Recent development

An amendment to the "Regulation on Measuring and Evaluating Banks' Capital Adequacy," effective March 18, 2015, has increased the risk-weighting of Turkish banks' consumer credit receivables.

The regulation lays out procedures and principles intended to ensure that Turkish banks have adequate equity, both on a consolidated and non‑consolidated basis. The amendment introduces two material changes: receivables arising from consumer loans with a remaining maturity from one to two years must be classified in the 150% risk-weight category, and those with a remaining maturity over two years must be classified in the 200% risk-weight category. Exceptions to both changes include (i) mortgages; (ii) loans extended to pensioners with a maturity not longer than the period during which their pension salaries are paid through the bank concerned under a protocol between the bank and the Social Security Institution; and (iii) loans extended through use of credit cards for the purchase of goods and services.

Conclusion

Turkish banks will need to recalculate total risk-weighted receivables considering the sectors affected by the amendment to the regulation, and evaluate the impact on their capital adequacy ratios.