BANKING LAW OF THE TURKISH REPUBLIC OF NORTHERN CYPRUS

Short Title

Interpretation

2. In this Law unless the context otherwise requires:

28/1974

“Bank” means the banks established under this Law and the Companies Law with the branches of the foreign banks opened within the boundaries of the Turkish Republic of Northern Cyprus.

28/1987

“Branch Bank” means all kinds of local organisations, excluding the banks’ units that consist of electronic transactions equipment, such as branches, agents and fixed or mobile bureaus dealing with acceptance of deposits or other banking operations,

56/1991

“Audit Organs” means the institutions and establishments to which the power of auditing is given under this Law.

42/1997

“Fund” means the Savings Deposit Insurance Fund.

“Reserved Fund” means the sum of reserved amount and all other reserves with paragraph (1) of article 18 of this Law, less, the balance sheet loss.

“Person” means natural persons or corporate bodies

“Central Bank” means the Central Bank of the Turkish Republic of Northern Cyprus.

“OECD” means the Organisation for Economic Co-operation and Development.

“Paid Up Capital” means any bank's actual paid-up capital or paid-up capital set aside for the Turkish Republic of Northern Cyprus free of any collusion less its loss disclosed in the balance sheet not met from reserves;

“Own Funds” means sum of paid-up capital and contributed capital, less, items to be deducted from capital, principles, elements and proportions of which are to be determined by the Central Bank by taking into consideration the international standards,

Aim

3.

(1)

The banks already established and the ones that will be established in the Turkish Republic of Northern Cyprus as well as the banks established in foreign countries but that will be operating by opening branches in the Turkish Republic of Northern Cyprus, are all subject to the provisions of this Law.

(2)

The provisions of the Law pertaining to the offshore banks, which have exclusively been established under their special Laws, are preserved.

(3)

For the situations not arranged in this Law , other procedural rules regarding banks and the ones already in effect, are applied.

(4)

Power And Duty

Establishment

6. (1)

The provisions for establishing a bank in the Turkish Republic of Northern Cyprus, are given as follows:

The Turkish Republic of Northern Cyprus citizen founders being natural persons;

(B)

From the purpose of the objectives of this Law, the following companies are considered as indirect participants;

(a)

The companies in which a natural person, with his/her spouse and children, participates with unlimited responsibility or acts as its Chairman, Member of the Board of Directors, General Manager or Assistant General Manager, and

(b)

The companies in which the participants, as mentioned in sub paragraph (a), participate directly or indirectly with shares over 25% (twenty five percent) of companies capital.

(C)

The founders, even though they have declared bankrupt or concordat and been forgiven, should not have been sentenced with more than six months imprisonment or sentenced because of the disgraceful offences such as misappropriation, embezzlement, corruption, bribery, theft, fraud, forgery, in breach of trust, indirect bankruptcy, and because of the smuggling offences except the smuggling of personal use and consumption, mixing up intrigues into official tenders and business, disclosing of the State secrets, tax evasion or participation to tax evasion offences, and they should not possess, either directly or indirectly, 10% (ten percent ) or more of the total shares in bankers, banks, insurance companies which have been subjected to liquidation, in the enterprises operating in money and stock markets and in the banks that have been transferred to the Fund;

(Ç)

All of the shares must be written to name and issued against cash;

(D)

However, the Central Bank is empowered to increase, if deemed necessary and appropriate the minimum amount of capital envisaged above, up to its double.

(E)

The Memorandum and Articles of Association must conform to the provisions of this Law.

(2)

One person acquiring of the shares that represent 10 % (ten percent) or more of a bank’s capital or the share acquisitions resulting in one partner holding shares in excess of 10 % (ten percent) of bank’s capital and the share transfers resulting in the drop of one partner’s shares below the ratios mentioned above, are subject to the permission of the Central Bank. The share transfers made without permission cannot be recorded in the share book. The share book recordings not made in accordance with this provision are considered to be void. In the share transfers that will be made following the permission, it is imperative that transferee corporate bodies, document which of the real person is in charge of their administration and control. In case that the capital shares, which determine the administration and control, belong to some other corporate body, this provision is enforced as far as the corporate body reaches the natural person partner or partners.

The provisions of this article are also applied in the usufruct and mortgaging of shares. The transfer of the stock shares, to which privilege and usufruct have been acknowledged, is subject to permission without looking at the above mentioned share ratios.

(3)

Provisions for Opening Branches

7. The provisions for the foreign banks intending to practice banking business through opening branches in the Turkish Republic of Northern Cyprus, are given as follows:

Foreign Banks

(1)

Their paid up capital allocated to the Turkish Republic of Northern Cyprus, must not be less than the amount mentioned in article 6 of this Law hereof; and

In The Turkish Republic Of Northern Cyprus

(2)

Undertaking banking business or accepting deposits in the countries where they have been established and operating, must not be forbidden or restricted.

In case that foreign banks are prohibited or restricted in the countries where they are located, after their establishment in the Turkish Republic of Northern Cyprus, the activities of their branches accepting deposits and conducting banking business in the Turkish Republic of Northern Cyprus, are also prohibited.

Application And Permission

Cancellation Of Permission For Bank Establishment And Opening a Branches In The Turkish Republic Of Northern Cyprus

Declarations To Be Given After Establishment Of Banks

11.

(1)

Upon the applications made through article 8 of this Law, the Central Bank, after examining whether the parties involved fulfill the requirements written in this Law or not, whether they hold the qualifications required by this Law or not, in order to start banking operations or accepting deposits, renders the banking licenses to appropriate applicants, within a maximum of 6 months period of time, as from the date of their submitting in the applications.

(2)

66/1999

Removal Of The Permission For Banking Operations And Accepting Deposits

13.

(1)

In case that any inconvenience is ascertained on a bank’s conducting banking business operations or accepting deposits as a result of the audit carried out by the Central Bank and/or independent auditing organs, the Central Bank may remove the bank’s permission regarding its conducting banking business or accepting deposits, either temporarily or permanently, either partially or completely, with the coverage of its entire organization or its branches that will be deemed necessary. The principles and procedures pertaining to canceling the permission for banking business operations and accepting deposits, are arranged through an official notification produced by the Central Bank.

(2)

14.

(1)

No natural person or corporate body, other than the banks authorised by this Law and those authorised by their special laws, shall accept deposits as a principal or side operation, nor shall they use any words or expressions in their business titles, public statements, and advertisements, that would imply that they accept deposits. However, among the ones that have been established under the Co-operative Companies law and are exclusively requesting to operate in the field of banking and finance, under this Law, to the ones that fulfill the obligations and conditions envisaged in the Banking Law of the Turkish Republic of Northern Cyprus, necessary permissions for exercising banking operations and accepting deposits are duly granted. In the implementation of this Law, the money collected by the co-operative units that have not fulfilled the obligations and conditions talked about, merely from their members as subscription and as for the purpose of providing health and social aid, provident and savings, are not regarded as deposits. These co-operative units will be allowed to provide loans to their members, not exceeding the amount they have collected. The work places which practice accepting deposits, conduct banking operations and use the word ‘bank’ without getting any permission, shall be closed down by the Court on the demand of the Central Bank.

(2)

In the implementation of this article hereof, the practice of receiving of interest or the equivalent amount under any other name whatsoever, against any equivalence, whenever been requested or on the point of returning it back, through making announcements to the public either in writing or oral form or in any other way, is considered as accepting deposit. However, the procedural provisions for organising the bond and security markets are hereby preserved. As against the money accepted, rendering ordinary stocks or negotiable instruments, receipts or certificates instead of giving deposit bankbooks, does not change the situation.

(3)

15.

(1)

Except for the ones that operate as branches, the board of directors of any bank shall have at least five members. All the conditions, except the period, as envisaged for the general manager position in article 16 of this Law, are also required for the members being one more than their half.

And Internal Audit

The board of directors are authorised to extend credits. The board of directors may delegate this authority to a credit committee or the head office in accordance with principles and procedures to be defined by the Board. Formation of a credit committee and its decision making principles shall be laid down by the Central Bank.

(3)

14/2000

18.

(1)

Banks are obliged to reserve 10% (ten percent) portion of their annual net profits for probable losses. This obligation continues until the total reserved amount becomes equal to the amount of the paid up capital.

(2)

Classification Of Deposits

19.

(1)

However, drawing cheques exclusively on demand savings deposit accounts shall not be considered as a commercial transaction.

(2)

Withdrawal of Deposits

Privileges Of The Owners Of Savings Deposits

Prescription On Deposits

22.

(1)

Upon written requests given in by depositors, banks shall send them the statement of their accounts at least once a year.

(2)

Any deposit, bailed goods or claims of any kind with banks, over the Turkish Lira equivalent of $20 (Twenty United States Dollars) in amount and value,that have not been claimed for a period of ten years or more from the date of the last withdrawal of transaction or the date of the last written instruction given by the depositor, after the depositors been informed by a letter sent to their addresses, shall be transferred, by banks, to the Central Bank, through an organized table showing their holders’ names, identifications, addresses and their due amounts reached together with their interests accrued, within six months period of time starting from the beginning of the calendar year that follows the ending of this period.

(3)

Those deposits, bailed goods or claims transferred to the Central Bank in accordance with paragraph 2 above, of which amounts and values do not exceed the Turkish Lira equivalent of $20 (Twenty United States Dollars), shall be transferred to the Savings Deposits Insurance Fund by the banks in question. The Central Bank shall announce the ones which are over the Turkish Lira equivalent of $20 (Twenty United States Dollars) in the Official Gazette. The deposits, not been claimed within one year period of time starting from the date of the announcement, shall be recorded in the Savings Deposits Insurance Fund at the end of this period as income.

(4)

Boundaries Of Risks

23.

(1)

(2)

(A)

A bank may not incur an exposure directly or indirectly, to a natural person or corporate body, in excess of 25% (Twenty five percent) of its own funds or 4 % (Four percent) of bank’s total deposits, whichever is greater.

(B)

Exposures to a natural person or corporate body, in excess of 10% (Ten percent) of bank’s own funds or 2 % (Two percent) of its total deposits, whichever is greater, shall be considered as large exposures. Total of the large exposures may not exceed tenfold of a bank’s own funds. Large exposures shall be notified to the Central Bank, in accordance with the principles and procedures laid down by this bank.

(C)

For the exposures having State bail, this ratio may not exceed 100% (hundred percent) of the total own funds.

(Ç)

(3)

(A) (a)

In the implementation of this Law, for calculating the exposure limit that can be given to a natural person or corporate body, without looking to whether any exposure has been rendered in their favor or not, related with directly given credits, those natural persons or corporate bodies that have relations mentioned here below are considered to form a risk group for the bank giving that credit.

(i)

A natural person with his/her spouse and their children,

(ii)

The ones mentioned in sub paragraph (i) or together with a corporate body or by themselves alone having control either directly or indirectly over their capital or administration or participate therein with unrestricted responsibility or those mentioned in subparagraph (i) acting as chairman, member to the board of directors or general manager of companies,

(iii)

Even if the relationships mentioned in the sub paragraph (i) or (ii) do not exist, those natural persons or corporate bodies with relations, among themselves, to the dimension of bail or, whenever any one of them falls into financial difficulty, creating the result of one or a few of them falling into financial difficulty as well,

(b)

(i)

The direct or indirect shareholders of a bank,

(ii)

Those mentioned in the subparagraph together with their companies over which they control, either directly or indirectly, separately or together, their capital or administration or in which they participate with unlimited responsibility or the natural persons mentioned in subparagraph (i) acting as chairman, member of the board of directors and general manager,

(iii)

Those natural persons or corporate bodies having relations to the dimension that will create the result of either one or a few other persons falling into difficulty because of the situations mentioned in the subparagraphs (i) or (ii) or due to a guarantee with a bank or a person’s falling into payment difficulty,

are accepted as risk group in which this bank is also included.

(B)

In calculating the maximum limit of exposure to be given to a natural person or corporate body, the complete amount of the credits that have been directly given to each one of the natural person or corporate body comprising this risk group, are regarded as indirectly given to any one of the natural person or corporate body of this risk group. The security and guarantees of the natural persons or corporate bodies of the risk group accepted by the bank against the credits used by the other real persons or corporate bodies taking place in the same risk group, are not considered in the calculations of the indirect exposure limits.

(C)

The indirect participation ratio is calculated by multiplying the participation ratios.

(4)

The following credit operations are not subject to the restrictions given in this article:

(A)

The operations of which equivalent has been blocked, as cash, in a bank;

(B)

The operations conducted in the Central Bank and in the markets related with this bank; and

(C)

However, in the calculation of limits, in case that new exposure is allocated to the same person, the exposures that had previously been rendered in foreign currencies are considered to be at the exchange rate of the date that the consecutive exposures were used.

When incurring exposures or issuing bails or guarantees, banks must obtain from the applicants their latest statement of account in accordance with procedures to be defined by the Central Bank. If the total amount of exposures incurred to and bails or guarantees issued to customers other than institutions, partnerships and banks, in which general or annexed budget agencies, state economic enterprises, and organisations included hold more than half of the capital thereof, exceed the amount determined by the Central Bank, then conformity of the statements of account and the accompanying balance-sheet and profit/loss statements to be received to generally accepted accounting principles must be verified by a professional group authorised in audit within the principles and procedures set out by the Central Bank.

(6)

Rendering Exposures To Members And Shareholders Of Banks

24.

(1)

Without prejudice to provisions of Article 23, the total of the exposures that a bank will render to natural persons and corporate bodies that are under the scope of holding 10% or above its capital and of the related indirect exposures, shall not exceed 20% (twenty percent) of the bank’s own funds.

(2)

Rendering Exposures To The Relatives Of Members Of The Board Of Directors

Participation

26. (1)

Without prejudice to provisions of Article 23, banks may acquire shares of companies, other than financial institutions which is mainly engaged in money and capital markets and insurance under an authorization and a license issued in accordance with appropriate legislation, provided that the amount of the shares so acquired in that company shall not exceed %15 (fifteen percent) of banks’ own funds. The total amount of such shares shall not exceed %60 (sixty percent) of a bank's own funds. Any shares in a company, which is less than %10 (ten percent) of that company’s capital, and shares acquired free of charge and any increase in such shares, which do not require any transfer of funds, shall not be taken into account in calculation of the foregoing limits.

(2)

27. Companies and establishments in which a bank participate can not purchase shares in the capital of that bank, or accept them as pledge, or provide advances against them.

If banks acquire commodities and real estate property by acting against the provisions of this Law and have duly been sentenced, the already acquired commodities and real estate property shall be liquidated through selling.

Balance Sheet

29.

(1)

The account period of banks is the calendar year.

And Accounts

(2)

Banks shall organize their accounts and balance sheets with profit and loss statements in Turkish Lira by ignoring the decimals.

(3)

Banks are obliged to organize and keep the records of their accounts annual balance sheets and profit and loss statements in accordance with the official explanatory note pertaining to; the single order of accounts scheme, the single type of balance sheet and profit and loss statement with their dip notes, the principles of auditing and valuing as well as the principles and procedures of their implementation and organization, which shall be laid down by the Central Bank.

(4)

30. Banks may neither leave any of their transactions unrecorded and record them in the accounts that do not conform to their true nature, nor they may close their legal and auxiliary accounting books and records before reconcile them with the accounts of their branches and correspondents at home and abroad.

Keeping The Documents

Announcement Of Annual Balance Sheet With Profit And Loss Statements In Newspapers

32.

(1)

Banks are obliged to send, their annual balance sheets and profit and loss statements, which include the signatures of the president or the deputy president of the board of directors and that have been approved by an independent auditing firm, within a month, following their approval by the general assembly, in any case, within the first four months of the consecutive year, to the Central Bank. Also, these balance sheets and profit and loss statements are to be announced in at least two of the local newspapers.

(2)

Requesting Statement, Report And Financial Tables And Determining The Ratios

Control Banks

34.

The implementation of this law together with the provisions of other Laws related to banks and control on every kind of banking transaction, determining and analyzing the relation and balance among assets, receivables, own funds, liabilities, profit and loss statements, and all other factors affecting financial structure, shall directly be carried out on behalf of the Central Bank by the Central Bank inspectors.

(2)

(3)

The qualification required for the auditing institutions that will conduct auditing with the banks independently, and with the authorization given by the Ministry in charge of financial affairs and the control of the independent audit reports, shall be determined by the Central bank through an official notification. The Central Bank and independent auditing institutions are responsible for the losses they give to the third persons because of the operations they carried out according to this Law.

Audit of the Branches and Companies of foreign Countries in the Turkish Republic of Northern Cyprus

Administrative Measures

36.

(1)

After controlling a bank and following the legal investigations of those bank members who have been found to have violated the rules of this Law and all other related laws, and who have been confirmed to have jeopardized bank's operating in a safe manner, upon the request of the Central Bank, it is compulsory to remove their power of signatures until the process of trial ends.

(2)

On the condition of legal prosecution to be taken against people being concealed, the Central Bank is empowered to cease the advances and rediscount loans, call back the opened credits, limit the interbank transactions and electronic fund transfer operations and to take similar administrative measures that it requested from them regarding the removal and avoidance of the illegalities in this Law.