The Counsel of Ministers has amended Article 14 of the Decree
No. 32 on the Protection of the Turkish Currency
("Decree No.32"), effective from 15 July
2009. As known, the superseded Article 14 of the Decree No.32 had
classified the use of foreign exchange loans ("FX
Loans") into three categories which can be summarized
Local companies that generate income on foreign exchange
("F/X Income Generating Companies") were
permitted to utilize FX Loans that have a maturity of up to 18
months and foreign exchange index loans (dövize endeksli
kredi) from locally licensed financial institutions;
Local companies that generate income on local currency
(i.e. Turkish Lira) ("TRY Income Generating
Companies") were permitted to utilize foreign
exchange index loans from locally licensed financial institutions.
However, they were not permitted to use FX loans from local finance
Both F/X Income Generating Companies and TRY Income Generating
Companies were permitted to obtain loans from financial
institutions located outside of Turkey if the purpose of the loan
is to finance their commercial and professional business.
Consumers, on the other hand, were only permitted to use
foreign exchange index loans from locally licensed financial
In practice, the superseded Article 14, as outlined above,
compelled the local companies to provide financing either from
foreign banks or foreign branches of local banks in order to
finance their operations. According to the Undersecretariat of
Treasury, as of March 2009, foreign loans used by local companies
amounted to 35 billion USD Dollars which resulted in an increase in
the country risk premium of Turkey as these debts are classified as
foreign debts of Turkey.
In addition, local companies were unable to monitor the foreign
currency risk which they were exposed to due to heavy f/x loan
burden created as a result of financings obtained from foreign
In an effort to overcome these drawbacks, Article 14 is amended
F/X Income Generating Companies are now permitted to utilize FX
Loans from locally licensed financial institutions without being
subject to any time limitation.
TRY Income Generating Companies are permitted to utilize F/X
Loans from locally licensed financial institutions provided that i)
the amount of such F/X Loan should amount more than 5,000,000 USD;
and, ii) the maturity date of such F/X Loans should not be less
than a year.
However, if a TRY Income Generating Company can furnish a security
to a local bank either in the form of i) F/X deposits held in a
local bank; or, ii) securities that are issued by the central
administration or central bank of a member state of Organization
for Economic Co-operation and Development
("OECD"), then such TRY Income
Generating Company will be entitled to utilize F/X Loan from the
local bank in the amount of such security and without being subject
the foregoing time limitation of 5 years.
Consumers are now prohibited to use foreign exchange index
loans from locally licensed financial institutions as well as from
foreign financial institutions in an effort to eliminate the
currency risk that they may face in respect thereof.
As a result of the new legislation, the government expects the
domestic loan trading volume to increase and hence make a
contribution to the efforts to restore the financing shortfall
which the non-financial sector faces due to the recent economic
turmoil. Additionally, the government is hoping to the decrease the
country risk premium through the enactment of the new F/X Loan
regime. The new F/X Loan regime also aims to ease the F/X Loan
burden originated from foreign financial institutions and thereby
helping the local companies to monitor their currency risk.
Undoubtedly, the new F/X loan regime will create an appetite for
the domestic companies to use F/X Loans from local financial
institutions. However, it also raises a big question mark as to
whether or not the local financial institutions are prepared to
meet this appetite.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Strategic planning is crucial to profitable business growth, but companies typically realise only about 63% of their business strategy's potential financial value because of defects and breakdowns in strategic planning and implementation.
One of the greatest challenges facing employers today is finding and keeping good employees. This article describes some effective employee retention strategies that will help you retain good staff and develop a stable workforce.
The quarterly CFO Survey is firmly established with media and policy makers as the authoritative barometer of UK corporates' sentiment and strategies.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).