It covers payment methods and information on, banking systems, foreign exchange controls, and U.S. and correspondent banking.
Methods of Payment
Traditionally, Turkish corporations have satisfied most of their financing requirements through the banking industry. Corporate/banking relationships are easy to establish. However, given the continuing gap between Turkey’s extensive needs and its limited internal resources, external financing for public and private project investment will likely remain necessary in the coming years. Exporters are advised to provide financing for their exports. In addition to short- and medium-term credits available from commercial banks in local and foreign currencies, lower-cost Turkish Lira (TL) credits are also available from the Export Credit Bank of Turkey.
Letters of Credit (LCs) are traditional import instruments for private-sector transactions. LCs should be irrevocable and confirmed by a prime U.S. bank. As Turkish importers develop long-term contacts and prove their creditworthiness, suppliers may be willing to accept documents against payment (d/p) or documents against acceptance (d/a). Deferred payment schedules are not common, except in cases of large transactions where supplier financing plays a role.
Turkish banks continue to see some tightening in their access to international credit, though the major banks borrow internationally. Suppliers should consider unconventional project financing packages (e.g., forfeiting, factoring and utilization of third-country export credits) when bidding on major government infrastructure projects. Exporters should be flexible and try to accommodate the needs of their customers by building any additional associated costs into the offer price.
Firms bidding on Government of Turkey contracts should pay careful attention to the way proposals are prepared and should follow closely the administrative specifications. Financing costs and foreign exchange rate risks, where applicable, should be factored into the bid price. Bids that do not comply with administrative specifications, which include financial criteria, are generally rejected. The validity of a proposal is required to be written in the tender notice. Government tenders often involve bid and performance bonds. Bid bonds cannot be lower than 3% of the value of the tender, while performance bonds are usually equivalent to 6% of the contract value. Bid bonds are not mandatory for consultation services, if it is mentioned in the tender document. Bid bonds are not mandatory for direct supplies. The government only calls these bonds in cases of substantial non-performance. All bonds must be counter-guaranteed by a Turkish national bank.
The contracting authorities may insert some provisions to the tender documents; regarding procurement of services and works, a price advantage would apply to domestic tenderers up to 15%, and in procurement of goods, a price advantage up to 15%, would apply to domestic tenderers who offer products which are accepted as domestic products by the authority.
Several leasing companies operate in Turkey, most of them owned by Turkish banks. They finance purchases of expensive capital goods such as aircraft, auto fleets, construction equipment and other special equipment. Turkish financial leasing in capital expenditures still only accounts for a fraction of capital expenditures in developed countries. The terms of leasing are usually four years, with a balloon payment at the end. Turkish leasing companies are eager to work with U.S. counterparts.
There are 56 Turkish factoring companies (usually spin-offs of banks) and 20 of them are members of the Factors Chain International (FCI) in the Netherlands. Like leasing companies, factoring and forfeiting companies generally suffer from funding difficulties. All U.S. banks active in Turkey deal with at least one of the major leasing and factoring companies.
For more information about the methods of payment and other trade finance options, see the Trade Finance Guide.
The banking sector plays less of a financial intermediary role than one would expect in an economy of Turkey’s size and sophistication. The three state-owned commercial banks plus the nine largest private banks account for 90% of total bank assets. Turkish banks engage in core banking services, securities brokering and other businesses. For a listing of banks licensed in Turkey please visit here.
The Borsa Istanbul (BIST) is the sole exchange entity of Turkey combining the former Istanbul Stock Exchange (ISE), the Istanbul Gold Exchange and the Derivatives Exchange of Turkey under one umbrella. The Capital Markets Board of Turkey, based in Ankara, is responsible for overseeing the activities of capital markets. The Banking Regulation and Supervision Agency (BDDK) and the Central Bank of the Republic of Turkey are responsible for the integrity of the banking system.
BDDK, primarily, supervises bank activities to ensure, among other aspects, that they meet liquidity requirements and enforces banking laws. BDDK is also authorized to give permits to establish and operate a bank in Turkey as well as determine disposition of insolvent banks.
While the Central Bank is primarily responsible for steering the monetary and exchange rate policies in Turkey. the Ministry of Treasury and Finance is responsible for the management of the state treasury.
Foreign Exchange Controls
There is no limit on the amount of foreign currency that may be brought into Turkey, but not more than 25,000 Turkish lira or €10,000 worth of foreign currency may be taken out without declaration. Although the Turkish Lira (TL) is fully convertible, most international transactions are denominated in U.S. dollars or euros due to their universal acceptance. Banks deal in foreign exchange and do borrow and lend in foreign currencies. While for the most part, foreign exchange is freely traded and widely available, a May 2019 government decree imposed a settlement delay for FX purchases by individuals of more than $100,000. The bank and insurance transaction tax rate on individual foreign exchange purchases, including gold, was raised to 1% from 0.2% in May 2020. Turkey cut the ceiling for FX swaps, forward and option transactions that local banks can conduct with foreign entities from 10% to 0.5% of the lender’s equity. In practice, the measure constrains Turkish banks’ ability to conduct operations in FX and lend TRY overseas to foreign entities. Turkey also cut the limit on TRY-denominated sell-side FX swaps, forwards and other derivatives with non-residents with a seven-day maturity to 1% of banks’ equity; the new limit for these instruments with a 30-day maturity was set to 2%. Under these new rules, the volumes of TRY-denominated swaps that Turkish banks can transact overseas would decrease. Foreign investors are free to convert and repatriate their Turkish Lira profits.
US Banks and Local Correspondent Banks
U.S. and U.S.-affiliated investment and commercial banks present in Turkey include Citibank, Merrill Lynch Investment Bank, JP Morgan Chase, and the Bank of New York Mellon.
Some local correspondent banks include state-owned commercial banks such as Ziraat Bank and Vakif Bank as well as private banks such as Turkish Economy Bank, Akbank, Is Bank and Yapi Kredi Bank.