The financial crisis that hit Turkey recently has demonstrated how the country must strengthen its banking system in order to have a robust economy. As part of its efforts to create a sound and stable banking system and to achieve international banking standards, Turkey has been undergoing a fundamental restructuring. After the introduction of the amendments to the Banks Act No 4389 in May 2001, the necessary complementary regulations were also passed. On June 27 2001, the Regulation on the Mergers and Acquisitions of Banks and the Regulation on the Establishment and Activities of Banks were approved, and on June 30 2001, the Provisioning Regulation was introduced. Although the effects of the financial crisis can still be seen, these regulations have demonstrated to foreign investors interested in entering the Turkish banking sector that Turkey is taking the necessary steps for rapid progress.
The fact that the healing process is not as swift as expected proves that the implementation of sound practices does not solely depend on regulatory incentives. Therefore, real sector representatives, financial sector representatives and regulators have gathered to discuss how to reach a consensus on incentives tailored for the specific needs of the Turkish restructuring programme. As a result, an initiative, labeled the "Istanbul Approach", has developed.
The Istanbul Approach has been based, in part, on examples of similar corporate workouts previously organized in other crisis-ridden economies around the world. Like previous workout approaches, all parties involved must make sacrifices. A framework agreement is expected to be signed by all the banks and financial institutions which would set out the framework and principles of a voluntary and nationwide workout to save certain troubled companies that meet the requirements determined by such a framework agreement.
A draft code is being prepared to give the restructuring programme a legislative platform that would legally ease the restructuring and workout programme. A hotly debated issue, which is the heart of the draft code, is the nature of the asset management company to be established which would take over certain non-performing loans of the financial institutions. The government expects to receive outsourced funds, however, it does not give any sign of how it would participate in funding the asset management company, which is a very delicate issue. The draft code also provides for certain tax advantages to facilitate the restructuring programme. Regulators also intend to revise the Turkish Execution and Bankruptcy Code to protect creditors and avoid having debtors acting in bad faith benefiting from the extension of the legally available period of protection against the procedures commenced by creditors.
The draft code and other documentation are being discussed with the World Bank and the IMF representatives who are closely monitoring the Turkish banking and financial restructuring programme. Finalizing and enacting the draft documents will be discussed until a consensus is reached, tailored to the specific needs of the Turkish banking, financial and real estate sectors.
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