Financial Arrangements and Support Packages Introduced with the Corona Virus (Covid-19) Outbreak

Upon the corona virus outbreak, declared as a pandemic by the World Health Organization, started to appear and then, spread rapidly also in our country; a country-wide isolation process began, primarily at the personal level through individual decisions and then in the social and business life, in the private and public sectors. Significant measures are taken in company with the legal arrangements put into force simultaneously by the Presidency and the Ministry of Interior of the Republic of Turkey. [1] [2] [3] [4] It is obvious that the commercial life is directly affected negatively by the corona virus outbreak that shows its impacts effectively all over the world, by the measures taken in result of the outbreak and by the restrictions imposed consequently in relation to the social and business life.

With the foresight that the commercial life will be negatively affected by this whole process, in order to minimize the negative effects on the economic life; certain economic initiatives, particularly the Economic Stability Package, are brought and certain opportunities are created by public and private financial institutions in terms of financial support.

The period for putting overdue loans into legal proceedings account is extended:

The first official arrangement is introduced by the Banking Regulatory and Supervisory Board against the negative impacts of the corona virus outbreak in financial terms. In its resolution dated 17.03.2020 and numbered 8948 [5], the Banking Regulatory and Supervisory Board resolves that:

“- Due to the disruptions occurred in economic and commercial activities as a result of the COVID-19 outbreak spread to many countries, including our country; the 90 days’ default period, prescribed for the classification of the loans as non-performing loans under the articles 4 and 5 of the Regulation on the Principles and Procedures for Classification of Loans and Provisions to be Set Aside, shall apply as 180 days until 31.12.2020 for the loans monitored in the First and Second Group as of the date of this Board Resolution; and in spite of the 90 day’s default, the provisions to be set aside for the loans continued to be classified in the Second Group shall be continued to be set aside according to their own risk models used in calculation of the expected loan loss under the Turkish Financial Reporting Standards 9 by banks,

 - The fifth subclause of the clause (c) of the first paragraph in the article 4 of the said Regulation shall not apply until 31.12.2020”

Pursuant to the above resolution, a flexibility is provided in the payment delays occurred on the part of bank customers due to the corona virus outbreak, the 90 days’ period i.e. the period for putting overdue loans into legal proceedings accounts is extended by 180 days, to be effective until 31.12.2020. Furthermore, as regards the loans whose principal and/or interest repayment has been delayed for more than thirty days within the one-year monitoring period or which have been put through restructuring once again within this period, the requirement to classify these loans in the third group is hereby revoked.

In the arrangement, no discrimination was made among loans, and the period for putting into legal proceedings account is extended for all kinds of loan facilities made available to all bank customers whether corporate or individual. This arrangement aims to postpone, in the short term, the threat of compulsory enforcement that may be faced with by entities and persons in case their financial conditions deteriorate due to the corona virus outbreak. 

Many economic measures are set forth by the Economic Stability Shield Package:

A number of topics, stating that financial support will be provided to the real sector, are contained in the Economic Stability Shield Package announced on 18.03.2020 by the Presidency of the Republic of Turkey after the arrangement made by the BRSA. These topics are as follows:

1- As regards the firms whose cash flows deteriorate since they are affected by the measures related to the corona virus outbreak; these firms’ loan principal and interest repayments to banks will be deferred for minimum 3 months, and additional financing support will be provided to these firms when necessary.

2- Stock financing support will be provided to exporters for the purpose of maintaining the capacity utilization rates during the temporary slowdown period in exportation.

3- As regards the artisans and craftsmen who make the request declaring that their businesses are affected negatively in this period; the April, May and June principal and interest repayments pertaining to these artisans’ and craftsmen’s loan debts to Halkbank will be deferred for a period of 3 months and on an interest-free basis.

4- The Credit Guarantee Fund (CGF) limit, i.e. 25 billion Turkish Liras, will be increased to 50 billion Turkish Liras; and in loans, the priority will be given to the firms and SMEs that have liquidity needs and collateral deficits since they are affected negatively by the developments.

5- The relevant entities will be encouraged to put in place credit packages for social purposes under favorable and advantageous conditions for our citizens.

6- For the houses in the value of less than 500 thousand Turkish Liras, the credit viability, i.e. 80 percent, will be increased to 90 percent and the minimum down payment will be reduced to 10 percent.

7- It will be ensured that the annotation “force majeure” is put onto the credit registry records pertaining to the firms that have lapsed into default in April, May and June by the effect of the measures taken against the spread of the virus.

When these topics are reviewed, it is understood that the measures to prevent the real sector from being affected negatively in financial terms and the measures to mitigate the impacts will be taken.

It is decreed that the loan debt payments be deferred for a period of 3 months and that additional financing support will be provided for these debts when necessary:

First of all, for the firms whose cash flows deteriorate, it is aimed that these firms’ loan principal and interest repayments be deferred for a period of 3 months. Following this statement made by the Presidency of the Republic, the private banks and particularly public banks e.g. Halkbank, Ziraat Bank and VakıfBank, announced that the installment payments may be deferred or restructured at the request of their customers. However, we should state that each bank lays down separate conditions for this practice on its own initiative. It is necessary to receive information from the relevant bank about what these conditions are.

It is decreed that loan packages be provided as convenient for citizens, certain sectors and professions and that the amount of the loan facility to be made available be increased:

To mitigate the effects of the slowdown that will be experienced in sectoral terms, to meet easily the cash need that will emerge and in order that the real and legal persons’ cash accumulations in various fields do not reduce, in this period, certain steps are taken: e.g. deferment of the installments and besides, provision of convenient and advantageous loan packages to the firms and citizens, deferment of the artisans’ and craftsmen’s loan debts to Halkbank for 3 months, provision of stock financing support in order to mitigate the effects of the temporary slowdown in exportation, and increase of the credit viability rates in housing credits, etc. Hence, following the statements made by the Presidency of the Republic of Turkey, public and private banks have started to announce loan packages and started to receive the relevant applications.

The Credit Guarantee Fund’s total guarantee limit and the limits that may also be benefited from on beneficiary basis have been increased, and the restructuring scope of the Credit Guarantee Fund-supported loans has been broadened:

About the Credit Guarantee Fund, under the Presidential Decree numbered 2325 as published in the Official Gazette dated 30.03.2020, the Decree on “Making Amendments to the Decree Regarding the Treasury Support Provided to Credit Guarantee Institutions” has been issued. Pursuant to this Decree [6]:

-  The conditions that shall be sought within the scope of the paragraph 6 of the article 90 of the Social Insurance and General Health Insurance Law numbered 5510, the article 22/A of the Law numbered 6183 on Collection Procedure of Public Receivables and the enterprises that use credit guarantee are excluded from the Decree. Furthermore, it is stated that the condition regarding the matter that the enterprises should have no debt to tax offices and to the Social Security Institution shall not be sought until 31.12.2020. Thus, the enterprises that have tax and premium debts are also provided with the opportunity to file their applications for credit guarantee until 31.12.2020.  

-  In the Decree, the following provision is introduced: “The guarantee limit shall be determined for each beneficiary by the Ministry as maximum 100 thousand Turkish Liras for a real person beneficiary, 35 million Turkish Liras for a beneficiary within the SME definition (the previous version: 25 million Turkish Liras) and 250 million Turkish Liras for a legal person beneficiary not within the SME Definition (the previous version: 200 million Turkish Liras).”  Thus, the limit “100 thousand Turkish Liras” is prescribed for real person beneficiaries and it is decreed that the guarantee limits be increased for other beneficiaries. Pursuant to the temporary article 7 of the same Decree, until 31.12.2020, the guarantee limits are increased to 50 million Turkish Liras for SMEs and increased to 350 million Turkish Liras for the beneficiaries other than SMEs. After 31.12.2020, the limits we refer to in the first sentence of this paragraph shall apply. It is obvious that this limit increase will substantially contribute to the real and legal persons experiencing cash flow problems in the real sector.

-  The limit, prescribed by the subparagraph (b) of the paragraph 2 of the article 4 in the Decree, is increased to 500 billion Turkish Liras from 250 billion Turkish Liras. Pursuant to this arrangement, the Credit Guarantee Fund total support limit is increased to 500 billon Turkish Liras from 250 billion Turkish Liras.  Similarly, the limit of the resource that may be transferred to the Institution by the Undersecretariat is increased to 50 billion Turkish Liras from 25 billion Turkish Liras. Thus, the total amount of the guarantees provided is doubled and it is aimed to facilitate the access to the cash amounts needed by real and legal persons in this period.

- Pursuant to the arrangement made about the accrual and collection of the interest payments related to the principal repayment-free periods for the Credit Guarantee Fund-supported loans, the arrangement “It is essential to accrue and collect the interests for the grace period at the end of maximum 1-year periods” is amended as “It is essential to accrue the interests for the grace period at the end of maximum 1-year periods; however, 1 month may be added to the grace period in case of need”, and a flexibility is provided in this respect as well.

-  Therewithal, the arrangement determines the maximum maturity periods for the Credit Guarantee Fund-supported loans to be 5 years and 10 years that vary depending on the loan type and prescribes that 36 months may, at the most, be added to these periods determined as a maximum in the case that such new maturity periods are set for those loans and that those loans are structured. This arrangement is maintained, however, in addition, the following arrangement is introduced: “The creditor may execute more than one structuring, modify the loan term provided that it does not exceed 96 months in personal loans and business loans and 156 months in investment loans, starting from the opening date of the loan. In case of structuring, the grace period shall apply as 24 months at the most, within the scope of the maximum periods (maximum 1 year in personal and business loans and maximum 3 years in investment loans) defined in this paragraph. Even in case of structuring, the interests pertaining to the grace period shall be accrued at the end of the maximum 1-year period.” With this addition, it is left to the discretion of the banks to set new maturity periods and to execute more than one structuring for the loans, provided that they comply with the maximum maturity periods determined.  

As mentioned above, it is observed that the following conveniences and opportunities are provided, e.g. in the loans that will be made available as the Credit Guarantee Fund-guaranteed ones, both the Credit Guarantee Fund Guarantee Limit and the limits exclusive for the beneficiaries are increased, the possibilities for setting new maturity periods and for structuring are broadened, and the precondition regarding the matter that the enterprises should have no debt to tax offices and to the Social Security Institution shall not be sought until 31.12.2020, as determined in order to benefit from the Credit Guarantee Fund.

Despite the existence of the statement made by the Presidency of the Republic of Turkey that “It will be ensured that the annotation “force majeure” is put onto the credit registry records pertaining to the firms that have lapsed into default in April, May and June by the effect of the measures taken against the spread of the virus”, it is observed that a legal arrangement has not been made yet in this respect. However, it is understood that it is aimed for the loan borrowers to make their repayments in a timely manner through provision of cash flow support to the loan borrowers in this period, pursuant to the financial support arrangements made.

In order to ensure the continuity of productions in the food sector, legal arrangements have been made i.e. it is rendered possible to make low-interest investment and business loans available:  

Under “The Communique on the Implementation Principles in respect of Making Low-Interest Investment and Business Loans for Agricultural Productions Available by the Turkish Ziraat Bank and the Agricultural Credit Cooperatives” [7] as published in the Official Gazette dated 25.03.2020 and numbered 31079, a legal arrangement has been entered into force in order for making low-interest investment and business loan facilities available, so as to ensure the continuity of productions in the agriculture and livestock sector. Pursuant to the legal arrangement, it is understood that it is aimed to provide cash support in order to ensure the continuity of the food productions namely the most fundamental need during the corona virus outbreak period.  

Credit card interest rates and minimum payment rates for credit card debts are reduced:

With “The Communique on Making Amendments to the Communique (No.: 2016/8) on the Maximum Interest Rates Applicable in Credit Card Transactions” [8], as published in the Official Gazette dated 28.03.2020 and numbered 31082, the maximum contractual and default interest rates applicable in credit card transactions are reduced. Pursuant to the Communique:

- The monthly maximum contractual interest rate applicable in credit card transactions in Turkish Lira is regulated as 1.25 percent;

-  The monthly maximum contractual interest rate applicable in credit card transactions in foreign currency is regulated as 1.00 percent;  

- The monthly maximum default interest rate applicable in credit card transactions in Turkish Lira is regulated as 1.55 percent; and

- The monthly maximum default interest rate applicable in credit card transactions in foreign currency is regulated as 1.30 percent.

Accompanied by this legal arrangement, the following legal arrangements are made by “The Regulation on Making Amendments to the Regulation on Bank Cards and Credit Cards” [9], as published in the Official Gazette dated 28.03.2020 and numbered 31082:

- The minimum amount payable for credit cards shall not be less than the amount to be determined by the Board, and the bank may determine a minimum payment amount provided that it is not less than this amount,

- The Board is authorized to determine the minimum amount in credit cards in such an amount between twenty percent and forty percent of the period debt after receiving the opinions of the Ministry of Treasury and Finance and the Central Bank of the Republic of Turkey, and is authorized to modify the limitations contained in this article in relation to the credit card limits after receiving the opinions of  the Presidential Strategy and Budget Directorate and the Ministry of Treasury and Finance.

Thus, the Banking Regulatory and Supervisory Board is granted a limited authorization to determine credit card limits and minimum period debt for credit cards. After the grant of this authorization, under the Resolution dated 30.03.2020 and numbered 8975 as taken by the Banking Regulatory and Supervisory Board [10]:

- It is resolved that the minimum amount in credit cards is determined to be twenty percent of the period debt.

Pursuant to this arrangement, the minimum payment amount for credit cards is reduced and thus, another measure is taken to mitigate the cash shortage problems on the part of credit card holders in this period. Furthermore, under the same Resolution, the Board resolves that: 

- “Given also the current circumstances we are experiencing due to the COVID-19 outbreak, the Banks may define grace periods without claiming their receivables, including the minimum amount, against credit card holders as long as they defer the card debts until 31.12.2020,”

Thus, the Banks are granted the authorization to defer the debt payments until 31.12.2020.  However, this arrangement does not contain a conclusive necessity to be complied with by all the banks; the BRSA grants only a discretionary power to the banks in this direction.

Legal arrangements have been made for the period prior to 24.03.2020 and thus, a compensatory opportunity is provided in relation to the retrospective overdue debts and bad checks:

The arrangements we refer to and explain above represent the arrangements introduced in order to take measures against and provide support for economic difficulties that may occur in the upcoming period due to the corona virus outbreak. Besides, certain legal arrangements for the period prior to 24.03.2020 are made by “The Law dated 25.03.2020 and numbered 7226 on Making Amendments to Certain Laws” [11] as published in the Official Gazette dated 26.03.2020 and numbered 31080 (Reiterated). When these legal arrangements are reviewed;

An opportunity is provided for revision of the negative records kept at the Turkish Banks Association Risk Center about the protested bills, bad checks and the credit debts which should have been paid prior to 24.03.2020, however, whose payments are delayed:

Under the provision added as the temporary article 2 into “The Law on Omitting Records Regarding Bad Checks and Protested Bills and Credits and Credit Card Debts” by the article 48 of the Law referred to above, it is prescribed that;

-  The records kept at the Turkish Banks Association Risk Center pertaining to the real and legal persons whose principal and/or installment payments became due and payable prior to 24/3/2020 and who delayed the payments related to the principal, interest and/or accessories of the cash and non-cash loans made available and pertaining to the credit customers and real persons who are engaged or not engaged in commercial activities and have bad checks, protested bills, credit card debts and other credit debts shall not be taken into consideration by financial institutions and credit institutions in the financial transactions with these persons, in case the portions whose payments are delayed are paid or restructured until 31.12.2020.

In other words; if the delayed or unfulfilled portions of the credit debts and credit card debts whose payments have been delated prior to 24.03.2020 or of the checks and protested bills which became due and payable prior to that date are completed or restructured until 31.12.2020, these persons’ records monitored by the banks and known as “Black List” will not be adversely affected, these records shall not be taken into consideration by credit and financial institutions. In such case, the credit registry score may be revised upon refinancing or payment of the debts remaining before 24.03.2020 within the scope of the arrangements we have explained above. 

An opportunity is provided for elimination of the penalty about the convict together with all the consequences thereof, with regard to the conviction verdicts which were established or whose judicial proceedings are ongoing or which will be established after 24.03.2020 for the bad checks with a payment day prior to 24.03.2020:  

Under the provision added as the following temporary article 5 into the Check Law by the article 49 of the Law referred to above,

- A legal arrangement is introduced in relation to the execution of the penalties ordered or to be ordered in result of the judicial proceedings that have been or will be carried out about the checks bounced until 24.03.2020. Accordingly, the execution of the penalties ordered is suspended as of the effective date of the article. It is prescribed that the convict will be released and that in case, as of the date of release, the convict pays:

-  10% of the unpaid portion of the check amount within 3 months, and

-  The remaining part in 15 equal installments every two months,

The court shall order that the criminal conviction is hereby eliminated together with all the consequences thereof.

Furthermore, it is prescribed that:

-  In case 10% of the unpaid portion of the check amount is not paid within the 3 month’s term, the court shall, upon the creditor’s complaint, order that the execution of the verdict shall continue;

-  As regards payment of the 15 equal installments, if the convict does not pay one of the installments for the first time in a timely manner, this unpaid installment shall be added as one installment, to the end of the term; and if the convict does not pay one of the remaining installments, the court shall, upon the creditor’s complaint, order that the execution of the verdict shall continue.

As mentioned above, it is also acknowledged and foreseen by the State that the real sector will be affected negatively in economic terms by the administrative and legal measures taken due to the corona virus outbreak. Therefore, the Grand National Assembly of Turkey, the Presidency of the Republic of Turkey, the Ministries as well as other entities and financial institutions make arrangements and take economic steps in order to minimize the negative effects of this period in economic terms and to keep the process under control. 

It is highly likely that new arrangements will be made during the corona virus outbreak period. Furthermore, independently of the corona virus outbreak period, it is also possible to restructure the debts to the financial institutions by reaching an agreement with the creditor institutions within the context of “financial restructuring” pursuant to the temporary article 32 of the Banking Law numbered 5411. You can review our newsletter entitled “Evaluations on the Restructuring of the Debts to Financial Institutions within the context of Financial Restructuring pursuant to the Temporary Article 32 of the Banking Law Numbered 5411” containing the reviews we carry out and the information we provide in this respect.

References:

[1] https://www.icisleri.gov.tr/81-il-valiligine-koronavirus-tedbirleri-konulu-ek-genelge-gonderildi

[2] https://www.icisleri.gov.tr/koronavirus-salgini-ile-mucadele-kapsaminda-lokantalarla-ilgili-ek-genelge

[3] https://www.icisleri.gov.tr/bakanligimiz-81-il-valiligine-koronavirus-tedbirleri-konulu-ek-bir-genelge-daha-gonderdi

[4] https://www.icisleri.gov.tr/65-yas-ve-ustu-ile-kronik-rahatsizligi-olanlara-sokaga-cikma-yasagi-genelgesi

[5] https://www.bddk.org.tr/ContentBddk/dokuman/mevzuat_0949.pdf

[6] https://www.resmigazete.gov.tr/eskiler/2020/03/20200330-8.pdf

[7] https://www.resmigazete.gov.tr/eskiler/2020/03/20200325-10.htm

[8] https://www.resmigazete.gov.tr/eskiler/2020/03/20200328-14.htm

[9] https://www.resmigazete.gov.tr/eskiler/2020/03/20200328-13.htm

[10] https://www.bddk.org.tr/ContentBddk/dokuman/mevzuat_0957.pdf

[11] https://www.resmigazete.gov.tr/eskiler/2020/03/20200326M1-1.htm