The Regulation on Determination of Risk Groups and Credit Limitations ("Risk Groups Regulation") and the Regulation on Credit Operations of Banks ("Credit Operations Regulation") prepared by the Banking Regulation and Supervision Agency ("BRSA") were published in the Official Gazette dated 21.12.2023. Accordingly, the provisions regarding the determination of risk groups and calculation of credit limits in the Regulation on Credit Operations of Banks dated 1.11.2006 ("Former Regulation") were adapted to the Risk Groups Regulation and detailed regulations on the determination of risk groups were introduced. With the Regulation on Credit Transactions, the Former Regulation dated 1.11.2006 was repealed, and other provisions of the Former Regulation were reviewed and reorganised.
Both regulations, which entered into force as of 1.1.2024, contain additional provisions and amendments that are of great importance for banks.
Amendments Introduced by the Risk Groups Regulation
With the Risk Groups Regulation, most of the regulations in the Former Regulation regarding the determination of risk groups were retained, while additional provisions were introduced to prevent concentration in loans and for more effective risk management. Under the existing legislation, in order to prevent concentration in loans to be extended to a person or risk group, loans were limited to banks' equity, while the Regulation on Risk Groups, which entered into force on 1.1.2024, introduced new rules regarding the limitation of loans to banks' capital and the calculation of the risk amounts to be used in this limitation.
Within this framework, the loans that can be extended by the banks are limited:
- To 25% of the equity and capital of banks, in terms of those extended to a real person or a risk group, and
- To 20% of the equity and capital of banks, in terms of those extended to the risk group to which the bank belongs.
As such, according to the regulation, as of 1 January 2024 the excess amounts
must be eliminated until 31.12.2024 by amortising 50% of these amounts until 30.6.2024.
At the same time, the Risk Groups Regulation defines the concept of "Large Loan" and stipulates that loans extended to a real or legal person or a risk group at a rate of 10% or more of the shareholders' equity shall be considered as large loans and their total amount cannot exceed eight times the bank’s equity.
Amendments Introduced by the Credit Operations Regulation
As stated above, the Regulation on Credit Transactions, which entered into force on 1.1.2024, retains most of the provisions of the repealed Regulation on Credit Transactions of Banks dated 1.11.2006 and revised the rest.
The first important change introduced by the Credit Operations Regulation is the increase in the thresholds for the obligation to request an account status document before credit utilisation. According to the Former Regulation, banks were obliged to request an account status certificate for cash and non-cash loans of 2 million Turkish Liras or more, while this threshold has been increased to 5 million Turkish Liras with the new regulation.
Credit Operations Regulation also limited scope of the exceptions that made it compulsory to request an account status certificate under the previous regulation, and removed the obligation to request an account status certificate for transactions in exchange for cash, cash equivalents and accounts and precious metals, transactions with the Central Bank of the Republic of Türkiye and public administrations within the scope of central government, transactions in money markets organised by law, transactions in markets where central counterparty service is provided, and transactions between domestic banks with a maturity not exceeding three months, and gave banks the initiative in these matters.
Review
The Regulations entered into force on 1 January 2024 introduced significant changes with regard to banking law and practice. In particular, regulations on sanctions regarding risk groups and organising the adaptation process within this year are of great importance for banks.
By Tarik Guleriuz, Partner, and Selin Nacar Ozturk, Associate, Guleryuz & Partners
