This content is from: Local Insights

Turkey

On May 29 the Banks Law was amended for the second time within two years of its enactment. The main goal of the Amendments is to bring the Turkish banking sector closer to EU standards and to clarify the authority of the Saving Deposits Insurance Fund in its dealings with the problem banks transferred to it and their shareholders.

The principal Amendments to the Banks Law can be summarized as follows:

Before the Amendments, the participation of banks in other entities was not subject to any limitation. Shareholdings of banks in other entities were seen as credit. The Amendments introduced a limitation on banks' shareholding interests in other entities. Now, a bank's participation in a non-financial entity is limited to 15% of such bank's equity, provided that a bank's participation of this nature does not exceed 60% of its equity.

The Amendments expand the scope of the definition of credit to include option agreements and other derivative transactions. Article 11 of the Banks Law was amended to enable banks to deduct loan loss reserves from their corporate tax basis.

Another important change introduced by the Amendments relates to bank mergers and acquisitions whereby the provisions of the Turkish Commercial Code and the Competition Law will no longer apply to mergers and acquisitions of banks, as long as the sum of the assets of the banks concerned do not exceed 20% of the banking sector.

Other changes brought about by the Amendments include the authority of the Saving Deposits Insurance Fund in its dealings with the banks transferred to it and the expediting of legal procedures for the Fund to collect receivables of those banks. According to the Amendments, if the shares of a bank, all or part of the shares of which belongs to the Fund, are transferred to a third party, the Fund will continue to be a party, as the legal successor, to the law suits it has initiated against the previous shareholders, managers and auditors of such bank. Also, the Fund has been exempted from complying with certain provision of the Civil Procedural Law in such lawsuits, which will enable the Fund to expedite the legal process.

Apart from these legal developments, the Supervisory Agency requested the private banks to submit undertaking letters setting forth their strategies to increase their share capital and to restructure their banks through mergers or sale of all or part of the banks' shares to domestic and foreign institutions. Accordingly, it appears that the long awaited mergers and acquisitions of banks in Turkey will start to occur very soon.

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