Current Situation Regarding Non-Performing Loans in Türkiye
Current Situation and Expectations
Türkiye’s non-performing loan (“NPL”) ratio, which is currently one of the lowest in the European region, has fluctuated over the past few years. While the NPL ratio was 3.46%, 3.41%, and 3.25% between 2017 and 2020, this ratio decreased significantly between 2020 and 2022 due to the delays in loan payment due dates caused by the Covid-19 outbreak. Although the NPL ratio increased in the post-pandemic period until 2023, it once again dropped below the European Union (“EU”) level of 2.30% in the fourth quarter of 2023 and reached its lowest point in 2023 in Türkiye. However, it is anticipated that the NPL ratio, which has been increasing since the beginning of 2024, will continue to increase to 2.50% by the end of the year. According to the Turkish Banking Sector Report of the Banking Regulation and Supervision Agency (“BRSA”) dated 2 April 2025, NPL ratio is currently 1.93%, which is below the EU average of 2.28% in the fourth quarter of 2024, based on the most recent European Bank Authority data.
Regulations Regarding NPL Sector in Türkiye
Under the Turkish Law, while the classification of bank loans and the definition of non-performing loans are regulated by the Regulation on the Procedures and Principles Regarding the Classification of Loans and the Provisions to Be Set Aside for Them (the “Regulation on the Classification of Loans”), asset management companies and the transfer of non-performing loans are regulated by the Regulation on the Establishment and Operating Principles of Asset Management Companies and Transactions on Receivables to be Acquired” (the “Regulation”), which entered into force on 14 July 2021.
According to the Regulation on the Classification of Loans, a non-performing loan is defined as any loan that is unpaid more than ninety days after the due date or the date on which it should have been paid and added to the principal; or refinancing the past due principal and/or interest by making another loan to the borrower; or exceeding the account limit for more than ninety consecutive days; or a loan where the debt is not paid more than ninety days after the account is closed.
As for asset management companies and transfer of receivables, the Regulation names credit purchasers in Türkiye as “asset management company” and estimates provisions regarding establishment requirements of asset management companies and their branches, scope of their activities, independent supervisions of such companies, transfer of receivables, the procedural requirements of such receivables for both asset management companies and source institutions, payment collection process and services of external companies for payment collection.
Establishment Process and Obtainment of Operating License
According to the Regulation, the authorized body is the BRSA from which permission is taken for the establishment of asset management companies. While asset management companies must be established as joint stock companies, their paid-in capital in cash and free from any kind of collusion must not be less than fifty million Turkish Liras. The issuance of shares by asset management companies is restricted by the Regulation with the condition that they are all registered shares and issued against cash. Note that companies with different fields of activity may apply to the BRSA and operate as asset management companies, provided that they change their fields of activity and fulfil the conditions listed in the article of establishment.
The documents that are required to be filled and presented to the BRSA are also provided in the Regulation as attachments in template form. Accordingly, after submitting the required documents to the BRSA, the BRSA may either confirm or reject the application. If the application is confirmed by the BRSA, it is required to submit the documents to the trade registry. However, even after registration and announcement in the trade registry, another application to the BRSA is required to obtain the operating license in Türkiye.
In this application, the BRSA examines the following: (i) whether the capital of the asset management company applying for an operating license has been paid up in cash, free from any form of collusion; (ii) whether it is at a level sufficient to carry out the planned activities; (iii) whether appropriate service units and risk management, internal control, accounting, data processing and reporting systems have been established; (iv) whether sufficient personnel have been assigned to these units; and (v) whether the appropriate job descriptions, powers and responsibilities of the personnel have been determined. As a result of the assessments made, the BRSA grants an operating license to those asset management companies that are deemed competent to carry out their activities.
The Regulation also sets out notification requirements in the establishment phase regarding the directors of the company. In the second application to acquire operating license, a copy of the Turkish Official Gazette of Commerce (“Gazette”), in which the articles of association are published, documents certifying that the members of the board of directors, the general manager and the deputy general managers meet the conditions in the Regulation and the addresses of the persons authorized to represent and bind the asset management company shall be sent.
Pursuant to Turkish law, joint-stock companies are normally required to appoint at least one member to the board of directors. However, according to the Regulation, asset management companies are obliged to have at least three appointed members in the board of directors who have at least seven years of experience in the mentioned fields (e.g. law, economy, or banking).
The Regulation also provides for the cancellation of the operating licenses. Accordingly, if the asset management company fails to comply with any of the conditions set forth in the Regulation, including the establishment requirements, the BRSA may give the asset management company up to three months to comply with the conditions. In fact, the BRSA has the discretion to cancel the operating licenses of those for whom the BRSA does not deem it necessary to set a deadline or, if the BRSA sets a deadline, those who do not correct their situation within the set deadline. The BRSA may also suspend the authorization of asset management companies to enter into new agreements with originators regarding the transfer of their receivables or other assets.
Branch Establishment Requirements
Pursuant to the Regulation, asset management companies are authorized to establish branch offices, both domestically and abroad. An application for opening a branch must be submitted to the BRSA. A key requirement for each domestic branch is maintaining a paid-up capital of one million Turkish Liras. Additionally, the establishment of foreign branches is permitted, provided that the specific conditions set forth in the Regulation are met.
Restricted Scope of Activities for Asset Management Companies
The fields of activity of asset management companies are stipulated as numerus clausus in the Regulation. As such, asset management companies are prohibited from engaging in activities other than those specified in the relevant article and, exclusively for the purpose of acquiring receivables and other assets of banks and other financial institutions, from establishing a credit relationship with the bank or other financial institution whose receivables or other assets they acquire.
Procedural and Disclosure Rules for Transfer of Receivables
According to the Regulation, companies supervised by the BRSA are allowed to transfer their receivables and other assets to asset management companies. However, the source institutions are prohibited from transferring their receivables other than through a tender procedure. The tender process is strictly regulated in the Regulation. Therefore, the source institutions are obliged to publish information regarding tender procedure in their website. Companies participating in the tender shall be provided with the same information and documents by the source institution. The Regulation also lists the minimum information that must be included in the information exchange. As such, within the scope of the sharing process, following information shall be shared: (i) information on the type of loan of the claim to be transferred, (ii) the identity/business name of the loan debtor and identifiers such as Turkish ID number/VKN, (iii) the principal amount of the debt, (iv) the amount of interest and costs incurred, (v) the interest rate, (vi) the date of default, (vii) the collateral status, (viii) whether it is subject to restructuring, and (ix) ongoing or completed legal proceedings.
Obligations of Source Institutions
The Regulation sets out specific obligations for the source companies during and after the transfer of receivables. The fundamental obligations of the source companies are as following:
- Before the transfer of the receivables, informing the debtor about the asset management company to which the receivable will be transferred together with the principal and accessories of the debt and keeping the relevant documents and records ready for audit;
- Notifying the information and documents to the asset management companies accurately and completely before the realization of the receivable transfer;
- Ensuring that the documents and papers underlying the receivable and, in case enforcement/bankruptcy proceedings have been initiated, the information about the proceedings and the lawsuit, if any, and the identification information and current contact information of the relevant debtor in its possession are transmitted to the asset management companies with which a transfer agreement has been established in a healthy and accurate manner;
- fulfilling all kinds of information and document requests submitted to them by asset management companies based on complaints regarding the transferred receivables by forwarding them to the requesting debtor within fifteen days from the date of receipt of the request; and
- If they are members of the Risk Centre, to make the necessary notifications to the Risk Centre and other relevant authorities regarding the transfer of the receivable to the asset management company.
Obligations of Asset Management Companies
In terms of the obligations of asset management companies, asset management companies shall send a written notice to the debtor's address before initiating the collection process. This notification may also be made electronically. In this notification, information regarding the transfer of the debt but not information about the debtor, and the contact information of the asset management company shall be included.
In the first meeting held in case the debtor contacts the relevant asset management company, the transaction that constitutes the source of the debt, the company that is a party to the debt, the principal amount and its accessories and the amount of the debt, the legal proceedings that the debtor will face in case of debt collection process by the asset management company and other amounts that the debtors are obliged to pay shall be notified in an accurate, simple and understandable manner. Following the first meeting, the same information shall be shared in written format to the debtor’s address. It should be noted that it is the asset management company’s responsibility to ensure that the debtor’s identity and the debtor's contact details are correct.
After completing the notification requirements, if there is not agreement between the parties or previously initiated enforcement proceeding, asset management company may can initiate the enforcement process. If the debt is paid by mutual agreement or directly together with the principal and its accessories, the enforcement proceedings will be terminated. However, if there is a fee that prevents the termination of the enforcement proceedings, the debtor shall be informed by the asset management company. Any payment made by the debtor will be notified to the enforcement authorities by asset management companies. The Regulation also contains provisions regarding the liability of asset management companies in the event that the debtor makes a payment to the originator company and not to the asset management company. Accordingly, if the debtor makes a payment to the source institution, the asset management company will not be liable for failure to notify the enforcement authorities. The Regulation also stipulates that in the event that the debt is fully paid, the enforcement proceedings are terminated, and the necessary notifications will be made to the Risk Centre and other relevant authorities.
It is noteworthy that asset management companies may choose to use external service providers for debt collection. However, the regulation prescribes that the responsibility under the regulations remains with the asset management companies. The Regulation further sets out that the agreement between the external service providers and the asset management companies must be concluded in accordance with the provisions of the Regulation and must be kept available for presentation to the BRSA in the event of supervision.
Conclusion
Türkiye has an established and rapidly growing NPL market, governed by robust legal frameworks that create valuable opportunities for companies. In particular, the combination of high policy interest rates and elevated inflation makes Türkiye an especially attractive market for industry players.
For more information on the NPL sector in Türkiye and the obligations of source institutions or asset management companies, and its impact on your company or business, please contact your CMS partner or local CMS expert: Dr. Döne Yalçın or Alaz Eker Ündar.
