Banking & Finance in Turkey

I. LEGAL FRAMEWORK

1.1. Which main legislative and regulatory provisions govern the banking sector in your jurisdiction?

The Banking Law No. 5411 (BankL.) is the primary legislation governing the banking sector. Other main legislations are as follows:

• The Capital Markets Law No. 6362
• The Bank Cards and Credit Cards Law No. 5464   
• The Law No. 6493 on Payment and Security Settlement Systems, Payment Services, and Electronic Money Institutions
• The Financial Leasing Law No. 3226
• The Law on the Central Bank of Turkey No. 1211
• The Mortgage Law No. 5582
• Applicable tax laws

Additionally, the Banking Regulation and Supervision Agency (BRSA), the Central Bank of Turkey (CBT), and the Capital Markets Board (CMB) have the authorization to issue secondary legislation regarding the banking sector.

1.2. Which bodies are responsible for enforcing the applicable laws and regulations? What are their main competencies?

According to Article 1 of the BankL., the purpose of the BankL. is to determine the procedures and principles for ensuring confidence and stability in financial markets, effective functioning of the credit system, and the protection of the rights and interests of the ones who deposit. In this respect, in accordance with Article 82 of the BankL., the BRSA, which was established to fulfill the aforementioned purpose as a public entity, has administrative and financial autonomy, and will independently fulfill and carry out the duties and powers related to regulation and supervision assigned to it by the BankL. and related legislation. Furthermore, it is also stipulated under the same article that the decisions of the BRSA cannot be subject to a review of expediency and no authority or person is authorized to give orders or instructions to affect the decisions of the BRSA.

The BRSA is generally responsible for the supervision, regulation, operation, and authorization of the establishment of banks operating in Turkey, foreign banks’ branches in Turkey, financial leasing companies, factoring companies, financial holding companies, and asset management companies. Additionally, the BRSA is also responsible for authorizing independent audit companies as well as valuation and rating organizations that provide services to banks or financial holding companies.

Additionally, pursuant to Article 6 of the Regulation of the Organization of the Banking Regulation and Supervision Agency dated March 16, 2014, the Banking Regulation and Supervision Board (BRSB) is established as the decision-making body under the BRSA. The BRSB adopts secondary legislation in line with the international principles and standards related to the sector or field that the BRSB is responsible to regulate and supervise. The BRSB is also responsible for providing suggestions to the strategic plans of the BRSA, goals, and objectives as well as its human resources and labor regulations for the BRSB’s organizational divisions according to Article 7 of the Regulation of the Organization of the Banking Regulation and Supervision Agency.

1.3. What are the current priorities of regulators and how does the regulator engage with the banking sector?

Digital transformation accelerated globally, including in Turkey, especially after 2020. The banking industry is among those most impacted by this transformation. One of the biggest transformations in the banking sector is the digitalization of traditional banks to provide branchless banking services to their customers. In this respect, the BRSA published the Regulation on the Operating Principles of Digital Banks and Banking as a Service Model on December 29, 2021, to set out the principles applicable to branchless banking in Turkey.

The adoption of the electronic lira is another innovation in the Turkish banking sector. Within this framework, there are regulations and decisions issued by the BRSA which support the development of electronic lira issuance. For instance, under Turkish Law, Law No. 6493 on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions (Law No.6493) was published on June 27, 2013, in order to regulate the supervision and activities of legal entities qualified as electronic money institutions. In addition to Law No. 6493, the Regulation on Payment Services and Electronic Money Issuance, Payment Service Providers dated December 1, 2021, the Communique on the Management and Supervision of the IT Systems of Payment and Electronic Money Institutions and the Data Sharing Services of Payment Service Providers in Payment Services Area dated December 1, 2021, and the Communique on Amendment to the General Communique of the Financial Crimes Investigation Board dated January 14, 2023, also fall under the relevant legislation.

II. AUTHORISATION

2.1. What licenses are required to provide banking services in your jurisdiction? What activities do they cover?

Under the Turkish banking sector, there are three types of banks that may be established as per the BankL.: (i) deposit bank, (ii) participation bank, and (iii) development and investment bank. The BankL. provides for a dual license system for the establishment and operation of all three types of banks. Accordingly, the establishment license is the first license to be obtained from the BRSA in accordance with Article 6 of the BankL. In this respect, the conditions must be fulfilled in accordance with Article 7 of the BankL. to acquire an establishment license are as follows:

• being established as a joint stock company,
• shares should be issued for cash and must be registered,
• requirements regarding the founders under Article 8 (as also stated under Section 2.4.) must be fulfilled,
• members of the board of directors (Board) shall bear the qualifications set out in the corporate governance provisions in the BankL. and shall have the professional experience required for carrying out the planned activities,
• envisaged fields of activity shall be in harmony with planned financial, managerial, and organizational structure,
• paid-up capital, consisting of cash and free of all kinds of collusion, should not be less than TRL 30 million,
• articles of association shall not conflict with the provisions of the BankL.,
• having a transparent and open partnership structure and organizational chart that will not constitute an obstacle to the efficient supervision of the institution,
• should not be any element that may prevent its consolidated audit,
• the work plans for the envisioned fields of activity, the projections regarding the financial structure of the institution including capital adequacy, the budgetary plan for the first three years, and an activity program including internal control, risk management, and internal audit system showing the structural organization must be submitted.

The application process and procedures for the afore-mentioned license are regulated in detail under the Regulation on the Indirect Shareholding and Transactions Subject to Permission of Banks (License Regulation). Accordingly, pursuant to Article 6 of the BankL., at least five affirmative votes of the members of the BRSB are required in order to be authorized for the establishment.

Secondly, as per Article 10 of the BankL., a bank that has been granted an establishment license must also obtain an operating license from the BRSA to provide banking services. Pursuant to Article 10 of the BankL., the operating license covers all activities stipulated under Article 4 of the BankL. unless otherwise decided upon by the BRSA. In this respect, Article 4 of the BankL. lists the following activities as the ones that can be carried out by banks:

• Accepting deposits and participation funds,
• Granting any sort of loan, either cash or non-cash,
• Carrying out any type of payment and collection transactions, including cash and deposit payment and fund transfer transactions, correspondent bank transactions, or use of check accounts,
• Safe-keeping services,
• Issuing payment instruments such as credit cards, bank cards, and travel checks, and executing relevant activities,
• Carrying out foreign exchange transactions, trading of money market instruments, trading of precious metals and stones, and safekeeping such,
• Trading and intermediation of forward, future, and option contracts, simple or complex financial instruments which involve multiple derivative instruments, based on economic and financial indicators, capital market instruments, goods, precious metals, and foreign exchange,
• Purchase and sale of capital market instruments and repurchasing or re-sale commitments,
• Intermediation for issuance or a public offering of capital market instruments,
• Transactions for trading previously issued capital market instruments for intermediation purposes,
• Guarantee transactions like undertaking guarantees and other liabilities in favor of other persons,
• Investment counseling services,
• Portfolio operation and management,
• Primary market dealing for purchase-sales transactions within the framework of liabilities assumed by contracts signed with the Ministry of Treasury and Finance and/or the CBT and associations of institutions,
• Factoring and forfeiting transactions,
• Intermediating fund purchase-sale transactions in the inter-bank market,
• Financial leasing services,
• Insurance agencies and individual private pension fund services and other activities are to be determined by the BRSB.

Moreover, depending on the type of bank, certain transactions that are mentioned in Article 4 of the BankL. are restricted to the bank in question. Accordingly, deposit banks cannot accept participation funds and engage in financial leasing services while participation banks cannot accept deposits, as they only accept participation funds. Additionally, development and investment banks cannot accept deposits or participation funds.

In addition to the above-mentioned, banks are additionally required to obtain a license from the CMB according to Article 39 of the Capital Markets Law No. 6362 for the following activities: (i) receipt and transmission of orders in relation to capital market instruments, (ii) execution of orders in relation to capital market instruments in the name and on behalf of the customer or in their own name and in the account of the customer (iii) purchase and sale of capital market instruments for its own account, (iv) safekeeping and administration of capital market instruments in the name of the customer and portfolio custody services.

2.2. What is the procedure for obtaining a banking license? How long does this typically take?

According to Article 7 of the License Regulation, banks are required to apply for an operating license within nine months following the publication of the BRSB decision on the establishment license in the Official Gazette. The application is made by submitting the relevant statement to the BRSA. According to Article 10 of the BankL., the following conditions are required for the granting of an operating license:

• The capital of the bank should have been paid in cash and must be at a level that enables the execution of planned activities,
• A minimum one-fourth of the system entrance fee, equivalent to ten% of the minimum capital requirements indicated in Article 7 of the BankL., should have been paid to the account of the Savings Deposit Insurance Fund (SDIF) and the related document submitted to the BRSA by the founders,
• Their activities should follow corporate governance provisions and should have the required personnel and technical infrastructure,
• Their managers should bear the qualifications set out in the corporate governance provisions,
• The BRSA should conclude that they bear the qualification required for executing the activities.
• The BRSA conducts the evaluation regarding the operating license in line with Article 7 of the License Regulation and grants operating licenses to the approved applications within three months from the date of the first license application according to Article 10 of the BankL. The licenses granted become effective upon their publication in the Official Gazette.

2.3. Can a foreign bank operate in your jurisdiction on the basis of its domestic license?

The banks established abroad cannot operate in Turkey based on only their domestic license. Such banks may carry out banking activities in Turkey by only:

• establishing a bank headquartered in Turkey and incorporated under Turkish law;
• opening a branch in Turkey; or
• opening a liaison office in Turkey

If the founders of the bank to be established in Turkey are a bank or financial institution established abroad, general conditions stipulated under Article 6 of the BankL. regarding establishment license and other related articles apply (Please see Section 2.1. for further information). Pursuant to Article 4 of the License Regulation, such founders must submit additional documents with the application for establishment permission including audited financial reports of the foreign shareholder and its affiliated companies, for the latest five years; statements issued by their authorized authority, proving that they are not restricted from banking activities or from accepting any participation funds in their resident country; detailed information and documents on their organizational structure; minutes and memoranda of their last general assembly meeting, and a list of their partners holding more than ten% of their capital, approved by official authorities of the country they are headquartered and as such.

A bank established abroad that will open its first branch in Turkey must meet the requirements related to the establishment stipulated under Article 9 of the BankL and if the required conditions under Article 9 are fulfilled such as its primary activities not have been prohibited in the country where they are headquartered and its paid-in capital reserved for Turkey being no less than TRL 30 million, a decision on the establishment permission is granted upon the affirmative votes of at least five members of the BRSA. If a foreign bank has already opened its first branch and desires to open its second branch, with reference to Article 13 of the License Regulation, Article 8 of the BankL. regarding the establishment of branches in Turkey applies. For detailed information on operating licenses please see our explanations under Section 2.1.

As provided in Article 6 of the BankL., banks established abroad may also establish liaison offices in Turkey with the prior permission of the BRSA. Article 10 of the License Regulation sets out the conditions for opening a liaison office. In this framework, Article 4 of the Communique on the Principles and Procedures for the Activities of Representative Offices Opened in Turkey published in the Official Gazette dated April 1, 2008, provides activities that the representative offices can carry out as follows:

• Publicity of the bank and the services granted by that bank under which the representative office is operating,
• Strengthening the relations with credit institutions or financial institutions established in Turkey, and
• Conducting market research and reporting the data collected to the headquarter.

As per Article 10 of the License Regulation, the liaison offices cannot accept or collect deposits or participation funds, make credit cards available, or perform or mediate any other banking operation determined under Article 4 of the BankL.

2.4. What are the restrictions on ownership, including foreign ownership of banks?

Article 8 of the BankL. stipulates the required qualifications of the founding shareholders of a bank as follows:

• Not being bankrupt, not being in possession of a certificate of bankruptcy, not having an approved application for restructuring through reconciliation, or not being issued a decision for postponement of bankruptcy,
• Not holding qualified shares and not having control in banks that are subject to Article 71 of the BankL. such as banks whose operating license was revoked or transferred to the SDIF or banks that were transferred to the SDIF before the entry into force of the BankL.
• Not holding qualified shares or control in a stock broker subjected to liquidation, and in other financial institutions subject to liquidation, excluding voluntary liquidation, in development and investment banks whose operating licenses have been revoked, or in credit institutions whose shareholder rights except dividends and management and control have been transferred to the SDIF or whose permission to conduct banking transactions and accept deposits and participation funds have been revoked, prior to the transfer of aforementioned credit institutions to the SDIF or prior to their license and authorization for accepting deposit and participation fund have been revoked,
• Not having been convicted of the offenses stipulated in Article 8 of the BankL. such as embezzlement, extortion, bribery, theft, swindling, forgery, breach of trust, fictitious bankruptcy,
• Having the necessary financial strength and reputation,
• Having the integrity and competence required for the business,
• In the case of a legal entity, the risk group and its shareholding structure should be transparent and clear.

These conditions are also required for the real person shareholders who directly or indirectly hold qualified shares of the legal entity who is a founding shareholder of the bank (Article 8 of the BankL.) (For detailed information on qualified shares, please refer to Section 2.5.).

Article 3 of the Foreign Direct Investment Law No. 4875 dated June 5, 2013, which regulates the procedures and principles regarding foreign investments, stipulates that foreign investors shall be treated equally with domestic investors. Accordingly, there are no special restrictions on foreign ownership under the BankL. This being the case, foreign entities such as financial institutions and banks are required to submit certain additional documents in their application for establishment permission pursuant to Article 4 of the License Regulation (for detailed information, please refer to Section 2.3.)

2.5. What are the requirements for a proposed acquisition and acquirer of a qualified holding in a bank? Would the same requirements apply in the case of an increase of a qualifying holding?

Qualified shares are defined by BankL. as shares that directly or indirectly represent 10% or more of the capital or voting rights of a corporation, and shares that give the privilege to appoint members to the BoD regardless of their share percentage.

Accordingly,

• any acquisition of shares of the bank that result in the acquisition by one person directly or indirectly of shares representing 10% or more,
• acquisition of shares that result in one shareholder holding directly or indirectly shares exceeding 10%, 20%, 33%, or 50% of the capital,
• transfers of shares that result in the shares held by a shareholder falling below the above-mentioned ratios, and
• assignment, transfer, or issuance of privileged shares granting the right to appoint members to the Board or audit committee,

are subject to the permission of the BRSB pursuant to Article 18 of the BankL. The documents listed in Article 11 of the License Regulation must be attached to the applications to be made to the BRSA regarding these acquisitions and transfers. In the case that a bank or a financial institution wishing to acquire the shares is established abroad, documents that must be submitted consist of documents set forth in Article 11 of the License Regulation including their business plans analyzing the benefit expected from the acquisition of shares, and describing which operations and activities will be carried out, and how internal audit, internal control, and risk management will be conducted, as well as an activity program indicating the structural organization of the bank, and describing the goals and targets of share investment, for three years following the date of purchase of shares; their articles of association; copies of decisions taken by authorized managerial bodies of them certifying the acquisition of capital shares of one of the existing banks; and their balance sheets and profit and loss statements and independent audit reports of the last five years and as such.

Shareholders holding qualifying shares must meet the qualifications required for founders of the bank set forth in Article 8 of the BankL. (Please refer to Section 1.4. for conditions required for founders).

There is no special regulation for the increase of qualified shares. Therefore, the general rule for capital increase which is Article 17 of the BankL. also applies to the increase of qualified shares. Pursuant to Article 17 of the BankL., capital increases must be paid in cash, free from all kinds of collusion, without resorting to internal resources (except for the resources permitted by the relevant legislation).

III. REGULATORY CAPITAL AND LIQUIDITY

3.1. How are banks typically funded in your jurisdiction?

Depending on the type of bank, different resources may be used by banks. For instance, deposit banks basically increase their resources by collecting deposits and providing credit support to individuals and institutions. In other words, deposits are the primary source of the funds used. Bonds, cash certificates, and other instruments are also issued by banks to raise funds. The main capital source of development and investment banks is the funds obtained from the capital market. Moreover, investment banking encompasses more than just lending money to investors. It provides their customers with all types of technical assistance, consulting, financial consulting, and financial providing engineering services, extending loans, performing mergers and privatizations, leasing, factoring transactions, and conducting market research. Lastly, since the participation banks carry out all their banking activities in accordance with the principles of interest-free banking, “the profit share” to be paid to the customer is generated as a result of the use of the funds collected in the pool. For example, the bank buys the goods that the customer needs in advance from the seller, adds the profit on it, and sells it to the customer on a deferred basis. A purchase and sale contract are drawn up between the customer and the bank. For this reason, there is a commodity in return for the funds used.

3.2. What capital and own funds requirements apply to banks in your jurisdiction?

A deposit bank must have a minimum of TRL 30 million in fully paid-in capital, as stated in Article 7 of the BankL. For development and investment banks, the minimum paid-in capital threshold is set at TRL 20 million.

Banks must keep some of the funds they collect in cash or easily convertible assets. Some of these assets are accounts held at the CBT. On the other hand, free reserves refer to reserves that banks are not required to hold. These are the reserves that banks choose to retain in order to cover unexpected deposit outflows and assess lucrative investment opportunities. In this respect, banks’ reserves are the sum of required reserves and free reserves.

3.3. Has your jurisdiction implemented the Basel III framework? Are there any major deviations?

It is worth mentioning the implementation of Basel II to explain the relationship between Turkey and the application of Basel III since Turkey actively participated in the preparation of the Basel II criteria. More clearly, the BRSA prepared opinions on the draft texts of the criteria and conducted the third numerical impact study with 6 banks, and hosted the final meeting. Additionally, to fully implement the criteria, a committee has been established within the BRSA for the implementation of Basel II. Following the US-originated 2008 financial crises, Basel III was published to eliminate the inadequacies of Basel II and to introduce new approaches to prevent crises and minimize damage. Basel III has brought new regulations on capital increasing, creating leverage ratios, liquidity-related regulations, and the creation of cyclical capital buffers. In order to implement Basel III, a number of new regulations and amendments were introduced in Turkey. In this line, the Regulation on Equity of Banks dated September 5, 2013, and the Amendment on the Regulation on Measurement and Assessment of Capital Adequacy of Banks dated February 4, 2022, came into force. Therefore, it is stated that the Turkish banking system is generally compatible with the criteria introduced by Basel III. Due to the pandemic that emerged in 2020 and economic problems, the transition to the implementation of Basel IV still continues.

IV. REPORTING, ORGANISATIONAL REQUIREMENTS, INTERNAL GOVERNANCE, AND RISK MANAGEMENT

4.1. What key reporting and disclosure requirements apply to banks in your jurisdiction?

Pursuant to Article 37 of the BankL., banks are obliged to account for all their transactions in accordance with the accounting and financial reporting standards published by the Public Oversight, Accounting, and Auditing Standards Authority and to disclose their financial reports in a clear and auditable manner to meet the need for information. Accordingly, banks are required to issue a year-end financial report and interim period financial reports in accordance with Article 10 of the Regulation on the Procedures and Principles for Accounting Practices and Retention of Documents by Banks dated November 1, 2006 (Accounting Regulation):

• Year-end financial report: Banks are obliged to submit their year-end consolidated and unconsolidated financial reports to the BRSA and Banks Association of Turkey and the Participation Banks Association of Turkey (Associations of Institutions) electronically and announce their year-end consolidated and unconsolidated financial statements in the Official Gazette by the end of April following the relevant year (Article 14 of the Accounting Regulation). The Associations of Institutions are required to publish the year-end financial report and interim financial reports of each bank submitted to them on their website.
• Interim period financial reports: Banks must submit their unconsolidated interim financial reports to be drawn up as of the end of March, June, and September to the BRSA and the Associations of Institutions electronically within 45 days and the consolidated ones within 75 days of the end of the related months (Article 14 of the Accounting Regulation).

In this respect, banks publish their year-end financial reports and interim period financial reports on their websites so that they are openly accessible for at least the previous five years according to Article 14 of the Accounting Regulation.

Additionally, copies of the financial statements and profit and loss statements to be prepared as of the end of each month and other additional information and explanations to be requested by the BRSA must be sent by banks to the BRSA within 30 days following the relevant period as per Article 14 of the Accounting Regulation.

The year-end financial reports to be submitted by banks to their general assembly are subject to independent audit in accordance with Article 39 of the BankL. In this context, pursuant to Article 4 of the Regulation on Independent Audit of Banks dated April 2, 2015 (Independent Audit Regulation), which sets out the procedures and principles regarding the independent audit of banks, banks are obliged to have an interim independent audit as of the end of March, June, and September and an annual independent audit as of the end of the accounting period (Article 4 of the Independent Audit Regulation). Banks are required to send such independent audit reports to the BRSA and the CBT within the time periods specified in Article 4.

Furthermore, pursuant to Article 31 of the BankL., banks are obliged to report their risk policies in accordance with the principles determined by the BRSA (Please see Section 4.4. for more details). In addition, the internal audit report to be prepared by the internal audit unit or authorized inspectors within the scope of internal audit activities shall be submitted to the Board at least quarterly by the audit committee (Article 32 of the BankL.).

4.2. What are the organizational requirements for banks, including with respect to corporate governance?

As provided for in Article 22 of the BankL., banks are obliged to comply with the corporate governance structures and principles to be determined by the BRSA in consultation with the CMB and the Associations of Institutions. In this regard, the Regulation on Corporate Governance Principles of Banks (Corporate Governance Regulation) dated November 1, 2006, has been published by the BRSA to specify the policies regarding the corporate governance of banks.

According to the provisions of the BankL. and the Corporate Governance Regulation regarding the organizational structure of banks, banks are required to have the following:

• Board
• General manager and deputy general manager
• Audit committee
• Credit committee
• Remuneration committee
• Corporate governance committee (in line with the Corporate Governance Regulation)
• Compliance officer and compliance unit (in line with the Regulation on Program of Compliance with the Obligations of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CTF Compliance Regulation))
• Internal control, internal audit, and risk management units (in line with the Regulation on Internal Systems and Internal Capital Adequacy Assessment Process of Banks (Internal Systems Regulation))

In the scope of BankL., the managers of the bank consist of the chairman and members of the Board, audit committee and credit committee, the general manager and deputy general manager(s) as well as employees who have signing authority including regional managers, etc. The qualifications that such management bodies should possess can be listed as follows:

• Board (Article 23 of the BankL.): The Board must consist of at least five members, including the general manager, who is a natural member of the Board. Half of the members of the Board plus one member must possess the qualifications required for a general manager in Article 25 of the BankL., such as educational background and professional experience. Also, the chairman of the Board and the general manager of the bank must be different persons.  In addition, the members of the Board are required to have the first four qualifications specified in Article 8 of the BankL regarding the founders of the bank (Please see Section 2.4. for further information).

For the banks established abroad, it is foreseen to establish a board of managers in their main branch office in Turkey, which will be considered as the Board in the application of the BankL. This board should consist of three members who shall meet the conditions stipulated in Article 23 of the BankL. for the members of the Board and shall have the same authority and responsibility as the Board. Upon election or appointment, the members of the Board and the board of managers of the bank shall take office by taking an oath before the local commercial court (Article 27 of the BankL.).

• Audit committee (Article 24 of the BankL.): The audit committee, which is tasked with assisting the Board in its oversight and audit activities, should consist of at least two members to be appointed from among the members of the Board who do not have executive duties. Members of the audit committee shall bear the qualifications foreseen by Article 6 of the Internal Systems Regulation such as including for the last two years prior to the date of appointment, not having been employed by the bank or its consolidated partnerships; not having been partners or employees of the institutions performing independent audit or rating or valuation of the bank or its partnerships subject to consolidation or of foreign entities which are legally affiliated with the said institutions, and not having taken part in the process of independent audit, rating or valuation; not being a qualified shareholder in the bank and/or its consolidated affiliates and subsidiaries, not having been partners or employees of the institutions providing consultancy or support services to the bank and/or its consolidated affiliates and subsidiaries, or among persons providing such services; not being spouses, or relatives by blood or by marriage of up to (and including) the second degree, of the controlling shareholder, the executive directors or the CEO; not having served on the audit committee of the same bank for a period in excess of nine years intermittently or permanently; not receiving any remuneration or similar income under any name whatsoever from the bank and/or its consolidated affiliates and subsidiaries, based on its or their profitability, except for payments made to all personnel out of profit under the articles of association or a resolution of the general assembly of shareholders; having received education at the undergraduate level as a minimum and having a minimum of ten years-experience in banking or finance; not having duty in another commercial institution other than the ones mentioned in Article 6 of the Internal Systems Regulation.
• General manager and deputy general managers (Article 25 of the BankL.): Bank general managers and bank deputy general managers must meet the educational background and professional experience requirements stipulated in Article 25 of the BankL.

Accordingly, general managers of banks are required to:

•      have at least a bachelor’s degree in law, economics, finance, banking, business administration, public administration, or equivalent fields, and those who have a bachelor’s degree in engineering must have a graduate degree in the specified fields;
•      have at least ten years of professional experience in banking or business administration.

Deputy general managers of banks are required to:

•      have at least an undergraduate degree in law, economics, finance, banking, business administration, public administration, or equivalent fields
•      have at least seven years of professional experience.

Pursuant to Article 26 of the BankL., the general manager and the deputy general managers are required to have the first four qualifications specified regarding the founders of the bank (Please see Section 2.4. for further information).

4.3. What are the local rules for loans to the management body and their related parties?

Pursuant to Article 50 of the BankL., banks cannot (i) grant cash or non-cash loans to; or (ii) purchase bonds or similar securities to its members of the Board, the general manager, deputy general managers, and employees authorized to extend loans; their spouses and children and enterprises which they individually or jointly own 25% or more of the capital; and its other employees as well as their spouses and children.

However, as per Article 50 paragraph 5 of the BankL., the above-mentioned restriction does not apply to Board members and bank employees as well as their spouses and children if the loan amount given does not exceed five times their monthly net remuneration. Moreover, checkbooks or credit cards could be issued amounting to up to three times the sum of their monthly net remuneration.

Another restriction under Article 51 of the BankL. regarding extending loans is based on the accountability of employees who are authorized to extend loans. According to the said restriction, they cannot participate in the evaluation and decision-making stages of loan transactions to which they, their spouses, and children are parties; and are obliged to inform the audit committee of this matter in writing.

Other procedures and principles regarding the loans to be extended within this scope are set out in the Regulation on Loan Operations of Banks dated November 1, 2006.

4.4. What are the main legal provisions governing risk management in the banking sector in your jurisdiction?

Banks are obliged to create, implement, and report risk policies in accordance with the principles to be determined by the BRSA for risk management under Article 31 of the BankL. Accordingly, the Internal Systems Regulation has been issued by the BRSA to determine the procedures and principles regarding risk management systems. According to Article 37 of the Internal Systems Regulation, risk management activities consist of timely and comprehensive identification, measurement, monitoring, control, and reporting of the risks exposed to a consolidated/unconsolidated basis and the risks arising from the transactions carried out with the risk group of the bank. The risk group of a bank consists of the bank’s qualified shareholders, directors, general manager, assistant general managers, and its executives working in job positions equivalent or superior to the ones listed above in terms of their powers and job duties, even if actually employed with other job positions, and their spouse and children, and the partnerships or corporations controlled by them directly or indirectly, jointly or alone, or participated by them with unlimited liability, or served by them as a director or as general manager as per Article 49 of the BankL. Activities related to risk management are carried out by the risk management unit and its personnel by filing reports to the Board of the bank. Article 36 of the Internal Systems Regulations outlines the key factors that banks should consider when establishing their risk management strategies such as ensuring conformity with the nature and complexity of the bank activities, monitoring, and managing the capacity of the bank, considering past experience, determining the strategy, policy, and implementation procedures of the bank’s business line. 

In this respect, banks are required to carry out risk management activities by taking into account the guides published by the BRSA such as the Guideline for Liquidity Risk Management dated March 31, 2016, and the Guideline on Operational Risk Management dated March 31, 2016 (Article 35 of the Internal Systems Regulation).

4.5. What are the legal requirements applicable to banks in combating money laundering and terrorist financing area?

Money laundering and terrorist financing are regulated as crimes under various laws and regulations, especially under the Turkish Criminal Code (TCC). In this regard, Article 282 of the TCC which defines the crime of money laundering, stipulates that if such a crime is committed by perpetrators who are legal entities such as banks, security measures will be applied. These security measures can be the revocation of a license or permit, confiscation of property or material interests, imposition of administrative fines, or a prohibition against participating in public tenders.

In addition, the Law on Prevention of Laundering Proceeds of Crime No. 5549 (AML Law) was published to determine the principles and obligations within the framework of anti-money laundering (AML). Under the AML Law, combat against money laundering is carried out by the Financial Crimes Investigation Board (FCIB/MASAK), which has various authorities such as collecting, analyzing, and evaluating data together with receiving reports of suspicious transactions (Article 4 of the AML Law).

The key obligations that banks are subject to under the AML Law are as follows:

• Customer identification (Article 3 of the AML Law): Banks shall identify the persons carrying out transactions and the persons on behalf of or for the benefit of whom the transactions are conducted within or through the bank before the transactions are conducted.
• Suspicious transaction reporting (Article 4 of the AML Law): Banks are bound to report to the FCIB any information, suspicion, or reasonable grounds to suspect that assets subject to transactions conducted or attempted to be conducted within or through the bank have been illegally obtained or used for illegal purposes.
• Periodically Reporting (Article 6 of the AML Law): Banks are responsible to notify the FCIB of transactions to which they are a party or intermediary to that one alone the amount determined by the Ministry of Treasury and Finance.
• Retaining and submitting (Article 8 of the AML Law): Banks are required to keep the documents, books, and records, and identification documents related to their obligations and transactions stipulated in the AML Law for eight years and submit them to the authorities upon request.

Pursuant to the AML/CTF Compliance Regulation published by FCIB dated September 9, 2008, within the framework of the AML Law, banks (except for the CBT and development and investment banks) must establish a compliance program to prevent money laundering and terrorist financing (Article 4 of the AML/CTF Regulation) and must appoint a compliance officer within 30 days of obtaining an operating license to carry out such program (Article 16 of the AML/CTF Regulation). The required qualifications, duties, authorities, and responsibilities of the compliance officer are set forth in Articles 17 and 19 of the AML/CTF Compliance Regulation. In accordance with Article 18 of the AML/CTF Compliance Regulation, a compliance unit is established by the Board of the bank to assist the compliance officer in the execution of the compliance program.

Additionally, in cases where there is a strong suspicion that money laundering or terrorist financing crimes have been committed, it is stipulated under Article 17 of the AML Law that the suspect’s assets in the bank may be seized in accordance with Article 128 of the Criminal Procedure Code No. 5271 dated December 4, 2004.

Moreover, Law No. 6415 on the Prevention of the Financing of Terrorism dated February 7, 2013, entered into force in 2013 to regulate the crime of terrorism financing and to determine the procedures and principles regarding the freezing of assets to prevent terrorism financing.

Other legislations related to AML/combating terrorist financing are as follows: the Anti-terror Law No. 3713, the BankL., the Misdemeanors Law No. 5326 dated March 30, 2005, international conventions such as the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of the Proceeds from Crime and on the Financing of Terrorism, as well as communiques issued by FCIB and other related regulations.

It is important to note that Turkey has been a member of the Financial Action Task Force since 1991 and its banking sector adheres to the recommendations, standards, and guidelines issued by this organization.

4.6. Are there any legal provisions regulating banking secrecy in your jurisdiction?

Within the scope of banking secrecy, the concepts of bank secret and customer secret are broadly regulated in Article 73 of the BankL. under the heading of “Confidentiality”.  In accordance with Article 73 of the BankL., the Regulation on Disclosure of Confidential Information dated June 4, 2021, defines the customer secret as any data belonging to real and legal persons within the framework of customer relations with banks. On the other hand, even though the bank secret is regulated broadly under the Article 73 of the BankL. it is not defined clearly. However, Article 2 of the Draft Law on Trade Secrets, Bank Secrets, and Customer Secrets defines bank secret as “information on the financial, economic, credit and cash situation of the bank known by the members of the management and supervisory bodies, members and other officials of the bank, and all kinds of information and documents related to the bank’s customer potential, lending, deposit collection, management principles, other banking services and activities, and risk positions.”  However, the aforementioned regulation has remained as a draft since 2011, and a new regulation is expected in this direction.

Moreover, disclosure of both the bank secret and customer secret is considered a crime under the BankL and the TCC. According to Article 73 of the BankL., persons who acquire confidential information belonging to banks and their subsidiaries, affiliates, and jointly controlled entities as well as their customers within the scope of their duties or their positions are prohibited from disclosing such information to persons who are not expressly authorized under the banking legislation. Violations of the non-disclosure obligation stipulated in Article 73 of the BankL. constitute a criminal offense under Article 159 of the BankL. and are punishable by imprisonment or a judicial fine. The use of these secrets for self-benefit or the benefit of others is considered an aggravating circumstance. In the same direction, Article 239 of the TCC punishes the disclosure of information and documents deemed to be banking secrets to unauthorized persons.

Additionally, the Circular on the Disclosure of Client Information No. 2022/1 dated August 11, 2022, regulates the procedures and principles regarding the sharing and transferring of banking secrecy in accordance with Article 73 of the BankL. and the Regulation on Disclosure of Confidential Information.

V. TRENDS

5.1. What are the main trends in the banking sector in your jurisdiction?

The main trends in the banking sector in Turkey relate to electronic lira issuance and branchless banking services. Please see Section 1.3. and 5.3 for further information.

5.2. What are the biggest challenges in the banking sector at the moment?

After the COVID-19 pandemic, there were severe supply-side contractions on a global scale. In addition, geopolitical and macroeconomic uncertainties led to global high inflation. In an inflationary environment, central banks of many countries pursued contractionary monetary policy by taking macroprudential measures, and in this context, policy rates were raised. Higher policy rates imply higher funding costs, especially for the banking sector. At the same time, the expectation of recession in the markets along with the rise in interest rates leads to a significant decline in loan demand. The same recession expectation significantly increases the default risk for loans. This makes it difficult for banks to calculate the risk of non-performing loans.

In terms of the banking sector in Turkey, the CBT has recently lowered the policy rate contrary to the generally accepted economic policies. As a result of these policies, inflationary pressure on the Turkish Lira has increased and this increase has led to a depreciation of the Turkish Lira relative to other currencies. One of the main ways for banks to hedge against exchange rate appreciation is to hold their assets in foreign currency and foreign currency-denominated assets. However, Turkish banks can lend almost exclusively in Turkish Lira, which forces them to stay in the Turkish Lira. Therefore, the banking sector cannot hedge itself against rising FX risk. These difficulties arise from the regulations that banks are obliged to comply with, such as the prohibition of borrowing loans in FX or restriction on FX Asset transactions for Turkish citizens and Turkish corporations. In this direction, with the BRSA’s decision numbered 10,250 and dated June 24, 2022, on Turkish lira borrowing by companies, other than banks and financial institutions, which are subject to independent audit has become subject to an FX Asset restriction. Additionally, with Communique No. 2022-32/66, fees driving from contracts will have to be paid in TRL in the sale of goods contracts other than those for vehicles. In this way, the new regulation expanded the scope of the prohibition on foreign currency transactions.

Turkish banks are obliged to comply with the liraization policies in deposits within the scope of the 2023 Monetary Policy and Liraization Strategy published by the CBT on December 30, 2022. In this direction, many new regulations have been introduced and continue to be introduced. The most recent one is the CBT’s announcement that it has decided to set the required reserve ratios as 0% for Turkish lira deposits with maturities longer than three months to encourage the extension of the maturity of Turkish lira deposits.

As of 2023, securities returns, which were one of the key drivers of profitability in the banking sector in the previous year, are expected to decline, posing the risk of a contraction or limited growth in banks’ return on assets.

In addition, the increasing global digitalization trend has also affected the banking sector. The increasing pace of digital banking transactions and digital transformation increases the reputational risk of banks in the event of a failure in the competitive digital banking space. Please see our further explanations on the digitalization of the banking sector in Turkey below section.

5.3. What’s new in fintech?

The Digital Turkish Lira Project is being carried out under the leadership of the CBT in line with the widespread use of digital currency systems around the world. As part of this project, the CBT recently announced that the first payment transactions on the Digital Turkish Lira Network were successfully realized. In 2023, the CBT aims to increase cooperation in this area with the participation of selected banks and financial technology companies. Efforts on the legal aspects of the Digital Turkish Lira are also on the way.

In addition, there are ongoing efforts in the field of “Open Banking.” In general, “Open Banking” is sharing the private financial data of customers in banks with third parties upon the request and consent of the customers. Such financial data is made accessible to fintech companies through a common platform. In this context, the CBT recently announced that the “Open Banking Gateway” infrastructure, through which financial service users can manage their accounts with different payment service providers from a single access point and place payment orders, has been established and is currently in service. Some banks have also started to serve as account service providers through this infrastructure. The key regulations regarding Open Banking services are Law No. 6493 and Regulation on the Operating Principles of Digital Banks and Service Model Banking dated December 29, 2021.

Other recent developments in the field of fintech are the Instant and Continuous Transfer of Funds (FAST) system, which was put into use in 2021 as a 24/7 payment system in Turkey, and the Easy Addressing System that enables the use of the Republic of Turkey identity number, phone number and e-mail address instead of IBAN in payments. As of 2023, Payment and Electronic Money Institutions, defined under Law No. 6493 dated June 27, 2013, can participate directly in the FAST System if they fulfill the necessary conditions. In addition, it has been announced by the CBT that the FAST Workplace Payments system, which enables instant payments from account to account by scanning the TR-QR Code displayed on the screens of mobile applications and POS devices and will be available in the first quarter of 2023.