BRSA Announcement on the Use of Loans

As is known, the Agency had previously instructed banks to take the utmost care to prevent loans from being used for transactions inconsistent with the purpose for which they were extended. However, it has been observed that some companies, despite having no foreign currency debt or liabilities and even having a long foreign currency position, have used TRY loans to buy foreign currency and hold foreign currency positions. In other words, favourable TRY commercial loan resources that should be channelled into production, employment and investment continue to be used by some companies to buy foreign currency without any genuine need.

Accordingly, Board Decision No. 10250 of 24.06.2022 (the Decision) was adopted as a macroprudential measure deemed necessary to strengthen financial stability, to ensure that the credit system operates effectively by using resources in more efficient and productive areas, and to ensure that loans are used for their intended purpose.

In this context, it was considered useful to provide the following explanations to remove any doubts that may arise in applying the Decision:

Conditions for falling within the scope of the Decision and cases outside its scope

1. The company is subject to independent audit under Decree-Law No. 660 and the related regulations (the Company),

2. The TRY equivalent of the Company's FC cash assets (including gold, foreign banknotes and FC deposits with banks) exceeds TRY 15 million,

3. The TRY equivalent of the Company's FC cash assets exceeds 10 percent of the greater of its total assets or its net sales for the last 1 year.

For a company to fall within the scope of this Decision, all 3 of the above conditions must be met.

• If the 1st condition is not met, i.e. if a company does not have the status of a Company subject to independent audit under the relevant legislation, it will not fall within the scope of this Decision.

• If the 1st condition is met but the 2nd is not, i.e. if the TRY equivalent of a Company's FC cash assets does not exceed TRY 15 million, there will be no restriction on extending loans either.

• If the 1st and 2nd conditions are met but the TRY equivalent of the Company's FC cash assets does not exceed 10 percent of the Company's total assets or its net sales for the last 1 year (whichever is greater), there will be no restriction on extending loans either.

In other words, as stated above, all 3 conditions must be met together for the restriction to apply.

Furthermore, natural persons and natural-person shareholders of Companies do not fall within the scope of the Decision.

Exceptions to the restriction on extending loans

Companies that fall within the scope of the loan restriction because all 3 conditions above are met, but that are also unable to use FC loans under Decree No. 32 on the Protection of the Value of the Turkish Currency and the related legislation, may still use TRY-denominated cash commercial loans, limited to the position gap in the 3-month period following the application date, if they have an independent audit firm determine and approve that they have a net foreign currency short position within the 3-month period from the date of their loan application and submit this to the bank.

The criterion for Companies benefiting from this exception is the existence of a foreign currency short position, i.e. that in any 3-month period ahead their foreign currency debts (liabilities) exceed their foreign currency assets. If this is the case, TRY-denominated cash commercial loans may be extended to these Companies up to the amount by which their FC liabilities exceed their FC assets.

FC cash assets included in and excluded from the scope of the Decision

As stated in the Decision, FC cash assets include Companies' foreign banknotes, including gold, and their FC deposits with banks; Companies' other monetary assets consisting of securities issued in FC by residents and debt instruments such as Eurobonds are not included in FC cash assets as defined in the Decision. However, Companies' other monetary assets such as securities and shares issued in FC by non-residents and reverse repos with non-residents will also be included in calculating the amount of FC cash assets under the Decision.

Information and documents used to determine the scope

Whether a Company falls within the scope of the Decision will be determined by having its total FC cash assets, and its total assets and net sales for the last 1 year according to its most recent audited financial statements, approved and documented by an independent audit firm. For Companies obliged to prepare consolidated financial statements, this assessment will be made on the basis of the consolidated balance sheet.

Position of Companies outside the scope

Companies whose FC cash assets do not exceed TRY 15 million in TRY equivalent will not be subject to the loan restriction under the Decision. However, as of the loan application date, these Companies must:

• Have the independent audit firm determine their existing FC cash assets, and their total assets and net sales for the last 1 year according to their most recent financial statements,

• Declare and undertake that, throughout the term of the loan, the TRY equivalent of their FC cash assets will not exceed TRY 15 million or, even if it does, will not exceed ten percent of the greater of their total assets or their net sales for the last 1 year,

• To enable the bank to check this declaration and undertaking, submit to the bank within the first 10 business days of each month the current values of their FC cash assets and total assets according to the balance sheet at the end of the previous month, and of their net sales for the last 12 months as of the end of the previous month.

The Agency will not prescribe a standard form at this stage for the declarations and undertakings to be obtained from Companies. As also stated in our instruction letter No. 53262 of 15.06.2022, it is the responsibility of banks, in order to monitor that loans are used for their intended purpose, to obtain documents from loan customers as far as possible, to obtain an undertaking "to submit to the bank, upon request, all information and documents for determining and monitoring that the loan is used for its intended purpose", and/or to update contracts accordingly and adapt their business processes.

Types of commercial loans subject to the restriction and position of existing credit limits

For companies meeting all 3 conditions set out in the Decision and above, all types of TRY-denominated cash commercial loans extended after the date of the Decision are subject to the restriction.

For TRY cash commercial loans extended from the date of the Decision through revolving loans, overdraft accounts (KMH) or corporate credit cards, the balance increase calculated at the end of each month will be treated as a new extension; if there is a balance increase compared with the end of the previous month at the monthly calculation date, the commercial loan customer concerned must submit to the bank, by the time of this month-end calculation, the documents approved by an independent audit firm as specified in the Decision. For overnight loans as well, if there is an outstanding risk amount as of the month-end calculation date, the commercial loan customer must submit the documents approved by an independent audit firm to the bank by the time of this month-end calculation. If at the end of the month there is a balance increase for revolving loans, KMH or corporate credit cards, or a risk amount for overnight loans, and the documents submitted show that the customer falls within the scope of the restriction, no new TRY-denominated cash commercial loans of the types mentioned above (such as revolving loans, KMH, corporate credit cards and overnight loans) may be extended to that customer, even if there is unused limit.

Accordingly, for revolving loans extended under limits allocated to customers before the date of the Decision, and for KMH, corporate credit cards and overnight loans, the practice will be applied as described above. Therefore, for such loans maturing or being renewed in the week beginning 27 June 2022, the customers concerned must complete the necessary documents by the end-of-month calculation, and only if there has been a balance increase compared with the end of the previous month. For spot TRY-denominated cash commercial loans for which an application was made and a contract signed before the date of the Decision but which have not yet been disbursed and will be disbursed only in the week beginning 27 June 2022, no additional check is required, and these loans will not be affected by the Decision.

Non-cash loans such as the Direct Debit System (DBS) are not within the scope of the Decision unless they turn into cash loans.

On the other hand, loans restructured after the date of the Decision under the Regulation on the Procedures and Principles for the Classification of Loans and the Provisions to Be Set Aside for Them, or under Provisional Article 32 of Banking Law No. 5411, will not be treated as new extensions. However, loans that are not part of a restructuring and are renewed after the date of the Decision by changing the contractual terms, or that are extended to refinance existing loans in part or in full, must be treated as new extensions.

Whether Companies are subject to independent audit

Whether a company is subject to independent audit is determined in accordance with Decree-Law No. 660, Council of Ministers Decision No. 2018/11597 adopted under Article 397 of Turkish Commercial Code No. 6102, and other related legislation. Under Article 9, "Documents to be accepted as financial statements", of the Regulation on Banks' Credit Transactions, banks determine whether a company is subject to independent audit within the framework of this legislation, and under this provision, however banks have determined until now whether a company is subject to independent audit, they will continue to determine it in the same way under the Decision.

"Most recent financial statements" referred to in the Decision

The expression "most recent financial statements" in the Decision means the most recent financial statements prepared in accordance with the accounting and financial reporting standards published by the Public Oversight, Accounting and Auditing Standards Authority and audited by independent audit firms authorised by that Authority: consolidated financial statements for those obliged to prepare them, and non-consolidated financial statements for those that are not.

Where documents to be certified by independent audit firms are not yet available

For Companies that, as of a loan application made after the date of the Decision, have not yet had their total FC cash assets determined by independent audit firms, do not yet have current financial statements audited by independent audit firms, or have not yet had their net FC short position for the 3-month period following the application date determined by independent audit firms, a new TRY-denominated cash commercial loan may be allocated provided that they document to the bank that the independent audit process has started, declare to the bank the current values of their total FC cash assets, total assets, net sales for the last 12 months as of the end of the previous month and net FC short position for the 3-month period following the application date, and, based on the assessment of that declaration, do not fall within the loan restriction under the Decision.

If such Companies, despite declaring to the bank that the independent audit process has started, do not submit to the bank within 1 month after the loan allocation their current financial statements audited by independent audit firms and the other information and documents to be approved and determined by the independent audit firm, or if the information and documents they submit show that the Company should fall within the loan restriction under the Decision, the bank must not extend any new TRY-denominated cash commercial loans to these Companies and must notify the Agency of the situation without delay.

Exchange rate to be used in calculations

The CBRT foreign exchange buying rate on the calculation date will be used to calculate the TRY equivalent of FC cash assets.

Reporting by banks to the Agency

The reporting form and format required for reporting to the Agency under the Decision will be announced to banks by the Agency as soon as possible.

Other matters for banks and Companies to note

Banks must warn their customers not to resort to practices aimed at circumventing the Decision, such as creating debt records through fictitious transactions or other sham transactions before requesting TRY loans; each bank must check, for its own bank, whether its customers have made FC asset transfers for such circumvention purposes and, if it detects such a case, inform the Agency without delay. It also goes without saying that the necessary legal action may be taken against those who, through such misleading and sham transactions aimed at circumventing or neutralising the Decision, cause banks to extend a loan that should not have been allocated.

In addition, banks must also inform the Agency without delay about Companies found not to comply with the Decision on the basis of the information and documents they submit within the first 10 business days of each month to enable banks to check the declarations and undertakings given before the loan, or on the basis of the information and documents that, because they were not available at the loan application date, must be approved by an independent audit firm and submitted to the bank within 1 month after the loan allocation, as well as about Companies that do not submit within 1 month after the loan allocation the information and documents to be approved and determined by the independent audit firm.

Banks must take the necessary care to apply the Decision effectively, must inform the Agency if they detect transactions that are not in keeping with the spirit of the Decision even if not expressly stated in it, and must ensure that the reporting requested by the Agency under the Decision is made accurately and on time.

Respectfully announced to the public.