On October 23, 2015, the Banking Regulation and Supervision Authority ("BRSA") issued sixteen new and amended regulations and communiqués in accordance with the Basel Committee's Regulatory Consistency Assessment Program ("RCAP") in an effort to further harmonize Turkish banking rules with Basel III criteria. This most recent package of changes introduces Basel III standards for capital adequacy calculations and risk-weighting methods along with a new set of rules for banks' risk management disclosures for financial statements. The changes are set to take effect on March 31, 2016.
Since 2013, the BRSA has been active in harmonizing Turkish banking rules with the Basel III criteria, issuing numerous regulations, communiqués and guidelines on banks' capital requirements, leverage ratios and liquidity coverage ratios. The Basel Committee's RCAP assessment is currently underway, with its report to be published in early 2016. To ensure consistency with European standards, the BRSA has modeled its changes on the European Union's RCAP report.
- To calculate capital adequacy, a 50% risk weight will be applied to required foreign exchange reserves at the Central Bank, up from 0%. This is expected to decrease Turkish banks' overall capital adequacy ratio by around 100 basis points.
- Collateral consisting of residential real estate can no longer be included in capital adequacy calculations; previously, a portion of the value of such collateral could be included.
- In financial institutions' short-term preferential risk weighting, the original maturity will be taken into account, rather than the residual maturity, increasing overall risk weights.
- Under the new Regulation on Banks Own Funds, securitization earnings and changes in banks' liabilities due to a credit rating revision will be reduced from the calculation of banks' own funds.
- Banks will be required to disclose the details of their risk-management methods, as well as the underlying data, in their financial statements. Banks will disclose this information in accordance with the standard formats set out in the Communiqué on Bank Disclosures on Risk Management in relation to (i) general risk management, (ii) the breakdown of risk exposures presented in financial statements, (iii) credit risk, (iv) counterparty credit risk, (v) securitization risk, (vi) market risk, and (vii) operational risk.
- Under the new Communiqué on Market Risk Calculations by Risk Measurement Models and Evaluation of Risk Measurement Models, comprehensive guidelines are now provided for risk calculation and stress testing methods.
- The communiqués on internal risk management model requirements for credit risk, operational risk, and securitization have been renewed, and now include more comprehensive modeling and calculation standards in line with Basel III.
The BRSA has demonstrated its commitment to a robust and resilient Turkish banking sector by adopting necessary changes to its regulations prior to the RCAP assessment. The market should expect the BRSA to introduce net stable funding ratio regulations in the near future. Banks operating in Turkey, however, will face further regulatory constraints from March 2016 onwards, particularly in capital adequacy ratios, as their foreign exchange liabilities are no longer treated as risk free.