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Sponsored briefing: Measures taken by the regulatory authorities in the banking sector regarding the Covid-19 outbreak

The Banking Regulation and Supervision Agency (the BRSA), the Central Bank of Republic of Turkey (the CBRT) and the Banks’ Association of Turkey (the BAT) have swiftly taken several measures after the declaration of the first confirmed Covid-19 case in Turkey on 11 March 2020 in order to mitigate the outbreak’s impact on the financial markets and soften expected disruptions in commercial activities that may be caused by Covid-19. Such measures are set forth by the relevant regulators in order to provide flexibility to financial institutions (the FIs) to ensure (i) financial stability of the FIs and (ii) meet FIs customers’ needs such as facilitating cash flow of individuals and SMEs which are likely to be the most affected by this outbreak and ultimately to mitigate the macroeconomic effects and risks arising from Covid-19 in financial markets.

Firstly, the BRSA, in its press release dated 16 March 2020, indicated that the business continuity plans prepared routinely by banks in accordance with the Guide on Management of Operational Risks with the aim of continuity of FIs’ activities and limitation of losses which arise from severe business interruptions are re-examined by the BRSA and in this regard all necessary measures are taken. This measure has been taken by the BRSA within the framework of prudent supervision approach.

With regards to providing flexibility, the BRSA, in its decision dated 17 March 2020 and No. 8948 indicated that, (i) the 90 days default period for loans to be classified as non-performing loans shall be applied as 180 days; (ii) the provisions to be set aside by the banks for the loans which continue to be classified in the Group Two despite the 90-day default shall continue to be set aside pursuant to their own risk models used in the calculation of the expected loan loss within the scope of TFRS 9 and (iii) the loans, which are restructured and then classified as performing loans following such restructuring, and (a) the principal and/or interest payments of which are overdue for more than 30 days within the one-year monitoring period or (b) which were subject to restructuring once more within such monitoring period, are no longer required to be classified as Group Three Loan. This measure will be effective until 31 December 2020.

As stated above, one of the main reasons for such measures was to facilitate the cash flow of individuals and accordingly, in loans to be extended to consumers (i) for the purposes of house acquisition and (ii) secured by mortgage (except for vehicle loans), the ratio of the loan amount to the value has been increased to 90% for the houses with the value up to 500,000 TL pursuant to the BRSA decision dated 19 March 2020 and No. 8949, to be effective until 31 December 2020, based on the same purpose.

Furthermore, as per TBA’s advice, banks may be flexible while determining their own working and customer visit hours by informing their customers, take relevant measures in order to avoid crowding and temporarily close their branches which have the maximum risks, at their own discretion. In addition, it was also advised that banks should continue providing digital banking services to their customers and should set the working and customer visit hours as 12:00-17:00 for the branches and service units that directly provide service to customers.

The BRSA also took several measures in order to ensure the financial stability of the FIs. In line with such purpose, as per the BRSA decision dated 19 March 2020 and No. 8950, the 90-day default period in relation to the special provisions to be set aside shall be applied as 180 days for the factoring and financing companies and 240 days for the financial leasing companies and the 90-day default period determined for the financing companies in relation to the general provisions to be set aside in respect of consumer loans (other than housing loans) shall be applied as 180 days.

In order for the banking sector to remain financially sound and healthy to support the economy, the BRSA published a press release on 23 March 2020 and indicated that banks may use the buying exchange rate which is used in financial tables dated 31 December 2019 (ie 5.9400) while calculating the amount which is subject to credit risk as per the Regulation on the Calculation and the Evaluation Capital Adequacy of Banks for the calculation of the valuated amounts as per the Turkish Accounting Standards and the relevant reserves to be set aside in relation to banks’ cash and non-cash assets (except for the assets in foreign currency measured in historical cost). Furthermore, banks may disregard (i) the net valuation differences relating to the securities held in banks’ ‘Securities fair value difference of which is reflected on other comprehensive incomes’ portfolio in the calculation of equity amount to be used for the calculation of the capital adequacy ratio, if such valuation difference is negative and (ii) the value decrease in the securities while calculating their net foreign currency positions. However, banks may not apply the above-mentioned exceptions for the securities that are acquired after 23 March 2020. Another set of measures taken by the BRSA through its decision dated 26 March 2020 and No. 8967 in order to provide flexibility to banks in relation to minimum liquidity adequacy and coverage ratios due to the Covid-19 outbreak is that the deposit and participation banks are exempted from the steps to be taken when a bank fails to meet minimum liquidity coverage ratios and reporting of the reasons for the relevant shortfall. Similar to this temporary exemption, the development and investment banks are exempted from the steps to be taken when a bank fails to meet minimum liquidity adequacy ratio requirements and reporting of the reasons for the relevant shortfall. In the meantime, the deposit and participation banks will continue to report their liquidity coverage ratios and the development and investment banks continue to report their liquidity adequacy ratios regularly to the BRSA. However, as part of such measures, in order to reduce the operational burden on the banks, the development and investment banks are exempted from the reporting of the liquidity coverage ratios to the BRSA.

Similar to the above measures, it has been decided that by the BRSA that, effective from 17 March 2020 to 31 December 2020, the 30-day delay envisaged for the loans classified under the Group One Loans to fall under the Group Two Loans shall be applied as 90 days. Provisions for loans that continue to be classified in the Group One Loans despite the 30-day delay, shall continue to be set aside according to the banks’ own risk models used while calculating the expected credit losses under TFRS 9.

In order to facilitate cash flows of individuals, it has been decided by the BRSA decision dated 27 March 2020 and No. 8971 that, in the event that principal and interest payments of consumer and vehicle loans extended by banks, financial leasing, factoring and financing companies are postponed until 31 December 2020 upon consumers’ requests, then the postponed period shall not be taken into account in determination of the maturity limits set forth under the relevant regulation. In line with the above purpose, through the BRSA decision dated 30 March 2020 and No. 8975, it has been stipulated that, the minimum repayment amount for credit cards is determined as 20% of the debt incurred in the relevant period and banks may grant non-repayment periods to the respective credit card holders until 31 December 2020 (during the period they postponed their payments) and in such non-repayment periods, banks will not request any payment, including minimum repayment amount, from the credit card holders. Accordingly, the BRSA aims to support businesses and individuals facing financial hardship as a result of the Covid-19 outbreak.

Along with the measures which are taken in order to ensure maintaining a strong financial system, the BRSA has also taken steps to increase the personnel employment of those who provide call centre services in banks. Since it has been observed that the number of people who work remotely has been increased and working hours of banks’ branches have been shortened at the same time, the need to reach bank personnel via call centre has become very important. In this context, the number of call centre personnel has been increased by banks to a sufficient number that meet customers’ needs.

On the other hand, the CBRT also took several measures and has reduced the one-week repo auction rate 1% to 9.75% for the purpose of sustaining regular cash flow within the Turkish financial markets pursuant to the press release dated 17 March 2020 and numbered 2020-15. Furthermore, the CBRT has published another press release numbered 2020-16 and introduced several measures for the purposes of (i) increasing predictability by enabling liquidity management flexibility in banks; (ii) providing additional liquidity opportunities to banks to ensure uninterrupted credit flow into reel sector and (iii) cash flow support to exporters via re-discounting credit regulations. Such measures introduced by the CBRT include but are not limited to (i) injection of liquidity to banks by the CBRT (if need be) from available daily and overnight funds; (ii) injection of liquidity into financial markets via repo auctions with maturities up to 91 days; (iii) increase of applicable liquidity limits for market maker banks within the scope of Open Market Operations; (iv) continuity of current one, three and six month USD swap auctions and permission to conduct the same against EUR and Gold; (v) reduction of FX mandatory reserve ratio by 500 BPS in all liability types and maturity segments for banks that meet the real credit growth conditions; (vi) grant of extension options and periods for repayments of rediscount credits, depending on their types and original maturity dates.

On 31 March 2020, the CBRT published a press release regarding the additional measures to be taken against the economic and financial impacts of the COVID-19 outbreak. Such additional measures include but are not limited to (i) allowing to carry out Open Market Operations (OMO) portfolio in a front-loaded manner and their limitations may be subject to revisions depending on market conditions; (ii) providing opportunity for selling of the government domestic debt securities bought by primary dealer banks from the Unemployment Insurance Fund within the scope of regulated conditions or increasing the liquidity facility provided within the scope of the OMO; (iii) including the asset-backed and mortgage-backed securities in a collateral pool within the scope of the Turkish lira and foreign exchange operations to be conducted within the CBRT; (iv) increasing the limits for targeted additional liquidity facilities; and (v) extension of the Turkish lira-denominated rediscount credits for export and foreign exchange earning services to firms exporting goods and services.

Along with the BRSA and the CBRT, the BAT has announced that several practices have been initiated by the banking sector in order to ensure the proper application of the ‘Economic Stability Shield’ measures, which are implemented in order to minimise the possible effects of the Covid-19 outbreak on the employment, production, trade and payment systems, and to support the economic activities. As part of such practices, Cheque Payment Support Credit has begun to be provided by some banks in order for the cheques which are issued and to be issued by the corporate and commercial customers based on the real commercial activities to be paid. Apart from this, some banks started to provide ‘Economic Stability Shield Credit Support’ for the working capital needs of corporate and commercial customers, especially the SMEs.

Since Covid-19 affects mostly elderly, the BAT has also taken necessary measures in relation to the payments of the promotions to retirees. Within the scope of the protocol signed between the Social Security Institution and the banks, the promotion payments are made to the retirees on the condition that approval of the undertaking is obtained. Due to the Covid-19 outbreak, in order to prevent the retirees who are in the risk group from entering crowded environments such as public transport, and endanger their health, it has been decided to deposit promotional amounts into their accounts without waiting for any approval until 30 June 2020.

To sum up, the Turkish regulatory authorities have taken swift and effective measure to maintain a strong monetary, credit and financial system against the expected effects of Covid-19 in financial markets.

Eda Beltan – Partner
Banking & Finance Team
D +90 212 313 35 76