On 21 October 2022, the Banking Regulatory and Supervisory Authority (“BRSA”) published BRSA Decision No. 10389 (“Tightening Decision”) to tighten the restrictions set forth under the BRSA Decision No. 10250 dated 24 June 2022 (“Restriction Decision”), which introduced Turkish lira borrowing restrictions for non-financial institutions that are subject to independent audit and BRSA Decision No. 10265 dated 7 July 2022 (“Decision No. 10265” and together with Tightening Decision and Restriction Decision, “Decisions”), which in turn aims to clarify and ensure the effective application of the Restriction Decision.
You may refer to our legal alerts dated 27 June 2022, 19 July 2022, and 24 October 2022, for the Turkish lira borrowing restrictions introduced by the BRSA.
The BRSA clarified the implementation of these restrictions with the BRSA Decision No. 10659, dated 4 September 2023 (“Decision No. 10659”).
What does Decision No. 10659 say?
Pursuant to the Decisions, in order for companies subject to independent audit (other than banks and financial institutions) ("Companies") to be eligible to utilize Turkish lira cash loans, they must declare and undertake that their foreign currency assets ("FX Assets") do not exceed TRY 10 million, and even if exceeding TRY 10 million, their FX Assets do not exceed 5% of the greater of the net sales revenue of the last 1 year, effective as of 1 November 2022, and certify the accuracy of such declarations and undertakings to the relevant bank by the evening of the last business day of the month following the end of each quarterly calendar period.
If the Companies do not submit the information and documents approved by an independent audit firm or a sworn public accountant ("SPA") to the bank within the abovementioned periods, or if it is discovered that they must be included in the loan restrictions within the scope of the Decisions in accordance with the information and documents submitted, no new cash commercial loans will be extended to the company by the relevant bank. Moreover, a 500% risk weight was applied to all Turkish-lira-denominated cash loans extended to these Companies as of 1 November 2022, pursuant to a notification made by the relevant bank regardless of the approach used to calculate the amount subject to credit risk within the scope of capital adequacy ratio calculation without taking into account credit risk mitigation techniques, credit ratings and real estate mortgages.
With Decision No. 10659, the sanctions imposed on Companies for not submitting the aforementioned documents in due time or in accordance with the procedure set out in Decision No. 10265 (including the event that foreign currency cash asset determination was not made on the date of loan disbursement or on the date deemed to have been disbursed, documents were signed by unauthorized persons pursuant to the Decisions) will be revoked if they submit to all banks and financial institutions with which they have a credit relationship the documents prepared in accordance with the Decisions and approved by independent audit institutions, SPAs or certified public accountants (“CPA”), as relevant, certifying their status does not constitute a violation of the limitations determined as of the dates on which the loan was extended or deemed to have been extended in accordance with the Decisions, or that the Companies are not subject to independent audit.
Sanctions applied to the Companies whose FX Assets exceed TRY 10 million and whose FX Assets exceed 5% of the greater of their total assets or net sales revenue for the last 1 year, or who are found to have made false declarations that they are not subject to independent audit will be revoked if they;
- declare to all banks and financial institutions with which they have a credit relationship that their current situation does not constitute a violation of the abovementioned restrictions through documents prepared in accordance with the Decisions and approved by independent audit institutions or SPAs, as relevant; and
- declare and undertake to all banks and other financial institutions with which they have a credit relationship that the averages of the limitations calculated as of the business days between the date of certification of the curing of the breach and the beginning date of the three-month accounting period following the curing of the breach and the averages of the limitations calculated as of the business days within the three-month accounting period following the curing of the breach will meet the limitations determined within the scope of the Tightening Decision.
Pursuant to Decision No. 10659, the Companies are required to submit to all banks and other financial institutions with which they have credit relations until the evening of the last business day of the month following the relevant quarterly accounting period the documents prepared in accordance with the Decisions and approved by independent audit institutions or SPAs, as relevant, evidencing the accuracy of the declaration and undertaking given pursuant to paragraph (b) above.
In addition, in the event that the declaration and commitment given by the Companies pursuant to paragraph (b) above is found to be incorrect or false, the sanctions described above will be applied for six months without interruption from the date of notification of this non-compliance, and the Companies can only repeat their request for revocation of the sanctions the scope of the procedures and principles set out in paragraphs (a) and (b) above after the said six months.
If the said Companies utilize a new cash loan in TRY during the period in which they will submit the documents confirming their declarations and commitments regarding the averages of the limitations calculated by business days by curing their non-compliance within the scope of Decision No. 10659, they will not be required to submit additional documents within the framework of the procedures and principles set out in the Decisions.
By Muhsin Keskin, Partner, Busra Cavas, Associate, and Ali Cetin, Trainee, Esin Attorneys Partnership