Statement of the Decision of the Banking Regulation and Supervision Agency, dated June 24, 2022 and numbered 10250, on Providing Loans
As is well known, our Agency already instructed the banks to use extreme caution to avoid using loans to realize transactions that are inappropriate for their intended use. However, even though some companies have excess foreign currency positions and have no foreign currency obligations or debts, they do not purchase foreign currency utilizing TL loans. In other words, even though there is no real need, some companies continue to use TL commercial loan resources with advantageous circumstances, which should be used for investment, employment, and production.
Board Decision (Decision) 10250, dated June 24, 2022, was adopted in this regard as a necessary macroprecautionary measure to strengthen financial stability and use resources in more efficient and productive ways, to ensure that the credit system operates efficiently and that loans are used in accordance with their intended purposes, and to do all of the aforementioned.
In this situation, it is advantageous to provide the following reasons to allay any concerns about the Decision’s implementation:
Conditions for Inclusion in the Decision’s Scope and Cases Not Covered by the Decision’s Scope:
- Being a company that must undergo an independent audit in accordance with Decree Law No. 660 and any applicable laws,
- The company’s foreign exchange cash assets, which include gold, real foreign exchange, and foreign exchange deposits in banks, are worth more over 15 million TL.
- TL equivalent of the company’s foreign exchange cash assets that exceed 10% of all assets or the net sales revenue for the previous year, whichever is higher.
All three of the aforementioned requirements must be met for any company to fall under the scope of this Decision.
If the first condition—that is, if a corporation does not have the status of being one that must undergo an independent audit in accordance with applicable law—is not met, the aforementioned company will not be affected by this decision.
Even if the first condition is met and the second condition is not met, that is, if the TL equivalent of a company’s foreign currency cash assets does not exceed 15 million TL, there will be no restriction on providing loan.
Despite the 1st and 2nd conditions being met, if the TL equivalent of the Company’s FX cash assets do not exceed 10 percent of the Company’s total assets or the last 1-year sales revenue (the larger one will be taken as the basis), there will be no restriction on providing loan.
In other words, as stated above, all 3 conditions above must be met together in order to be subject to this limitation.
On the other hand, real persons and real person Company partners are not included in the scope of the said Decision.
Conditions to be Exempted from the Credit Extension Limitation: In accordance with the Decision No. 32 on the Protection of the Value of Turkish Currency and the relevant legislation, which is within the scope of the credit extension limitation due to the fulfillment of all 3 conditions above, in case the companies that are unable to use foreign currency loans, have a foreign currency net position gap determined within 3 months from the date of application for the loan, as approved by the independent audit company, and submit it to the bank, it is possible for these companies to use cash commercial loans in TL, provided that it is limited only to the position gap in the 3-month period following the application date.
The criteria to be considered for the companies that will benefit from this exemption is the presence of a foreign currency position deficit, that is to say, if their foreign currency debts are more than their foreign currency assets in any upcoming 3 months period. If such a situation is in question, these companies will be able to extend cash commercial loans in TL as much as the FX liabilities exceed the FX assets.
FX cash assets included or not within the scope of the decision: As stated in the decision, FX cash assets include companies’ effective foreign currency, including gold, and FX deposits in banks, as well as other securities issued by companies in FX by residents and debt instruments such as Eurobonds. monetary assets are not included in the scope of FX cash assets specified in the Decision. However, other monetary assets of companies such as securities and stocks issued in FX by non-residents and reverse repo with non-residents will also be included in the calculation of FX cash assets within the scope of the Decree.
Information and Documents to be Used in Determining the Scope: Whether a company is within the scope of the Decision or not, in accordance with the total foreign currency cash assets of this company and the most up-to-date independently audited financial statements, it will be determined by confirming and documenting the total assets and net sales revenue of the last 1 year by the independent audit company. For companies that are obliged to prepare consolidated financial statements, this assessment will be made on the consolidated balance sheet (BS).
Status of Excluded Companies: Companies whose FX cash assets do not exceed TL 15 million will not be included in the loan limitation within the scope of the Decision. However, as of the loan application date of these Companies,
- They are required to have the independent audit company determined the total assets and the last 1-year net sales revenue according to their current FX cash assets and the most up-to-date financial statements.
- They must declare and undertake that the TL equivalent of their FX cash assets will not exceed 15 million TL during the term of the loan they will use, or that even if it exceeds, the larger of the total assets or the last 1-year net sales revenue will not exceed ten percent.
- In order to ensure that the said declaration and commitment is controlled by the bank, the companies must be within the first 10 working days of each month, according to the previous month-end BS, the current value of FX cash assets, total assets and the last 12-month net sales revenue as of the end of the previous month should be submitted to the bank.
In this context, a standard form will not be notified by our Agency at this stage for the statements and commitments to be received from the Companies. As stated in our instruction letter dated 15.06.2022 and numbered 53262, in order to follow up that the loan is used in accordance with its purpose, It is the responsibility of the banks to obtain documents from loan customers as far as possible, to receive a letter of undertaking “to submit to the bank, upon request, all kinds of information and documents regarding the determination and follow-up of the use of the loan in accordance with its purpose” and to update the contracts and/or contracts within this scope and to adapt the business processes accordingly.
Types of Commercial Loans within the Scope of Limitation and Status of Existing Credit Limits: For companies that meet all 3 conditions stated in the Decision and above, all kinds of commercial loans in TL to be used after the date of the Decision are within the scope of limitation.
For cash commercial TL loans to be made as of the date of the Decision through loan transactions such as revolving, overdraft accounts or corporate credit cards, the balance increase calculation to be made at the end of each month will be considered as a new use and in case of a balance increase compared to the end of the month before the calculation date at the end of each month, until this calculation to be made as of the end of the month, the relevant commercial loan customer will have to certify to the bank the documents approved by the independent audit company specified in the Decision.
If there is a balance risk amount as of the calculation date to be made at the end of each month in overnight loans, until this calculation to be made as of the end of the month, the relevant commercial loan customer must certify to the bank the documents approved by the independent audit company specified in the Decision. At the end of the month, if the loan customer has a balance increase for revolving, overdraft accounts or corporate credit cards, if there is a risk amount for overnight loans, in case it is determined that it falls within the scope of the relevant limitation within the framework of the documents certified, even if there is a limit gap, a new commercial loan in TL should not be extended to the above-mentioned types (such as revolving, overdraft, corporate credit card, overnight loans).
In this context, the application will be made as stated above for revolving loans, KMH, corporate credit cards and overnight loans to be extended in line with the limits allocated to customers before the date of the Decision. Therefore, for such loans that will expire and be renewed within the week starting on June 27, 2022, relevant customers are required to complete the necessary documents until the calculation to be made at the end of this month and only if the balance has increased compared to the end of the previous month. For commercial loans in TL in spot quality, for which a loan application has been made and the contract has been concluded before the date of the decision but has not yet been provided and will be made available only within the week starting from June 27, 2022, there is no need for any additional control and the related credits will not be affected by the Decision.
Non-cash loans such as the Direct Debit System (DBS) are not covered by the Decision unless they are converted into cash loans.
On the other hand, in accordance with the Regulation on the Procedures and Principles Regarding the Classification of Loans and Provisions to be Set aside for them or in accordance with the Provisional Article 32 of the Banking Law No. 5411, loans restructured after the decision date will not be considered as new provision of loan. However, the loans that are not within the scope of restructuring and that are renewed by changing the contract conditions after the date of the Decision or that are extended to partially or completely refinance existing loans should be considered as new provision of loan.
Whether the Companies are Subject to Independent Audit or not: Whether a company is subject to independent auditing is determined according to the Decree Law No. 660, the Cabinet Decision No. 2018/11597, which was decided in accordance with Article 397 of the Turkish Commercial Code No. 6102, and other relevant legislation. Pursuant to Article 9 of the Regulation on Banks’ Credit Transactions titled “Documents to be accepted as account status” banks determine whether a company is subject to independent audit within the framework of the aforementioned legislation in accordance with this provision, it will continue to be determined in the same way as the banks have so far determined whether a company is subject to independent audit.
“Most Recent Financial Statements” Indicated in the Decision: With the expression “the most up-to-date financial statements” specified in the decision, consolidated financial statements are meant for those who are obliged to prepare consolidated financial statements in accordance with the accounting and financial reporting standards published by the Public Oversight, Accounting and Auditing Standards Authority.; unconsolidated financial statements are meant by those who do not have the obligation to prepare consolidated financial statements. It refers to the most up-to-date financial statements prepared in accordance with the same standards and audited by independent audit companies authorized by the Public Oversight, Accounting and Auditing Standards Authority.
The Case of the Documentation Required to be Approved by Independent Audit Companies Not Available: As of the loan application date to be made after the decision date, provided that the companies whose total FX cash assets have not yet been determined by independent audit companies or whose current financial statements audited by independent audit companies are not ready, or whose FX net position gap has not yet been determined by independent audit companies as of the 3 months following the loan application date, certify to the relevant bank that the independent audit process has been initiated and declare to the relevant bank the total FX cash assets, total assets, net sales revenue of the last 12 months as of the end of the previous month and the current value of the FX net position gap as of the 3 months following the application date, and within the framework of the evaluation to be made according to this statement, provided that the said company does not fall into the credit extension limitation within the scope of the Decision, it is possible to allocate a new cash commercial loan in TL to the aforementioned companies.
In spite of the fact that the companies in question have declared to the relevant bank that the independent audit process has been initiated, if the bank does not submit the current financial statements audited by independent audit companies and other information and documents that need to be approved and determined by the independent audit company within 1 month after the loan allocation, or if it is understood that the company should be included in the credit limit within the scope of the Decision, according to the information and documents it has submitted, no new commercial loans in TL in TL should be extended to these companies by the relevant bank and this situation should be reported to our Agency immediately.
Exchange Rate to be Used in the Calculations: The Central Bank of Republic of Türkiye (CBRT)’s foreign exchange buying rate for the calculation date will be used in calculating the TL equivalent of FX cash assets.
Reporting to the Agency by Banks: The required reporting form and format regarding the reports to be made to our Agency within the scope of the decision will be announced to the banks by our Agency as soon as possible.
Other Matters to be Considered by Banks and Companies: Before companies request TL loans, banks are required to warn their customers not to engage in practices aimed at circumventing the Decision through fictitious transactions or other collusive transactions, and each bank is required to check specifically with their own banks whether their customers have made FX asset transfers for such fraudulent purposes, and if they make such a determination, they must promptly inform our Agency. On the other hand, required legal actions must be taken against those who facilitate the opening of a loan that should not be made available by the banks by engaging in such deceptive and conspiratorial actions to avoid or neutralize the Decision.
Moreover, in order to ensure the control of the statements and commitments that the companies will give to the banks before providing loan, by the banks; according to the information and documents to be submitted to the banks within the first 10 working days of each month, or according to the information and documents that must be approved by the independent audit company and submitted to the bank within 1 month after the loan allocation due to the lack of availability as of the loan application date, it must be approved by the independent audit company within 1 month after the loan allocation or if it is determined that it does not comply with the decision, the relevant bank must immediately inform our Agency about the companies that do not submit the information and documents that need to be determined to the bank.
Banks must exercise due diligence to ensure that the Decision is implemented correctly, and even if it isn’t stated explicitly in the Decision, if they find that transactions that violate the Decision’s spirit have been carried out, they must notify our Agency and pay attention to the accurate and timely reporting that our Agency will require within the Decision’s parameters.
Respectfully announced to the public.
Source: Banking Regulation and Supervision Agency of Türkiye – Translated by MuhasebeNews – MuhasebeNews owns the rights to this translation, and any unlawful use is forbidden.
Legal Notice: The information in this article is intended for information purposes only. It is not intended for professional information purposes specific to a person or an institution. Every institution has different requirements because of its own circumstances even though they bear a resemblance to each other. Consequently, it is your interest to consult on an expert before taking a decision based on information stated in this article and putting into practice. Neither MuhasebeNews nor related person or institutions are not responsible for any damages or losses that might occur in consequence of the use of the information in this article by private or formal, real or legal person and institutions.