Upon the application of Banks Association of Turkey (BAT), Turkish Competition Authority (TCA) examined to the BAT's "Recommendation Draft on the Use of TLREF Interest Rate in Restructuring Agreements with Commercial Borrowers" (Recommended Decision) and the "Draft Decision on the Use of TLREF Interest Rate in Restructured Structures within the Scope of Financial Restructuring Framework Agreement (Large Scale Application-LSA)" (Restructuring Decision) in terms of individual exemption rules1. BAT as a legal entity subject to competition law enforcement, is an association of all deposit banks and development and investment banks. In accordance with the provisions of article 79 of the Banking Law No. 5411 all banks have to be a member of BAT. BAT was established in order to defend the rights and interests of banks, carry out studies in order to develop the banking system, to improve the banking profession, to increase the competitiveness of the banking sector, and to create and implement the necessary decisions to create a competitive environment and prevent unfair competition.

Article 4 of the Act No. 4054 on the Protection of Competition ("Act no. 4054") prohibits anti-competitive agreements. Article 5 of the Act on the other hand, set out the rules for "individual exemption" decisions to pave the way for practices that are against the Act No. 4054, but still create significant efficiency in the market. 4 conditions are stipulated in the Article 5 of the Act no. 4054 as follows; (i) Providing new developments and improvements or economic or technical development in the production or distribution of goods and the provision of services, (ii) Consumer benefits, (iii) competition should not disappear in a significant part of the relevant market, and (iv) competition should not be restricted more than necessary. If all these conditions are met, upon the application of the party/parties, individual exemption may be granted to the said application by the TCA. Filing an application for exemption to TCA is not compulsory and parties are able to perform self-audit since the amendment of 2005. In addition, the recent amendment of the Act no. 40542, which entered into force on June 24, 2020, further clarified the self-audit system.  

The recent BAT case is significant for being an example of the individual exemption impacting the functioning of the banking sector. In restructuring transactions where the variable interest rate of the Restructuring Decision was preferred by the parties, it was stated that BAT envisaged the use of a fixed interest rate in certain futures and is binding on the parties. It also stated that the Recommended Decision aims to determine the parameters related to the loans to be given by the banks and that both decisions could fall within the scope of Article 4 of the Act no. 4054 and therefore no negative clearance document could be given.

Considering that the decisions cannot benefit from the block exemption, TCA evaluated the individual exemption conditions separately for the two draft decisions and reached the following conclusions:

  1. Assessment on the Restructuring Decision:
    1. Providing new developments and improvements or economic or technical development in the production or distribution of goods and the provision of services:

      While ensuring the sustainability of financial structuring practices and the activities of the borrower firms, it is ensured that the supply of goods and services is maintained by the creditor firms and thus the condition is fulfilled.

    2. Consumer benefits:
    3. It has been determined that the targeted benefit in the restructuring application is important in terms of maintaining the existing competitive structure and not limiting consumer preferences, so that the consumer will benefit.

    4. Competition should not disappear in a significant part of the relevant market: Since the number of players in the market is high and only 56 of them sign LSA, competition will not disappear in a significant part of the market.
    5. Competition should not be restricted more than necessary: Due to the fact that Borrowers and Creditor Organizations can, as a rule, be involved in the framework of their consent, the relevant condition has been met.
  1. Assessment on the Recommendation Decision:
    1. Providing new developments and improvements or economic or technical development in the production or distribution of goods and the provision of services:
    2. It has been determined that the condition has been fulfilled by expressing that the loans given in TL can prevent the necessity of holding dollars abroad in order to direct the interest risk, consumption and investment transactions can be affected by exchange rates and interest rate fluctuations at a much lower rate, lending Turkish institutions can prevent foreign currency liquidity from being used, instead of foreign currency, it will be possible to extend the loan with a long term Turkish Lira and as a result, create an environment that can provide a decrease in credit costs.

    3. Consumer benefits:
    4. By ensuring that the undertakings continue their activities in the market, the limitation of consumer preferences will be prevented and thus the consumer will benefit from the application.

    5. Competition should not disappear in a significant part of the relevant market:
    6. Considering that the parties are free to choose a fixed interest rate, how long the TLREF will be updated by the parties, and that the decision in question determines the benchmark interest rate, not the final interest rate, competition will not disappear in a significant part of the market.

    7. Competition should not be restricted more than necessary:
    8. It has been determined that the condition is met due to the use of TLREF interest rate is only recommended by TBB and the related decision has no binding effect on the TBB members and the parties can act within their consent to adopt the TLREF interest rate and are free.

Based on these insights, TCA finally granted individual exemption to the "Recommendation Draft on the Use of TLREF Interest Rate in Restructuring Agreements with Commercial Borrowers" and the "Draft Decision on the Use of TLREF Interest Rate in Restructured Structures within the Scope of Financial Restructuring Framework Agreement".

Footnotes

1. TCA Decision – 23.01.2020, 20-06/69-38

2. "Amending on the Act on the Protection of Competition" Official Journal, dated 24.06.2020 and numbered 31165

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.