To minimize the negative impact of the Covid-19 pandemic on the Turkish economy and incentivize (especially private) banks to extend more loans and use their resources more efficiently, the Banking Regulation and Supervision Authority ("BRSA") has decided to implement a new mechanism on the basis of an "active ratio" equation, as announced in the Decision no. 9000, dated 18 April 2020.
Accordingly, Turkish banks will be required to calculate their Active Ratio as from 1 May 2020 on a weekly basis as per Article 93 (Duties and powers of the BRSA) and second paragraph of Article 43 (Protective measures) of the Banking Law according to the following formula:
Loans + ( Securities x 0.75 ) + ( CBRT Swap x 0.5 )
TRY Deposit + ( F/X Deposit x 1.25 )
The terms stated in the numerator and denominator are defined as follows:
- "Loans" means an aggregate amount of the personal loans and commercial loans, excluding non-performing loans;
- "Securities" means an aggregate value of the bonds/notes issued by the private sector and all kinds of debt instruments, lease certificates and Eurobonds issued by the treasury of the Republic of Turkey, excluding securities and shares/stocks issued by non-residents;
- "CBRT Swap" means an aggregate TRY value of the foreign exchange calculated on the basis of CBRT's buying rate, given by the banks to the Central Bank of the Republic of Turkey ("CBRT") by way of swap transactions;
- "TRY Deposit" means an aggregate amount of TRY deposits and participation funds, excluding banks' deposits; and
- "F/X Deposit" means an aggregate amount of deposits and participation funds denominated in foreign currency including gold and precious metals accounts.
According to the abovementioned Decision of the BRSA:
- the monthly average of a bank's Active Ratio shall not fall below 100% for deposit banks and 80% for participation banks; and
- banks not able to meet the above thresholds shall be imposed administrative fines pursuant to item (a) of the first paragraph of Article 148 of the Banking Law, calculated by taking into account the gap between their actual Active Ratio and the above requirement. According to said article, the BRSA is entitled to impose an administrative fine of at least TRY 500,000 which may reach up to 5% of the amount constituting the violation. In the event that the violation is committed more than once or the same violation is repeated within a period of two years from the date of the previous fine, the BRSA shall also be entitled to double the fine amounts indicated above.
In order to reach the above-mentioned Active Ratio thresholds, Turkish private banks are expected to increase the personal or commercial loans to be extended to their customers, lower their foreign exchange deposits (especially considering the "1.25" coefficient) and engage in more swap deals with the CBRT.
In compliance with Turkish bar regulations, opinions relating to Turkish law matters that are included in this client alert have been issued by Özdirekcan Dündar Şenocak Avukatlık Ortaklığı, a Turkish law firm acting as correspondent firm of Gide Loyrette Nouel in Turkey.