Turkey’s İşbank sees its bad loans rising to 7.5 percent of total loans

İşbank, one of Turkey’s largest banks, said it expected non-performing loans (NPLs) in its portfolio to rise to 7.5 percent of total loans by the end of the year.

The bank increased its estimate from a previous 6 percent, Senar Akkuş, deputy CEO and member of the board, said in a call with investors to announce the company’s third-quarter earnings, according to a transcript published by Yahoo Finance on Sunday.

İşbank’s prediction included loans that must be categorised as non-performing according to a directive from the country’s banking watchdog, Akkuş said. The low level of demand for loans in Turkey is impacting İşbank’s estimate for NPLs because lower growth rates render the loans larger when compared to total loans, he said.

Bad loans in Turkey have surged over the past year after a currency crisis that erupted last summer made repayment more difficult. In September, the banking watchdog instructed banks to classify 46 billion liras ($8 billion) of loans as non-performing by the end of the year

Akkuş said there was an improvement in Turkish lira loan demand, helping to strengthen İşbank’s balance sheet.

A likely halt to central bank rate cuts – there is little room for further reductions – means there can be a further recovery in demand for borrowing, Akkuş said.

“Although the nine months figures are at lower levels, we calculate that at the end of the year, we will be around 7 percent to 8 percent growth rate for Turkish lira loans,” he said.

Akkuş said he was optimistic about NPL additions for next year, citing an economic recovery in the country. İşbank reported a net profit of 1.35 billion liras for the third quarter, an increase of 8.9 percent from a year earlier, according to a statement published on the website of the Istanbul Stock Exchange last week. Net interest income fell by 1.7 percent to 4.95 billion liras.