Turkey backs down on $8 billion bad loan write-off - Bloomberg

Turkey's banking watchdog backed down on a directive issued in September instructing banks to classify $8 billion of loans as non-performing, Bloomberg reported on Thursday.

Banks will no longer need to book loans of solvent firms as bad debt, Bloomberg said, citing people familiar with the matter. The banking watchdog declined to comment, it said.

It is now up to banks to decide which debt should be classified as non-performing loans (NPLs), the sources said, asking to remain anonymous because the decision has not been made public. The firms will not need to book the loans of businesses that have restructured debt or bolstered cash flows as NPLs, they said.

Banks with tighter capital positions will benefit most from the decision, said Çağdas Doğan, an analyst at BGC Partners, according to Bloomberg.

The watchdog had required banks to reclassify 46 billion liras ($8 billion) of debt as NPLs by the end of the year and set aside cash to cover potential losses. Banks had complained that the borrowings of healthy firms were included, according to the people. Loans already classified as non-performing are not covered by the latest decision, the people said.

Foreign investors had welcomed the September measure as a signal that Turkey was finally dealing with troubles in the banking industry following last year’s currency crisis.