Recent Development

The Law No. 7159 Amending the Highway Traffic Law and Certain Other Laws ("Law") was published and entered into force on December 28, 2018. The Law provides exceptions to certain restrictions relating to the lease certificate issuances under the Capital Markets Law No. 6362 ("Capital Markets Law") facilitating lease certificate issuances by participation banks (also known as Turkish Islamic banks).

What's New?

  • Pursuant to Article 61 of the Capital Markets Law, until the redemption of the lease certificates, the rights and assets in the portfolio of the asset leasing company cannot be disposed of, provided as security, attached, included into bankruptcy estate or subject to a provisional injunction decision. Furthermore, in the event that the issuer cannot fulfill its obligations arising from the lease certificates when they become due; the issuer's management or supervision is transferred to a public institution; its license is cancelled; or it goes bankrupt, the income generated from the assets in the portfolio must be used primarily for the payments to the lease certificates holders.
  • The banking legislation provides certain requirements for debt instruments in order for them to be included into the additional tier 1 and tier 2 capital calculations. The above mentioned restrictions under the Capital Markets Law were not in line with such requirements and obstructed the banks' lease certificates issuances.
  • With the amendment, participation banks' lease certificate issuances that qualify as additional tier 1 and tier 2 capital will be exempt from the obligation to use the underlying rights and assets to repay the certificate holders.

Conclusion

The restrictions under the Capital Markets Law relating lease certificates obstructed the participation banks' lease certificate issuances for additional tier 1 and tier 2 capital purposes. The amendment allows participation banks to make these lease certificates issuances, thereby likely increasing their frequency.