In the last several years, Turkey has made great efforts to harmonize its banking regulations with those of the EU and with international standards. The aim was both to integrate with international markets and to restructure the banking sector, especially after the economic crisis in 2001. The main Banks Act 4389 was enacted in 1999 and it was later modified by Laws 4491, 4672, 4684, 4743, 4842, 5020, 5189 and 5228 the latter dated July 21 2004. However, the Banks Act 4389, though amended numerous times, failed to meet the true needs of the banking system. Therefore a new Banks Act numbered 5411 was prepared to comply with the dynamism of the banking sector and with international financial and economic developments. It was published on November 1 2005 in the official gazette after it was enacted. In drafting the new Act, EU Directives, international principles and standards, and the laws and practice of other countries have been taken into account.
Two regulatory institutions have had a substantial impact on the stabilization of the banking system in Turkey. These two institutions are the Banking Regulation and Supervision Agency (BRSA) and Savings and Deposits Insurance Fund (SDIF). Each has a specific role to play in the regulation, supervision and stability of the banking system.
The status, role and powers of the BRSA
The BRSA is a public legal entity with administrative and financial autonomy. The BRSA's role is mainly to ensure the implementation of the Banks Act; to issue regulations for this purpose; to audit and supervise the implementation of the Banks Act and other relevant regulations; and to ensure that savings are protected. In pursuit of this role, the BRSA is authorized:
- to take and implement any decision and measures to prevent any transaction/action which might jeopardize the rights of depositors and/or the secure operation of banks or which might lead to substantial damages to the national economy;
- to take and implement any decision and measures for the efficient function of the Turkish banking system; and
- (upon demand or where deemed necessary) to provide opinions and information with respect to the monetary and loan policies to the Undersecretariat of Treasury, Undersecretariat of State Planning Organization and the Central Bank.
The BRSA is entitled to request all kinds of documents and information (including confidential information) from any ministry, public or private entity and person with respect to any issue relating to its responsibilities.
The status, role and powers of SDIF
The SDIF is a public legal entity. The SDIF's main role is to insure saving deposits at banks. The SDIF is also the depository of failed banks and their assets and in this respect seeks to strengthen, restructure and transfer to third parties banks whose shares and/or management and supervision have been transferred to it.
The main powers of the SDIF are:
- to take over the shareholding rights (excluding dividend) of the subsidiaries of the transferred bank;
- to take over the shareholding rights (excluding dividend) of the dominant legal entity shareholders of a transferred bank;
- to appoint members to the boards of the transferred bank.
Once appointed, these boards of directors (together with the auditors, general managers and executives to be appointed by the SDIF) will have the power to sell the shares of the real or legal person dominant shareholders; sell the assets in proportion to the shares; and deduct the proceeds of sale from the SDIF's receivables or to use them in payment to public debts or debts to the Social Security Agency and other receivables;
- to make dispositions of assets, (whether by way of discount or compromises), and to file lawsuits, enter into agreements with debtors, and apply custody measures; and
- to prosecute and collect public receivables assigned to it based on the provisions of the Law 6183 (Collection of Public Receivables).
Forced sales by SDIF
Pursuant to the Banks Act, the SDIF is obliged to pay the savings (at the banks the licence to perform banking transactions and accept deposits of which have been revoked) to their depositors. The SDIF then becomes creditor with respect to such amounts.
Turkey has conducted new sales which were introduced by the SDIF. Within the past two years, the SDIF has obtained attachments over assets and taken control of a large number of companies from various groups (for example, Uzans, Balkaner, Aksoy) in an effort to collect its public receivables after the collapse of the banks (for example, Imarbank, Yurtbank, Iktisatbank) owned by these groups.
Pursuant to its powers under the Banks Act, the SDIF has opted to sell the assets of these companies through forced sales in order to collect its receivables. In these forced sales, the SDIF is acting as an administration/execution office intending to collect its own receivables based on its attachments on the assets of the companies. As a result of amendments to the Banks Act and the Regulations issued by the SDIF, the SDIF must sell the assets of the companies as a whole rather than piece-by-piece. This maintains the integrity and commercial value of the assets.
Based on the above, the SDIF has already sold nine cement plants and the assets of five media companies (previously owned by the Uzan group) to various local and foreign companies via successful tenders. By the sale of these nine cement plants, the FUND gained $994.5 million income. Furthermore, SDIF's forced sale of Telsim (Turkey's second biggest GSM operator transferred from the Uzan group) was put out to tender on December 13 2005. Vodafone became the winning bidder after having submitted a bid of $4.5 billion. One of the other significant companies of the Uzan group, Star TV channel, was sold for $306.5 million to the Dogan group by way of tender. Most of the radio channels and newspapers of Uzan group were also sold. The SDIF intends to continue to force the sale of the remaining companies that it has taken over (for example, Cine-5 TV channel from Aksoy group) during 2006. In respect of past and future sales, it is estimated that total collections will reach over $18 billion. However, the estimated debt of the banks transferred to the Fund is about $45 billion to $50 billion.
Sale of assets as a whole
Under Turkish law, collection of receivables by an individual or a legal body arising from a legal relationship which is civil in nature is subject to the provisions of the Law on Enforcement and Bankruptcy (Icra Iflas Kanunu – LEB). Collection of public receivables of the government, provincial government and local government (the administration), such as tax, duties, levies, penalties, related court costs, tax penalties, related default interest, is subject to a quicker procedure set out in Law 6183.
Initially, SDIF receivables were collected in accordance with the general procedures set out in the LEB – given that SDIF's receivables were not qualified as a public receivable within the meaning of Law 6183. Amendments made to the Banks Act in the last few years made it possible for SDIF to collect its receivables under Law 6183.
Law 6183 provides for two separate procedures for sale of the assets depending on whether the asset to be foreclosed upon is movable or immovable property. The concept of sale of assets attached pursuant to Law 6183 as a whole was first introduced by the recent amendment in the Banks Act by Law 5228.
In accordance with the amendment made in the Banks Act by Law 5228, the SDIF Board is entitled to decide to sell the movable and immovable assets attached by the fund. This is in accordance with rules and procedures set out in the Banks Act and Law 6183 "as a whole, in a way to form a commercial and an economical integrity" and to determine the procedure and principles of the sale method.
Under the provisions of the Banks Act, the SDIF Board has the power to issue regulatory instruments which take effect after they are published in the official gazette. As explained above, Law 5228 has assigned to the SDIF board the power to determine the method and principles of "sale of assets as a whole". In this respect, a regulation was published in the official gazette on June 18 2005.
Amendments in relation to SDIF provisions brought by Banks Act 5411
Up to this point, this article has focused on the creation and the powers of the BRSA and SDIF, illustrated by examples in the form of details of forced sales. Recently, the Banks Act has been further amended to incorporate additional provisions in respect of the BRSA and SDIF.
In November 2005, Banks Act 5411 was published. This Act was largely a consolidating statute incorporating previous amendments. Accordingly, the transfer of shareholding rights (excluding dividends) and management and supervision of the transferred bank to the SDIF has been preserved. The Council of Ministers now has the right to take any decision if a risk in the banking system emerges.
Banks Act 5411 has subjected the transfer of the concerned banks to the SDIF to certain conditions:
a) The bank has not taken, either partially or completely, the requested measures indicated in Article 70 of this Act within the period given by the board or within maximum 12 months otherwise, or, even if having taken these measures, either partially or completely, the financial structure has not been strengthened or, it is considered that it cannot be strengthened even if the measures are taken.
b) The continuation of the bank's activities will endanger the rights of the owners of depositors as well as the security and stability of the financial system.
c) The bank has not fulfilled its obligations as they fall due.
d) The total value of the liabilities of the bank exceeds the total value of its assets.
e) The dominant partners or managers of the bank fraudulently use the resources of the bank directly or indirectly in their own or others' favour in such a manner that the sound operation of the bank will be at stake, thus causing a loss for the bank.
If one or a few of these conditions exist, the BRSA (with the affirmative votes of a minimum of five BRSA members out of seven) can revoke the operating permissions of the concerned bank. Or transfer the shareholding rights (excluding dividend), management and supervision of the bank to SDIF for the purpose of transferring, selling or merging them partially or fully, on the condition that the loss will be deducted from the capital of the existing partners.
The new Act also stipulates that the process of restructuring and strengthening financial structures, transferring, merging or selling the banks whose shareholding rights (excluding dividend) as well as management and supervision, have been transferred pursuant to Article 71 shall be completed within nine months maximum, following the transfer date. This period may be extended for a period of three months maximum, through a BRSA decision. If the transfer, merger or sale cannot be completed within this period of time, the BRSA shall revoke the operating permission of the bank upon the request of SDIF.
Another amendment from the new Act is the introduction of a new commission called the Coordination Commission whose members will be formed from the representatives of the SDIF and the BRSA. The commission will share data relating to the general status of the banking system between these two regulatory authorities, as well as measures that need to be taken as a result of the inspections and certain financial information from the banks.
The SDIF has wide and extraordinary powers for the collection of its receivables stipulated by the provisions of the Banks Act which were passed under extraordinary conditions of past economical and financial crises in Turkey. Although these powers are under discussion with respect to their conformity with the Constitution and general principles of law, it was inevitable under these conditions.