I. General Overview
For the purposes of protecting the value of the Turkish currency, Turkish lawmakers have introduced various rules and restrictions under the Decree No. 32 on the Protection of the Value of the Turkish Currency ("Decree No. 32").
According to foreign exchange laws in Turkey, individuals residing in Turkey are not permitted to obtain foreign exchange cash loans from banks and financial institutions in Turkey or abroad. As a general rule introduced by the Decree No.32, legal entities residing in Turkey are required to have foreign exchange revenue in order to obtain foreign exchange cash loans. However, certain limitations and exceptions to this general rule have been introduced by the Decree No. 32.
The Central Bank of the Republic of Turkey ("Central Bank") has also adopted the Capital Movements Circular ("Circular"), which came into effect as of May 2, 2018. This Circular determines the rules and principles relating to utilization of foreign exchange cash and non-cash loans from banks and other financial institutions.
Utilization of non-cash loans is subject to a divergent regime introduced by the Circular. Our aim is to reveal the rules and principles regarding utilization of non-cash loans as per the Circular.
II. Utilization of Non-Cash Loans
Pursuant to the Circular, Turkish residents may freely utilize non-cash loans, guarantee and security from abroad. For Turkish resident beneficiaries, non-cash loans may be utilized without banks. However, if non-cash loans are converted to cash loans, they become subject to the restrictions stipulated under the Circular.
Turkish banks and financial institutions are allowed to provide foreign exchange or foreign exchange denominated letters of guarantee, guarantee and security in the following cases:
- Non-cash loans to Turkish residents for foreign resident beneficiaries,
- Non-cash loans to foreign residents for foreign resident beneficiaries,
- Non-cash loans to foreign residents for Turkish resident beneficiaries,
- Non-cash loans to Turkish residents for Turkish resident beneficiaries on the condition that such loans relate to an international tender launched in Turkey,
- Stand-by letter of credit for Turkish resident beneficiaries for sales and deliveries considered as export and foreign exchange earning services and activities, and
- Non-cash loans to Turkish resident on the condition that such loans are given for commercial and professional purposes.
Save for the abovementioned cases, Turkish banks cannot provide bill guarantee for foreign exchange or foreign exchange denominated promissory note whose creditor and debtor are Turkish residents. On the other hand, Turkish banks are allowed to provide foreign exchange denominated letter of guarantee to Turkish residents for Turkish resident beneficiaries.
This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in June 2019. A link to the full Legal Insight Quarterly may be found here
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.