Recent Development

The Central Bank of Turkey amended the Capital Movements Circular (the "Amendment"). The Amendment introduces new exemptions to restrictions on FX borrowing and revolving loans borrowed from abroad.

What's New

  • Prior to the amendment, Turkish residents (other than banks and financial institutions) were prohibited from utilizing revolving loans from abroad. However, under certain circumstances, the utilization of revolving loans from abroad is now possible for the loans which are not required to be brought into Turkey (i.e., ECA backed loans, loans for works undertaken abroad, and ship financing). Accordingly, Turkish residents can utilize revolving loans from abroad if (i) the revolving loan is utilized to finance certain cross-border business undertaken abroad; (ii) the revolving loan is repaid through the proceeds of such cross-border business; and (iii) no funds from Turkey are transferred abroad for the repayment of such loan. The proceeds of such business cannot be considered FX income in connection with utilizing further FX loans.
  • Turkish residents will no longer need to have FX income for their financial leasing transactions (i) within the scope of an investment incentive certificate or (ii) which are conducted to finance machinery and equipment listed under customs tariff statistics positions.
  • Extensions and other flexibilities granted to a debtor which cannot or will not be able to fulfill its obligations due to financial distress will not be considered renewal of loan in respect of FX borrowing restrictions.

Conclusion

The Amendment aims to further soften the restrictions on borrowings by Turkish residents.