Head-Module Title: Participation Bank in Turkey
Provisions Regarding Loans
Participation banks are subject to strict provisions of the Banking Act regarding loan and loan limitations. At the end of the detailed definition of “loan” in the 48th article, in the second paragraph, fund utilization styles peculiar to participation banks are mentioned to be seen as loan in the implementation of the Act:
(…) funding obtained by participation banks through payments of prices of movable and immovable possessions and services, or through methods such as profit and loss partnership investments; supply of immovable, equipment or commodity; or financial rent; funding of documents against payment, joint investments and so on are accepted as loan (…)
Loan Limitations. The quality of loans in the assets of the banks is very significant in terms of building banking system on a sound basis and operating with sound balance sheets. The motive behind the Banking Act and regulations made by BRSA is the prevention of these bank owners utilize collected funds in too risky operation fields or in their own group companies with disregard of objective evaluation. In order to achieve this goal, the Banking Act puts some limitations on the distribution of loans and proposes severe penal sanctions in case of violation. These limitations are valid also for participation banks. These are shown below in general terms.
Total loans utilized by a natural entity or a legal entity or by a risk group cannot exceed 25 % of equities. (There are some exceptional cases in which different rates are implicated.)…
Loans given to an ordinary partnership are assumed to be given to partners proportional to their responsibilities.
Loans utilized by all partners registered in the stock register holding 1 % or more of the bansk’s capital and entities consisting risk group with them cannot exceed 50 % of equities.
Loans utilized by partnerships controlled jointly are assumed to be utilized by the risk group which includes every shareholder controlling the partnership jointly proportional to the rate of its share within the partnership capital to the total share controlled jointly.
Loans utilized by a natural entity or a legal entity or by a risk group and equaling or exceeding 10 % of equities are assumed to be “great loan”. Total great loans cannot exceed 8-multiple of the equities. (…) When elements of the same risk group risk is included in the assurance of a risk group’s loans, topics such as how calculations will be made and how assurance elements with guarantee of country’s central government are mentioned in the Act. (Banking Act no. 5411, article 54)
Operations without Loan Limitations. Furthermore, the 55th article mentions operations which are outside of loan limitations. Ones of these which are thought to be related to participation banks are listed below. BRSA can made additions to these operation types.
a) Operations paid in cash, values and accounts similar to cash, and precious metals.
……
d) In case of allocation of a new loan to the same entity or same risk group, with the condition of that loans given before in foreign currency or in unit of foreign currency are considered in current exchange rate as of the date when the following loan begins to be utilized, with the exception of use of check book or credit card, increases of loans stemming from change of exchange rate, and interest, profit share and other elements settled to overdue loans.
e) Partnership shares obtained free because of every kind of capital increases and value increases of partnership shares which does not require any fund going out.
f) Operations between banks according to the principles determined by the Council.
g) Partnership shares obtained in scope of undertaking of mediating public offer.
h) Operations considered as discount value in the account of equity.
