1. INTRODUCTION

With its decision numbered 10250 and dated June 24, 2022 ("Decision"), the Banking Regulation and Supervisory Authority ("BRSA") introduced restrictions on the Turkish Lira borrowings of the companies that are subject to independent audit ("Companies") other than banks and financial institutions. Following the Decision, the BRSA made explanations under its Press Release dated June 26, 2022 ("Release") with respect to the Decision to clarify the doubts regarding the implementation of the Decision.

  1. SIGNIFICANT PROVISIONS OF THE DECISION

The BRSA has decided to apply the following principles as of June 24, 2022 until a further decision is taken:

  1. Regarding the Companies whose Turkish Lira equivalent of foreign currency assets exceeds 15,000,000 Turkish Lira

With the Decision, the Companies whose

  1. (i) Turkish Lira ("TRY") equivalent of foreign currency ("FX") cash assets is above TRY 15,000,000 as of the date of their loan application, and
  2. (ii) FX cash assets exceed 10% of their total assets or net sales revenue of the last 1 (one) year, whichever is greater, according to the most recent financial statements

will not be disbursed a new TRY cash commercial loan.

For the Companies that are required to prepare consolidated financial statements in accordance with the accounting and financial reporting standards issued by the Public Oversight Accounting and Auditing Standards Authority ("Authority"), the above assessment will be based on the consolidated balance sheets.

  1. Regarding the Companies that cannot borrow FX loans

The Companies, which are not allowed to borrow FX Loans in accordance with the Decree No. 32 on the Protection of the Value of Turkish Currency and the relevant legislation, will only be disbursed TRY cash commercial loans limited to the position deficit determined in any 3 (three) months period following the application date in the event that there is an FX net position deficit within the 3 (three) month period from the date of the loan application to the bank according to the examination to be made on the most recent financial statements by the independent audit institutions ("Independent Audit Institution") authorized by the Authority and that the Companies apply to the bank with the documents approved by the Independent Audit Institution.

  1. Regarding the Companies whose TRY equivalent of FX cash assets does not exceed TRY 15,000,000

In case the Companies, whose TRY equivalent of FX cash assets does not exceed TRY 15,000,000 as of the date of the loan application, have their current FX cash assets and total assets according to the most recent financial statements and net sales revenue of the last 1 (one) year determined by an Independent Audit Institution; declare and undertake that the TRY equivalent of FX cash assets will not exceed TRY 15,000,000 during the term of the loan to be disbursed; and submit the current value of their FX cash assets, total assets and net sales revenue for the last 12 (twelve) months as of the end of the previous month according to the balance sheet of the previous month within the first 10 (ten) business days of each month to the bank in order to have the declaration and undertaking checked by the bank, these Companies will be exempted from the restriction on TRY cash commercial loans.

  1. Calculation of TRY equivalent of FX cash assets

The calculation of FX cash assets will be based on the foreign exchange buying rate of the Central Bank of the Republic of Turkey on the date of the calculation.

  1. SIGNIFICANT PROVISIONS OF THE RELEASE

The BRSA made the following explanations regarding the implementation of the Decision:

  1. Conditions to be included in the scope of the Decision and cases excluded from the scope of the Decision

For any company to be included in the scope of the relevant Decision, all of the following 3 conditions must be fulfilled collectively and if any of the conditions are not fulfilled, the relevant company will not be subject to any restriction on the disbursement of loans:

  1. The company being a company subject to independent audit in accordance with the Decree-Law numbered 660, the Decree of the Council of Ministers numbered 2018/11597 decided pursuant to article 397 of the Turkish Commercial Code numbered 6102 and any relevant legislation
  2. The TRY equivalent of the company's FX cash assets exceeding TRY 15,000,000 and
  3. The TRY equivalent of the company's FX cash assets exceeding 10% of the total assets or the net sales revenue of the last 1 (one) year, whichever is greater.

Real persons and real person company shareholders are excluded from the scope of the Decision and will not be subject to any restriction on the disbursement of loans.

  1. FX cash assets that are included in and excluded from the scope of the Decision

The Companies' effective foreign currencies, including gold, and FX deposits in banks are included in the scope of FX cash assets.

Other monetary assets of the Companies consisting of debt instruments such as securities and Eurobonds issued in FX by residents are not included in the scope of FX cash assets.

Thus, securities and shares issued in FX by non-residents and other monetary assets of the Companies such as reverse repurchase with non-residents will also be included in the calculation of FX cash assets.

  1. Status of the Companies that are not included in the scope of the Decision

As stated above, the Companies whose TRY equivalent of FX cash assets does not exceed TRY 15,000,000 will be exempt from the loan restriction. However, as of the loan application date, these Companies are required to fulfil the conditions set out under the section titled "Regarding the Companies whose TRY equivalent of FX cash assets does not exceed TRY 15,000,000" of this note. In this context, a standard form will not be published by the BRSA in terms of the declarations and undertakings to be obtained from the Companies.

In this respect, it is the banks' responsibility to obtain documents from the loan customers, to obtain a letter of undertaking "to submit all kinds of information and documents to the bank upon request for the determination and follow-up of the use of the loan for its intended purpose" and/or to update the contracts in this context and to adapt the business processes accordingly for the follow-up on the use of the loan for its intended purpose.

  1. Types of commercial loans within the scope of the restriction and status of the existing loan limits

For the Companies within the scope of the Decision, all kinds of TRY cash commercial loans to be disbursed after June 24, 2022 will be within the scope of the restriction.

Any increase in the balance of TRY cash credit transactions such as revolving loans, overdraft accounts (“KMH”) and corporate credit cards as at the end of each month will be considered new disbursements. If there is an increase in the balance at the end of each month compared to the end of the previous month, the relevant commercial loan customer will be required to provide the bank with the documents approved by the Independent Audit Institution specified under the Decision until this calculation to be made as of the end of the month.

In case of overnight loans, if there is any outstanding balance risk as of the calculation date at the end of each month, the relevant commercial loan customer will be required to submit these documents approved by the Independent Audit Institution to the bank until the aforementioned calculation to be made as of the end of the month.

Spot TRY commercial cash loans in respect of which an agreement has been executed but which has not yet been disbursed before the date of the Decision, and disbursement of which will take place within the week starting from June 27, 2022 will not be affected by the Decision.

Non-cash loans, such as direct debit systems, will not be covered by the Decision unless they are converted into cash loans.

After June 24, 2022, loans restructured under framework agreements will not be considered as new disbursements. However, loans that are not within the scope of such restructuring and renewed after June 24, 2022 by changing the terms of the contract or extended for partial or complete refinancing of existing loans will be considered as new disbursements.

  1. CONCLUSION

It is understood that the BRSA has taken the above-mentioned Decision as a macro precautionary measure necessary for strengthening the financial stability and ensuring the operation of the credit system effectively by using resources in more efficient and productive areas and distributing the loans for their intended purpose.

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.