Recent development

As a result of Turkey's continuing efforts to harmonize its banking rules with the Basel III criteria, Turkey fully met all assessment fields under the Basel Committee’s Regulatory Consistency Assessment Program's (“RCAP”) March 2016 Turkey reports. This is the outcome of the extensive rulemaking efforts of the Banking Regulation and Supervision Authority (the "BRSA"), which has introduced sweeping changes since 2013 to ensure Turkish banking laws' compliance with Basel III.

Background

Since 2013, the BRSA has systematically harmonized Turkish banking rules with the Basel III criteria, issuing numerous regulations, communiqués and guidelines on banks’ capital requirements, leverage ratios and liquidity rules. To this end, the BRSA introduced liquidity coverage ratios on March 2014, which were later amended in August 2015  and January 2016. In October 2015, the BRSA made significant further amendments, followed by further fine tuning in January and February 2016.

What the RCAP report says

The RCAP reports found that Turkish banking rules fully comply with the Basel III criteria, with the highest possible grade of "C" - the abbreviation for "compliant." There are two separate RCAP reports: (i) the assessment of risk-based capital regulations, and (ii) the assessment of Basel III liquidity coverage ratio regulations.

Topics assessed in the reports:

  • Key components of the Basel capital framework: Overall compliance, scope of application and transitional arrangements.  
  • Pillar 1 (Minimum Capital Requirements): credit risk, market risk and operational risk from both a standardized and internal ratings-based approach, as well as securitization framework, conservation and countercyclical capital buffers.  
  • Pillar 2 (Supervisory Review Process): legal and regulatory framework for the supervisory review process and taking supervisory actions.  
  • Pillar 3 (Market Discipline): banks' disclosure requirements.  
  • Key components of the Basel III liquidity coverage ratio framework: definition of high-quality liquid assets, net outflows and inflows as well as liquidity coverage ratio disclosure requirements.

Conclusion

Turkey's regulatory overhaul has been tested and approved by the Basel III RCAP reports, underlining Turkey's aim to build and sustain a more resilient and robust banking system. The RCAP report states that "the Turkish rules go beyond the minimum Basel standards … these elements provide for a more rigorous implementation of the Basel framework in some aspects," such as capital requirements, standardized credit risk measurement methods and disclosure requirements. Turkey has shown its commitment to Basel III as it promotes a level playing field among member countries, reduces regulatory arbitrage and encourages global financial stability.