The Banking Regulation and Supervision Agency (“BRSA”) has amended the Regulation on Restructuring of Loans Owed to Banks and Financing Companies (“Regulation”), which was first published on 15 August 20181. Soon after publication, foreign banks have raised opposition to the Regulation and the practices under it. As a result, major amendments to the Regulation were published on the Official Gazette dated 21 November 20182. We summarize below the latest changes introduced on the restructuring process.
The Regulation before the Amendments
The Regulation stipulates that banks and various financing institutions may enter into a financial restructuring framework agreement, drafted by the Banks Association of Turkey (“BAT”), in order to provide the borrowers with the opportunity to fulfill their payment obligations and continue to foster employment. Some of the restructuring terms that can be set out under such a framework agreement are as follows:
1. Extending the maturity of loans,
2. Renewal of existing loans,
3. Granting additional indebtedness,
4. Reducing or writing off receivables loans such as capital, interest, default interest, profit shares.
The Regulation provides that, where an agreement for the restructuring of loans (“Restructuring Agreement”) is signed between a borrower and its creditors who signed the framework agreement, if such creditors hold 2/3 of the total amount owed to the creditors who are party to the framework agreement, the remaining creditors (who signed the framework agreement but not the restructuring agreement) are also required to take part in the restructuring process.
BAT had already drafted a framework agreement in light of the Regulation, which was signed on 19 September 2018 by the majority of the financial institutions in Turkey according to the information provided by BAT (PDF, only available in Turkish). The current version of the framework agreement is accessible on BAT’s website, although it is only available in Turkish for now.
The Regulation after the Amendments
One of the significant changes introduced by the amendment relates to the role of foreign creditors and international institutions. With the amendment, it has now become possible for these foreign institutions to take part in the restructurings if they request to do so, without the consent of other banks and the financing companies that have signed the restructuring agreement. The amendments also provide that the principles and procedures in relation to such participation shall be regulated under the framework agreement. We have been verbally informed by BAT that it has revised the framework agreement in light of the amendments to the Regulation and that the amended framework agreement is now open for signature by financial institutions. The signature process is expected to be concluded soon.
Some of the other amendments to the Regulation are as follows:
- Although the borrowers which can benefit from the Regulation were not specified under the previous version of the Regulation, the amended version excludes Turkish banks, capital market institutions, insurance companies, re-insurance companies, financial leasing companies, factoring companies, financing companies, payment services and electronic money institutions.
- For a borrower to be able to take part in a restructuring, its financial status and its ability to pay its loans “within a reasonable period of time” as a result of the implementation of a restructuring plan needs to be established. The wording of the provision has been changed and “the reasonable period of time“ requirement is brought. As there is no clarity regarding the duration of such reasonable period of time, problems are expected to arise in practice.
- It will now be sufficient for the institutions which shall determine the financial status of the borrower to be specified under the framework agreements as the provision stipulating the requirement of obtaining the BRSA’s approval is abolished.
Along with the changes above, the following provisions have been abolished.
1. The provision that the statute of limitation for the subject loans will be interrupted upon signature of the financial restructuring framework agreement is abolished. It follows that the statute of limitation shall no longer be interrupted through signature of the framework agreement.
2. The provision prohibiting charging an interest rate lower than the market rate and granting additional financing to borrowers within the same risk group is abolished.
3. The provision prohibiting the disclosure of client confidential information by credit institutions among themselves and with third parties other than the ones explicitly authorized by law is abolished.
We will update our readers with any developments regarding the signature process of the revised framework agreement and any clarifications from BAT in due course.
1The Official Gazette numbered 30510 and dated 15.08.2018
2Official Gazette numbered 30602 and dated 21.11.2018