Turkish Lira Borrowing Restricted Based on FX-Assets

Turkish Lira Borrowing Restricted Based on FX-Assets

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With the Banking Regulatory and Supervisory Authority’s [“BRSA”] decision numbered 10250 and dated June 24, 2022 [“Decision”], Turkish Lira borrowing by companies, other than banks and financial institutions, which are subject to independent audit [“Companies”] has become subject to a foreign currency asset [“FX-Assets”] restriction.

Companies Subject to the Decision

In order for the Decision to be implemented, these two conditions must be found together: (i) the TRL equivalent of the Company's FX-Assets must exceed 15 million TRL; and (ii) the greater amount of the total assets of the Company or the Company's net sales revenue for the last year should exceed the 10% of the threshold specified above. In this respect, Companies that meet both of the foregoing conditions will no longer be able to borrow TRL commercial cash loans. Such review will be conducted using the consolidated balance sheets for the Companies required to prepare consolidated financial statements and for the Companies subject to audit required to be evaluated by the most recent annual financial audit.

With the Decision, it is stated that, the amount of FX-Asset comprises of effective foreign currency which also include gold and foreign currency deposits in banks. Additionally, in the press release of the BRSA dated June 26, 2022 [“Press Release”], it is declared that for the Companies headquartered abroad and therefore deemed as foreign resident [“non-residents”], foreign currency denominated securities, and stocks, and other monetary assets such as reverse repo with non-residents are also included within the FX-Assets. On the other hand, other financial assets such as Eurobonds, non-resident securities and debt instruments denominated in foreign currencies are not considered as FX-Assets.

Companies Which are not Subject to the Decision

Companies that are not allowed to borrow foreign currency loans as per the legislation and that have a foreign currency net position deficit within three months following the date of loan application will be able to use commercial cash loans in TRL limited to the amount of the aforementioned position deficit. However, it is required for these Companies to: (i) have their position deficit determined; and (ii) apply to the bank from which they plan to borrow a loan, according to the evaluation to be made on the most up-to-date financial statements prepared by authorized independent audit firms.

In addition, Companies whose TRL equivalent of FX-Assets does not exceed 15 million TRL as of the loan application date, need to determine the Company's total assets and net sales revenue for the last year, according to their then current FX-Assets and the most up-to-date financial statements prepared by an independent audit firm. Additionally, these Companies are to declare and undertake to the bank that the TRL equivalent of their FX-Assets will not exceed 15 million TRL until the term of the loan, even if it exceeds such amount, the greater amount of the sum of their total assets or their net sales revenue for the previous year shall not exceed 10% of the aforementioned threshold. Banks will be able to determine whether the threshold has been exceeded during the loan period through statements that must be submitted within the first 10 business days of each month based on the Companies' prior month-end balance sheets.

Information and Documents to be Procured by Banks

Scope of information and documentation required from banks to identify whether Companies comply with this restriction is drawn with a broad framework. According to the Press Release, it is the responsibility of the banks to obtain an undertaking by the Company stating that "it will provide all kinds of information and documents to the bank, if requested, for the determination and follow-up of the use of the loan in accordance with its purpose" and/or to update the agreement within this scope and adapt the business transactions accordingly. On the other hand, it is explicitly stated that no standard form would be issued regarding the information and/or documents that the bank customers must provide.

Current Status of Present Commercial Cash Loans and Outstanding Loans

It has been clarified through the Press Release what will happen to commercial cash loans and outstanding loans that fall under the scope of the Decision. Accordingly, specific provisions were introduced for the type of loan within the framework of the lending limits allocated to customers or loans extended before the Decision date. In a nutshell, the increase of a residual risk of the Companies or, in some cases, the sole presence of risk excludes a Company from the scope of the loans that can be made available pursuant to this Decision.

Conclusion

The BRSA stated that although some companies do not have foreign currency debt or liabilities, they borrow TRL commercial cash loans to purchase foreign currency. Thus, creating speculation in the foreign currency exchange rate where cash loans were to originally be used for production, employment, and investment purposes. With the new restriction, it is without a doubt that supervision over whether the loans are used in line with the allocated purpose will increase. As a result, commercial operations that companies planned for the upcoming periods need to be reviewed, similar to the factors that banks consider while allocating loans.

By Yasemin Keskin, Senior Associate, and Beliz Boyalikli, Legal Intern, Guleryuz & Partners