May 08 2019

Turkey’s banks may face more trouble after lira slides – Bloomberg

The prospect of more election campaigning and a recent rout in the lira may spell more bad news for Turkey’s banks, Bloomberg’s Asli Kandemir wrote on Wednesday.

A decline this week in the lira to a seven-month low makes it more expensive for Turkey’s recession-hit companies to repay the foreign currency they borrowed. Banks are also facing the prospect of higher interest rates and weaker capital levels, Kandemir said in an analysis of the industry.

Companies have already requested debt restructuring of about $28 billion and banks have additional problems due to political turmoil after the Turkish election board ordered the rerun of a March 31 vote for mayor of Istanbul, according to Kandemir. The new vote will take place on June 23.  

Turkish corporates had about $315 billion of foreign exchange liabilities at the end of February, equivalent to almost 40 percent of the country’s GDP. The debt totals about $197 billion, net of their foreign exchange assets, central bank data shows.

“The nightmare has returned” for banks because the lira is weakening again since a lull following the peak of a sell-off in August, according to Inan Demir, an economist at Japanese bank Nomura in London, Bloomberg reported.

A weaker lira means more firms will have difficulty repaying their foreign currency debt, hurting banks’ profitability and capital levels as requests to restructure the loans increase.

The lira fell 0.5 percent to 6.18 per dollar at 1:34 p.m. in Istanbul on Wednesday, taking losses this year to more than 14 percent. That’s over half the total decline of 28 percent which the currency registered in 2018.

Non-performing loans in the industry are also on the rise. Officially, the proportion of NPLs stands at about 4 percent of total loans, up from less than 3 percent at the start of last year. But some economists say the number could be far higher, given opaque reporting standards and that banks have renegotiated some of the bad debt and classified it as restructured instead.

The energy industry alone has over $51 billion of outstanding loans, Kandemir said.