The transfer of loan agreements where the borrower or the guarantor is a Turkish public or private institution, or the Republic of Turkey, and which are extended by foreign banks and/or financial institutions to other foreign banks and financial institutions, may be subject to legal requirements under Turkish law.
In this section, our purpose is to address and explain the primary legal requirements under Turkish law in relation to this matter. We do not discuss any contractual issues concerning the transfer of loan agreements, such as possible contractual transfer restrictions or contractual requirements.
1 - Bank Operation License Requirement
If the transferee of a loan agreement is a foreign bank or financial institution, and this bank or financial institution will not engage in regulated banking activities in Turkey (including new lending and deposit taking activities), then the transferee bank or financial institution would not be subject to Turkish banking surveillance by the Banking Regulation and Supervision Agency (“BRSA”), as per the Banking Law No. 5411 (“Banking Law”) and related legislation.
Therefore, the transfer of a loan agreement and the subsequent holding of the loan agreement by the transferee would not trigger a bank operation license requirement under Turkish law.
2 - Other Regulatory Requirements
As per the Capital Movement Circular of the Central Bank, dated 2 January 2002, (“Circular”), the Central Bank of the Republic of Turkey (“Central Bank”) keeps the records of loans that are extended by foreign lenders to Turkish residents. In this regard, the Central Bank is notified, for recording purposes, of changes to such loans (e.g., the lender of the loan or the repayment terms) that are made available by foreign lenders. Only banks or financial institutions that act as intermediary institutions are under an obligation to notify the Central Bank, and this obligation does not extend to the borrower or the lender. If the foreign lender changes, the Central Bank should be notified of such a change by the intermediary institution, in order to update the lender information in the Central Bank’s records.
Additionally, in parallel to the Circular, as per Article 17 of the Decree No. 32 on the Protection of the Value of the Turkish Lira (“Decree No. 32”), a person residing in Turkey can borrow cash loans from foreign lenders, provided that such loans are drawn and utilized via Turkish banks or financial institutions. If the lender changes, the Central Bank must be notified of such change, in order to update the lender information in the Central Bank’s records.
According to the Circular, loans borrowed from foreign lenders by Turkish public entities, including metropolitan municipalities, must be notified by the borrowers to the Undersecretariat of the Treasury (“Treasury”), General Directorate of Public Finance, within 30 days following the execution date of the loan agreement. Furthermore, according to Section III/Article 1.1.3 of the Circular, any (i) utilizations, (ii) repayments of principal and interest, (iii) as well as the payment of other fees, must also be notified to the Treasury within 10 days following the relevant transaction, by the borrower and the intermediary institution.
Furthermore, with respect to the loan agreements to which the Republic of Turkey is a party, the Treasury acts on behalf of the Republic of Turkey, and the loan agreement is signed directly by the Treasury. These loan agreements are then registered with the External Financing Information System maintained at the Treasury, in order to track in detail the foreign debts of the Republic of Turkey. Turkish law does not set forth a notification obligation for these agreements, as the Treasury is already directly involved in these transactions. However, in practice, the Treasury requires its written approval to be obtained for the transfer of relevant loan agreements to other banks or financial institutions.
In case the Treasury acts as the guarantor of the loan agreements which are entered into by public entities, such as municipalities or other local governments, public economic entities, entities whose capital is 50% or more state-owned, universities, funds, public entities with private budgets, administratively independent public entities, and investment and development banks, the borrowers of such loans should inform the Treasury of any lender changes within 30 days as of the date of the lender’s change, in accordance with the Circular.
3 - Whether Such Exchanges of Information Breach Banking Confidentiality Obligations
According to the banking privacy principle set forth in the Banking Law, branches or liaison offices of foreign banks established in Turkey and other Turkish financial institutions must keep their customers’ personal and account information confidential. However, considering that the loans under discussion are to be transferred, and since the lenders are not residing in Turkey, the banking privacy provisions of the Banking Law would not apply to the transferor in this case.
This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2017. A link to the full Legal Insight Quarterly may be found here.