On April 10th, the New Economic Plan, outlining a reform program aiming to enforce new policies and measures to provide a sustainable economic development in Turkey, was announced by the Treasury and Finance Minister. The reform efforts focused on the financial sector and mainly the banking sector.
- One of the most significant steps will be to tackle the problems for the non-performing loans in the energy and construction sectors, with the leadership of the Turkish Banking Association. The plan is to take the problematic assets off the lenders' books through a debt-share exchange. An energy private equity investment fund (enerji girişim sermayesi fonu) and a real estate investment fund (gayrimenkul yatırım fonu) will be established with the participation of banks and the local and foreign investors. With this new financial model the problematic assets will be segregated and the funds to be established with the participation of banks, local and foreign investors will manage such problematic assets. As to the establishment of the funds "with the participation of banks, as well as local and foreign investors", it should be noted that under the applicable capital markets legislation, these funds may only be established by portfolio management companies which may be incorporated as a Turkish joint stock company and with the permission of the Capital Markets Board. Having said that, the founder of a portfolio management company may be a foreign entity, provided that such entity satisfies the conditions set under the relevant Communiqué. The status of the problematic assets to be transferred to these funds, also bears importance, as the Capital Markets Board restricts the scope of assets, rights and transactions to be conducted for the operation of portfolios within these funds.
- The Minister said the average non-performing loan rate across the banking sector reached 4.2 per cent at the end of March and they intend to take steps to further enhance the quality of assets. The plan envisages stricter rules on corporate lending, e.g. companies with risk corresponding to TL 100 million or more will be required to provide independently audited financials to banks within 120 following the financial year-end, otherwise they will not be granted additional loans.
- Another strategy is to cooperate with the Banking Regulation and Supervision Agency, to restrict dividend payments for 2018, for the purposes of strengthening the capital of banks. To this end, another step will be to recapitalize the state-run banks by issuing government bonds amounting to TL 28 billion.
- There will be new regulations relating to the new legislation on composition of creditors (konkordato), to fasten the process of restructuring, collection of debts and liquidation of insolvent companies.
- The Minister further announced their plans to minimize the number of tax exceptions and exemptions and gradually decrease the corporate tax. Another tax related plan is to spread the use of tax statements and decrease indirect taxes while increasing the direct taxes.
- The announcement also included reforms to pension savings, social security, boost tourism, logistics, trade and agriculture sectors, as well as law. The details of these reforms are expected to be outlined in the coming months.
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