Equity and liquidity requirements
Describe how capital and liquidity requirements affect the structure of bank loan facilities, including the availability of related facilities.
The implementation of the Basel III framework in Turkey has introduced new regulatory capital and liquidity requirements for Turkish banks. With the application of these rules, market banks incurred additional costs, which led to an increase in their funding costs. Inevitably, this has had an impact on the pricing of loan facilities.
In these circumstances, lenders normally resort to cost escalation clauses in loan agreements. Thus, in the event of an increase in the cost of a lender due to the application of new rules (or the application, implementation or modification of existing rules) on capital requirements (which also include Basel III rules) after the date of signature of the facility agreement, the borrower will normally be required to repay the lenders. However, borrowers in Turkey generally strongly oppose the implementation of these provisions and claim that the cost is the cost of the lender and should not be borne by the borrower.
For public enterprise debtors, are there any disclosure requirements applicable to bank loan facilities?
Under Turkish law, there is no specific disclosure requirement for the use of bank loans by public companies. However, SOEs must, for the information of investors, fully disclose as part of their financial reports the collateral they have provided to secure their obligations under a loan agreement, including pledges, mortgages and guarantees.
Use of loan proceeds
How is the debtor’s use of bank loan proceeds regulated? What liability could investors be exposed to if the debtor uses the product contrary to the regulations? Can investors mitigate their liability?
Turkey has been a member of the Financial Action Task Force (FATF) since 1991 and has adapted its laws and regulations in accordance with FATF principles, including its 40 recommendations.
Anti-money laundering legislation in Turkey requires banks to perform know-your-customer checks and due diligence in the credit assessment process. Monitoring customers’ bank accounts for suspicious activity and keeping proper records of transactions are other responsibilities of banks and financial institutions stipulated in the Prevention of Money Laundering Act. In addition, the Regulation on Measures for the Prevention of Money Laundering and Terrorist Financing obliges banks to report suspicious transactions to the Financial Crimes Investigation Commission (MASAK). Failure to comply with these rules results in the imposition of monetary administrative penalties on banks.
Although not significantly tested in court, lenders may be able to mitigate their liability by including specific warranties and covenants from borrowers in loan agreements regarding compliance with applicable laws and regulations.
Are there regulations that limit an investor’s ability to extend credit to debtors organized or operating in particular jurisdictions? What liability do investors incur if they lend to these debtors? Can investors mitigate their liability?
Turkey follows FATF rules and principles on money laundering and terrorist financing. In line with FATF recommendations, MASAK has issued guidelines regarding the establishment and continuation of customer relationships in specific jurisdictions. Accordingly, Turkish banks and other financial institutions must exercise increased due diligence and know your customer controls and adhere to reporting requirements when entering into transactions with customers who reside in or have dealings with risky jurisdictions that do not have sufficient regulations against the exculpation and financing of terrorism. , do not cooperate against these crimes or are considered risky by international authorities (ie.
Debtor leverage profile
Are there limits to an investor’s ability to extend credit to a debtor based on the debtor’s debt profile?
There are no leverage limits under Turkish law for bank loans granted to companies (although the Banking Law defines various risk groups and sets out the conditions for granting loans to these groups of risk). However, banks follow their own risk assessment principles and guidelines and conduct due diligence processes in credit assessment of borrowers.
In addition, according to the Bank Lending Operations Regulations, banks must obtain certain additional documents from companies whose total risk (including the credit whose allocation is requested) is equal to or greater than 100 million Turkish liras. in the banking sector, at the credit granting stage.
Do regulations limit the interest rate that can be charged on bank loans?
There is no legislation under Turkish law that limits the interest rate on bank loans, except for limiting the interest rates that banks can charge on credit card debts .
What are the limits on investors funding bank loans in a currency other than the local currency?
With changes to the relevant legislation on capital movement and protection of the value of Turkish currency in 2018, Turkish companies are now subject to certain restrictions regarding the use of foreign currency-denominated loans from banks or credit institutions. financial institutions in Turkey. The application of these restrictions in the legislation specifically refers to “resident in Turkey”, i.e. real persons residing in Turkey and legal persons registered in Turkey.
There are no restrictions in place regarding the use of non-Turkish Lira loans by companies located in a foreign jurisdiction. Banks, leasing, factoring and financing institutions residing in Turkey can freely lend foreign currency loans to persons residing abroad.
Describe any other regulatory requirements that impact the structuring or availability of bank lending facilities.
In accordance with the Communiqué on Procedures and Principles Regarding the Fees Banks May Charge to Their Commercial Clients and the Guidelines of the Central Bank of Turkey, the following rules apply to the prepayment of loan facilities:
- Turkish banks must fully accept prepayment requests from corporate clients; however, they are not required to accept partial prepayments;
- in case of full or partial prepayment by corporate clients, Turkish banks must grant a discount on unaccrued interest and other fees; and
- in case of partial prepayment, Turkish banks and their business customers can freely agree on the prepayment fee to be charged.