The Communiqué on the Calculation of the Green Asset Ratio of Banks Has Been Published

The Communiqué on the Calculation of the Green Asset Ratio of Banks (“Communiqué”), published in the Official Gazette dated 11 April 2025 and numbered 32867, sets out the procedures and principles for the calculation and reporting of the green asset ratio and other relevant key performance indicators, which are used to measure the contribution of banks to environmentally sustainable economic activities.

Pursuant to Article 43 of the Banking Law No. 5411, the Banking Regulation and Supervision Board (“Board”) is authorized to introduce the necessary regulations and take all kinds of measures — including setting limitations and standard ratios — in order to determine, analyze, monitor, measure, and evaluate the relationships and balances between banks’ assets, receivables, equity, debts, liabilities, commitments, income and expenses, as well as all other factors affecting their financial structure and the risks to which they are exposed.

Within the scope of the same article, banks are obliged to comply with the regulations introduced, to calculate, meet, and maintain the limitations and standard ratios set — including on a consolidated basis — and to take and implement the measures requested by the Banking

Regulation and Supervision Agency (“BRSA”) within the prescribed timeframes.

As is well known, climate change has evolved beyond being merely an environmental threat and has become a multidimensional crisis directly impacting economic, social, and financial systems.

Accordingly, contributing to sustainability has become a shared responsibility not only of environmental organizations but of all economic actors, with the financial sector now positioned at the very heart of this transformation.

Within this framework, the BRSA has introduced a new mechanism called the “green asset ratio” through the Communiqué, in order to measure the environmental sensitivity of banks. Through the Communiqué:

- Key performance indicators are defined as ratios that demonstrate how and to what extent banking activities consider and contribute to environmental sustainability and environmental objectives.

- Environmentally sustainable economic activities refer to those that significantly contribute to at least one of the following objectives—climate change mitigation, adaptation to climate change, sustainable use and protection of land, water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems—without causing significant harm to any of these objectives.

- Circular economy is described as a production and consumption approach that preserves the value of products and materials for as long as possible, minimizes the use of harmful substances and scarce resources, reduces greenhouse gas emissions, prevents waste and waste generation, and ensures sustainable and safe reuse of products at the end of their life cycle, thereby adding greater value to products and supporting greenhouse gas reduction.

- Taxonomy is defined as classification systems that outline principles and criteria for economic activities that contribute to combating climate change in line with specified environmental goals, thereby supporting the mobilization of climate finance.

- Technical screening criteria refer to the standards that assess economic activities in terms of their environmental impact and contribution to environmental objectives.

These definitions are intended to facilitate the understanding of the framework introduced by the Communiqué, and further details on the regulations are provided below for your information.

Green Asset Ratio and Its Calculation

The Communiqué states that the green asset ratio shall be used as the primary key performance indicator to measure banks’ contribution to environmental sustainability. The green asset ratio is calculated by dividing compliant assets included in the banks’ unconsolidated balance sheets by the total assets falling within the scope of the green asset ratio.

In this context:

- Total assets within the scope of the green asset ratio are calculated by subtracting receivables from public administrations under the central government, central banks, and supranational institutions, as well as assets monitored under trading accounts, from the total on-balance sheet financial assets, and summing the gross amounts measured at amortized cost of the remaining on-balance sheet assets;

- Eligible assets refer to the sum of the gross amounts measured at amortized cost of all on-balance sheet financial assets related to economic activities listed under the technical screening criteria, regardless of whether they meet such criteria, provided they fall within the total assets under the green asset ratio;

- Compliant assets refer to the sum of the gross amounts measured at amortized cost of on-balance sheet financial assets related to economic activities that simultaneously satisfy the following conditions within the eligible assets:

a) Make a significant contribution to one or more of the environmental objectives,

b) Do not cause significant harm to any of the other environmental objectives, and

c) Ensure compliance with minimum social security standards.

The Communiqué also stipulates that the Board is authorized to set minimum threshold amounts for the financial assets to be taken as a basis in the calculation of compliant assets.

Environmental Objectives

The Communiqué outlines that the environmental objectives include the following elements:

• Climate change mitigation

• Climate change adaptation

• Transition to a circular economy

• Sustainable use and conservation of water and marine resources

• Prevention and control of pollution

• Protection and restoration of biodiversity and ecosystems

It has been regulated in the Communiqué that in order for the assets to be considered compliant in the calculation of the green asset ratio, they must make a significant contribution to one or more of the environmental objectives listed above. The relevant technical screening criteria must be met for this purpose. The technical screening criteria to be used in the identification of compliant assets and in the calculation of their amounts will be determined by the Board.

Since it is essential to confirm and monitor that the compliant long-term assets meet the technical screening criteria throughout their terms, banks are required to verify that the technical screening criteria are met or will be met. This must be done through emission reports, feasibility reports, energy efficiency audit reports, and similar documents prepared by independent verification parties, as well as national or internationally recognized certificates, green technology selection tools, or investment-related expenditure documents. Banks must keep these documents ready for audit.

The Communiqué also states that the environmental objective of climate change mitigation will be taken into account in determining compliant assets, and that the Board is authorized to include other environmental objectives in the calculation of the green asset ratio.

Do No Significant Harm to the Environment

According to the Communiqué, the condition of "do no significant harm to the environment" is defined as a requirement that an economic activity or asset contributes to one environmental objective without causing harm to other environmental objectives. To meet this criterion, not only the environmental benefits of the activities but also the environmental impacts throughout their entire life cycle will be considered. Under this regulation, banks are required to document the compliance of the relevant assets with this criterion, and the compliance status of these assets must be monitored and verified throughout their maturity period.

Minimum Social Security Standards

With the Communiqué, it has been made mandatory that the assets and related activities considered compliant in the calculation of the green asset ratio must adhere to minimum social security standards.

The Communiqué states that these minimum standards will be determined by the Board. The Board will establish these standards in cooperation with the relevant public institutions and authorities, and will make decisions regarding the implementation of these standards. It is essential to monitor the compliance of the assets with the minimum social security standards throughout their term, and to confirm this compliance. Banks are required to document their assessments that a particular asset meets these standards and keep these documents ready for inspection.

Loans with Unspecified Use of Proceeds

One of the important concepts introduced by the Communiqué is "loans with unspecified use of proceeds." This concept refers to business loans and similar credits provided by banks to businesses that generate at least 90% of their revenue from assets that are in line with environmental sustainability goals and have not earned any income from non-renewable energy sources in the past year. These loans, which cannot be attributed to a specific purpose, are considered as compatible assets in the green asset ratio calculation.

Reporting

With the Communiqué, banks are obligated to establish documentation, classification, monitoring, and control processes for the assets that make up the numerator and denominator of the green

asset ratio, set up necessary arrangements in their databases, and create a reporting system. They must integrate this ratio into their reporting system and submit it to the BRSA within the periods determined by the Board. The obligation for banks to report the green asset ratio will commence as of June 30, 2025, in accordance with the Provisional Article 1 of the Communiqué.

Secondary Key Performance Indicators

In addition to the green asset ratio, the Communiqué also introduces secondary key performance indicators to support banks' contribution to environmental sustainability. These indicators are defined as the ratios of compliant assets/eligible assets and eligible assets/total assets within the green asset ratio scope.

Furthermore, the Communiqué grants the BRSA the authority to define new key performance indicators to align with the national taxonomy. As a result, banks will be able to establish new indicators based on various data types to monitor their environmental sustainability activities more comprehensively. These indicators may include items such as cash flow data, income-expenditure. accounts, off-balance-sheet assets, and assets monitored in trading accounts. Thus, banks will be able to report not only the green assets in their balance sheets but also the environmental sustainability contributions of their financial transactions.

Minimum Thresholds and Targets

The Communiqué also specifies that the Board is authorized to set minimum thresholds and targets for the green asset ratio and other key performance indicators, to differentiate these thresholds and targets on a bank-specific basis, and to take necessary measures, including additional capital requirements, for banks that fail to comply with the established limits and targets.

Enforcement

The Communiqué has come into effect on the date of its publication. The president of the BRSA shall implement the provisions of the Communiqué.