Strict restrictions on borrowing FX loans

The downturn has created cash-strapped companies, most of which have preferred the option of borrowing FX (foreign currency) loans from their foreign shareholders. The regulator, in line with its policy of decreasing the public and private sector's short FX position, has adopted certain restrictions on FX loans.

Main restrictions on FX Loans

Turkish residents (including Turkish companies) are only entitled to borrow FX loans either from abroad or from Turkey if they generate foreign currency income in consequence of their operations. The FX loans cannot exceed foreign currency income generated within the last three financial years.

Exceptions

Turkish companies that do not generate foreign currency income can borrow FX loans without any monetary limitation if one of the following exceptions applies:

• FX loans to be borrowed by a company with an existing credit balance equal to or above USD 15m on the date of loan utilisation;
• FX loans to be borrowed by Turkish companies under the investment incentive certificates and for the financing of certain machines and tools listed in the respective customs tariff statistics schedules;
• FX loans to be borrowed by Turkish companies that have won domestic tenders announced internationally or that are under a defence industry commitment approved by the Undersecretaries for Defence Industry;
• FX loans to be borrowed by Turkish companies involved in public private partnerships;
• no foreign currency income requirement applies to FX loans granted by the direct 100 % shareholder of a Turkish company. If the sole shareholder holds less than 100 %, the general restrictions on FX loans apply.

Restrictions on FX loans were mainly introduced to allow companies to borrow FX loans only if they generate export revenues, in order to ease pressure on overall FX demand once such loans are to be repaid. In parallel, several measures have been introduced to motivate share capital increases by shareholders and several tax benefits are foreseen in respect of capitalised cash contributions.

The restrictions on FX loans are expected to gradually be lifted or softened in parallel with the stabilisation of the currency markets. It is also anticipated that the Turkish government will introduce new public incentives to attract foreign investors and decrease companies' dependence on FX loans.

"The restrictions on FX loans are expected to gradually be lifted or softened in parallel with the stabilisation of the currency markets. It is also anticipated that the Turkish government will introduce new public incentives to attract foreign investors and decrease companies' dependence on FX loans."

authors: Didem Kara and Murat Kutluğ