Asset Management Companies have taken their place in the financial market within the scope of the "Banking Sector Restructuring Program" announced by the Banking Regulation and Supervision Agency with a press release on May 15, 2001. Its current legal basis was provided for by Article 143 of the Banking Code.

The economic crisis that began at the end of 2000 and increased in severity in 2001 ended confidence in the economy, instability in the global economy has spread to the Turkish economy, and the structural problems in the banking sector have caused the crisis to turn into a banking crisis.

According to the data released by the Banking Regulation and Supervision Agency ("BRSA"), as a result of the crises during this period, 20 banks were transferred to the Savings Deposit Insurance Fund, and the cost of restructuring amounted to US $ 53.6 billion. The fact that the stated cost corresponded to about one-third of the national income at that time showed that the problem was not a simple banking problem.

The adverse conditions experienced have necessitated making a number of arrangements in order to manage financial crises, ensure that banks have a healthy structure, and restore confidence.  The deficiencies in the weak and abusable banking infrastructure have finally been addressed with constructive and appropriate regulations. In this context, the Banking Sector Restructuring Program was started to be implemented in May 2001 and the program was strengthened with three new instruments. These tools are;

  • Strengthening the capital structures of banks,
  • Making debt structuring systems operational (Istanbul Approach),
  • The establishment of asset management companies in order to ensure that banks collect their non-performing loans, and to provide liquidity to their assets.

The First Legal Regulation on Asset Management Companies

It was necessary to take steps to strengthen the capital structures of banks and solve the bad assets problem. The Law on Restructuring Debts to the Financial Sector and Amendments to Some Laws No. 4743 entered into force in order for the borrowers, who are pressed for money, to be able to fulfill their repayment obligations to the financial sector and continue to create added value. This law is also the first regulation on asset management companies. According to Item 7 of Article 3 with the heading tax exemptions and incentive documents asset management companies can be established "For the purpose of purchasing and restructuring and reselling receivables and other assets of banks, private financial institutions, and other financial institutions". The establishment of asset management companies has been promoted by introducing various exemptions and tax conveniences. It has been made possible for the Saving Deposit Insurance Fund ("SDIF") to become a partner with a 20% share of these companies.

SDIF has introduced the practice of the sale of non-performing loans (NPL sales) to asset management companies as a new method for non-performing loans (NPL) transferred and assigned to it from the fund banks as part of its resolution activities. Thus, through the sales tenders held between 2003 and 2005, the formation of a market with 6 asset management companies was achieved. Consequently, SDIF has pioneered the financial sector in using the receivable sales method, which accelerates the recovery of non-performing loans.

Asset Management companies have been supported with several exemptions.

Asset management companies designated as financial actors by Law No. 4743 were regulated in more detail by Banking Law No. 5411. Without changing the definition in Law No. 4743 substantially, it has taken its place in Article 143 with the regulation as "Asset management companies, the establishment and operation principles of which shall be determined by the Board, may be established for the purposes of purchasing, collecting, restructuring and selling the receivables and other assets of banks and other financial institutions including the Fund."

Article 143, consisting of 8 paragraphs, is drafted on the basis of asset management companies established or to be established by the private sector. The 3rd and 4th subparagraphs of the article concern asset management companies associated with SDIF. With the 3rd bent, the legal basis for SDIF to become a shareholder in asset management companies to be established by the private sector has been maintained, and with the 4th subparagraph, special regulations have been introduced for asset management companies in which SDIF is at least twenty percent shareholder.

The exemptions in subparagraph 6 have been introduced for all asset management companies established under this Law. If we pay attention, the text of the article makes no distinction between asset management companies based on their types or financial institutions transferring receivables in terms of exemptions.

The non-performing assets sold to asset management companies bear a high risk of unrealizability or unrealizability in the amount as much as it is written in the contract. It has become inevitable that the law introduced some exemptions in order to reduce the costs of transactions to be carried out for non-performing assets and to encourage asset management companies. The exemptions mentioned in subparagraph 6 should be construed in this context. The transactions carried out by asset management companies are exempted from;

  • The stamp tax to be paid in accordance with the Stamp Duty Law No. 488,
  • The fees to be paid in accordance with the Law of Fees No. 492,
  • The bank and insurance transactions tax to be paid in accordance with the Law on Expenditure Taxes No. 6802,
  • The deductions to be made to the resource utilization support fund,
  • The VAT that will arise during the sale and delivery of goods and rights in accordance with the Value Added Tax Law No. 3065,
  • The provision of Article 39 of the Law on the Protection of Competition No. 4054.

Article 143 and Exemptions were drafted taking private sector asset management companies as a basis.

The subparagraphs other than subparagraphs 3 and 4 of Article 143 of the Banking Law apply to all asset management companies without any distinction. Considering and interpreting the exemptions and asset management company regulations in Article 143 within the limits of SDIF partnership will not be in compliance with the wording and spirit of the law. In order to understand this issue better, it is necessary to refer to the approach of SDIF to the asset management company structuring and Article 143 in the Parliamentary Plan and Budget Commission;

Our proposal, as a Fund, is that there is no need for an asset management company where the Fund participates in 100 percent of its capital. Although current legislation includes it, it is not necessary; but it is useful to maintain the facilities an established asset management company, of which the Fund may be a partner, the counterparts of which has been established, has.

To Date, Not Public, but Private Financial Institutions have Carried out the Sale of Non-Performing Loans.

When examining the exemptions granted to asset management companies, it will not be useful in the assessment of the exceptions in terms of examining whether the bank transferring the receivable is a public bank or a private bank. Although asset management companies have been operating in the sector since 2002, the regulation that allows public banks to sell non-performing loan receivables was included in Article 143 in 2017. As far as it is known, to date, only one public bank carried out non-performing loan receivable sales.

Asset management companies are also needed to ensure financial stability.

Asset management companies are one of the financial instruments offered to solve the lack of financial infrastructure in Turkey in 2001 and are among the institutions operating in order to maintain financial stability. There are tasks in terms of collection of private sector banks' non-performing loan receivables, as well as ensuring the liquidity of private sector banks' assets and continuity that fall to asset management companies. It will also be gratifying for the sector to meet the demands that may come from public banks in the coming days. Considering this role of asset management companies in the financial sector, the exemptions and conveniences introduced by Article 143 of the Banking Law No. 5411 in favour of Asset Management companies will be more understandable.

References

Turkey Experience from Crisis to Stability, Banking Regulation and Supervision Agency

The Law on Restructuring Debts to the Financial Sector and Amendments to Some Laws No. 4743

Draft Banking Law, the Text Proposed by the Government

Draft Banking Law, the Report of the Planning and Budget Commission of the Grand National Assembly of Turkey, 1/1007 E. 48 K. 01.07.2005

Draft Banking Law, the Minutes of the Plan and Budget Commission of the Grand National Assembly of Turkey

Banking Law No. 5411

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