RESTRICTIONS ON FOREIGN CURRENCY LOANS AND MONITORING OF FX POSITIONS OF COMPANIES

Certain restrictions have been promulgated in relation to procurement of foreign currency loans and foreign currency indexed loans by real or legal persons residing in Turkey pursuant to amendments in the Council of Ministers’ Decision on the Protection of the Value of Turkish Currency numbered 32 and in the related legislation. In parallel with the abovementioned restrictions in relation to procurement of foreign currency loans, the Central Bank of Republic of Turkey (the “TCMB”) also introduced independent audit and notification obligations for persons who have obtained certain amount of foreign currency loan.

I. LEGAL BACKGROUND

Law on Central Bank of Republic of Turkey (Law No.: 1211) (published in the Official Gazette dated January 14, 1970 and numbered 13409) (the “TCMB Law”);

Council of Ministers’ Decision on the Protection of the Value of Turkish Currency numbered 32 (published in the Official Gazette dated August 11, 1989 and numbered 20249) (Decision numbered 89/14391) (the “Decision”);

Council of Ministers’ Decision on the Amendment of the Decision on the Protection of the Value of Turkish Currency numbered 32 (published in the Official Gazette dated January 25, 2018 and numbered 30312) (Decision numbered 2018/11185) (the “Amendment Decision”);

Regulation on the Principles and Procedures regarding Monitoring of the Transactions Affecting Foreign Exchange Position (published in the Official Gazette dated February 17, 2018 and numbered 30335) (the “Monitoring Regulation”);

Communiqué on the Decision on the Protection of the Value of Turkish Currency numbered 32 (published in the Official Gazette dated February 28, 2008 and numbered 26801) (the “Communiqué”); and

Amendment Communiqué to the Communiqué on the Decision on the Protection of the Value of Turkish Currency numbered 32 (published in the Official Gazette dated January 25, 2018 and numbered 30312) (the “Amendment Communiqué”).

II. THE RESTRICTION

    A. Foreign Currency Loans Obtained From Abroad

As per Article 17 of the Decision, persons residing in Turkey are allowed to obtain Turkish Lira loan from abroad. For foreign currency loans, persons residing in Turkey can obtain foreign currency loan only (i) if it has foreign currency income or (ii) it satisfies one of the conditions listed below.

As per fourth sub-paragraph of Article 17 of the Decision, Turkish residents who have a foreign currency income can obtain foreign currency loan. In case the sum of the current credit balance of a Turkish resident is less than USD 15 million, then the amount of the foreign currency loan to be utilized shall not exceed the last three years’ foreign currency income in aggregate when obtaining foreign currency loan from abroad.

Banks shall be responsible from inspecting the loans’ eligibility to the abovementioned criteria. For cases where Turkish residents having foreign currency income obtain foreign currency loan within the scope of the exceptions below; the restriction stated above shall not be applied.

Persons residing in Turkey who don’t have foreign currency income can obtain foreign currency loan from abroad only in accordance with the principles set forth under the Article 17 of the Decision. Pursuant to Article 17 of the Decision, the condition to have foreign currency income when obtaining foreign currency loan from abroad shall not be sought if the person:

• Is a public authority or institution, bank, financial leasing company, factoring company or a financing company residing in Turkey;
• Has a credit balance of USD 15 million or more at the time of the utilization of the loan;
• Shall use the foreign currency loan within the scope of investment incentive certificate or for the financing of certain machinery and devices which have been listed under Annex I-17 of the Council of Ministers’ Decision for the Detection of VAT Rates Applied to Goods and Services[1];
• Has been awarded with domestic tender announced internationally or defence industry projects approved by Undersecretariat for Defence Industries;
• Has been awarded with a PPP;
• Does not have foreign currency income for the last three years but is expected to generate foreign exchange revenue more than the foreign currency loan amount to be obtained by using the loan; and
• Among the persons residing in Turkey who fulfill the conditions to be determined by the Ministry of Economy.

In addition, real persons residing in Turkey shall not obtain foreign currency loan from abroad and Turkish residents (whether legal or real persons) shall not obtain foreign indexed loan from abroad pursuant to Articles 17(6) and 17(7) of the Decision. However, banks, financial leasing companies, factoring companies and financing companies are allowed to obtain foreign currency loan from abroad in accordance with rules and principles applied to them on their own legislation.

    B. Foreign Currency Loans Obtained Within Turkey

As per Article 17/A of the Decision, persons residing in Turkey who don’t have foreign currency income may not obtain foreign currency loans from financial institutions within Turkey. However, the abovementioned exceptions shall be also applied to foreign currency loans to be obtained within Turkey. In addition to exceptions listed under Section II-1 above, foreign currency income requirement shall not be sought also in cases where (i) the foreign currency loan does not exceed the foreign currency amount and/or the amount of issued securities by governments and central banks of OECD member countries or the amount of securities issued through their sureties which are kept as collateral in the Turkish banks and (ii) foreign currency loan to be used for financial leasing transactions which are related to certain machinery and devices listed under Annex I-17 of the Council of Ministers’ Decision for the Detection of VAT Rates Applied to Goods and Services.

On the other hand, as per fourth sub-paragraph of Article 17/A of the Decision, Turkish residents who have a foreign currency income can obtain foreign currency loan within Turkey. In case the sum of the current credit balance of a Turkish resident is less than USD 15 million, then the amount of the foreign currency loan to be utilized shall not exceed the last three years’ foreign currency income in aggregate when obtaining foreign currency loan within Turkey.

Banks shall be responsible from inspecting the loans’ eligibility to the abovementioned criteria. For cases where Turkish residents having foreign currency income obtain foreign currency loans within the scope of the exceptions below; the restriction stated above shall not be applied.

In addition, real persons residing in Turkey shall not obtain foreign currency loan within Turkey and Turkish residents (whether legal or real persons) shall not obtain foreign indexed loan within Turkey pursuant to Articles 17/A(6) and 17/A(7) of the Decision. However, banks, financial leasing companies, factoring companies and financing companies are allowed to obtain foreign currency loan within Turkey in accordance with rules and principles applied to them on their own legislation.

III. MONITORING

    A. Persons Subject to Monitoring

As per Article 5 of the Monitoring Regulation, certain real and legal persons shall report TCMB of the required information by providing the Data Form (as defined under the Monitoring Regulation – contents of which will be determined by TCMB) within the following accounting period. Real and legal persons subject to this requirement have been determined as persons whose sum of their foreign currency loans and the foreign currency indexed loans obtained from Turkey or abroad exceed USD 15 million as of the last business day of the relevant accounting period. Banks and financial institutions defined under the Banking Law numbered 5411 have been left outside the scope of the Monitoring Regulation.

In calculation of the loan amounts, the selling rate of USD published in the Official Gazette pertaining to the last business day of the relevant accounting period shall be taken into account. In addition, when determining whether a person is subject to monitoring; financial statements prepared in accordance with Turkish Accounting Standards, and if not available, balance sheets prepared for submission to tax authorities shall be taken into account.

In case the sum of the foreign currency loans and the foreign currency indexed loans of a person subject to monitoring fall below the limit determined by TCMB, the obligation to notify TCMB shall end as of the following accounting period.

    B. Procedure and Timing of Notification

Persons subject to monitoring shall provide TCMB the required information by filling out and submitting the Data Form. Notifications shall be made until the end of the following months after March 31, June 30 and September 30 and until the end of the third month following December 31^st of the relevant accounting period. The Data Form shall be submitted to TCMB through the system named Systemic Risk Data Tracking System (“System”), which has been set-up for purposes of the Monitoring Regulation.

    C. Non-Compliance with the Notification Requirement

Pursuant to Article 12 of the Monitoring Regulation, legal actions can be taken in accordance with Article 68 of the TCMB Law for persons (i) who are not providing data information, (ii) who are providing data in a correct or complete manner or (iii) who are not correcting the discrepancies which cause the appointed auditors to give negative opinion. Accordingly, these persons may be subjected to a judicial monetary fine in the amount between TL 20,000 – TL 200,000 as per Article 68 of the TCMB Law.

    D. Independent Audit

Pursuant to Article 5(4) of the Monitoring Regulation, the persons subject to the Monitoring Regulation shall appoint an auditor within sixty days after the date on which the reporting obligation arises. The audit of the data provided during the annual accounting period as well as their consistency with the data provided quarterly shall be completed by May 31^st of the following year and auditors shall also upload its positive opinion about the audited person to the System until the date stated above and complete the approval procedure. In case discrepancies are detected by the auditor, these shall be notified to the audited person through the System and the audited persons is obliged to correct these within five business days.

[1] Council of Ministers’ Decision numbered 2007/13033 and dated December 24, 2007 (published in the Official Gazette dated December 30, 2007 and numbered 26742).

The information provided in this article is general and may not apply in a specific situation. Legal advice should always be sought before taking any legal action based on the information provided. The information is not intended create, nor does receipt of it constitute, an attorney-client relationship.

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