COVID-19: Asset Ratio Calculation Clarified

Recent Development

On April 18, 2020, the Banking Regulatory and Supervisory Authority (the ” BRSA ”) issued its decision no. 9000 (the ‘ ‘Former Decision ”) on asset ratios, which we explained in our client alert dated April 21, 2020 . In addition to the foregoing decision, the BRSA published its decision no. 9003 on April 30, 2020, which further clarified the calculation of asset ratio (“ AR “) (the “ Decision “).

What’s New?

• Turkish banks are required to calculate their AR weekly by utilizing the following formula:

Asset Ratio (AR) = [Loans + (Securities x 0.75) + (Central Bank Swaps x 0.5)] / [TRY Deposit + (FX Deposit x 1.25)]

• Pursuant to the Decision, AR will be calculated on a stand-alone/solo basis, and development and investment banks and banks under the control of the Savings Deposit Insurance Fund of Turkey will not be required to calculate their AR.
• Banks whose total TRY deposits and FX deposits (except for bank deposits) are below TRY 5 billion as of March 31, 2020 according to the data they reported to the BRSA must ensure compliance with the Former Decision by December 31, 2020 .
• The Central Bank of Republic of Turkey’s (the “ CBRT “) exchange buying rate as at the date of the AR calculation will be applicable for the conversion of all FX items in the numerator and denominator of the AR formula into TRY.
• The AR formula items cannot include rediscount or accrual balances related thereto.
• The “TRY Deposit” and “FX Deposit” in the denominator of the AR formula will not include funds deposited by domestic and/or foreign banks.
• FX borrowings from headquarters or branches abroad will not be included in the AR calculation.
• The mandatory reserves held with the CBRT and liquidity voluntarily held in banks’ cash balance regarding clients’ cash needs cannot be deducted from the denominator items of the AR formula and cannot be added to the numerator items thereof.
• Loans secured with cash pledges and deposits pledged as collateral will be included in calculation of the numerator and denominator items of the AR formula.
• “Loans” item in the numerator of the AR calculation cannot include:
  • non-performing loans;
  • non-cash loans;
  • loans extended to banks;
  • loans extending to factoring and financing companies subject to the Law No. 6361; and
  • loans extended to non-Turkish residents.
• Pursuant to the Decision, “Loans” item includes loans extended to financial leasing companies and financial leasing receivables of participation banks.
• Receivables from domestic and/or foreign banks and reverse repo transactions will not be included in the numerator item of the AR formula.
• “Securities” item in the numerator of the AR formula cannot include:
  • shares, regardless if domestic or foreign;
  • investment fund interests;
  • securities issued by banks; and
  • securities issued by factoring and financing companies.
• “Securities” item includes securities issued by financial leasing companies and lease certificates ( sukuk ) issued by private sector companies.
• In calculating a “Securities” item, the balance sheet value of the assets under this item will be taken into account.
• “Central Bank Swaps” item in the numerator of the AR formula includes:
  • swap transactions conducted with the CBRT in which banks provide gold and receive TRY;
  • FX swap transactions in the Borsa Istanbul’s FX swap market in which banks provide FX and receive TRY, and the counterparty is the CBRT; and
  • gold and FX deposit transactions conducted with the CBRT.
• “Central Bank Swaps” item does not include swap transactions conducted with the CBRT in which banks provide gold and receive FX.
• In calculating the “Central Bank Swaps” item, swap transactions will be taken into account not as of the transaction date, but as of the maturity date.
• Money market transactions other than gold and FX deposit transactions conducted with the CBRT will not be included in the numerator item of the AR formula.

Conclusion

Upon queries from Turkish banks, the BRSA clarified the AR formula items. The banks are now obliged to calculate their AR on periodic basis. The introduction the AR aims to accelerate the injection of financing sources into the real sector in order to minimize the economic effects of the COVID-19 outbreak.

Please stay up to date with further developments through the Esin Attorney Partnership Coronavirus Helpdesk .