Turkey’s bad debt plan raises concerns among some banks: sources
ISTANBUL (Reuters) – Some Turkish banks fear that a “bad bank” scheme to harbor billions of dollars in non-performing loans will force them to post large losses, and they want foreign stakeholders involved, have said seven industry sources told Reuters.
Ernst & Young handed over its plan to create an asset management company (AMC) to Turkish bankers last week, three of the sources said, drawing a mixed reaction.
“It is still early to talk about it, but we are not prepared to be a part of this project,” said a senior banker.
The bad debt problem has been brewing for almost two years and any further delay in resolving it could make the Turkish economy more vulnerable ahead of an expected wave of loan losses resulting from the coronavirus crisis.
An argument for creating a bad bank, a route taken by other countries to clean up after the global financial crisis, is that it frees up bank balance sheets to lend to new projects or businesses and can therefore encourage recovery. economic.
At $ 22 billion, Turkey’s non-performing loans (NPLs) have remained high since a 2018 currency crisis exposed the heavy reliance of construction and energy companies on external debt .
While Turkey’s normally fast growing economy is expected to contract as much as 5% this year, S&P Global Ratings predicts its NPL ratio could reach 12% by 2021, up from 4.5% currently.
The Turkish Banking Association confirmed that the report, which it had commissioned, had been completed and sent to the banks, but gave no details. EY declined to comment.
While the details of EY’s proposal, including the role Ankara could play, are unclear, Turkish banks are expected to transfer some of their NPLs to AMC and manage it jointly.
“If the difference between the book value and the transfer price is significant, some banks may choose not to participate,” said Filippo Alloatti, senior analyst at Hermes Investment Management.
Another prominent banker said there were “different opinions between lenders” with some seeing no point in transferring their NPLs, while others said it would be crucial to only guarantee losses. modest loans to rally the banks.
Turkish banks mark the value of loans on their books until they mature, provisioning them based on how much they have depreciated, the likelihood that a borrower will repay, or the bank will be able to get the money back.
Turkish Finance Minister Berat Albayrak last week approved the concept of the AMC after other proposed solutions were scrapped by Ankara last year.
Another factor that could help decide whether banks decide to participate in bad bank is the involvement of stakeholders such as the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation.
The EBRD has supported the failing banks initiative, as well as other solutions, to resolve Turkey’s “urgent” NPL problem after much delay, Catherine Bridge Zoller, senior adviser at the Bank, told Reuters. EBRD Financial Law Unit.
However, all stakeholders in industry and government need to coordinate to adopt regulatory and legal changes that would open up the market to foreign investment, Zoller added.
Additional reporting by Tom Arnold in London; Editing by Alexander Smith