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Legal Updates in Turkish Banking Finance Law Q2/2012
Focus items for this edition are: Communiqué on Legal Reserves Amended, Fixed Rediscount & Advance Rates, New Banking Regulations - Regulation on the Calculation and Evaluation of the Capital Adequacy of Banks and Regulation on the Internal Systems of Banks.
Communiqué on Legal Reserves Amended
The Communiqué on Legal Reserves (the “Communiqué”) (published in the Official Gazette dated November 16, 2005 and numbered 25995) has been amended:
The first amendment via the Communiqué enacted by the Central Bank of the Republic of Turkey (published in the Official Gazette dated May 12, 2012 and numbered 28290) has extended the definition of deductible items prescribed under Article 4. Local banks and headquarters and branches of banks established by international agreements are no longer subject to mandatory reserves.
The second amendment (published in the Official Gazette dated November 16, 2005 and numbered 25995) was realized by the Communiqué enacted by the Central Bank of the Republic of Turkey (published in the Official Gazette dated May 31, 2012 and numbered 28309) modifying the calculation of mandatory reserves prescribed under Article 6. Paragraphs (4), (5) and (6) have been amended as follows:
Paragraph (4): Banks are to restore mandatory reserves in cash in accounts within the Central Bank in Turkish lira currency for Turkish lira obligations and US dollar and/or euro currency for foreign currency obligations, and at rates prescribed under Article 5.
a) Regarding the mandatory reserves for Turkish lira obligations:
- Maximum 45% of it can be held in US dollars and euro currency; over the total amount found by multiplying the first 40% section multiplied with a coefficient of “1” and the 5% second section with the coefficient “1,4”;
- Maximum 20% in standard gold currency,
b) Regarding the mandatory reserves for foreign currency obligations:
- In gold standard currency for the part that needs to be held for the deposit accounts for precious metals
- Except for the part specified in b/1 above, it cannot be kept in standard gold currency.
Paragraph (5): Calculations for Turkish lira obligations are made the following way:
a) For the Turkish lira value of the reserves held in foreign currency according to subparagraph (a-1) of paragraph (4):
- based on the US dollar and euro exchange rates published on the website of the Central Bank the work day before the first day of the establishment period b) For the Turkish lira value of the reserves held in gold standard currency according to subparagraph (a-2) of paragraph (4):
- based on the price of gold on the Istanbul Gold Exchange on the date the obligations are calculated.
The Turkish lira equivalent of the foreign currency established for Turkish lira obligations, exchanged based on the indicated quotients, that surpasses the limit indicated in subparagraphs (a-1) and (a-2) of paragraph (4), is excluded from the mandatory reserves.
Paragraph (6): The Turkish lira equivalent of the gold held for foreign currency obligations are calculated based on the price of gold on the Istanbul Gold Exchange on the date the obligations are calculated. The amount of gold established for foreign currency obligations that surpass the limits indicated in subparagraphs (b-1) and (b-2) of paragraph (4) is excluded from the mandatory reserves.
Fixed Rediscount & Advance Rates
According to the Communiqué enacted by the Central Bank (published in the Official Gazette dated June 19, 2012 and numbered 28328) the discount rate applied to rediscount transactions made for bonds that will mature in less than three months is 16% p.a. and the advance rate applied to advance transactions 16.5% p.a.
New Banking Regulations:
Two new regulations have been published, prepared in the framework of Basel II regulations on the banking sector, effective as of July 1, 2012.
Regulation on the Calculation and Evaluation of the Capital Adequacy of Banks (published in the Official Gazette dated July 28, 2012 and numbered 28337) enacted by the Banking Regulation and Supervision Agency (“BRSA”), aims to regulate the procedure and basis of banks holding sufficient consolidated and nonconsolidated equity capital against damages. According to this Regulation, capital adequacy and consolidated capital adequacy standard ratios must be kept at a minimum 8%. If these ratios go below 8% they must be maintained within the period that the BRSA will set.
Pursuant to this Regulation, the main amount subject to credit risk will comprise of on-balance sheet assets, non-cash credits, covenants and the sum of total risk weighted financial derivatives. The evaluations of credit rating agencies can be used in these calculations.
This Regulation provides that banks will use credit ratings conducted upon the borrower’s demand. Ratings not subject to demand will be used in accordance with the Regulation on the Accreditation and Activities of Credit Rating Agency.
This Regulation also sets the risk exposure amount. For recognized assets the risk exposure will signify 70% of the values in the balance of the funds used from participation accounts and for other assets, the values in the balance.
Banks will be obliged to calculate capital requirements for currency/exchange risks on the basis of all their foreign exchange assets and obligations and financial derivatives bearing currency/exchange risk. In the calculation of equity, capital requirements will not be taken into account for the currency/exchange risk regarding foreign currency assets deducted from the capital.
Regulation on the Internal Systems of Banks (published in the Official Gazette dated July 28, 2012 and numbered 28337) aims to regulate the internal control, internal audit and risk management systems of banks and their operation. The Regulation abrogates the Regulation on the Internal Systems of Banks (published in the Official Gazette dated November 11, 2006 and numbered 26333). Main innovations concern the internal evaluation of capital requirement, risk management operations and the reporting of risks.
The Regulation comprises detailed provisions on the internal evaluation process, which must incorporate all types of important risks and should be regularly performed (at least once a year). Strategic plans and their relation to macroeconomic factors must be taken into account in this process, making the evaluation forward-looking.
Different aspects of risk management and their guidelines have been regulated as well. These include credit, market, liquidity, interest rate, concentration, securitization and country and transfer risks, as well as operational, adversary and residual risks.
In the frame of risk management, banks must have a reporting system that allows risk exposure to be efficiently analysed and evaluated. The information reports on market, credit and operational risks should cover are specified in the Regulation.
Article 71 extends the lists of operations that must be made in Turkish: all reports (including those within internal systems, top management and the reports of the audit committee to the board of directors), internal regulations and correspondence.
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