DEVELOPMENTS IN TURKISH BANKING SECTOR
Turkish Banks continued to successfully rolled-over their syndications in 3Q18, US$ 1.7 billion* equivalent amount was secured as syndicated loans in the quarter. Syndication roll-overs of Eximbank, Isbank and TEB were also successfully completed in October. Vakıf, Halk and Eximbank announced their TL sub-debt issuances in September:
Isbank and Halkbank decided to initiate a share buyback program for their maximum 130 million and 70 million shares, respectively . Accordingly, as of quarter-end, Isbank has bought back 79.6 million shares.
CBRT actions during the quarter
Rating actions during the quarter
Regulatory developments during the quarter
NPL sales during the quarter:
* Public Disclosure Platform. Calculation based on publicly-traded banks.
Turkish Banks raised a total amount of US$ 7.3 billion* equivalent international funding in 2Q18. US$ 6.3 billion equivalent amount was secured as syndicated loans, US$ 0.5 billion equivalent amount from securitizations, US$ 85 million from covered bond issuance, US$ 0.2 billion equivalent amount from multilateral development banks and US$ 0.2 billion equivalent issuances** under Global Medium Term Notes (GMTN) Programs.
YKB announced its capital strengthening plan and increased its issued share capital by TL 4,100,000,000 to TL 8,447,051,284. Shareholders were able to participate in the capital increase in the proportion of their participation held in the Bank. CMB’s approval and the necessary procedures have been completed on 29 June 2018.
Turkish Banks raised a total amount of US$ 5.5 billion* equivalent international funding in 1Q18. US$ 1.2 billion equivalent amount was secured as syndicated loans, US$ 1.1 billion equivalent amount from securitizations, US$ 555 million from covered bond issuance, US$ 1.8 billion from Eurobond issuances and US$ 224 million equivalent issuances** under Global Medium Term Notes (GMTN) Programs.
The “Decision Amending the Decision on Treasury Support to Credit Guarantee Institutions” that was passed by the Council of Ministers on 27 February 2017 and that went into force upon its publication in the Official Gazette dated 10 March 2017 increases the amount of guarantee that can be furnished by the Undersecretariat of Treasury to the Credit Guarantee Fund (KGF) from TL 20 billion to TL 250 billion, and the amount of funds from TL 2 billion to TL 25 billion.
As per the BRSA decision dated 10 February 2017, it was decided that Treasury-backed guarantees be regarded in the same way with direct guarantee of the Undersecretariat of Treasury within the scope of the Regulation on the Measurement and Evaluation of Capital Adequacy of Banks. As of the date of the BRSA decision, the guarantee rates, which were set as 75% for nonSME users and 85% for users defined as SMEs, were updated as 85% and 90%, respectively, based on the “Decision Amending the Decision on Treasury Support to Credit Guarantee Institutions”. Upon this change, 0% risk-weighting will be applied to the Treasury-guaranteed portion of KGF credits within the scope of CAR calculations, and thus, the capital requirements have been restricted for credits allocated within the scope of KGF.
The Public Oversight Authority (in Turkish: KGK) published the finalized version of the TFRS 9 – Financial Instruments, which superseded TAS 39, in January 2017. TFRS 9 came into force on 1 January 2018. In this context, it has become compulsory for banks to implement TFRS 9 from 1 January 2018 pursuant to the BRSA “Regulation on Procedures and Principles for Classification of Loans and Provisions to be Set Aside”, which was published in the Official Gazette issue 29750, dated 22 June 2016. The Bank has made its transition to TFRS 9 practices as of January 2018.
Based on its decision dated 24 February 2017, the BRSA allowed banks to apply 0% risk-weighting, instead of the T.R. Central Government FC risk weighting, to required reserves that banks maintain as FC including gold before the CBRT due to their foreign currency obligations or within the frame of the reserve option mechanism, when calculating credit risk under the same regulation. Due to this practice, the Bank was able to offset the negative effect stemming from Turkey’s downgraded sovereign rating assigned by Fitch in January 2017 thanks to the positive effect arising under CAR.
The “Regulation Amending the Regulation for Banks’ Liquidity Coverage Ratio Calculations” published on 15 August 2017 by the BRSA raised the weighted value of required reserves from 50% to 100%.
As per the “Law Amending Certain Taxation Laws and Some Other Laws” published in the Official Gazette dated 05 December 2017, a tax rate of 22% will be applied to corporate earnings of corporations pertaining to 2018, 2019 and 2020 taxation years. In addition, the said law exempts the monies collected in benefit as a result of forwards and options contracts from banking and insurance transaction tax as of 01 January 2018.
The BRSA decision dated 23 January 2017 modified the upper limit of total exposure of retail portfolios within the scope of the “Regulation on the Measurement and Evaluation of Capital Adequacy of Banks”. Accordingly, the retail loan limit set by the BRSA as TL 3,725,000 on 20 December 2016 was modified as TL 4,200,000.
As part of the Regulatory Consistency Assessment Programme (RCAP), which is conducted by the Bank for International Settlements (BIS), Turkey’s compliance level with Basel regulations has been assessed as of the last quarter of 2015 and an assessment report regarding Turkey’s compliance level with Basel regulations has been published on March 2016 in which Turkey has been considered as fully compliant. BRSA published some revisions and also new regulations considering full compliance with Basel regulations. BRSA published revisions for some regulations, major ones are: Regulation on the Measurement and Evaluation of Leverage Levels of Banks and the Regulation on Measurement and Evaluation of Capital Adequacy of Banks, Regulation on Equity of Banks and Communique on Credit Risk Mitigations Techniques. In this scope, high risk weights applied to consumer loans excluding mortgage loans (150% risk weight for 1-2 years to maturity; 200% risk weight for 2 years or longer to maturity) decreased to 75% effective on March 31, 2016. The risk weight of mortgage loan fully collateralized with residential real estate collateral was reduced from 50% to 35%. On credit card transactions, high risk weights (1-6 months: 100%; 6-12 months: 200%; over 12 months: 250%) depending on time to maturity were replaced with counterparty risk weight (100% or 75%). Also, free provisions were removed from the common equity Tier-1 calculation due to the changes made within the frame of alignment with Basel requirements, and the risk weight applied to FC required reserves was raised from 0% to the relevant country’s FC risk weight (as of December 31st: 50%).
The announcement dated January 20, 2016 also covered the notice about how banks should calculate Countercyclical Capital Buffer. Accordingly, banks are required to use buffer as 0% for their risks in Turkey. For risks in Basel Committee member countries, the ratio published in those countries is expected to be used. For risks in countries that did not publish any ratios, buffer ratio is expected to be used as 2.5% (taking into account gradual transition)
The Regulation on Determination of Systemically Important Banks published in the Official Gazette dated February 23, 2016 categorizes banks into three groups based on the defined variables. A bank is assigned to a specific group based on the previous year data. The regulation has a four-year phase-in period (from 2016 through 2019) and increases the additional common equity Tier-1 requirement by one fourth each year. Effective from March 31, 2016, additional common equity Tier-1 requirement imposed on the banks stemming from this requirement is summarized in the table below.
Buffer Ratios for Banks with Systemic Importance (%)
The Regulation Amending the Regulation on Debit and Credit Cards published on September 27, 2016 increased the general limitation on the number of installments for credit cards from 9 months to 12 months. This period of time changes in certain service industries.
According to the Regulation Amending the Regulation on Bank’s Credit Transactions published on September 27, 2016:
The Regulation Amending the Regulation on the Procedures and Principles for Determination of the Qualities of Loans and Other Receivables by Banks and for Provisions to be Set Aside Therefor published on September 27, 2016 decreased the general provision ratio set aside for the loans under Group 1 to 1% (previous ratio: 4% for consumer loans excluding mortgage loans) and for those under Group 2 to 2% (previous ratio: 8% for consumer loans excluding mortgage loans). Ratios for additional general provisions set aside for restructured loans were abolished.
Based on the amendment published on December 14, 2016, the regulation mentioned above also allowed application of lower ratios for general provisions until December 31, 2017. Maximum general provision ratio was also decreased for commercial loans followed-up under Group 1 from 1% to 0.5%, and for SME loans from 0.5% to 0%. Maximum general provision ratio for Commercial and SME loans followed-up under Group 2 was reduced from 2% to 1%.
According to the Regulation on the Principles and Procedures for Loan Classification and Their Provisions published on June 22, 2016, starting from January 01, 2018, banks will calculate their general and special provisions in compliance with TFRS 9. Non-complying banks will set aside at least 1.5% general provisions for their Group 1 cash loans and 3% for their Group 2 cash loans.
According to the CBRT announcement dated July 17, 2016, banks were allowed to place foreign exchange deposit as collateral without limits for needed Turkish lira liquidity. However, implementation of limits for FX collateral deposits placed with the CBRT was restarted as of November 11, 2016; accordingly, banks’ limits will be applied as four times the limits allocated before July 17, 2016. Accordingly, banks’ total limit became USD 20.0 billion and EUR 7.2 billion as of November 11th.
The changes the CBRT made to the Reserve Requirements and Reserve Option Mechanism in the second half of 2016 introduced an additional liquidity of TL 2.3 billion and USD 4.1 billion in total to the system.
Some alterations were made to the provisions related to cheques of the Turkish Commercial Code and the Cheque Law no. 5941 pursuant to the Law Amending Certain Laws for Improving the Investment Environment no. 6728 that went into force upon its publication in the Official Gazette no. 29796 dated August 09, 2016. Hence, bank cheque leaves to be delivered to customers from December 31, 2016 are required to bear a 2D barcode, the serial number assigned by the drawee bank, and T.R. ID number or MERSİS (Central Registration System) number of the customer possessing a checking account. In addition, it is also set forth that in relation to dishonored cheques, administrative fine up to 1500 days will be resolved for each such cheque for the person causing a cheque to be dishonored. The same law replaced the remark “guarantee agreements” in Article 5(2) of the Electronic Signature Law no. 5070 with the remark “guarantee agreements apart from bank letters of guarantee”, thereby allowing letters of guarantee to be issued with electronic signatures.
Pursuant to the Statutory Decrees published during the term of state of emergency, Directorate General of Foundations has been authorized with respect to foundations, and the Ministry of Finance has been authorized with respect to others, for the payment, within a feasible schedule, of all kinds of movables, immovables, assets, receivables and rights, as well as debts and obligations certified with decisive books, records and documents of those institutions and establishments closed down and handed over to the Directorate General of Foundations or to the Treasury within the frame of state of emergency. Claimants in relation to such debts and obligations have been granted the right to apply to the relevant authority and demand their receivables within the statute of limitations set forth in the said Statutory Decrees.
Furthermore, equity companies and cooperatives will not be allowed to file motions for postponement of bankruptcy during the term of state of emergency, and that such motions will be denied by courts.
Personal Data Protection Law published in the Official Gazette dated April 7, 2016 set out the obligations of real and legal persons processing personal data, the principles and procedures they will abide by, and the matters related to ensuring security of personal data. The law links handling of such personal data and their transfer to other individuals and organizations, as a rule, to explicit consent of the individual. In addition, the Law stipulates the establishment of a Personal Data Protection Board to oversee handling of personal data in accordance with the laws, to adopt measures as necessary, to decide on the complaints of those claiming that their rights have been violated, and to fulfill the duties and responsibilities imposed on it by the said Law.
The Law on Consumer Protection no. 6502 which has entered into force on May 28, 2014 and the secondary regulations enforced in 2015 for the implementation of the said Law introduced a number of new rules for banks. Accordingly, updates have been made to our Bank’s practices in 2015, which specifically includes the following: issuing a pre-contractual information form containing the terms and conditions of the loan agreements signed between our Bank and consumers; granting the right of rescission to the customers; prior determination of all sorts of fees, commissions and expenses that will be charged to customers besides interest, along with the relevant procedures and principles; and offering our customers a type of credit card for which no fees are charged under annual membership fee or any other name.
On the other hand, the CMB continued to issue supplementary regulations throughout 2015, which prohibited deposit banks from engaging in:
- Activity of execution of orders regarding stocks and derivative instruments based on stocks and stock indices, and
- Activity of dealing on own account regarding stocks and derivative instruments based on stocks.
Within the scope of the Regulatory Consistency Assessment Programme (RCAP), which is conducted by the Bank for International Settlements (BIS), Turkey’s compliance level with Basel regulations is being assessed as of the last quarter of 2015, assessment report regarding Turkey’s compliance level with Basel regulations will be published in 2016. Prior to RCAP, BRSA has published some revisions considering full compliance with Basel regulations in 2015. Major revised regulations are the Regulation on the Measurement and Evaluation of Leverage Levels of Banks, the Regulation on Measurement and Evaluation of Capital Adequacy of Banks and the Regulation on Equity of Banks and Communique on Credit Risk Mitigations Techniques.
According to the Regulation on Measurement and Evaluation of Capital Adequacy of Banks, which was published in the Official Gazette dated October 23, 2015, FX required reserves will be subject to 50% risk weight, instead of 0%. The regulation will enter into force as of March 31, 2016.
According to the Regulation Amending the Regulation on Equity of Banks, which was published in the Official Gazette dated October 23, 2015, free provision for possible risks, which is currently under common equity tier 1, will be excluded from capital calculation. The regulation will enter into force as of March 31, 2016.
Also, guidelines on application and validation process regarding calculation of credit risk with internal rating based approach (IRB) and calculation of operational risk with advanced measurement approach (AMA) have been published. In 2016, pre-application process will start for Banks which are willing to use IRB and AMA, and applications will be conducted independently.
According to the BRSA Board Resolution of December 24, 2015, within the scope of “Procedures and Principles Regarding Countercyclical Capital Buffer Implementation and Profit Distribution by Banks” attached to the BRSA Board Resolution no. 6602 dated December 18, 2012 adopted as per the “Regulation on Capital Conservation and Countercyclical Capital Buffers” published in the Official Gazette numbered 28812 and dated November 05, 2013; countercyclical buffer ratio for Turkey positions will be applied as 0%, as from January 1, 2016.
As of May 5, 2015, the CBRT started to pay daily interest on reserve requirements, reserve options and current accounts which are kept in US dollar accounts held by the CBRT, the applicable rate of which will be determined in line with the conditions of the global and local financial markets.
For the purpose of reducing intermediation costs of the banking sector and supporting core liabilities, the CBRT raised the remuneration rate for the required reserves maintained in Turkish liras by 200 basis points in total as follows:
- 50 basis points as of May 08, 2015,
- 50 basis points as of September 01, 2015,
- 50 basis points as of October 01, 2015,
- 50 basis points as of December 01, 2015.
The CBRT Communiqué Amending the Communiqué on Reserve Requirements published in the Official Gazette dated May 30, 2015, expanded the scope of the liabilities of overseas branches of banks incorporated in Turkey, which are subject to reserve requirements.