the bank's operating license, the amounts that not repaid or compensated within the time period given by the fund shall become Fund's receivables and shall be prosecuted and collected within the framework of the provisions of the Law No. 6183 regarding the Procedures for the Collection of Public Receivables.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Safak Herdem
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