The Regulation regarding the Classification of Loans and Other Receivables by Banks and Reserves to be set aside in consideration of Loans and Other Receivables (the “Regulation regarding Reserves”) (published in the Official Gazette dated November 11, 2006 and numbered 26333) classifies loans in five groups:

1.    standard loans and other receivables
2.    loans and other receivables which are closely monitored
3.    loans and other receivables with limited collection probability
4.    loans and other receivables, the collection of which are precarious, and
5.    Loans and other receivables which may be referred to as a loss.

The Amendment to the Regulation regarding Reserves (published in the Official Gazette dated May 28, 2011 and numbered 27947) states that agreements pertaining to loans and other receivables classified under (1) may be amended provided that the conditions provided with regard to the monitored loan and debt receivables of the banks for such group are kept. Additionally, if such an amendment intends to extend the first payment scheme, general loan cover shall be reserved which shall not be less than five times the rate determined with regard to Article 7 (in other words, one percent of the standard quality cash loans and two per thousand of the sum of the letters of guarantee, bills of guarantee and warranties and other non-cash loans) and information shall be given in relation to the loans and other receivables with specified qualifications in the financial reports.

The Amendment to the Regulation regarding Reserves also states that the general reserve rate for all standard qualified non-cash loans shall apply at three per thousand for banks if the total amount of letters of guarantee, acceptance credits, letters of credit commitments, endorsements, purchasing guarantees of security issuance, factoring guarantees, other guarantees and warranties and the sum of unsecured prefinancing credits extended by such banks exceeds ten times their equity as calculated within the framework of principles and procedures determined by the Regulation on the Equity of Banks. Nevertheless, the Banking Regulation and Supervision Board, in consideration of the standard rate of capital adequacy, may impose on the banks the reserving of general cover at the same or a higher rate.