Financial Crime World

Turkish Banks Face Damages from Mismanaged Funds

A recent report has revealed that some Turkish banks have been making their funds available to third parties in a manner that causes the bank to incur damages. This practice, which is illegal under Turkish law, has led to significant financial losses for several institutions.

Banking Regulation and Supervision Agency (BRSA)

According to the BRSA, there are strict regulations in place to prevent such practices from occurring. The agency can revoke or restrict banking activities if a bank:

  • Has received its operating permission based on false information
  • Has failed to start operations within six months of receiving its permit
  • Has not taken measures requested by the agency
  • Whose continued operation poses a risk to depositors and the financial system

The BRSA may also revoke licenses if a bank’s assets are less than its liabilities, or if there is evidence of fraud among the bank’s dominant partners or managers.

Client Asset Protection

In Turkey, client assets and cash deposits are protected by the Savings Deposit Insurance Fund (SDIF). The fund insures:

  • Savings deposits
  • Participation funds belonging to individuals and small businesses
  • Providing a safety net for these types of accounts

Digital Banking Development

Turkey has been rapidly developing its digital banking sector, with the introduction of new regulations and technologies aimed at enhancing financial inclusion and competition. Some key developments include:

  • The Central Bank of the Republic of Turkey (CBRT) plans to issue its own cryptocurrency by the end of 2023
  • Fintech firms and non-traditional market participants are bringing new levels of competition to the market

Threats to Financial Sector Success

Despite these developments, Turkish banks continue to face significant challenges. The sector is operating in an uncertain environment due to:

  • The ongoing COVID-19 pandemic
  • Frequent changes to regulatory requirements
  • Currency fluctuations affecting the Turkish Lira

In response, banks have been using financial restructuring instruments to reduce non-performing loans and improve risk management. The CBRT has also taken steps to stabilize prices and provide financial stability in banking, while the BRSA has implemented measures such as:

  • Delaying debt collection from distressed debtors
  • Providing support for struggling banks

Conclusion

While there are still challenges ahead, Turkish banks remain well-capitalized and liquid, with strong levels of capital adequacy and liquidity. As the sector continues to evolve, it is likely that these institutions will remain resilient in the face of economic and regulatory uncertainties.