Recent Development

The Central Bank of Turkey has taken long-awaited action to regulate revolving credit facilities, amending its Capital Movements Circular (first issued on January 2, 2002) to ban Turkish residents from utilizing revolving loans from entities (including banks and other financial institutions) and individuals located and operating abroad. The ban, which became effective immediately, is expected to have a negative impact on Turkish borrowers' cross-border borrowings.

Which loans are prohibited?

The new restriction, based on a May 6 Treasury decree, was incorporated into Chapter III Section 1.1.1 of the Capital Movements Circular on cash borrowings from abroad. As a consequence, Turkish residents are prohibited from utilizing revolving cash loans from banks, financial institutions, companies or individuals located and operating abroad. The Undersecretariat of Treasury has unofficially stated, however, that the ban does not apply to revolving loans utilized to finance a Turkish borrower's overseas business, provided the loan proceeds are not brought to Turkey. Based on that same unofficial statement, the prohibition on revolving facilities applies only to cash facilities but not to non-cash facilities.