The Banking Regulation and Supervision Agency (“BRSA”) prohibited the TRY cash commercial loan borrowings of certain non-financial companies as of 24 June 2022 for an indefinite period and obliged banks on determining whether a company falls within the scope of the prohibition, with its decision dated 24 June 2022 and numbered 10250 (“Decision”). The main goal of the Decision is to keep the devaluation in Turkish Lira under control by obliging certain companies to sell their FX assets prior to borrowing TRY commercial cash loans. The Decision also promotes investing in FX securities and debt instruments issued by local entities such as Eurobonds, by excluding them from FX assets.
- Borrowings falling within the scope of the Decision
Any kind of TRY commercial cash loan borrowings, including term loans, revolving loans, overnight loans, overdraft accounts, corporate credit cards are subject to the prohibition set out in the Decision, if utilised after the Decision date, 24 June 2022.
Monthly increases in the balances of TRY revolving loans, overdraft accounts and corporate credit cards are regarded as new disbursements and banks shall conduct the necessary checks at the end of each month for such loans to determine whether the utilisation falls within the scope of the Decision.
- Borrowings falling outside the scope of the Decision
TRY spot commercial cash loans to be utilised in due course of the week of 27 June 2022, are out of the scope of the Decision provided that the relevant loan agreements are executed prior to the Decision date.
Non-cash loans are out of the scope of the Decision until their conversion into cash loans. In any case, banks are likely to require the fulfilment of the conditions for extending non-cash loans after the Decision.
Loan restructurings (i) as per Article 7 of the Regulation on Principles and Procedures for Classification of Loans and Provisions to be Set Aside for These Loans; and (ii) within the scope of enhanced financial restructuring as per the provisional Article 32 of the Banking Law are out of the scope of the Decision.
- Companies within the scope of the Decision
As per the Decision, the companies are subject to the prohibition if:
- they are subject to the independent audit, and
- the TRY equivalent of their FX assets exceed TRY 15 million, and
- the TRY equivalent of their FX assets exceed 10% of the higher of their net assets or net sales revenue for the last one year.
For avoidance of doubt, all these criteria must be met simultaneously and if a company does not fulfil any of these criteria, such company will not subject to the prohibition and will be deemed eligible on borrowing TRY commercial cash loans.
In this regard, it is reasonable for banks to primarily assess whether the potential borrower is subject to mandatory independent audit. If it is subject to mandatory independent audit, the bank must assess the other criteria as per the latest audited financial statements of the potential borrower. If a company is under the obligation to prepare consolidated financial statements, the assessments will be made on the audited consolidated financial statements.
The Decision sets out an exemption, for companies which are not eligible to borrow TRY loans as per the Decision at the same time not eligible to borrow FX loans as per the Decision no. 32 regarding the Protection of Value of Turkish Currency. Such companies can borrow TRY loans up to the amount of the deficit between their FX liabilities and FX assets for the period of 3 months as of their loan request, provided that an independent auditor certifies such foreign currency net position deficit.
- Calculation of FX assets
As per the Decision, (i) gold, foreign currency cash and foreign exchange deposits held with banks; (ii) the FX securities, including stocks, issued by foreigners; (iii) monetary assets from transactions executed with foreigners such as reverse repo, are considered as FX assets. On the other hand, the FX securities and debt instruments such as Eurobonds issued by local entities are not considered as FX assets.
The TRY equivalent of FX assets is calculated based on the FX buying rate of the Central Bank of Türkiye on the date of the calculation.
- Documents to be submitted before TRY commercial cash loan borrowings
The companies which are subject to mandatory independent audit, but do not meet the other criteria set out in the Decision therefore, eligible for TRY commercial cash loan borrowings, must submit the following documents to banks before loan utilizations:
- A document certified by an independent auditor indicating to their current FX assets and the amount of their net assets and net sales revenue for the last one year calculated as per their most current audited financial statements, and
- An undertaking setting out that the TRY equivalent of their FX assets will not exceed TRY 15 million during the term the loan or if exceeds, will not be higher than 10% of the higher of their net assets or net sales revenue for the last one year.
Such companies must also submit a monthly declaration to the banks indicating to the value of their (i) net FX assets as per their latest monthly balance sheet; and (ii) the actual net sales revenue for the previous 12 months, within 10 business days from the beginning of each month during the life of the loan.
- Postponement of obligations on submitting documentation
The companies whose,
- FX assets are not yet calculated by an independent audit company; or
- up to date audited financial statements are not available yet; or
- FX currency net position deficit for the upcoming 3 months has not yet calculated by an independent auditor,
can borrow TRY commercial cash loans if they provide the bank with (i) documents verifying that they have commenced the independent auditing process in relation to above detailed processes; and (ii) declarations stating that they are outside the scope of the Decision and indicating to the amounts of their current FX assets, net assets and net sales revenue for the last 12 months as well as the value of their foreign currency net position deficit for the upcoming three months.
In any case, the missing documents related to independent auditing processes must be submitted to the relevant bank within 1 month after the loan utilisation. If not, the creditors must stop extending further loans to the relevant entities and notify the BRSA immediately.
- Obligations imposed on the banks
This decision imposes banks with the obligation (i) to determine whether a company falls within the scope of the Decision before any loan extension as well as to confirm such status during the life of the loan, (ii) to cancel available limits if the relevant loan extension is or becomes contrary with the Decision and notify the BRSA in such cases, (iii) to implement the Decision efficiently and in accordance with its purpose, (iv) to submit the reports requested by the BRSA in a proper and timely manner, and (v) inform the BRSA on the transactions which are not in compliance with the purpose of the Decision.
In this regard, banks must assess whether the companies are subject to mandatory independent audit and whether they fall within the scope of the Decision, follow up the financial statements of their customers during the term of the loan, cancel the available limits of their customers if borrowings become contrary to the Decision and inform the BRSA, notify their customers before the loan utilisations on not carrying out transactions which will result in circumventing the restrictions set out in the Decision, control whether their customers are involved in such transactions and promptly inform the BRSA if such transactions are identified.
Also, banks are obliged to request the necessary documents and information to determine and monitor that the loan is utilised in accordance with its purpose, to obtain undertakings from their customers obliging them to submit documents and information requested by the banks during the life of the loan and/or amend loan agreements to enable such information and document request.
The Decision does not provide any standard form for declarations and undertakings to be obtained from customers, therefore, banks are expected to draft such standard form documents. On the other hand, the Decision explicitly states that the forms and formats of reports to be submitted to the BRSA by banks will be published by the BRSA shortly.
For further information please contact:
Nazlı Dereli Oba | Partner
Bengü Coşkun | Senior Associate