1. 5th IADI EARC Online Training and Seminar «Role of the SDIF in Bank Liquidation -TURKEY Case» Savings Deposit Insurance Fund (SDIF) – TURKEY Hanifi DARICI (Lawyer) September 15, 2014

2. Presentation Outline I.Resolution & Liquidation Process in Turkey II.Role of SDIF in Bankruptcy Liquidation III.Role of SDIF in Voluntary Liquidation 2 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

3. I.Resolution & Liquidation Process in Turkey 3 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

4. Financial Safety Net in Turkey Lender of Last Resort Public Sources of Funds Deposit Insurance & Resolution Regulation and Supervision FINANCIAL SAFETY NET (CBRT) (BRSA) (Treasury) (SDIF) 4 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

5. Resolution Framework in Turkey BRSA Board Decides Revocation of operating license and transferring management and control of the bank to the SDIF Transferring shareholder rights (except dividends) and management and control of the bank to the SDIF without revoking operating license Payment of insured deposits Bankruptcy Liquidation Special Voluntary Liquidation or Resolution by taking over bank shares Resolution without taking over bank shares BRSA has two options about failed banks 5 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

6. Transferring shareholder rights (except dividends) and management and control of the bank to the SDIF without revoking operating license Resolution by taking over bank shares Resolution without taking over bank shares Transfer of bank assets and liabilities (P&A) Revocation of operating licence of the bank upon the request of SDIF Bankruptcy Liquidation Rehabilitation and restructuring of the bank Asset/Insured Deposit Sales Merger or Acqusition Sales of Bank Shares Sales of Asset/ Liabilities Resolution Methods BRSA 6 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

7. Types of Bank Liquidation in Turkey Upon the decision of Bank General Assembly, liquidators selected by General Assembly initiate and conduct voluntary liquidation process under Commercial Law. BRSA has supervision authority on this process. SDIF has no role in this kind of voluntary liquidation. If the court does not decide bankruptcy of the bank upon the request of SDIF, the voluntary liquidation of the bank is executed by SDIF without being subject to the provisions of the Commercial Law. SDIF has the authority to determine the procedure of this kind of voluntary liquidation. SDIF has the exclusive authority under Banking Law (Law No.5411) and Execution and Bankruptcy Law (Law no.2004). SDIF has also strong and effective powers. Bankruptcy Liquidation Voluntary Liquidation Special Voluntary Liquidation 7 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

8. Resolution Experience of SDIF 8 Resolution MethodNumber of Banks Sold4 Merged and Sold6 Merged under Bad Bank8 Transferred to a state-owned Bank1 Liquidated6*6* TOTAL25 * 1 bank (Voluntary liquidation); 5 banks (Bankruptcy liquidation) 8 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

9. II.Role of SDIF in Bankruptcy Liquidation 9 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

10. Revocation of Banking Licence by BRSA Transfer of Management and Control of the bank to the SDIF Payment of insured deposits Petition of Bankruptcy SDIF Payments of insured deposits are recorded to the Bankrupt’s Estate Rejection of BankruptcyAcceptance of Bankruptcy Bankruptcy Administration Special Voluntary Liquidation Bankruptcy Liquidation Process Savings Deposit Insurance Fund – TURKEY, September 15, 2014 10

11. Legal Outcomes of Revoking Banking Licence Transfer management and supervision power to SDIF If the operating permission of a bank is revoked, its management and control is transferred to the SDIF. SDIF is authorized to change managers and auditors of the bank. Prohibition for clearance and deduction The debtors who acquire receivables through assignment from the receivables of the bank as from the date of the revocation of the bank’s operating permission or the bank’s transfer to SDIF neither request the clearing of its debts through its receivables acquired through assignment nor deduction of such. Temporary stay for legal actions against the Bank With the revocation of the banking licence of the bank, any claims against the failed bank is due to legal stay. 11 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

12. General Bankruptcy Process for the Companies Bankruptcy decision Establishment of Bankruptcy Estate Determination of liquidation method Bankruptcy Office 1st Creditors Meeting Selection of Bankruptcy Administration Registration and assessment of claims Preparation of ranking list Bankruptcy administration 2nd Creditors Meeting Sale of assets, distribution of money Court Closure 12 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

13. SDIF’s Powers Before the Bankruptcy Power of taking necessary measures SDIF is authorized to change and register the provisions of the articles of association of the bank without being subject to the provisions of the Turkish Commercial Law and without the convention of its general assembly. Power of change the Articles of Association SDIF takes any and all measures for the protection of the rights of depositors and other creditors of the bank Request of injunction A preliminary injunction or preliminary attachment may be issued by a court upon the SDIF's request in respect of properties, rights and receivables of dominant shareholders, managers as well as real person shareholders who own more than 10 percent of the capital of corporate bodies that are shareholders of the bank 13 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

14. SDIF’s Powers in Bankrupcty Process SDIF Bankruptcy Office Bankruptcy Office 1st & 2nd Creditors Meetings Bankruptcy Administration Bankruptcy Office SDIF is authorized to act with the capacity of Bankruptcy Office Bankruptcy Administration The members of Bankruptcy Administration are appointed by SDIF directly. 1st and 2nd Creditors Meeting SDIF is authorized to act with the capacity of 1st and 2nd Creditors Meeting 14 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

15. Preference of Claims 1st rank : Secured Claims (Pledges) 2nd rank: Labourer claims and claims for debts to spouse/children for court ordered support 3rd rank : Privileged claims 3.1 Government claims-taxes and social security contributions (premiums) 3.2 Deposit Insurer claims- which are the insured deposits 3.3 Uninsured depositors 3.4 Claims privileged by laws 4th rank :Other claims (unsecured creditors) 5th rank : Shareholders According to our legislation the preference of claims is listed below: 15 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

16. Bankruptcy Liquidation- Privileges of the SDIF SDIF participates in the bankruptcy estate as a privileged creditor, having priority over all privileged creditors specified in Article 206 of the Execution and Bankruptcy Law No. 2004, however, after deduction of the receivables of the State and social security. Priority in the ranking list Priority in payment The debts of the bankrupt bank to the SDIF shall be paid without waiting for the completion of the ranking list specified in Article 232 of the Execution and Bankruptcy Law no. 2004, depending on the position of the bankruptcy estate. Flexibility in maintenance & obtaining interest on money in Bankruptcy Estate SDIF is not subject to legal restriction in respect of maintenance and obtaining interest on monetary funds included in assets of a bankruptcy and/or liquidation office as well as monetary funds it has collected in its capacity as a bankruptcy and/or liquidation office. 16 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

17. Collection Powers in Liquidation Process Collection activity on behalf of and on account of Bankruptcy Administration SDIF has the power to apply provisions of liquidation law for taxes (Act Nr. 6183) for certain claims from majority shareholders of failed banks due to their misuse of banks’ funds. Flexibilty in sale of assets SDIF is not obliged to apply any legislation for the sale of any property owned by the bankrupt. SDIF is authorized to determine procedure and rules for sales. Therefore, SDIF can accelarete the sale process of the assets in Bankruptcy Estate. Power to take all necessary legal actions SDIF has the power to start all necessary legal actions against the person who are responsible for misuse of the bank resources. 17 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

18. Evolution of Bankruptcy Process for the Banks 1985-1998 Appointment of 3rd party as receiver. Banking Law, with little modifications on liquidation process mainly under the provision of Commercial Law of Bankruptcy. 1999-2005 Appointment of SDIF as receiver. Banking Law, with modifications providing an increased efficiency in disposition of assets and interfere in fradulent cases, with judicial review. From 2005 Appointment of SDIF as receiver. Same as the previous Banking Law, court supervision required for the liquidation. 18 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

19. III.Role of SDIF in Special Voluntary Liquidation 19 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

20. Special Voluntary Liquidation  In cases when no decision of bankruptcy is reached for the bank whose permission of operation is cancelled, SDIF Board may decide for voluntary bankruptcy of the Bank without getting the resolution of General Assembly.  Voluntary liquidation is carried out by liquidation officers to be appointed by the SDIF without being subject to provisions regarding dissolution and liquidation of joint stock companies under Law no. 6762.  The procedure of special Voluntary Liquidation is determined by the SDIF Board via by-laws. 20 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

21. Special Voluntary Liquidation-Process Flow 1. Resolution the Fund Board for Voluntary Liquidation 1. Resolution the Fund Board for Voluntary Liquidation 2. Appointment of Liquidators by the Fund Board 2. Appointment of Liquidators by the Fund Board 3. Registration and announcement of Liquidation 3. Registration and announcement of Liquidation 4. Preparation of Liquidation Balance Sheet 4. Preparation of Liquidation Balance Sheet 6. Recovery (Converting assets into cash) 6. Recovery (Converting assets into cash) 7. Payment to the creditors 7. Payment to the creditors 8. Closure 8. Closure 5. Examination of claims 5. Examination of claims 21 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

22. Special Voluntary Liquidation – Powers of SDIF Flexibity in determination of procedure Collection Power SDIF has same collection powers as it is in bankruptcy liquidation process. SDIF is entitled to determine the rules and procedures of the special voluntary liquidation, sale process, distribution of collection amounts. Flexibility in maintenance and obtaining interest on money in Bankruptcy Estate SDIF is not subject to legal restriction in respect of maintenance and obtaining interest on monetary funds included in assets of a bankruptcy and/or liquidation office as well as monetary funds it has collected in its capacity as a bankruptcy and/or liquidation office. 22 Savings Deposit Insurance Fund – TURKEY, September 15, 2014

23. Thank You… 23 Savings Deposit Insurance Fund – TURKEY, September 15, 2014 Hanifi DARICI hdarici@tmsf.org.tr