Our Information Note on the decision of the Banking Regulatory and Supervisory Authority introducing a new asset ratio calculation method for Turkish banks has been published.

1. INTRODUCTION

As part of the measures in the fight against the COVID-19 pandemic, the Banking Regulatory and Supervisory Authority (”BRSA”) issued its decision dated 18 April 2020 and numbered 9000 (”Decision”) with a view of injecting capital into the Turkish market struggling with the adverse economic effects of the pandemic’s spread.

2. THE RELEVANT AMENDMENT

The Decision introduces a new “asset ratio” (“AR”) calculation method for Turkish banks. Accordingly, as of 1 May 2020, Turkish banks are required to calculate their AR on a weekly basis by applying the following formula:

The terms used in the AR formula have the following meanings:

”Loans” means the total amount of loans extended by banks to retail and commercial clients, excluding non-performing loans;

”Securities” means the total amount of private sector bonds and bills as well as lease certificates, Eurobonds and all kinds of debt instruments issued by the Treasury (excluding securities and share certificates issued by non-residents and purchased by banks);

”CBRT Swap” means the Turkish lira equivalent of the total value of foreign currency extended by banks to the Central Bank (“CBRT”) via swaps, converted at the buying rate of the CBRT;

“TRY Deposit” means the total amount of all TRY deposit/participation funds, excluding bank deposits; and

”FX Deposit” means the total amount of deposit/participation funds held with banks in foreign currency, including gold and precious metal accounts.

Pursuant to the Decision, the monthly average AR for the relevant month calculated on the basis of the above formula may not fall below 100% for deposit banks and 80% for participation banks. Banks whose AR is below such rates will be subject to an administrative fine in an amount of up to 5% of the deficit calculated in accordance with the provisions of the Decision.

3. CONCLUSION

The BRSA has already taken several other measures to alleviate the adverse effects of the COVID-19 pandemic. Such other measures include changes in the risk calculation method of Turkish banks, the introduction of certain flexibilities with respect to payment defaults and the calculation of capital adequacy ratios and net foreign currency positions in the balance sheets of banks.

With the Decision, the BRSA intends to accelerate the injection of finance into the real sector and invites banks to take a more active role in the fight against the pandemic’s adverse economic effects by penalising those banks that fall short of these requirements.