Turkish Lira Loan Restriction for Companies Exceeding the Foreign Currency Asset Limit

With the BRSA's decision dated June 24, 2022, the companies whose total foreign currency assets exceed the limit set out by the BRSA have been restricted from borrowing TL from banks.

Pursuant to the Decision; companies will not be able to get a new Turkish lira commercial cash loan if;

(i) the company is subject to independent audit, and

(ii) its TL equivalent of foreign currency cash assets (including gold, effective foreign currency and foreign currency deposits in banks) is over 15 million TL as of the date of its loan application, and

(iii) the total of its foreign currency assets exceeds 10% of either its total assets according to the most recent financial statements of the company or its net sales revenue of last year (whichever is higher). 

Therefore, companies with foreign currency assets equal to afore-mentioned amount will have to dispose of their excess foreign currency assets in order to meet their TL needs. 

In order for any company to be within the scope of this Decision, all 3 conditions above must be met.

If the first condition is not met, that is, if a company is not subject to independent audit according to the relevant legislation, the company will not be subject to the limitation stipulated in the Decision. If the first condition is met and the second condition is not met, that is, if the TL equivalent of a company's foreign currency cash assets does not exceed 15 million TL, the company will not be subject to the limitation stipulated in the Decision. The company will not be subject to the limitation stipulated in the Decision if first two conditions are fulfilled, but the third condition is not fulfilled, that is the TL equivalent of the company's foreign currency cash assets does not exceed 10% of the company's total assets or sales revenue of the last 1 year (higher amount will be taken into consideration). In other words, as stated above, all 3 conditions above must be met in order for a company to be subject to this limitation.

Pursuant to the Decision, for companies that are obliged to prepare consolidated financial statements in accordance with the accounting and financial reporting standards published by the Public Oversight, Accounting and Auditing Standards Authority, whether the company exceeds the aforementioned limits will be determined based on the consolidated balance sheets.

The details of the Decision are given below.

• Which companies are subject to Decision?

Companies that meet all the following conditions are subject to Decision:

i. Being subject to independent audit,

ii. Having foreign currency cash assets above the specified limit (equivalent to 15 million TL),

iii. The TL equivalent of its foreign currency cash assets exceeds 10% of the total assets or the net sales revenue of the last 1 year.

• Who is not subject to Decision?

i. Banks and financial institutions are excluded from the scope of the Decision.

ii. Real persons and real person company shareholders are also excluded.

• What conditions should companies that do not exceed the limit meet to borrow TL from banks?

Companies whose total foreign currency cash assets are less than 15 million TL are exempted from the aforementioned ban. Therefore, it will be possible for these companies to borrow TL. However, in order to benefit from the exemption, the independent audit firm must determine whether the company qualifies for this exemption and the company must guarantee that it is not going to exceed the limit.

Accordingly, as of the loan application date, such companies must;

i. have an independent audit firm determines the worth of their current foreign currency cash assets and their total assets and net sales revenue of the last 1 year according to their most recent financial statements.

ii. declare and undertake that the TL equivalent of their foreign currency cash assets will not exceed 15 million TL during the term of the loan they will utilize, or that even if it exceeds, it will not exceed 10% of the total assets or the net sales revenue of the last 1 year (whichever is higher).

iii. inform the relevant bank regarding their foreign currency cash assets, total assets and net sales revenue of the last 12 months as of the end of the previous month, according to the previous month-end balance sheet, within the first 10 working days of each month, so that bank can check whether the company abides by its aforementioned commitment.

In the Press Release, it has been stated that it is the responsibility of the banks; to obtain documents from loan customers, to obtain a commitment from its customer to submit information and documents to the bank to prove that the use of the loan is in accordance with its purpose and/or update its contracts to include this commitment and to adapt its the business processes. No specific format is required for the declaration and commitment mentioned above. 

• Which companies are excluded from the scope of the Decision?

Companies that are prohibited from borrowing foreign currency loans as per the relevant legislation are exempted from this new restriction. If these companies meet the following conditions, they will be able to borrow TL commercial cash loans, limited to their foreign cash need in the 3-month period following the loan application date:

• Having a need of foreign currency cash within 3 months from the date of loan application to the bank, according to the review to be made by the independent audit firm based on the most recent financial statements, 
• Applying to the bank with documents approved by an independent audit firm.

• Which foreign currency cash assets are within the scope of the Decision?

Effective foreign currencies, gold, and foreign currency deposits in banks are within the scope of the Decision.

As underlined in the Press Release, other monetary assets of companies consisting of foreign currency denominated securities issued by Turkish residents and debt instruments such as Eurobonds are not within the scope of the Decision.

However, other monetary assets of companies such as securities and stocks issued in foreign currency by non-Turkish residents and reverse repo transactions with non-Turkish residents will be taken into account when determining the total of foreign currency cash assets of the company.

• Which exchange rate will be taken into account when calculating the TL equivalent of foreign currency assets?

Foreign exchange buying rate published by the CBRT on the calculation date will be used in calculating the TL equivalent of foreign cash assets. 

• Which commercial loan types are subject to the Decision and how will the existing loan limits be affected?

Highlights from the Press Release are as follows:

• The monthly limit increases in TL commercial cash loan transactions such as revolving credit, overdraft accounts or corporate credit cards will be considered as new loan disbursement, and customer must share the documents approved by the independent audit firm specified in the Decision with the bank. If such documents prove that the customer is subject to the limitation within the scope of the Decision, banks may no longer extend TL commercial cash loan to such customer even if such customer has enough loan limit to borrow another loan. 
• If there is a balance risk amount as a result of the calculation to be made at the end of each month for overnight loans, commercial loan customer must share independent audit firmapproved documents with the bank until aforementioned date of calculation. If such documents prove that the customer is subject to the limitation within the scope of the Decision, banks may no longer extend TL commercial cash loan to such customer even if such customer has enough loan limit to borrow another loan. 
• For such loans, whose term will end and be renewed within the week starting from 27 June 2022, the relevant customers are required to complete the necessary documents until the calculation to be made at the end of this month and only if the loan limit has increased compared to the end of the previous month. 
• Spot TL-denominated cash commercial loans, the contract of which has been concluded before the date of Decision but has not been extended yet and will only be extended within the week starting from June 27, 2022 will not be affected by the Decision. 
• Non-cash loans, such as the Direct Debiting System, are not within the scope of the Decision unless they are converted into cash loans. 
• Loans restructured after the date of the Decision pursuant to the Regulation on the Procedures and Principles Regarding the Classification of Loans and Provisions to be Set Aside for These Loans, or the Provisional Article 32 of the Banking Law will not be considered as new loan extensions. However, the loans that are not within the scope of restructuring and that are renewed by changing the contract conditions after the date of the Decision or that are extended to partially or completely refinance existing loans should be considered as new loan extensions.
• When has The Decision entered into force and how long is it valid?

The decision has entered into force as of June 24, 2022, the date of its publication, and will be valid until the BRSA takes a decision to the contrary. Therefore, all TL cash commercial cash loans to be extended after this date are subject to the limitation. 

The chart below summarizes who can and cannot use TL loans pursuant to the Decision, without prejudice to the conditions and obligations stated above: 

^{*If the customer declares and undertakes that the total of its foreign currency assets will not exceed 10% of either its total assets or its net sales revenue of last year (whichever is higher) during the term of the loan, it will not be subject to the limitation in the Decision.
**Such a customer must have a foreign currency need within 3 months from the date of application for the loan and must have an independent audit firm determine such need and submit the relevant documents to the bank. In this case, it is possible to utilize TL commercial cash loans, provided that it is limited to the foreign currency need within the 3-month period following the loan application date.}