Credit

Scope

The concept of credit is broad in banking law. According to Article 48 of Banking Law No. 5411, in addition to cash credit extended by banks, non-cash credit (gayrinakdî kredi) such as letters of guarantee, counter-guarantees, suretyships, aval, endorsement and acceptance is also deemed credit, regardless of the account in which it is monitored; extending credit is among the activities of banks (Art. 4/1-c). In private law, the basis of monetary credit is most often the consumption loan agreement in Article 386 of the Turkish Code of Obligations (TBK). For credit granted to consumers, the provisions of Articles 22 et seq. of Law No. 6502 apply; a consumer credit agreement is not valid unless it is concluded in writing or as a distance contract.

Practical significance

Interest and costs, maturity, early repayment, the consequences of default and the required security are largely determined by the credit agreement; for bank credit, a general credit agreement is usually signed and suretyship, pledge or mortgage is requested. The processes by which banks open credit, monitor it and take security are subject to Articles 51–53 of the Banking Law and secondary regulations; the amount of credit that can be extended to a person or risk group is also limited by law, and these limits may change. Consumer credit carries additional protections such as pre-contractual information and the right of withdrawal.

Commonly confused concepts

Credit is broader than a consumption loan: in a loan, the ownership of a sum of money is transferred and the return of the same amount is undertaken; credit in the banking sense also covers obligations assumed without payment of money, such as a letter of guarantee or suretyship. Security, in turn, refers to instruments such as suretyship, pledge or mortgage that secure the repayment of the credit; in this respect a bank letter of guarantee is both a security and, from the bank’s perspective, a non-cash credit. Interest, which is the price of credit, is also a separate concept.