Communiqué on Asset-backed and Mortgage-backed Securities Has Been Amended

Summary

With the “Amending Communiqué” (III-58.1.c) published in the Official Gazette dated October 16, 2021 and numbered 31630, amendments have been made in the Communiqué on Asset-backed and Mortgage-backed Securities (III-58.1) (“Communiqué”) which regulates the principles regarding the issuance of asset-backed securities (“ABS”) and mortgage-backed securities as well as establishment and operation of asset finance funds (“AFF”). Amendments made it possible for asset management companies to establish AFFs, and to transfer the performing and non-performing loans (“NPL”) in their portfolio to the AFFs, thus enabling the securitization of NPLs.

Please find our summarized explanations regarding the Amending Communiqué below:

• It has been made possible for AMCs to establish AFFs 

Before the Amending Communiqué, only the banks, financial leasing and financing companies, mortgage finance institutions and intermediary institutions with a broad scope of authority could establish AFFs. With Regulation on Establishment and Activities of Asset Management Companies and Receivables to Be Acquired (“Regulation”) published in the Official Gazette dated July,14, 2021 and numbered 31541, it has been made possible for AMCs to establish funds. In parallel to this, it has been regulated that AMCs can establish AFFs in the Amending Communiqué. Also, as understood from the Communiqué, AMCs can both establish AFFs and be the originator of VFFs established by them and other institutions. 

• It has been regulated that ABSs can only be sold in abroad if the originator is an AMC 

As per the Communiqué, ABSs can be sold in Turkey or abroad, however, in the Amending Communiqué, it has been regulated that in cases where the originator is an AMC, the ABSs can only be sold in abroad. However, it has also been stated in cases where the issuance takes place abroad, principles different from the provisions of the Communiqué may apply on the condition that it is requested by the issuer and issuer’s request is approved by Capital Markets Board. 

• It has been regulated that the NPLs can transferred to AFFs

Prior to the amendments made in the Communiqué, only the First Category-Standard Loans (which is a type of bank loan with the lowest risk of non-performance) could be transferred to the AFFs whereas the Amending Communique has enabled AMCs to transfer the bank loans in their portfolios which usually consist mostly of NPLs. This has paved the way for securitization of NPLs. Also, considering that the Regulation allows the transfer of both performing loans and NPLs to AMCs, AMCs are now able to transfer any type of bank loan to the AFFs regardless of their performance status. Banks, on the other hand, can only transfer First Category-Standard Loans to the AFFs.

It should be also noted that AMCs must transfer bank loans that they have acquired from banks to AFFs with all the rights and assets related to such receivables, as whole and at a fair value.