On October 23, 2015, the Banking Regulation and Supervision
Authority ("BRSA") issued sixteen new and amended
regulations and communiqués in accordance with the Basel
Committee's Regulatory Consistency Assessment Program
("RCAP") in an effort to further harmonize Turkish
banking rules with Basel III criteria. This most recent package of
changes introduces Basel III standards for capital adequacy
calculations and risk-weighting methods along with a new set of
rules for banks' risk management disclosures for financial
statements. The changes are set to take effect on March 31,
Since 2013, the BRSA has been active in harmonizing Turkish
banking rules with the Basel III criteria, issuing numerous
regulations, communiqués and guidelines on banks'
capital requirements, leverage ratios and liquidity coverage
ratios. The Basel Committee's RCAP assessment is currently
underway, with its report to be published in early 2016. To ensure
consistency with European standards, the BRSA has modeled its
changes on the European Union's RCAP report.
To calculate capital adequacy, a 50%
risk weight will be applied to required foreign exchange reserves
at the Central Bank, up from 0%. This is expected to decrease
Turkish banks' overall capital adequacy ratio by around 100
Collateral consisting of residential
real estate can no longer be included in capital adequacy
calculations; previously, a portion of the value of such collateral
could be included.
In financial institutions'
short-term preferential risk weighting, the original maturity will
be taken into account, rather than the residual maturity,
increasing overall risk weights.
Under the new Regulation on Banks Own
Funds, securitization earnings and changes in banks'
liabilities due to a credit rating revision will be reduced from
the calculation of banks' own funds.
Banks will be required to disclose
the details of their risk-management methods, as well as the
underlying data, in their financial statements. Banks will disclose
this information in accordance with the standard formats set out in
the Communiqué on Bank Disclosures on Risk Management in
relation to (i) general risk management, (ii) the breakdown of risk
exposures presented in financial statements, (iii) credit risk,
(iv) counterparty credit risk, (v) securitization risk, (vi) market
risk, and (vii) operational risk.
Under the new Communiqué on
Market Risk Calculations by Risk Measurement Models and Evaluation
of Risk Measurement Models, comprehensive guidelines are now
provided for risk calculation and stress testing methods.
The communiqués on internal
risk management model requirements for credit risk, operational
risk, and securitization have been renewed, and now include more
comprehensive modeling and calculation standards in line with Basel
The BRSA has demonstrated its commitment to a robust and
resilient Turkish banking sector by adopting necessary changes to
its regulations prior to the RCAP assessment. The market should
expect the BRSA to introduce net stable funding ratio regulations
in the near future. Banks operating in Turkey, however, will face
further regulatory constraints from March 2016 onwards,
particularly in capital adequacy ratios, as their foreign exchange
liabilities are no longer treated as risk free.
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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