Legislative Amendments and New Regulations
Entry into force of the New Regulation on Procedures and Principles for Classification of Loans and Provisions to be Set Aside
On January 1, 2018, the Regulation on Procedures and Principles for Classification of Loans and Provisions to be Set Aside (the “Regulation”) entered into force, replacing the former Regulation on Procedures and Principles for Determination of Qualifications of Loans and Other Receivables by Banks and Provisions to be Set Aside of 2006.
By way of background, the Regulation -published in the Official Gazette numbered 29750 and dated June 22, 2016- has been adopted with a view to aligning provisioning rules applied by Turkish banks with the requirements of IFRS and the Financial Sector Assessment Program of the World Bank and the International Monetary Fund. Pursuant to the Regulation, Turkish banks will now calculate and set aside provisions under TFRS 9 unless an exemption is obtained the Banking Regulation and Supervision Agency (the “BRSA”).
As per the Regulation, banks will classify their loans and receivables under five different groups for provisioning purposes. Namely, these groups consist of (i) loans of a standard nature, (ii) loans under close monitoring, (iii) loans with limited recovery, (iv) loans with improbable recovery, and (v) loans considered as loss, last three of which shall also constitute the groups of non-performing loans. Additionally, loans that are subject to the lifetime expected credit loss reserve calculation under TFRS 9 as a result of debtor’s default, are considered as non-performing loans.
The Regulation provides detailed criteria on the concepts of re-classification and restructuring for the first time. In this respect, banks shall re-evaluate (and reclassify, if necessary) their loans at least once during each three-month financial statement term or (irrespective of this period) upon the occurrence of developments in macroeconomic circumstances or the sector in which the respective debtor operates. Reclassification of a non-performing loan as a performing loan is subject to stringent requirements. Restructuring of loans is defined as privileges granted to debtors who face or would probably face financial difficulties in the repayment of loan, which privileges would not be granted to other debtors not facing such repayment difficulties. The Regulation also provides for rebuttable presumptions signaling the presence of a restructuring under some specific cases.
Importantly, under the Regulation, the general rule for banks is to calculate provisions in accordance with TFRS 9. However, the BRSA may, on an exceptional basis, authorize banks to apply other respective provisions of the Regulation instead of TFRS 9, which is subject to the presence of detailed and acceptable grounds. Concerning banks that reserve provisions under TFRS 9, “twelve-months expected credit loss reserve” and “lifetime expected credit loss reserve set aside due to significant increase in credit risk profile of the debtor” are considered as general reserves while “lifetime expected credit loss reserve set aside due to debtor’s default” shall constitute special reserves.
Banks that obtain an exemption to not to apply TFRS 9 rules shall set aside general provisions of at least 1.5% and 3% for their total cash loans portfolio under standard loans and closely monitored loans, respectively. Special provisions, on the other hand, are at least 20%, 50% and 100% for loans with limited recovery, loans with improbable recovery, and loans considered as loss, respectively. Such banks shall also classify and include security into provisioning calculation in accordance with the rules of the Regulation.
Amendments to the Decree 32 on the Protection of the Value of the Turkish Currency
Pursuant to the Council of Ministers’ resolution numbered 2018/11185 published in the Official Gazette dated January 25, 2018 and numbered 30312, the Decree 32 on the Protection of the Value of the Turkish Currency (the “Amended Decree 32”) has been amended.
Overall, the Amended Decree 32 expands the existing restrictions on the ability of Turkish-resident entities and natural persons to borrow in foreign currencies by seemingly attempting to reduce foreign currency exposures of SMEs; banks, factoring companies, and leasing and financing companies are exempt such restrictions.
More specifically, the main amendments set forth by the Amended Decree 32 are the followings:
• Turkish-resident natural persons can no longer get any loan in foreign currency. Prior to amendments, the principle was also that such persons could not get any foreign currency loans. However, there existed some exceptions, such as the case of natural persons who deal with import and export activities or where the amount of the loan to be extended was at least 5 million USD with an average maturity of more than 1 year. Such exemptions no longer exist.
• Foreign currency indexed loans (i.e. TL loans the repayments of which are linked to a foreign currency rate) are prohibited for all legal and natural persons.
• A Turkish-resident legal person (i.e. companies) that does not have any income in foreign currency shall not get a foreign currency loan (either in Turkey or abroad) unless, at the time of the utilization of such loan, it has an outstanding foreign currency loan exposure of 15 million USD or more (prior to amendments, companies that did not have any export or import activities and generate foreign currency income had to utilize loans of an amount of at least 5 million USD with an average maturity of more than 1 year). Similarly, there exist other specific exemptions for such legal persons under the Amended Decree 32, such as the case of public entities, entities participating in projects of military defence industry, etc.
• Concerning Turkish-resident entities that do have income in foreign currency, the main principle is the freedom to borrow in foreign currency, both abroad or Turkish-resident legal persons. However, if such entities have, at the time of the utilization of the loan, an outstanding foreign currency loan exposure of under 15 million USD, the total of the loan amount that will be utilized and (existing) outstanding foreign currency loan exposure cannot exceed the total of foreign currency incomes (of the borrower entity) accounted for the last three accounting years.
The amendments will enter into force as of May 2, 2018.
Regulation on Data Controllers Registry
The Regulation on the Data Controllers Registry has been published on the Official Gazette numbered 30286 and dated December 30, 2017 (“Regulation”). By way of background, the Regulation complements some provisions of the Law on the Protection of Data numbered 6698 (“Law”) introduced in the Turkish law system in March 2016.
The Regulation aims to establish a registry for data controllers (“Registry”) as well as to determine the rules and processes applicable to their registration and records. Also, various obligations of data controllers under the new data protection regime, such as the destruction or anonymization of personal data, have been dependent on the registration obligation being triggered, which, in turn, required the presence of a functional registry. In this respect, although the Registry has not yet been put into service, on January 2, 2018, the Personal Data Protection Board (“Board”) announced that it will publish (on its website) a statement that will formally trigger the registration obligation.
The information initially compiled under inventories to be prepared by data controllers and subject to registration is provided under Article 9. It includes the contact information, the reason for processing, the information on the related persons, the possible receivers of the data, the type of data that may be transmitted abroad, and the maximum storage period. Article 15 lists the exemptions the registration obligation, which consist of processing of data in the context of the prevention of and fight against crime, the operations and investigations of state institutions, protection of financial interests of the state, and information already made public by concerned person. Article 16 restrains the scope of the exemptions using a list of criteria.
Persons encumbered with obligations under the Regulation are listed under Article 11. Data controllers are those who process personal data, and therefore, are responsible for the registration of such processing activity and the establishment of their internal data storage and data destruction systems. The “data controller” status, for the purposes of the Regulation, shall attach to legal persons themselves whereas natural persons shall become data controller in the absence of a legal entity.
Legal person data controllers shall appoint a data controller representative in charge of the work related to the Registry and of the registration obligations of the data controllers residing outside of Turkey. Contact persons, on the other hand, do not hold any representative duty but only serve for the purpose of addressing the requests of persons whose data are concerned.
Non-compliance with the registration and notification obligations results in an administrative fine of up to 1,000,000 TL.
The Regulation has entered into force on January 1, 2018; along with the Destruction Regulation.
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