A General Overview of SDIF within Mandate & Power Concepts Evrim APAN CEYLAN Insurance and Risk Monitoring Department April 29, 2014 İstanbul - TURKEY

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul Presentation Outline I.General Overview II.Mandates & Powers of SDIF III.Deposit Insurance System in Turkey IV.Resolution & Recovery Process of SDIF V.Core Principles of IADI VI.Conclusion 2

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 3 I. General Overview

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul Historical Background Deposit Protection Law Reserve requirements were accepted as collateral for deposits 1960 Banking Law Liquidation Fund was established and premium collection started 1983 Decree Law SDIF was established under the representation and administration of Central Bank of The Republic of Turkey (CBRT) to insure deposits 1994 Decree Law SDIF acquired a new role: strengthening and restructuring the banks 2003 Banking Law 5020 SDIF became a separate legal entity and Risk based premium system was introduced 1999 Banking Law 4389 Representation and administration of SDIF was assigned to BRSA 2005 Banking Law 5411 SDIF gained additional roles and responsibilities

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 5 The Strategy Map of SDIF ( ) Our Vision “To be a world’s leading brand in deposit insurance and bank resolution practices” Our Vision “To be a world’s leading brand in deposit insurance and bank resolution practices” Ensure confidence and stability in financial markets To Develop Quick and Effective Resolution Strategies Institutional Development To Improve Corporate Management Systems Protect the rights and interests of depositors To Enhance Public Trust and Awareness To Improve Corporate Capacity in Deposit Insurance To Enhance Recovery Performance To Establish strong Communication and Coordination To Establish strong Communication and Coordination Effectiveness & Productivity Analytic Fairness Reliability Cooperation & Participation Transparency & Accountability Our Principles

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 6 II. Mandates & Powers of SDIF

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul From Public Policy Objectives To Mandate & Power 7 Public Policy Objectives protect the rights and interests of depositors ensure confidence and stability in financial markets Mandates insure deposits and participation funds manage banks transfered to the Fund strengthen and restructure their financial standing transfer, merge, sell or liquidate such banks execute and conclude the follow-up and collection of the receivables manage the Fund’s assets and resources Powers Deposit Insurance Power Resolution Power Power of Independency within the framework of accountability and transparency The mandates of the SDIF is consistent with its public policy objectives and the powers

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul Loss Minimizer Mandate of SDIF 8 Risk - Minimizer More than Pay-box Pay-box Reimbursing insured depositors Calculating and raising premiums Risk assessment Imposing differential (risk-adjusted) premiums Risk monitoring Role in handling bank failures Off-site examinations On-site inspection Intervention in the affairs of its member banks SDIF

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 9 Regular Phase Resolution Phase Post Resolution Phase Deposit Insurance Early Warning/ Resolution Preparation Recovery Resolution (9+3 months ) Cost efficiency Main Functions of SDIF Imposing differential risk- adjusted) premiums Calculating and raising premiums Risk monitoring Risk assessment Role in handling bank failures -Reimbursing insured depositors -Resolution of failed banks Resolution of NPAs -Sales -Rescheduling -Legal Follow Up

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul Governance of SDIF 10  SDIF operates as an autonomous legal entity.  The Fund Board is the decision making body of SDIF and is made up of seven members.  The Chairman of the Fund Board is also the President of SDIF.  SDIF operates independently in fulfillment of its mandate.  Resolutions of SDIF may not be supervised for appropriateness.  No organisation, authority or person may issue orders or instructions to influence the decisions of the Board.  The assigments of the President and the Board Members may not be terminated before tenure.

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul Legal Protection- Article 127 In Banking Act, the SDIF Board and staff is under legal protection regarding with their duties:  The investigation of offenses alleged to the SDIF Board and the SDIF staff in connection with their duties is carried out with the permission of - Minister for the Chairman and Board members, - Chairman for the staff  For the initiation of any investigation of offenses, there must be a clear and solid evidence indicating that they have acted for acquiring interests for themselves and caused damages on the SDIF and third persons as a result of their acts.  The investigations and legal proceedings initiated against the SDIF Board and staff, is followed by a lawyer assigned by the SDIF and additionally legal expenses paid by the SDIF even tough they have left office. 11

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 12 III. Deposit Insurance System in Turkey

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul Deposit Insurance Framework 13 Legal Base Article 63 of the Banking Law 5411 and the Regulation on Deposits and Participation Funds Subject to Insurance and Premiums Collected by Savings Deposits Insurance Fund ManagementAutonomous legal entity Membership Compulsory (For all banks & participation banks that accept deposits & participation funds in Turkey) Premium SystemRisk - based Premium CollectionEx-ante Type of Insured Deposit  Real Person Deposits  Participation Funds  Precious Metals Insurance limit (*) TL 100,000 (*) (Approximately USD 56,000/ EUR 42,700) Type of Credit Institutions In Turkish DIS Domestic branches of credit institutions that operates in Turkey

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul SDIF Among Other FSN Actors 14 Lender of Last Resort Public Sources of Funds Deposit Insurance & Resolution Regulation and Supervision FINANCIAL SAFETY NET FINANCIAL STABILITY Safe and Sound Banking System Confidence in Banking Industry via Protection of Depositors Confidence in Banking Industry via Protection of Depositors (CBRT) (BRSA) (Treasury) (SDIF)

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul FINANCIAL SAFETY NET Early Detection Resolution of Troubled Banks Timely Intervention 15 Framework for FSN Banking Law No: 5411 gives the responsibility and the power to:  Share database and information  Agreed upon data and info  Confidentiality terms apply  Have regular meetings  Exchange of info and views  Common policy suggestions  Systemic risk detection  Standing Committees  Coordination Committee  Financial Sector Commission  Financial Stability Committee Cooperation & Coordination Among FSN Participants

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 16 Framework for FSN Information sharing between BRSA & SDIF Database Risk Monitoring: ● Banking industry analysis ● Individual bank analysis ● Stress Tests Strategic Resolution Plan Banking Data Transfer System Data/Reports Resolution Scenario Risk-Based Premium Sys. ● Daily ● Weekly ● Monthly ● Quarterly BRSA SDIF Resolution Procedures Banks Fund Management

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 17 SDIF Resources & Use of Funds RESOURCESUTILIZATIONS  Insurance Premium  Fines  Fees From Transfer of Bank Shares  Fees from Entries to the Banking System  Other revenues Revenues from Fund Reserve  From the Treasury  Advance from the Central Bank  Advance Premium Payment From the Banks  Budget Expendituıres  Payment of Insured Deposits & Participation Funds  Resolution Activities Revenues Borrowing Recovery Reserve Management

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 18 IV. Resolution & Recovery Process of SDIF

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 19 BRSA Board Decision Transfer of the Shareholders Rights (except dividends) and Management and Control to SDIF Transfer of the Shareholders Rights (except dividends) and Management and Control to SDIF Revoke of the Banking Operating Permission and Transfer of Management and Control to SDIF Payment of Insured Deposits (from 3 to 12 months) Payment of Insured Deposits (from 3 to 12 months) Bank Liquidation (Bankruptcy) SDIF takes over Bank Shares Merger or Acquisition Sales of Bank Shares (Rehabilitation) SDIF does not take over Bank Shares Sales of Asset/Insured Deposits Sales of Asset/ Liabilities Sales of Asset/ Liabilities SDIF asks BRSA to revoke the license of the bank Assets transferred to: Bad Bank SDIF Asset Management & Recovery Process AMC NPAs transferred to the Receivership NPAs transferred to the Receivership Bank Resolution Framework Temporarily Suspend Activities Constraints/Limits :  Cost efficiency and financial safety & stability principle  9+3 months for resolution to complete  Take over bank shares for financial assistance  Upper limit for financial assistance is the amount of insured deposits

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul Recovery Framework– Article 132 &  SDIF has strengthened collection powers for the loans which has poor collectability and especially for the loans of majority shareholders of the transferred banks.  The recovery methods of SDIF:  Empowered Legal Proceedings Pursuit and collection of the loans according to Law no on Procedures for Collection of Public Receivables Pursuit of the loans according to Execution and Bankruptcy Law No  Restructuring Agreements (Protocols with the debtors &Discount Programs)  Taking over the management and supervision of the Fund banks or the companies of the majority share holders of the banks  NPAs Sales  Commercial and Economic Integrity Sales

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 21 V. Core Principles of IADI

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul Core Principles 3 & 4 22 Mandate It is critical that the mandate selected for a deposit insurer is clearly and formally specified and that there is consistency between the stated public policy objectives and the powers and responsibilities given to the deposit insurer. Power A deposit insurer should have all powers necessary to fulfil its mandate and these should be formally specified. All deposit insurers require the power to finance reimbursements, enter into contracts, set internal operating budgets and procedures, and access timely and accurate information to ensure that they can meet their obligations to depositors promptly. Consistency & Efficiency

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 23 VI. Conclusion

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 24 Conclusion Due to the framework set by Law, there has been a formal consistency between mandates and powers of SDIF. On May 6-9, 2013, a workshop was held in Istanbul for the Assessment of the Turkish DIS to the IADI Core Principles. In this workshop, it is concluded that DIS in Turkey conforms the criterias set in principle 3 (mandate) and principle 4 (power). On the other hand, there have been ongoing projects in order to improve the technical and operational infrastructure of the system, which will enable SDIF to achieve its goals in a more efficient manner.

Savings Deposit Insurance Fund (SDIF)–Turkey, April 29, İstanbul 25 Thank You for Your Attention!...