Cash / Non-Cash Credit Classification And Differences

I) DEFINITION AND ELEMENTS OF CREDIT

Cash/Non-Cash Credit Distinction and Differences Between Them: The basic regulations regarding credit transactions are set forth in Article 48 and subsequent articles of the Banking Law No. 5411. Article 48 of the Banking Law primarily lists credits and credit-like transactions, but does not provide a definition of credit. The definition of credit varies in doctrine. According to one view,[1] “The provision of a value in the form of goods or money to be recovered at the end of a specified period and under specified conditions, or the provision of a guarantee for the payment of an asset that has been provided, or the provision of a guarantee”, while according to another view,[2] “The exchange of current money or a value represented by money for future money or another value”.

In line with these definitions, we can define credit as “cash or non-cash values established by banks with their customers, subject to certain conditions and for a specific period, whereby the banks assume a certain risk and the customers undertake to repay the specified value in cash or cash equivalent.”

Credit basically consists of four elements. These are: time, trust, risk, and income. The time element refers to the borrower’s obligation to repay the amount within a specified period; the trust element refers to the condition that the amount must be repaid; the risk element refers to the existence of risk until the loan matures and the loan is repaid; and the income element refers to the lender’s ability to generate income from the loan relationship.[3]

II) TYPES OF CREDIT

Types of credit are subject to various distinctions in doctrine and practice. In doctrine, various distinctions are made according to the subject matter of the credit commitment, the purpose of use, the nature, the terms, the collateral, the users, and the currency.

According to one view in doctrine, loans are classified as follows: according to their nature, as cash and non-cash loans; according to their maturity, as short-term, medium-term, and long-term loans; according to their collateral, as secured and unsecured loans; according to the borrowers, as direct and indirect loans; and according to the currency, as Turkish Lira and foreign currency loans.[4] Another view classifies loans based on the subject of the loan commitment into cash and non-cash loans, and based on the purpose of use into investment, construction, and manufacturing loans.[5]

III) RISKS THAT CANNOT BE CONSIDERED AS CREDIT

It is certain that every loan granted by banks will pose a risk for the bank, but not every transaction that poses a risk for the bank can be considered as credit. Risk is accepted as a much broader concept that covers cash and non-cash loans.[6] Technically, a loan refers to the ability to seek recourse from a real or legal person in a situation where risk is assumed. However, situations where the bank cannot seek recourse by assuming risk are also considered loans under Article 48 of the Banking Law. Examples include the bank’s shares, forward transactions, and option contracts.

[7] If the bank has a claim based on a tort or unjust enrichment, even if there is a right of recourse, such transactions shall not be considered credit transactions within the meaning of the Banking Law. A credit transaction may be accepted if the bank’s right of recourse arises as a result of a legal transaction.[8]

IV) LOANS AND TRANSACTIONS CONSIDERED AS LOANS FROM THE PERSPECTIVE OF BANKING LEGISLATION

Loans and transactions considered as loans are listed in Article 48 of the Banking Law. According to this article, loans are classified as follows.

Cash loans granted by the bank,
Non-cash loans granted by the bank (guarantee letters, sureties, endorsements, acceptances, and similar instruments),
Bonds and similar capital market instruments purchased by the bank,
Loans granted by the bank through deposits or in any other form or manner,
Receivables arising from the sale of the bank’s assets on a deferred basis,
Receivables arising from reverse repo transactions,
Forward and option contracts and similar other contracts,
The Bank’s equity shares,
Transactions approved by the Board.

There are also situations where non-cash credit relationships are recognized under special laws other than the Banking Law. For example, pursuant to Article 3/3 of the Cheque Law No. 5941, the payment of the legal equivalent of a check is specified as a non-cash credit relationship between the drawee bank and its customer.

A) Cash Loans

Cash loans are loans granted by banks to their customers in the form of cash payments.[9] According to another definition, they are loans whereby the bank transfers its purchasing power in the form of money.[10] Cash loans include all values provided by banks in cash or as cash equivalents. Turkish Lira, foreign currency, foreign currency-indexed cash loans, gold, silver, platinum loans, consumer loans, mortgage loans, overdue cash loans, and accrued but unpaid interest, as listed in Article 48 of the Banking Law and/or mentioned in special regulations, may be considered cash loans.[11]

Cash loans can generally be used in three different ways. First, the entire loan amount can be paid to the loan customer in a single installment and the debt can be settled by collecting interest or profit share at specified maturities. Second, a current account can be opened for the loan customer, and the loan can be used by making repayments from this account as needed by the customer. Third, the bank may purchase valuable documents deposited by the credit customer with a transfer of title in exchange for their cash value and grant the credit.[12]

It should be noted here that cash credits are paid to the credit customer in cash or on account.[13] While the relevant amounts are paid to the customer in cash or on account in conventional banks, in participation banks, since the transaction involves a purchase and sale on behalf of the customer, the transfer of ownership of the asset the customer intends to acquire takes place, and there is no payment in cash or on account.

These loans may be granted in Turkish Lira, foreign currency, or foreign currency-indexed. For foreign currency and foreign currency-indexed loans, the restrictions outlined in the Banking Law, the Law on the Protection of the Value of Turkish Currency, and Decision No. 32 are important. Additionally, consumer loans, mortgage loans, and loans granted with cash or collateral are also considered cash loans.

The scope of cash loans includes overdue cash loans listed in BankK Article 48 and accrued but unpaid interest. Since the maturity of overdue cash loans does not alter their credit status, they will be considered cash loans.[14] This is because, once a loan is granted, it retains its status until it is collected.[15]

B) Non-cash loans

In non-cash loans, the bank transfers the risk arising from the failure of the borrower to fulfill a debt owed to a third party by undertaking to fulfill that debt.[16] In this type of credit, if the borrower fails to fulfill the debt it has committed to the third party, the bank compensates the third party for its loss. [17] Non-cash credits mainly include the issuance of letters of guarantee, surety credits, aval and acceptance credits, and letter of credit.

Letters of guarantee are considered guarantee contracts aimed at providing security to the third party addressee of the letter, and guarantee a certain risk of the beneficiary independently of the underlying relationship between the addressee and the beneficiary.[18] The occurrence of credit risk depends on the realization of the risk that is the subject matter of the letter of guarantee.[19]

In a surety loan, the bank acts as a guarantor for the customer’s debt. Here, a surety relationship is established in accordance with Turkish Code of Obligations No. 6098, and the bank assumes the customer’s risk.

The issuance of an aval, acceptance or endorsement by the bank on a bill of exchange will increase confidence that the bill will be paid and facilitate its circulation.[20] Since banks’ transactions in this manner mean that they assume certain risks of their customers, they are considered non-cash credit relationships.

The basis of letter of credit transactions is formed by the uniform rules determined by the ICC (International Chamber of Commerce), and there are no detailed regulations on this subject in our domestic law. In a letter of credit, payment of the letter of credit amount is made upon presentation of certain documents in import and export transactions. Here, the bank paying the letter of credit amount has the right to seek reimbursement from the person to whom the amount was paid, and this transaction forms the basis of the credit relationship.

V) DIFFERENCES BETWEEN CASH AND NON-CASH CREDITS

There are certain differences between cash and non-cash credits. Essentially, these differences stem from the obligations and risks incurred, and these differences will be examined individually.

The repayment of debt in non-cash credits differs from that in cash credits. In non-cash loans, the bank assumes an obligation towards a third party on behalf of its customer, whereas in cash loans, the loan debt relationship exists solely between the customer and the bank. In non-cash loans, the performance is completed when the bank makes a declaration of intent to assume an obligation towards a third party on behalf of its customer, and this transaction constitutes a debt-creating transaction. In cash loans, performance is a dispositive act.[21]

In cash loans, there is a commitment to give a certain amount of money, and this obligation to give money can be fulfilled by a third party. This is because there is no difference between the performance of this obligation by the bank or a third party in terms of the creditor’s interest. In non-cash loans, however, the debt cannot be fulfilled by a third party, and in this type of loan, the bank acts as a guarantor based on the trust placed in its legal personality, making a declaration of intent against a third party.[22]

In cash loans, the loan obligation must be fulfilled only to the customer or their authorized representative; in non-cash loans, however, fulfillment must be made not to the customer but to the third party to whom the commitment was made in favor of the customer. This is because only in this way will the bank have fulfilled its obligation to perform.[23]

In the case of cash loans, the risk will end when the relevant loan debt is paid by the customer or a third party. In other words, when the relevant loan installments are paid on their due dates or after their due dates together with the specified interest/profit shares, banks will be able to reduce their risk in proportion to the relevant amounts. In non-cash loans, since there is a commitment, the risk will only cease when the third party who made the commitment releases the bank, the guarantee period or the statute of limitations for the guaranteed amount expires, and in such cases, a risk reduction may also be made.

If you wish to pursue legal proceedings arising from banking and finance law and disputes you have experienced with banks, or if you require legal advice regarding such matters, you can contact us through our communication channels.

Year: 2025

Application: Cash / Non-Cash Credit Classification And Differences

Lawyers: Mehmet Said Sarıbaş & Bilal Akbaba

E-mail: info@saribasakbaba.av.tr

Website: saribasakbaba.av.tr

[1] Alıcı, Yaşar, Bankacılık Kanunu Şerhi -Cilt I, 2. Baskı, İstanbul, Mayıs 2017, s. 684.

[2] Taşdelen, Selim Servet, Bankacılık Kanunu Şerhi Cilt 1, Gözden Geçirilmiş 2. Baskı, Ankara, 2015, s. 567.

[3] Alıcı, s. 686-687.

[4] Alıcı, s. 692.

[5] Kaplan, İbrahim, Banka Sözleşmeleri Hukuku, 2. Baskı, Ankara, 2020, s. 291-292.

[6] Reisoğlu Seza, Bankacılık Kanunu Şerhi Cilt 1, Gözden Geçirilmiş 2. Baskı, Ankara, 2015, s. 873.

[7] Reisoğlu, s. 873-874.

[8] Reisoğlu, s. 876.

[9] Alıcı, s.694.

[10] Şit, Başak, Türk Hukukunda Banka Kredisi Kavramı ve Buna Bağlanan Sonuçlar Doktora Tezi, Ankara, 2010, s. 92.

[11] Reisoğlu, s. 881-929.

[12] Alıcı, s. 694.

[13] Kaplan, s. 294.

[14] Alıcı, s. 761.

[15] Reisoğlu, s. 882.

[16] Şit, s.116.

[17] Dursun Karaahmetoğlu, Şeyda, Nakdi Kredi Sözleşmesinin Banka Tarafından Feshi ve Sonuçları Doktora Tezi, İstanbul, 2018, s. 7.

[18] Reisoğlu, Seza, Banka Teminat Mektupları ve Kontragarantiler, Gözden Geçirilmiş ve Genişletilmiş 4. Baskı, Ankara, 2003, s. 36. (TEMİNAT MEKTUPLARI)