Turkey: Memorandum Regarding Banking Act (Law No. 5411) Part 2

Last Updated: 22 November 2005
Article by Vural Günal
This article is part of a series: Click Memorandum Regarding Banking Act (Law No. 5411) Part 1 for the previous article.

12. PROTECTIVE REGULATIONS

12.1. Regulation Authority

The Banking Regulation and Supervision Board is authorized to implement the regulations and take all and any measures required for the determination, analysis, monitor, measurement, and assessment of the relation and balance between "banks’ assets, receivables, own resources, liabilities and commitments, income and expenditures" and of all other factors and risks having and effect on banks’ financial position (which can be imposed limitations or standard ratios).

12.2. Authority to Establish Different Limits

The Banking Regulation and Supervision Board is authorized to impose more "prudent" ratios or limits which are "different" than maximum and minimum standard ratios and limits established for any given bank or bank groups, to alter the "calculation and notification periods" or in general to establish "yet non-established ratios and limits".

12.3. Definition of Paid-up Capital and Shareholder’s Equity

Paid-up capital is defined by the Banking Act as the amount found after the deduction of the part of the bank’s balance sheet loss which can not be covered by reserves, from its actual paid-up capital.

The Banking Act defines shareholder’s equity as the amount to be found after the subtraction of the "values to be deducted from the capital" from the sum of tier-I capital and tier-II capital.

12.4. Capital Adequacy

"Capital adequacy" means having sufficient amount of shareholder’s equity at hand against the possible losses that may be inflicted due to exposed risks.

Capital adequacy shall be calculated in accordance with the procedures and principles to be provided by a Regulation on condition that it can not be less than 8 percent. It is mandatory that banks have this ratio.

The Board is authorized to raise this ratio in general terms while it can also make changes on it to apply on "bank-basis".

12.5. Liquidity Adequacy

Banks calculate and manage their liquidity adequacy requirements according to a minimum ratio to be determined by the Board, and make due reports in line with the regulations.

12.6. Recovery of the Limit Infringements

The Board sets out the procedures and principles to apply for the recovery of the cases where banks exceed the limits and ratios stipulated by the regulations.

13. PROVISIONS REGARDING CREDITS

13.1.. Transactions Considered as "Credits"

- cash credits

- non-cash credits such as letters of guarantee, counter-guarantees, sureties, avals (bill endorsements) and acceptances, and similar commitments of such character

- bonds and similar capital markets instruments purchased by banks

- loans extended via placing deposits or any other ways or means

- receivables arising out of futures sale of assets

- overdue cash credits

- accrued, but uncollected interests,

- amounts of non-cash credits converted into cash,

- receivables arising out of reverse repo transactions

- risks assumed due to futures and options operations and similar other contracts

- shares in the partnership companies

- other transactions regarded by the Board as credits

carried out by banks are deemed as (credits) regardless of the account they are recorded in.

13.2. Transactions "Deemed as Credit" in Development and Investment Banks and in Participation Banks

In addition to the (credit) categories for banks listed in (13.1); finances provided by the development and investment banks through "financial leases" are also regarded as credits. In addition to this, the Banking Act rules that finances provided by the participation banks via following or similar instruments are also accepted as credit:

- payments of the value of the movable and unmovable properties

- profit and loss partnership investments

- acquisition of real properties, equipments or commodities

- financial lease

- finance for commodities against documents

- joint investments

13.3. Risk Groups and Credit Extensions

13.3.1. Risk Groups

We can sum the (risk groups) on which credit and risk assessments are based according to Article 49 of the Banking Act under following headings:

13.3.1.1. General Risk Group of Executives

Talking about a real person and his spouse and children; partnerships in which such persons assume the posts of board members or general managers or which are directly or indirectly controlled by such persons alone or together with a legal person or which have been participated by such persons with unlimited liability constitute a risk group.

13.3.1.2. Risk Groups Banks are Involved

Partnerships which are jointly or individually and directly or indirectly controlled or participated with unlimited liability by a bank and qualified share holders, board members and general managers of such bank, or in which a bank and qualified share holders, board members and general members of such bank assume positions of board members or general managers constitute the (risk group with which the bank is involved).

13.3.1.3. Risk Group of State-Owned Banks

State-owned banks, together with the partnerships they control directly or indirectly, constitute a risk group.

13.3.1.4. Risk Group of Public Organizations and Institutions

Non-bank Public Economical Enterprises, or "other" public institutions and organizations whose majority shares are owned by the Turkish Privatization Authority, together with their:

- affiliated partnerships

- subsidiaries, and

- establishments

constitute a risk group.

13.3.2. Credit Drawdown

Article 50 of the Banking Act regulates the credit drawdown criteria according to the risk groups as follows:

13.3.2.1. Credit-Banned Persons

Banks are definitely and under no form or means allowed to EXTEND CASH AND NON-CASH CREDITS to, and to BUY THE BONDS AND SIMILAR SECURITIES of the following persons:

- bank’s board members

- bank’s general managers

- bank’s assistant general managers

- bank officers having the authority to grant credit

- spouses and children under the guardianship of the above listed persons

- the partnerships in which the above listed persons individually or jointly hold 25 percent or more of the capital

- bank officers other than those listed above, and spouses and children under the guardianship thereof

- funds, associations or foundations established by or for bank officers

13.3.2.2. Exceptions to Credit Ban

i. Regarding Qualified Shareholders

Real or legal person shareholders directly or indirectly having "qualified shares" and represented in board meetings "in person" or "by proxy" are excluded from the credit limits.

ii. Regarding Those in Management and Audit of Subsidiaries

The fact that a bank’s officers also assume positions in the board of directors and in the board of auditors of a company with which that bank forms a partnership does not hinder such companies having business with that bank.

iii. Regarding Those in Risk Groups Banks are Involved

Decisions for extending credits to the real and legal persons in "The Risk Groups Banks are Involved" (see 13.3.1.2) are primarily subject to the condition that such a decisions should be taken by ⅔ majority of full number of members of the bank’s Board of Directors. The second condition is that credit conditions should not differ from other credit arrangements in favor of the user of the credit.

iv. Regarding Credits Extended to Bank Officers

Credits extended to:

- members of the bank’s Board of Directors

- bank’s officers, and spouse and children under the guardianship thereof

and which is called in practice as "credits to bank officers" in the amount NOT EXCEEDING FIVE TIMES THEIR MONTHLY NET WAGES are not subject to the (General Credit Ban) and to the rules that such credit decisions should be taken (by the ⅔ majority).

The same exception also applies to the credits to be extended through issuing CHECK BOOK or CREDIT CARD in the amount NOT EXCEEDING THREE TIMES the monthly net wages of such bearers and to the CREDITS EXTENDED AGAINST SECURITIES (see Article 55/a and b).

13.4 Authority to Extend Credits

Authority to extend credits is vested with the bank’s Board of Directors.

Board of Directors may transfer this authority to the Credit Committee or to the bank’s General Management

General Management may exert this authority to extend credits transferred to it through:

- its internal units

- regional directorates

- branches...

Working principles of the Credit Committee are determined by the Banking Regulation and Supervision Board.

Possessors of the authority to extend credits can not use this authority for the credit transactions of the persons who are in the "risk group" concerning them in person.

13.5. Provisions

Banks set aside sufficient amounts of provisions to cover their possible losses from the credits and other receivables and also depreciation in their assets; they have to establish and operate policies for raising and classification of their asset quality, securing of safe guarantee and security, measurement of the value and reliability, monitoring of nonperforming loans, repayment of the due loans.

Acceptance of the whole of private provisions as expenditure in determination of the tax base in the related year is stipulated under Article 53 of the Banking Act.

The subject of "Provisions" shall separately be regulated by the Banking Regulation and Supervision Agency in detail.

13.6. Regulations Regarding Credit Limits

13.6.1. Credit Limits

- Total credits to be extended by banks to (real) or (legal) persons or the (risk groups) can be at the most 25 percent of the bank’s total shareholder’s equity.

- The ratio mentioned above is applied as 20 percent for the (Risk Group Banks are Involved).

- Total credits to be extended by banks to all their shareholders "registered in the share register" holding 1 percent or more of the bank’s capital and to the persons establishing risk groups with such shareholders can not be more than 50 percent of the bank’s shareholder’s equity.

- Credits extended in the amounts of 10 percent and more of the bank’s shareholder’s equity, are classified as LARGE CREDITS and the total of such credits can not be more than EIGHT TIMES the bank’s shareholder’s equity.

13.6.2. Exceptions to the Credit Limits

The Banking Act exempts the following credit transactions from the rules about credit limits:

- Transactions whose provisions are in cash assets and accounts and precious metals.

- Transactions carried out with Treasury, Central Bank, Privatization Authority and Housing Development Administration, and transactions whose provisions are securities guaranteed by such public authorities.

- Transactions carried out with the Central Bank and in legally organized money markets.

- In case of new credit allocations; valuations prompted by the changes in currency rates in credits denominated or indexed to foreign currencies, and interests, profit shares and other such issues accrued on overdue credits.

- Bonus shares (script issues) received as a result of capital increases, and valuations of the partnership shares – not requiring any fund outflow.

- Interbank operations

- Partnership shares acquired within the framework of underwriting service for public offering activities.

- Transactions considered as "deductibles" in Shareholder’s equity account.

- Other transactions to be determined by the Board.

13.6.3. Limitations on Subsidiary Shares

Subsidiaries – other than the credit institutions and financial institutions - of banks (see: Diagram in introduction) can not be higher than 15 percent of their own shareholder’s equity. Total shares of banks in their subsidiaries can not be more than 60 percent of their shareholder’s equity.

Intercompany loans, though indirectly, are not allowed (Article 56/4). Banks can not accept the shares of partnerships and companies holding shares in the bank directly or indirectly as "pledge", and can not extend "advances" against such shares.

13.6.4. Transaction Limits on Real Properties and Commodities

Total net book value of the real properties owned by banks can not be more than 50 percent of the bank’s shareholder’s equity. This limitation rests on the consideration to prevent banks which are solely established to carry out money trade from investing their deposits and other resources on an area which has smaller capacity of rotation and which is less liquid.

Banks can not be involved in the trade of real properties and commodities, even though only for trade purposes, either. They can not participate to partnerships whose main subject of activity is the trade of real property. However, the Banking Act also includes exceptional provisions regarding this principle. According to such exceptional clauses:

- Banks are entitled to purchase and sell the real property and commodity contracts that can be purchased and sold under the Capital Markets Law as well as the precious metals determined by the Banking Regulation and Supervision Board.

- Banks’ participation to mortgage housing financing institutions and to real estate investment trusts (REIT) has also been made possible as an exception to the general rule.

- As for the participation banks; real property and commodity transactions of participation banks are not assessed within the concept of the ban and limitation introduced by the Banking Act due to the liabilities that such banks assume based on the activities of:

  • procurement of real estate, equipment or commodities,
  • financial lease,
  • profit and loss partnerships,
  • financing through joint investments,
  • and similar activities

which they are entitled to carry out by virtue of their origins as special financial institution and which therefore set out their capacities (Article 57). However, we believe that there is no need to separately insert the concept of "procurement of real property, equipment or commodities" to the Banking Act as such banks have already been granted to carry out financial lease transactions. This belief of ours rests on the consideration that it will not be appropriate for the establishment purposes of the participation banks to transfer the subject real estate, equipment and commodities to the customers or credit areas directly without these banks having their title at all.

- Banks are required to dispose as soon as possible of the commodities and real properties they were obliged to have title to for the purposes of collecting their receivables. The rules regarding this aspect are set forth by the Board.

13.6.5. Deficits of Funds and Foundations of Bank Employees

Joint stock companies are allowed to establish foundations for their employees and to transfer a certain part of their annual profits to such foundations in accordance with the Article (469/final) of Turkish Commercial Code. Banking Act in order to also prevent any possible abuse of this provision has stipulated, effective solely for the funds and foundations of the bank employees, that no transfer of funds was allowed to be made to such funds and foundations to close the deficits of such funds and foundations, established for; (i) health and social assistance, (ii) pension, and (iii) providing reserves and savings.

13.6.6. Donations of Banks

The Banking Act has provided the amount of donations that can be made in a financial year by banks and the institutions subject to the consolidated audit as 4 percent of the bank’s shareholder’s equity at the most; however, at least half of the grants and donations are obliged to be of the type that can be considered as "expenditure or discount in calculation of the corporate tax base".

14. DEPOSIT AND FUND COLLECTION RULES

- No real or legal person, other than those duly authorized, can accept "deposit" or "participation fund" as a primary or a side occupation. Any document that can be given in place of pass-book does not prevent that the funds thus taken be accepted as deposit or participation fund.

(Exceptions) to this rule are shown below:

i. An "exception" to the deposit collection without any official authorization is the amounts collected from members by the funds and foundations "owned" by the personnel of the public and private institutions and partnerships established for purposes of providing health and social assistance, pension, and reserves and savings for their members.

ii. The funds to be raised by development and investment banks from:

(i) "their own borrowers", partners and partnerships – in line with general principles –

(ii) banks, money and capital markets, and organized "markets"

are not deemed as deposit either.

iii. According to the Capital Markets Law, funds collected via issuance of capital markets instruments are not regarded as deposit and participation fund.

- On the other hand, credit institutions incorporated in Turkey can in no way or through no means issue and give out any "document" for the purpose of domestically raising deposits and funds in Turkey in the name of their branches and partnerships located abroad; possession of "documents" and employing personnel in the name of institutions established abroad, and paying such personnel premiums, etc. for the amounts they collect, and schemes such as guiding the customers to the units outside the country are banned, and such schemes are accepted as unauthorized acceptance of deposits and funds (Article 60).

Considerably heavy sanctions have been imposed by the Banking Act (Article 150) on unauthorized deposit or participation fund acceptance. Such deeds require the company officers to be sentenced to a prison term of 3 to 5 years, as well as to a fine equivalent to five thousand days of prison term.

- Credit institutions have been obligated to classify their deposit and participation fund accounts in accordance with the terms and types set out by the Central Bank, and segregate "savings deposits" and "participation funds owned by real persons" from other accounts.

- No limitations can be enforced on the "return" by banks of the amounts that should be paid to deposit and participation fund owners, and on the "repurchase rights" of the right owners.

- Deposit and participation funds, and custody and receivables are time-barred within 10 years after their final demand dates or transaction dates. Such amount shall be cashed in favor of the Savings Deposit Insurance Fund following an advertisement to that end provided that the right owners can not be reached by the bank. Inclusion to the new Law of the stipulation to search for the right owner and publish an advertisement at the end of 10 years along with the provisions of the Board has been positive as this has been a practice pursued during long years in the past.

- Savings deposits and participation funds owned by real persons are insured by the Savings Deposit Insurance Fund.

The ratio of the annual risk-based insurance premiums to the deposit or the fund can not surpass 20 percent. Insurance premiums paid to the Fund are taken as expenditure in determination of the corporate tax base.

- Amounts that should be excluded from the cover of the insurance are as follows:

  • accounts owned by controlling partners, and parents, spouses and children under the guardianship thereof,
  • accounts owned by chairmen and members of the board of directors or committee of managers, general manager and assistant general managers, and parents, spouses and children under the guardianship thereof, and
  • deposit and participation funds and other such accounts originating from the crime defined under Article 282 of Turkish Criminal Code.

15. SUPERVISION/AUDIT

- The Banking Regulation and Supervision Agency supervises and audits the organizations which are under the scope of Banking Act, and their activities; and can send "observers" to the general assembly meetings of such organizations.

- Required measures are taken on the issues pointed out by the Banking Act (Article 67) depending on the audits carried out on consolidated and non-consolidated basis. Measures have regulated as:

  • corrective actions (remedial steps) (Article 68),

  • improvement actions (Article 69),

  • restrictive actions (Article 70), and

  • suspension of the of certificate of activity or transferring to the Fund (Article 71).

16. SOME LEGAL OBLIGATIONS OF ORGANIZATIONS SUBJECT TO THE BANKING ACT

16.1. Secrecy

16.1.1. Keeping of Secrets by the Authorities

Chairman and members of the Banking Regulation and Supervision Board, personnel of the Banking Regulation and Supervision Agency, and the Chairman, members and the personnel of the Savings Deposit Insurance Fund can not reveal the secrets of the banks and their affiliated partnerships, subsidiaries, jointly controlled partnerships, and customers entering into their possession during the term of their office to persons other than those having due authority under Banking Act and private laws, and can not use this information for their own or others’ benefits. Persons and organizations providing outside support services to the Banking Regulation and Supervision Agency, and the personnel thereof are also subject to this clause.

This obligation outlives the terms in office.

Those acting in violation to this obligation are sentenced to a prison term of from one year up to three years, and to a fine equivalent to a prison term of 1,000 to 2,000 days.

16.1.2. Keeping of Secrets by Bank Officers

16.1.2.1. Non-Disclosure Obligation and Authorities for Disclosure

  • Partners
  • board members
  • officers
  • persons acting in the name of the above, and officials thereof

are not allowed to disclose the secrets of the banks or their customers entering into their possession due to their capacities and positions to persons other than the "authorities explicitly authorized by laws". This provision also applies to the support service providers and their personnel. This obligation outlives the term in office of the referred persons and personnel.

16.1.2.2. Sanction

The sanction to be imposed on those not complying with this obligation has been defined under Article 159. Accordingly, persons acting in violation of this obligation are sentenced to a prison term of one to three years, and a fine equivalent to a prison term of 1,000 to 2,000 days.

Third persons disclosing the secrets of banks and their customers are also sentenced to the same punishments.

Sentences of those disclosing such secrets for the purpose of obtaining benefits for themselves or for others are increased by 1/6.

16.1.2.3. Banking Ban

Besides, it is also possible that the Court prohibits the persons committing the above mentioned offense from working in organizations subject to the Banking Act temporarily for a period which can not be less than 2 years, or permanently. This provision has been explicitly entered to the laws for the first time.

16.1.3. Exception to Exchange Information Through Companies to be Established

The secrecy provision excludes the followings:

- Exchange of documents and information aimed at monitoring and controlling risks and improving customer services to be carried out within the framework of the written agreements to be signed between the credit institutions and finance institutions, and "support service providers"

- Besides, exchange of all kinds of information and documents "credit" and "finance" organizations will carry out through the companies which will be established directly by and between "credit" and "finance" institutions, or through companies to be established by at least 5 banks.

16.2. Protection of the Bank’s Reputation

"Intentionally" causing a result that may injure the reputation of a bank or damage the standing or fortunes of a bank through media or a similar instrument, or spreading "incorrect news" through means is outlawed by the "Law".

Persons acting in violation of this provision are sentenced to a prison term of one to three years, and a fine equivalent to a prison term of 1,000 to 2,000 days. This punishment is increased by 1/6 in the event such violations bear a (loss).

16.3. Ethical Behavior of (Banks) and (Bank Officers)

Banks and bank officers are obligated to ensure the execution of their activities to be in conformance with the Banking Act, and to observe the ethical principles requiring the management to be based on justice, righteousness, honesty and social responsibility. Such ethical principles are determined by the Industry Associations.

16.4. Customer Rights

Article 76 rules the followings in brief:

  • All questions of the customers regarding the services provided should be answered,
  • A signed copy of the credit agreement has to be given to the customers,
  • One copy of each document issued for other such transactions should also be given to customers on their demand,
  • The content of the "contract forms" a bank can sign with individual customers should be decided by the industry associations,
  • Banks are not allowed to carry out the following procedures and transactions in the name of their customers who fail to document their identifications and tax IDs:

- opening all and any accounts under whatsoever name including but not limited to deposit, participation fund, credit accounts

- preparing and entering agreements

- providing bank transfer and foreign exchange services

- other banking and financial services.

17. DEVELOPMENT AND INVESTMENT BANKS

As known, the concept of "development and investment bank" was abolished and the banks under such names were included to the "non-deposit banks" under the Banks Act (Law No. 4389). The Banking Act has "reestablished" the concept of "development and investment bank". The Banking Act defines these banks as (institutions having operations which principally include extending credits - but not accepting deposits - and/or fulfilling the duties assigned to them by private laws, and the branches of such institutions established abroad). As one can understand clearly from the diagram given at the introduction of this study, investment and development banks are not listed among (credit institutions), but identified as (financial institution) as provided by the Banking Act.

17.1. Provisions not "Applicable" to Development and Investment Banks

The Banking Act under its Article 77 stipulates that all provisions of the Banking Act with the exclusion of the followings shall also apply to development and investment banks.

Law provisions not applicable on the development and investment banks are:

- Article 54 about the credit limits

- Article 55 about the transactions not subject to the credit limitations

- Article 56 about limitations on partnership shares

- Article 57 about transactions on real properties and commodities

- Article 61 about the repurchase rights of the owners of deposits and partnership funds

- Article 63 about the insurance of the deposit and participation funds by the Savings Deposit Insurance Fund

- Article 64 about the deposits outside the insurance coverage

- Articles 106 to 129 having provisions about cancellation of the Certificate of Activity, Fund-transferred banks, abuse of the bank’s resources, individual liability provisions and provisions about the Fund in the context of provisions regarding the banks transferred to the Fund and whose Certificate of Activity has been suspended.

- Article 130/a about the deposit insurance premium

- Articles 131 to 142 about the Fund’s authority to borrow and to advance, procedures for the follow-up of the Fund’s receivables, subsidiaries of the Fund, etc.

17.2. "Applicable" Provisions

All of the provisions of the Banking Act other than the provisions under the Article (17.1) above apply to the development and investment banks.

18. FINANCIAL HOLDING COMPANY

18.1. Definition

The Banking Act defines financial holding company as, "a company, with all or majority of its affiliated companies are financial companies or credit companies with condition that at least one of them is a credit company.

18.2. Law Provisions Applicable on Financial Holding Companies

Following articles of the Banking Act apply to Financial Holding Companies.

- Article 14 about cross-border activities,

- Article 15 about independent audit, assessment, rating, and support service institutions,

- Article 16 about amendments to Articles of Association,

- Article 18 about acquisition and transfer of shares,

- Article 22 about the implementation of corporate management activities,

- Article 23 which governs regulations about the Board of Directors,

- Article 24 about Audit Committee,

- Article 25 about general manager and assistant general managers,

- Article 26 about bans on "employment" and "signature authority,

- Article 28 about the regulation of the decision book,

- Articles 29, 30, 31, 32 about internal systems,

- Article 33 about independent audit firms,

- Article 34 about assessment and rating companies,

- Article 35 about support service providers,

- Article 36 about liability insurance of the authorized organizations,

- Articles 37, 38, 39, 40 and 41 about financial reporting system,

- Article 42 about keeping of the documents,

- Article 43 about the Banking Regulation and Supervision Agency’s protective regulations,

- Article 44 providing regulations about paid-up capital, reserves and shareholder’s capital,

- Article 47 about correction of the violations caused by nonconformance to determined limitations and ratios,

- Article 65 about the supervision by the Banking Regulation and Supervision Agency,

- Article 66 about consolidated audit,

- Article 67 about implementation of measures as a result of audits, and also Articles 68, 69 and 70 about (Corrective Actions), (Improvement Actions) and (Restrictive Actions),

- Articles 71 and 72 about cancellation of the Certificate of Activity, transfer to the Fund and the measures to be implemented against system risks,

- Article 73 about secrecy,

- Article 78 regulating Financial Holding Companies,

- Article 93 about the duties and authorities of the Banking Regulation and Supervision Agency,

- Article 95 authorizing the Banking Regulation and Supervision Agency to carry out onsite controls and audits,

- Article 96 regulating information and document requests from Financial Holding Companies, and

- Penal law articles in association with the above articles.

18.3. Obligation for the Accounts to be on Consolidated Basis

Determination of Standard ratios and limitations, and the calculations to be made for Financial Holding Companies are taken into consideration only on "consolidated basis".

19. Industry Associations

Deposit banks and development and investment banks have to be become a member of the Banks Association of Turkey (TBB), a professional organization which is a public organization having a legal personality; and participation banks have to be a member of Association of Turkish Participation Banks (TKBB) with the same character, within one month after they receive their Certificate of Activity. Duties and authorities of the associations can be summed under the following ten headings:

  1. ensuring the development of the profession,

  2. determining of the general professional principles,

  3. determining of the professional principles and standards bank officers have to obey
  4. monitoring the implementation of the decisions and measures which are requested by the laws and regulations and by the Banking Regulation and Supervision Agency,
  5. preventing the unfair competition between its members
  6. determining the principles to be observed in advertisement and publicity activities,
  7. ensuring coordination between banks for the joint projects,
  8. commencing lawsuits on issues of the members’ common interests,
  9. determining the content of customer agreements regarding the rights of the customers, and
  10. settling the disagreements between the members and the individual customers.

20. BANKING REGULATION AND SUPERVISION AGENCY*

The Agency fulfills and uses the duties and authorities regarding regulation and supervision granted to it by the laws and regulations independently and under its own responsibility. Regulating and supervising the banking community, maintaining trust and stability in financial markets, efficient functioning of the credit system, development of the financial sector, and protection of the interests of the owners of the deposits are the main functions of the Agency.

The Agency can make onsite control and supervision, or can complete its supervision by requesting information and document from the related party.

The Agency also makes use of (Finance Sector Commission), (Coordination Committee) and Asset Management Companies during the performance of its activities.

20.1. Finance Sector Commission

Finance Sector Commission which is consisted of the representatives of (Fiscal Department, Treasury, Central Bank, Capital Markets Board, Savings Deposit Insurance Fund, Competition Board, State Planning Agency, Istanbul Gold Market, Securities Exchanges, Futures and Options Exchange and the professional associations (i.e.; TBB and TKBB)) in Banking Regulation and Supervision Agency, is charged with "exchange of information for the purpose of ensuring the confidence and stability and the development in financial markets, maintaining cooperation and coordination between the organizations, suggesting common policies, and stating its opinions on topics which interest the future of the finance industry". The Commission meet every at least once every six months.

20.2. Coordination Committee

This Committee maintains coordination between the Banking Regulation and Supervision Agency on issues such as the general position of the banking system, measures to be taken as required by the results of the supervision of the credit institutions, results of the analysis showing the financial results of the credit institutions to be used for the calculation of the risk-based insurance premiums, and also exchange of information on the numbers and amounts of the deposits and participation fund accounts of these banks. Coordination Committee meets at least once every three months.

20.3. Asset Management Companies

"Asset Management Companies" may also be established along with establishment and operation principles to be determined by the Banking Regulation and Supervision Board for the purposes of:

- purchase,

- collection,

- restructuring, and

- sale

of the receivables and other assets of the financial institutions including banks and the Fund itself (Article 143).

These companies have to set aside "provisions" in order to meet their already incurred, or possible, losses.

21. PROVISIONS REGARDING FUND-TRANSFERRED BANKS OR BANKS WHOSE CERTIFICATE OF ACTIVITY IS SUSPENDED

These provisions have been regulated by articles between 106 and 110 of the Banking Act.

22. SAVINGS DEPOSIT INSURANCE FUND

The Fund has been authorized on issues such as insuring the funds of the deposit and participating banks, and management and liquidation of the banks transferred to it in order to protect the rights and interests of the savers.

23. BANKING OFFENSES

Offenses and violations of the Banking Act such as (unauthorized operation), (blocking the rights of the deposit and participating fund owners), (failure to take regulatory, improvement and restrictive actions), (not submitting the information and documents requested by competent authorities and audit personnel, and preventing the performance of their duties), (acting in violation of the obligation to maintain documents), (false declaration), (not recording the transactions or false accounting of the transactions), (blocking and rendering the system out of function, and destruction or alteration of the data), (damaging the reputation), (disclosing the secrets), (embezzlement), and (violating other laws) have been subjected to various sentences of prison and fine under the Banking Act.

Investigations and inquiries of these offenses and violations can be instigated upon written application of the Banking Regulation and Supervision Agency or the Savings Deposit Insurance Fund to Public Prosecutor’s Office.

III. SOME TEMPORARY PROVISIONS OF THE BANKING ACT

- Applicable provisions of the existing laws which do not contradict with the Banking Act shall continue to apply until the finalization and enactment of the regulations, communiqués and decisions to be issued in accordance with the Banking Act.

- All banks shall continue their activities.

- Banks, financial holding companies, and private finance organizations shall adapt themselves to the new Law within ONE YEAR.

- The ratio of 25 percent regarding credit limits shall apply as:

35 percent until 31.12.2005, and

25 percent starting from 01.01.2006.

The ratio of %20 regarding also credit limits shall apply as:

35 percent until 31.12.2005, and

25 percent in 2006, and

20 percent starting from 01.01.2007.

- The holders of the participation amounts below the figure determined by the Banking Act can not increase their amounts; whereas holders of participation amounts higher than this figure should dispose of their excess amounts through redemptions by the following rates and deadlines:

In 2005; 20 percent of the excess amounts they hold,

In 2006; 40 percent of the excess amount they hold,

In 2007; 60 percent of the excess amount they hold,

In 2008; 80 percent of the excess amount they hold,

In 2009; 100 percent of the excess amount they hold.

- Provision of (Statute of Limitations) regarded as helpful for the collection of the receivables of the Fund, and (provisions provided in favor of the Fund on other issues) are RETROACTIVE; which means they shall apply retrospectively (Temporary Article 16).

CONCLUSION

The Banking Act should be seen positively due to its provisions regarding capital adequacy, efficiency of the control and audit to be carried out by public authority, creation of a market discipline by prevention of the possible lack of control, and enforcement of the obligation of the liability insurance. Emphasis placed on the risk factor – though occasionally carrying the traces of a reaction to the past economical crisis - increased care for the market discipline by increasing the punishments, and also adoption of the principle of having short articles in preparation of the laws which makes the laws easier to understand technically, should also be regarded as positive sides of the Banking Act. However, maintaining the procedure of "banks’ transfer to the Fund" in line with the final opinion shaped by political considerations stays there as a point to be discussed.

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This article is part of a series: Click Memorandum Regarding Banking Act (Law No. 5411) Part 1 for the previous article.
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