It is possible for a foreign bank headquartered abroad ("Foreign Bank") to operate in Türkiye by way of opening a branch or a representative office. In Turkish Law, this issue is regulated within the framework of Banking Law No. 5411 ("Law") and within the scope of secondary legislation specifically, Communiqué on the Regulation on Banks' Transactions Subject to Permission and Indirect Shareholding and the Procedures and Principles Regarding the Activities of Representative Offices Opened in Türkiye ("Communiqué"), published by the Banking Regulation and Supervision Agency ("BRSA").
I. Process of Opening a Representative Office in Türkiye for a Foreign Bank
According to Article 6 of the Law, a Foreign Bank may open a "representative office" in Türkiye with the permission of the Banking Regulation and Supervision Board ("Board"). Representative office refers to the "liaison office" in Türkiye where at least 1 (one) representative manages and administers the operations of Foreign Bank. Besides, Foreign Bank should meet certain requirements before it can open a representative office in Türkiye such as being operating for at least 3 (three) years, having a strong financial situation as specified in the legislation, and having no restrictions or prohibitions regarding its main activities in the country of its headquarters.
Foreign Bank should apply to the BRSA with the required documents specified under the relevant legislation in order to open a representative office in Türkiye. BRSA'S consent will be notified to the relevant recipient within 3 (three) months as of the day the application is submitted, or, if the application is incomplete, within 3 (three) months from the date the requisite information and documents are completed. The application becomes invalid if any missing or incomplete issues or topics that BRSA notified the Foreign Bank have not been resolved or completed within 6 (six) months of the notification.
Representative offices may operate in limited scope determined by the Board. Accordingly, representative offices may promote the Foreign Bank and its services, act with the aim of strengthening relations with credit institutions or financial institutions established in Türkiye, and report the information collected through market research to their headquarters. Representative offices cannot engage in any activity that generates income or expenses other than mandatory expenses and donations. In addition, representative offices cannot accept deposits or participation funds, provide loans, engage in other banking and capital market activities specified in Article 4 (four) of the Law or act as an intermediary in any of the aforementioned activities.
On the other hand, representative offices cannot be authorised to allocate credit, borrowings or similar actions on behalf of the Foreign Bank to which they are affiliated or another bank or financial institution and access cannot be provided to the information technology systems of the Foreign Bank or any other bank or financial institution's information technology systems in a manner that would allow them to enter data or record things that could be deemed as prohibited activities, for all personnel working in representative offices, including representatives.
If the Foreign Bank fails to notify the BRSA within 6 (six) months following the issuance of the permission to open a representative Office, if BRSA determines that Foreign Bank engages in prohibited activities or if the Foreign Bank fails to submit the documents requested by BRSA within the required time period, or if bankruptcy or liquidation is declared by Foreign Bank in the country of its headquarters, the permission to operate the representative office will be revoked by the Board.
The representative office has certain notification obligations towards BRSA. Accordingly, the address, telephone and fax numbers of the representative office should be notified to BRSA within 15 (fifteen) business days following the date it is opened. In the event of any changes in the information provided to BRSA by the Foreign Bank with the permission to open a representative office in Türkiye, or any significant changes in the ownership structure or if there is a transfer of another bank to Foreign Bank, any changes in its title or closure of the representative office, Foreign Bank is obliged to notify BRSA.
II. Process of Opening a Branch in Türkiye for a Foreign Bank
The principles regarding the establishment of branches by Foreign Banks in Türkiye are the same as those for establishing a bank in Türkiye, and these establishment requirements are regulated in the Law. In order for a Foreign Bank to open a branch in Türkiye, it should first obtain an establishment permission from the Board by meeting the requirements specified under the Law followed by an operating permission from the Board. Foreign Bank should meet the requirements listed in the Law to obtain a branch establishment permission, such as: there should be no prohibition on its main activities in the country of its headquarters, the competent supervisory authority in the country of its headquarters should not have a negative opinion regarding its operations in Türkiye, the portion of the paid-in capital allocated to Türkiye should not be less than the rate specified in the Law, the partnership structure of the group that includes the Foreign Bank should be transparent and clear. Once the Foreign Bank satisfies these requirements, it should apply for an opening permission with supporting documentation to the BRSA.
After obtaining the branch establishment permission and completing the establishment procedures, it is also mandatory to obtain an operating permission from the Board in order to start operating as a branch of the Foreign Bank. The application for an operating permission should be made no later than the end of the 9th (ninth) month, starting from the date on which the Board decision regarding the establishment permission is published in the Official Gazette. The applications which are deemed appropriate following the evaluation made by the Board are granted an operating permission within 3 (three) months at the latest from the date of the first operating permission application. The permission to be granted upon application covers all activities specified in Article 4 (four) of the Law unless otherwise decided by the Board, within the framework of the limitations foreseen for deposit banks, participation banks and development and investment banks. If the operating permission granted by the Board is limited to certain areas of activity, the reason for this limitation is notified in writing to the applicant Foreign Bank. The establishment and operating permission given to the Foreign Bank branch become effective as of the day they are published in the Official Gazette.
The Board grants the operating permission after evaluating the following issues regarding the Foreign Bank: whether the capital is paid in cash and free from all kinds of collusion, whether it is at a level to carry out the activities defined in Article 4 (four) of the Law, whether there is technical equipment and sufficient personnel, whether the managerial level personnel meet the conditions required in the corporate governance provisions in Article 3 (three) of the Law, whether the necessary arrangements have been made to ensure that its activities comply with corporate governance principles.
BRSA gives a term of not more than 6 (six) months to those who fail to meet the requirements outlined in the Law and the regulations to make the necessary changes and complete the shortcomings. During the period in question, the opening permission granted to those who have been found to be unsuitable as a result of the re-application review will be invalid, and such result will be notified in writing.
The operating licenses of Foreign Bank's branch in Türkiye are also revoked by the Board if Foreign Bank's operation license is revoked, its activities ceased, or there is bankruptcy or liquidation decision, or declaration of composition in the country of its headquarters.
III. Differences Between Opening a Branch or Representative Office in Türkiye for Foreign Banks
Foreign Banks may conduct activities in Türkiye by establishing representative offices or branches. The opening of a representative office or branch in Türkiye by a Foreign Bank is subject to the approval of the Board, and the processes of both legal structures are different from each other. The establishment and operating process of representative offices is regulated within the framework of the Law and secondary legislation, while the process for obtaining permission for the establishment and operation of branches is regulated in the Law and is equivalent to the requirements for establishing a bank in Türkiye. When evaluated in terms of establishment and commencement conditions, the process of establishing and commencing operations for branches is subject to more stringent conditions compared to the process for representative offices, yet a Foreign Bank's branch in Türkiye has a broader scope of activities compared to representative offices.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
