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Turkey’s Banking System: Regulatory Framework and Key Requirements

ANKARA, Turkey - The Turkish banking system is subject to a robust regulatory framework that ensures the stability and soundness of banks operating in the country. In this article, we will explore the key requirements and regulations that govern the banking industry in Turkey.

Capital Increase and Funding

According to Article 17 of the Bank Law (BankL.), capital increases must be paid in cash, free from all kinds of collusion, without resorting to internal resources (except for the resources permitted by the relevant legislation). This means that banks must rely on external sources of funding to increase their capital base.

Regulatory Capital and Liquidity

In Turkey, banks are typically funded through a variety of channels. Deposit banks, which provide credit support to individuals and institutions, collect deposits as their primary source of funds. Development and investment banks, on the other hand, raise funds from the capital market. Participation banks operate under interest-free banking principles, generating profits for customers by purchasing goods in advance.

  • Banks are required to maintain a minimum regulatory capital adequacy ratio of 10.5%, which is calculated based on their risk-weighted assets.
  • They must also maintain liquidity ratios and cash reserves to ensure they can meet their short-term obligations.

Disclosure Requirements

Turkish banks are subject to strict disclosure requirements, including:

  • Submission of year-end financial reports and interim period financial reports to the Banking Regulation and Supervision Agency (BRSA) and the Associations of Institutions.
  • Auditing by an independent auditor and publishing on the bank’s website for at least five years.
  • Submission of monthly financial statements and other additional information to the BRSA within 30 days of the end of each month.

Corporate Governance

Turkish banks must comply with corporate governance principles and structures as determined by the BRSA. The Regulation on Corporate Governance Principles of Banks sets out specific requirements for the organizational structure of banks, including:

  • Establishment of a Board, audit committee, credit committee, remuneration committee, and compliance officer and unit.

Risk Management

Banks are required to establish internal systems and processes for managing risk, including:

  • Credit risk
  • Market risk
  • Operational risk
  • Liquidity risk

They must also conduct regular stress tests and scenario analyses to ensure they can withstand adverse economic conditions.

Conclusion

Turkey’s banking system is subject to a robust regulatory framework that ensures the stability and soundness of banks operating in the country. Banks must comply with strict capital adequacy requirements, maintain liquidity ratios, disclose financial information regularly, and adhere to corporate governance principles and risk management practices.