Borrowing in Turkish liras limited according to foreign currency assets
With the Banking Regulation and Control Authority [“BRSA”] decision numbered 10250 and dated June 24, 2022 [“Decision”]Borrowings in Turkish liras by companies, other than banks and financial institutions, which are subject to independent audit [“Companies”] became subject to a foreign currency asset [“FX-Assets”] restriction.
Companies affected by the decision
For the Decision to be implemented, these two conditions must be met: (i) the TRL equivalent of the Company’s FX Assets must exceed TRL 15 million; and (ii) the greater of the total assets of the Company or the net turnover of the Company for the past year must exceed 10% of the threshold specified above. In this regard, Companies fulfilling the two conditions above will no longer be able to borrow TRL commercial cash. This examination will be carried out using the consolidated balance sheets of the companies required to prepare consolidated financial statements and of the companies subject to audit which must be assessed by the last annual financial audit.
Along with the ruling, it is stated that the amount of FX-Asset includes effective foreign currency which also includes gold and foreign currency deposits in banks. In addition, in the BRSA press release of June 26, 2022 [“Press Release”]it is declared that for companies having their registered office abroad and therefore deemed to be foreign residents [“non-residents”], securities denominated in foreign currencies and stocks, as well as other monetary assets such as reverse repos with non-residents are also included in foreign exchange assets. On the other hand, other financial assets such as Eurobonds, non-resident securities and debt securities denominated in foreign currencies are not considered foreign exchange assets.
Companies not subject to the decision
Businesses that are not allowed to borrow foreign currency loans as per legislation and have a net foreign currency position in deficit within three months from the date of the loan application will be able to use commercial cash loans in TRL limited to the amount of the above position. deficit. However, these Companies are required to: (i) have their position deficit determined; and (ii) approach the bank from which they plan to borrow a loan, based on the assessment to be made on the most recent financial statements prepared by approved independent audit firms.
In addition, companies whose TRL equivalent of FX assets does not exceed TRL 15 million on the date of the loan application must determine the total assets and net turnover of the company for the past year, based on their current FX assets and the most recent financial statements prepared by an independent audit firm. In addition, these companies must declare and undertake to the bank that the TRL equivalent of their foreign currency assets does not exceed TRL 15 million until the term of the loan, even if it exceeds this amount, the greater of the sum of their total assets or their net turnover for the previous year must not exceed 10% of the aforementioned threshold. Banks will be able to determine whether the threshold has been breached during the loan period through reports which must be submitted within the first 10 working days of each month based on companies’ previous month-end balance sheets.
Information and documents to be provided by banks
The scope of information and documentation required from banks to determine whether companies comply with this restriction is set out in a broad framework. According to the press release, it is up to the banks to obtain a commitment from the Company stating that “he will provide all kinds of information and documents to the bank, upon request, for the determination and monitoring of the use of the loan in accordance with its purpose” and/or to update the agreement in this context and to adapt the commercial operations accordingly. On the other hand, it is expressly specified that no standard form will be issued concerning the information and/or documents that the customers of the bank must provide.
Current status of current commercial cash loans and outstanding loans
It was clarified in the press release what will happen to commercial cash loans and outstanding loans that fall within the scope of the decision. Thus, specific provisions have been introduced by type of credit within the framework of credit ceilings allocated to customers or credits granted before the date of the Decision. In summary, the increase in a residual risk of the Companies or, in certain cases, the mere presence of risk excludes a Company from the scope of the loans which may be made available under this Decision.
The BRSA said that although some companies have no foreign currency debts or liabilities, they borrow TRL cash commercial loans to purchase foreign currency. Thus, creating speculation in the foreign currency exchange rate where cash loans were originally intended to be used for production, employment and investment purposes. With the new restriction, there is no doubt that control over the use of loans in accordance with the assigned purpose will increase. As a result, the business operations that companies have planned for future periods need to be reviewed, as do the factors that banks take into account when granting loans.