First published on 5 October 2010
Banking Regulation and Supervisory Agency of Turkey (the "BRSA" or the "Banking Authority") has finally cleared the way for the public offering and private placement of Turkish Lira denominated bonds and bills by deposit banks through its resolution dated 30.09.2010 and numbered 3875 (the "Resolution"). The step taken by the BRSA is expected to let deposit banks secure longer maturity funding and cope with the maturity mismatch risk affecting their balance sheets.
As stated in our Legal Alert dated 25.03.2010 and numbered 10/06, Capital Markets Board of Turkey issued amendments to the legislation governing debt instruments with a view to broaden the issuer base of bank bonds which was solely limited to investment banks. Based on this initiative, Finansbank A.S, a private Turkish Bank, was the first deposit bank to make a filing for public offering of bank bonds in the local private bond market (the "Market"), but rejected by the BRSA which was then of the opinion that it was not appropriate for deposit banks to conduct any type of bond offering in the Market. Since then, the BRSA has only paved way for deposit banks' foreign exchange denominated bond offerings conducted in international markets, but has always declared that it would be possible for those banks to tap into the Market when conditions are mature enough.
The BRSA, after considering the recent developments in the Turkish bond market, has finally decided to change its perspective and ruled that deposit banks can also issue Turkish Lira denominated bills and bonds. However, the Banking Authority has envisaged certain requirements for deposit banks and investment banks intending to conduct public offering or private placement in the Market. Below are the key aspects of the new set of requirements:
- Banks seeking to issue bonds and bills must have a capital adequacy ratio of at least 12% when they make their application.
- Retail investors shall be informed that funds to be paid to the banks in return for bills and bonds are not under the insurance coverage of Saving Deposits Insurance Fund.
- Banks, before conducting the public offering/private placement, shall provide a report to the BRSA which should consider the risks arising from the issuance of bonds and bills and which should describe the procedures to be used for monitoring, measuring and controlling such risks.
- Banks, before issuing bonds and bills, shall secure that they comply with the corporate governance principles and other protective provisions stated in the Banking Law.
- Issuance of bonds and bills are subject to certain limits which shall be calculated in accordance with the principles stated in the Resolution. However, such limits are not applicable for investment banks.
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