Turkey: FX Loans: Exceptions, Clarifications And Monitoring

Last Updated: 10 December 2018
Article by Gönenç Gürkaynak Esq, Nazlı Nil Yukaruç, Damla Doğancalı and Büşra Üstüntaş

Most Read Contributor in Turkey, December 2018

I. General Overview

The Decree No. 2018/11185 amending the Decree No. 32 on the Protection of the Value of the Turkish Currency ("Decree No. 32") and the Communiqué No. 2018-32/46 amending the Communiqué on the Decree No. 32 on the Protection of the Value of the Turkish Currency ("Communiqué No. 2008- 32134") were published in the Official Gazette No. 30312 on January 25, 2018, and entered into force on May 2, 2018.

Following these amendments, individuals residing in Turkey are no longer permitted to obtain foreign exchange loans from banks and financial institutions in Turkey or abroad. Certain restrictions have also been introduced with respect to the utilization of foreign exchange loans, which are applicable to legal entities residing in Turkey. Certain limitations and exceptions to this general rule have also been set forth under the amendments to the Decree No. 32.

The Central Bank of the Republic of Turkey ("Central Bank") has adopted a new Capital Movements Circular ("Circular"), which has come into effect as of May 2, 2018, as per the Decree No. 32 and the Communiqué No. 2008-32/34. This Circular introduces new exceptions to the restrictions on foreign exchange loans and determines the rules and principles relating to the utilization of foreign exchange loans from banks and other financial institutions.

The Central Bank has also amended the Regulation on the Procedures and Principles of Monitoring Transactions Affecting Foreign Exchange Position by the Central Bank ("Amending Regulation on Monitoring Transactions Affecting Foreign Exchange Position"), effective as of September 19,2018. The Regulation on the Procedures and Principles of Monitoring Transactions Affecting Foreign Exchange Position by the Central Bank had introduced certain notification obligations for firms that take out foreign exchange cash loans and foreign exchange denominated loans. However, following the entry into force of the Amending Regulation on Monitoring Transactions Affecting Foreign Exchange Position, (i) the scope of the firms affected by the regulation, (ii) the deadlines for submitting the required information to the Central Bank, and (iii) the registration process for the Systemic Risk Data Monitoring System ("System") have all been amended.

In this article, we will address the main exceptions and clarifications newly stipulated for foreign exchange loans obtained from abroad, and also discuss amendments to the monitoring of transactions affecting foreign exchange positions.

II. New Exceptions to the Restrictions on Foreign Exchange Loans to be Obtained from Abroad

Save for the exceptions stipulated in the Decree No. 32, legal entities residing in Turkey are required to have foreign exchange revenue in order to be allowed to obtain foreign exchange loans. The Circular introduces additional exceptions to this general foreign currency income requirement, as follows:

  • Investments for renewable energy resources within the scope of the Law on the Utilization of Renewable Energy Sources for the Purposes of Generating Electricity No. 5346 which benefit from a purchase guarantee are exempted from the general requirement of foreign currency income.

Turkish legal entities that are awarded tenders within the scope of the Law on the Implementation of Privatization No. 4046 and public tenders with a contract price denominated in a foreign currency may also obtain foreign exchange loans even if they do not have foreign currency income.

  • Based on the acquisition financing, legal entities residing in Turkey and incorporated with the sole purpose of acquiring the shares of a target company may obtain foreign exchange loans without having foreign currency income as well.
  • Fully owned Turkish subsidiaries of multinational companies are also exempted from the general requirement of having foreign currency income, if they obtain foreign exchange loans from other group companies residing outside of Turkey.

III. Other Matters

Although there are several exceptions to the general rule (as summarized above), the documentation requirements and the permitted maximum amount of an FX loan should, in any case, be separately checked and confirmed.

According to Article 24 of the Circular, apart from banks and other financial institutions, legal entities residing in Turkey may not obtain or receive revolving loans from banks, financial institutions or any other firms/persons not residing in Turkey.

Moreover, foreign exchange loans obtained by Turkish legal entities from the foreign branches of Turkish banks or other financial institutions (including off-shore branches and excluding branches in free zones) are deemed and treated as foreign exchange loans obtained from abroad.

Intermediary banks are obliged to check and verify whether a legal entity residing in Turkey that obtains foreign exchange loans from abroad complies with the general rules regarding foreign exchange loans. Accordingly, a legal entity residing in Turkey must submit copies of its loan agreement(s) and repayment schedule(s) to the intermediary bank in order to enable such intermediary bank to check whether the entity is paying back its debts in compliance with the repayment schedule.

IV. Monitoring of Transactions Affecting Foreign Exchange Positions

The scope of firms that have notification liabilities before the Central Bank has been changed by entry into force of the Amending Regulation on Monitoring Transactions Affecting Foreign Exchange Position. In this regard, (i) real persons, (ii) private legal entities (excluding banks and other financial institutions), (iii) metropolitan municipalities, municipalities and their affiliated enterprises and administrations, (iv) economic enterprises of metropolitan municipalities and municipalities, in which they hold more than half of the capital, (v) public economic enterprises, and (vi) higher education institutions will be subject to the notification requirement when their foreign exchange cash loans utilized in Turkey and abroad, combined with their foreign exchange indexed loans, exceed USD 15 million in total.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in December 2018. A link to the full Legal Insight Quarterly may be found here.

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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