Turkey banks to restructure more problem loans – association

Turkish banks will start restructuring more troubled loans, following up on measures announced by the industry regulator this week.

Banks will divide the loans into two groups; borrowing of less than 25 million liras ($4.4 million) and larger debts, Hüseyin Aydın, chief of the Banks Association of Turkey (TBB), told NTV television on Wednesday. The institutions will start signing accords with borrowers from Thursday, he said.

Lenders will award their borrowers a grace period of up to one year on the smaller loans and they will repay the amount over a maximum of 60 months, Aydın said. Interest rates will either be fixed or variable, he said.

Turkey’s banking regulator called on banks to designate 46 billion liras ($8 billion) of loans as non-performing in a decision this week designed to help clean up the industry. Bad loans have piled up in Turkey’s banking sector following a currency crisis last year, hurting profits and preventing them from lending more to the economy.

Aydın said that about half of the new non-performing loans announced this week were owed by companies in the construction and energy industries, with the latter sector owing about 20 percent of the total. Most loans are foreign currency-denominated, he said.

Of the 46 billion liras of new NPLs, around 10 to 15 billion liras have already been classified as non-performing, Aydın said. The banking industry has around $6 billion of reserves, but needs to set aside only about 12 billion liras in case of non-repayment, he said.

Meanwhile, the energy industry has total borrowing of $47 billion and there are no problems with $35 billion of that amount, Aydın said. The remaining $12-13 billion needs to be restructured, he said. 

Even in the worst-case scenario, Turkish banks will make a total profit of between 35 billion liras and 40 billion liras this year, Aydın said.