Turkey: FX Loans - Recent Changes To Capital Movements Circular In Turkey

Central Bank of the Republic of Turkey (“CBRT”), respectively on 25 January 2021, 16 February 2021 and 16 March 2021, has published new changes to the Capital Movements Circular (“Circular”) dated May 2, 2018. These changes are essentially relating to the foreign currency (“FX”) loans utilized by Turkish residents abroad.

What are these changes?

Changes in effect as of Jan 25, 2021

In the case a Turkish resident obtains FX loan from a foreign lender abroad, such FX loan amount shall be directly transferred to the local bank intermediating the loan utilization in Turkey, with a clear expression that the transferred amount is a “loan”. With the recent change in the Circular, further to the afore-mentioned rule, CBRT explicitly prohibits the transfer of the FX loan amount from abroad to a third-party bank account in Turkey other than the borrower's account (Circular, Art. 23/1).

Changes in effect as of Feb 16, 2021

As per Decree No. 32 on Protection of the Value of Turkish Currency (“Decree”) and the Circular, Turkish residents who have an intention to utilize FX loans, are required to have FX income to declare to the relevant authorities, save for the exceptions listed under the Decree and the Circular (Decree, Art. 17/3 and Art. 17/A/3; Circular, Art. 21 and Art. 40). According to the Decree and Circular, i) if the loan balance of the Turkish resident who wishes to use FX loans, as of the loan utilization date, is below 15 million USD, such person may utilize FX loans provided that the sum of the loan amount to be utilized and the current loan balance of such resident does not exceed its FX income generated for the last 3 (three) financial years, ii) if the loan balance is above 15 million USD, such resident is in the scope of the exemptions and may use FX loans without being subject to any restriction. There are also other specific exemptions listed under the Circular.

With the recent change, Circular adopted a new exemption for Turkish resident borrowers from the requirement of generating FX income. According to the new exemption, in the case that the unlicensed generation facilities are fully taken over by a buyer entity together with the outstanding loan balance of the seller entity, the buyer entity may utilize FX loans abroad, without being required to generate any FX income. For evidencing such share transfer, CBRT requires a copy of the trade registry gazette declaring the share transfer registration to trade registry or notarized copies of the respective pages of the share ledger to the intermediating bank to be provided (Circular, Art. 21/16/c).

Changes in effect as of March 16, 2021

• In the Circular, CBRT requires each Turkish bank to control money transfers from abroad to the FX accounts of Turkish residents through SWIFT messages, by way of controlling such SWIFT messages to contain any expression of loan or not. With the recent change, CBRT expands the scope of the account types to be controlled and includes Turkish Lira deposit accounts into this provision. This means that any money transfers from abroad to the Turkish Lira deposit accounts will also be controlled by the local bank in Turkey (Circular, Art. 19/5).
• CBRT requires Turkish banks to control whether the loans utilized abroad are fully compliant with the Circular. In addition, if Turkish bank cannot identify the purpose of the money transfer from abroad, CBRT requires the local bank to provide a written declaration from its Turkish resident customer for any money transfers from abroad that is equal to or above 50,000 USD in which, Turkish resident customer will need to declare whether the transferred amount to be qualified as “loan” or not. With the recent change, CBRT added a new threshold, 250.000 TRY, in Turkish Lira currency to this provision and therefore, if the transferred amount from abroad is equal to or above 50,000 USD or equal to or above 250.000 TRY, local bank will provide the written declaration of the Turkish resident customer (who received the transferred money from abroad) (Circular, Art. 19/6).
• A new exemption is adopted for Turkish resident borrowers from the requirement of transferring the FX loan proceeds to Turkey. Given this, Turkish residents are exempted from transferring the loan proceeds to Turkey if the FX loans utilized from abroad by Turkish residents will be used for the refinancing of the FX loans utilized from foreign lenders by the same Turkish residents.

With these recent changes,

• CBRT expands the scope of its control over FX loans utilized by Turkish residents abroad through local banks in Turkey and now, intends to also control the TRY accounts of Turkish residents held at Turkish banks as part of its controlling mechanism already existing for their FX accounts.
• For the same purpose above, Turkish Lira threshold is brought for the money transfers from abroad, which, if exceeded, will require a written declaration to be provided from Turkish resident whether the transferred amount to be qualified as a loan or not.
• CBRT increases the flexibility on FX loan utilization in specific cases by introducing new exemptions to the rule of FX income generation as well as the rule of transferring the loan amount to Turkey if such will be used for the refinancing of another FX loan used abroad.

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.