As is known, Turkish Lira has lost about a quarter of its value against the dollar just between August 8, 2018 and August 13, 2018.

Since then, Turkey took its boldest steps yet to try to ward off a financial crisis by making it harder for traders to bet against the battered lira and easing rules on restructuring troubled loans that have already topped $20 billion.

Obviously, Turkish Government’s top priority is to ensure the market safety and to safeguard the interests of investors. However, at the same time, Turkish Government has also taken steps in order for Turkish Lira to gain strength.

This year, amendments to the Decree No. 32 on the Protection of the Value of Turkish Currency (“Decree No. 32”) and the Communique regarding the Implementation of Decree No. 32 have been made several times.

New set of restrictions introduced with the amendments of the Decree No. 32 as follows:

  1. Turkish residents, save for Turkish real persons, may borrow foreign currency loans either from abroad or Turkey, provided that such residents shall generate foreign currency income. However, the condition regarding generation of foreign currency income will not be applicable for Turkish residents borrowing foreign currency loans either from abroad or Turkey only in the following circumstances.- Foreign currency loans to be borrowed by public entities and institutions (including but not limited with the municipalities), banks, financial leasing, factoring and financing institutions resident in Turkey;- Foreign currency loans to be borrowed by Turkish residents with balance corresponding to or above 15 million USD on the date of loan utilization; Foreign currency loans to be borrowed by Turkish residents within the scope of the investment incentive certificates and for the financing of certain machines and tools listed in the respective customs tariff statistics schedules; Foreign currency loans to be borrowed by Turkish residents who are the successful tenderers of the domestic tenders announced internationally or who are under commitment of defense industry approved by the Undersecretariat for Defense Industries;

    Foreign currency loans to be borrowed by Turkish residents who are under operating the projects to be conducted within the framework of public private partnerships;

    Foreign currency loans to be borrowed by Turkish residents who do not have foreign currency income corresponding to the last three (3) financial years, provided that such residents may authenticate their operations generating foreign currency income on exports, transit trades, sales and deliveries deemed as exports, services and activities as well as their potential foreign currency income and provided that such foreign currency credit amount shall not exceed the Turkish resident’s potential foreign currency income.

    It should be noted that Turkish real persons are prohibited from borrowing foreign currency loans, either from abroad or Turkey.

  2. Banks, financial leasing, factoring and financing institutions resident in Turkey may borrow loans from abroad and lend loans to each other, either directly or through participation to an international syndication, without any maturity limitation.
  3. Banks, financial leasing, factoring and financing institutions resident in Turkey may lend foreign currency or Turkish Lira loans to persons residing abroad.
  4. Financial leasing institutions resident in Turkey may execute their financial lease transactions with legal entities resident in Turkey or residents on abroad, in foreign currency. However, the financial lease amounts in foreign currency will be included within credit balance calculation.
  5. Along with the said amendments, a new paragraph is also added to the Article 4 (regarding foreign exchange) of Decree No.32 and it is stated that for residents in Turkey, in terms of the agreements listed below, contract prices and other payment obligations arising from these contracts cannot be agreed upon in foreign currency or indexed to foreign currency.

    Sale and purchase agreements related to both movable properties and real estate;

    all kinds of rental agreements related to both movable properties and real estate including vehicle rent and financial leasing;

    employment agreements;

    independent contractor agreements; and

    service agreements.

    The scope of the aforesaid restriction is only limited to the agreements executed between residents in Turkey; thus agreements executed by residents in Turkey with non-

    resident persons will not be affected by the Amendment. In addition, restrictions will not be implemented in situations to be determined by the Ministry.

  6. Provisional Clause 8 is also added to the Decree No.32 indicating that contract prices in foreign currency of the said agreements indicated item V above that are entered into before the execution date of the amendment which is September 13, 2018 and still in force, shall be re-determined by the related parties in 30 days as Turkish Lira. In this context, the agreements signed before this Amendment must be revised to be in line with the Amendment within 30 days from the date of enforcement (September 13,2018) of the Amendment, which is until October 13, 2018. According to the draft of a new amendment on the Decree No. 32, in the event that the parties to aforementioned agreements cannot reach a conclusion, the draft law will convert the chosen currencies of such agreements to Turkish Lira based on their execution dates. Accordingly, if such an agreement has been dated before January 2, 2018, the exchange rate of January 2, 2018 will be determined as the exchange rate.; if the agreement has been dated after January 2, 2018, the exchange rate of its execution date will be the determined exchange rate.
  7. Any and all transactions in Turkey based on the foreign currencies should be reviewed in accordance with the Decree No. 32 as well as the communiqués issued for the implementation of the Decree No. 32.

    Yours Sincerely,

    Atty. Erman M. YURDAKUL

    Managing Partner

    Yurdakul International Legal Consultancy