Turkey considers new rules to woo foreign debt buyers – Reuters

Turkish banks and regulators are meeting this week to agree on possible changes to rules that would make it easier for foreigners to buy bad debt from Turkish firms, Reuters reported.

The banking regulator (BDDK) and the country’s capital markets board are seeking to remove obstacles to foreigners buying up the distressed lending, Reuters said, citing five people familiar with the initiative.

Bad loans in Turkey’s banking industry have surged after a currency crisis last year tipped the economy into recession and caused some firms to renege on their commitments to repay tens of billions of dollars in loans. Turkish authorities have instructed banks to reclassify 46 billion liras ($8 billion) of the loans as non-performing by the end of the year.

Turkish regulations need to be changed to allow companies headquartered outside of the country to be able to buy the debt directly from banks, two of the sources said, according to Reuters.

Turkish regulators and bankers are meeting this week to try to hammer out a regulatory tweak that would make it easier for foreign investors to buy some of the soured loans left over from last year’s crisis.

Current regulations “are far from satisfying the demands of distressed-asset investors,” one of the sources said. Some buyers want to more easily buy individual loans rather than bundles, Reuters said.

“The regulatory framework is very narrow and does not provide the room for free manoeuvre that deals such as this require,” one of the people said.

Reuters said tweaks to regulations could spark a wave of pent-up demand from international funds.

The European Bank for Reconstruction and Development (EBRD) is organising several meetings later this week to present the findings of research into how Turkey can ensure resolution of non-performing loans.

Talks between Turkish banks and foreign funds to set up special vehicles to offload bad debt broke down earlier this year over issues including the definition of what constituted such a loan.

SC Lowy and Houlihan Lokey are among foreigners potentially interested in purchasing the debt, Reuters reported.

One person said the government has hesitated to resolve outstanding issues because it would mean less Turkish control over the loans.