Snowplough turn to slow down sharp slide in Turkish lira
29 August 2018
Turkey | Banking & Finance
The recent plunge of the Turkish lira, combined with the worsening relations with the United States, has caused fear among global markets as well as in the Turkish business environment. The Turkish lira has lost more than 45% of its value this year and hit a record low of 7.24 against the US dollar on 13 August in Asia Pacific trading. In an effort to avert the crisis, the Banking Regulation and Supervision Authority (the "BRSA") has taken various measures over the last few days, further to the Central Bank’s increase of liquidity in the Turkish banking sector. This Client Alert aims to briefly summarize the recent changes brought by the BRSA in August 2018 to mitigate the effects of the rising f/x rates and protect the Turkish banks and the private sector to the extent possible.
Measures relating to the refinancing of loans
On 15 August 2018, the BRSA introduced a new Regulation on Restructuring of Debts to the Financial Sector (the "Restructuring Regulation") in order to regulate refinancing mechanisms of loans granted by financial institutions in Turkey. This regulation concerns banks, financial leasing companies, factoring companies and financing companies in Turkey (hereinafter referred to as the "Creditor Institutions") as well as those indebted to such financial entities. It sets forth the framework for the restructuring of indebtedness between such parties. In this respect, new provisions introduced by the Restructuring Regulation may be summarized as follows:
The Banks Association of Turkey will prepare framework agreements (the "Framework Agreement(s)") to be executed with each Creditor Institution. The Framework Agreements can also be prepared on a debtor-group basis by taking into consideration the debtors' size/scale and sector(s).
In order to implement the Framework Agreements for financial restructuring, Creditor Institutions are now required to sign bilateral agreements with their respective debtors.
The following measures can be taken within the scope of financial restructuring: (i) extension of the repayment terms of the loan debts; (ii) novation of the debtors' loans; (iii) granting of additional loans; (iv) discounting or waiving from any and all receivables relating to loans, including, but not limited to, principal, interests, default interests and profit shares.
In addition to the foregoing, with respect to principal, interest, or profit share receivables, the following measures can be applied: (i) partially or wholly converting such receivables into shareholding; (ii) partially or wholly assigning such receivables in exchange of a consideration in cash or in kind; and (iii) partially or wholly liquidating, selling, or removing from the balance sheet in exchange for considerations in kind possessed by debtors or third persons.
It is worth mentioning that in cases where Creditors Institutions that possess two-thirds of the receivables to be collected from a debtor enter into an agreement with such debtor for the refinancing of its debt, all relevant Creditor Institutions will be required to restructure the debts of said debtor.