A new communique numbered 2023/5, namely the “Communique on Supporting the Conversion of Firms’ Foreign Exchange obtained from abroad into Turkish Lira” (the “Communique”) has been published by the Central Bank of Republic of Turkey (the “CBRT”) in the Official Gazette and went into force. The Communique comes forward as another step in CBRT’s “Monetary Policy and Liraization Strategy for 2023”.
The Communiqué regulates the procedures and basic principles regarding the support to be provided to companies should they choose to sell their foreign exchange (“FX”) funds originating from abroad to the Central Bank and/or convert the funds into Turkish lira and deposit them in TRY accounts (namely the FX-protected Turkish lira accounts which were recently introduced). Through the Communique, the CBRT aims to incentivize firms to convert their FX reserves to Turkish lira.
The Communique sets out its subject matter in three sub-titles as briefly explained below: (i) FX Conversion Support for FX obtained from abroad sold to the CBRT; (ii) FX Conversion Support for conversion of FX originating from abroad into TRY accounts; (iii) Failure to fulfil the commitment of not purchasing FX.
I. FX Conversion Support for FX obtained from abroad sold to the CBRT (Article 4):
The Communique provides for financial support for companies corresponding to %2 percent of the amount of FX converted to the Turkish lira, provided that the companies selling their FX make a pledge to the CBRT that they will not engage in any FX purchases for the period to be determined by the CBRT.
II. FX Conversion Support for FX obtained from abroad deposited into FX-protected Turkish lira accounts (Article 5):
Provided that at least %40 percent of the FX brought into the country is sold to the CBRT, the remaining part of the foreign currency brought into the country is converted into FX-protected accounts at the conversion rate and a commitment is made not to purchase any more FX exceeding the amount sold to the CBRT for the period to be determined by the CBRT, the companies will be provided with FX conversion support corresponding to %2 of the amount converted into Turkish lira at the conversion rate.
III. Failure to fulfil the Commitment not to purchase Foreign Exchange (Article 6):
In case the companies fail in their commitments not to purchase any FX, the Communique prescribes a pair of sanctions:
- a) FX conversion support amounts, inclusive of the positive exchange rate differences of their respective periods, will be recollected from the companies through the banks and transferred back to the CBRT together with interest. The interest will be calculated on the basis of the highest overnight lending rate determined by the CBRT, starting from the date the FX conversion support is provided, until the date the company is detected to have failed its commitment.
- b) Besides, applications of the companies which failed to fulfil their commitments for the CBRT-originated loans will not be approved for one year starting from the date the failure of commitment is detected.
Furthermore, the banks will be responsible for the management and application of the processes to be conducted under the Communique, e.g. confirming the FX amounts sold to the CBRT and converting the FX into Turkish lira accounts.
This new communique is another step in the prioritisation of the Lira which has been an important topic in Turkey’s recent monetary policy. We may expect further legislative acts by Turkey which may be deemed somewhat “limiting” for the private industry, however, it is expected from the state to take any means possible to expedite this conversion as both the strength of Lira and avoiding extreme dependency on FX are critical points of emphasis for the government.
Please do not hesitate to contact us for any questions you may have regarding this matter.