Turkish banking stocks rally second day after EBRD loan offer

Turkish banking stocks rose for a second day after the European Bank for Reconstruction and Development said it was prepared to help lenders tackle growing levels of bad debt.

The main BIST index of banking shares climbed 1.6 percent to 133.836,75 points at 11:15 a.m. in Istanbul, taking gains over the past two trading days to more than 7 percent.

The EBRD is interested in expanding its work with non-performing loans in Turkey, Arvid Tuerkner, the bank’s managing director for Turkey, said on Thursday.

Tuerkner said the EBRD had not been approached with any proposal by the Turkish authorities but was “ready to engage”.

A currency crisis and an economic recession have led to an increase in bad debt in Turkey. Non-performing loans have risen to about 4 percent of total lending, according to official data. But some analysts say the figure is significantly higher because banks have restructured some debt that would otherwise have been classified as unpaid.

The lira had also joined banking shares in Thursday’s rally after central bank data showed its foreign exchange reserves rising to $29.7 billion on March 29 and Standard & Poor’s said Turkey’s junk credit rating was not currently at risk of further downgrades. The currency fell 0.5 percent to 5.61 per dollar on Friday.

The EBRD owns shares in Hayat Varlık, Turkey’s leading purchaser of non-performing loans.

But it is questionable whether the institution would be able to lend enough capital to the Turkish banking system to have any impact on the overall trend in NPLs. The institution lent 100 million liras to Hayat Varlık in February, a tiny fraction of what would be required in the future to set the banking system on a firmer footing.

The EBRD owns 12 percent of Hayat Varlık and had previously invested a total of 76 million liras in seven issues of bonds sold by the company. It has also provided 120 million liras in loans and mobilised 60 million liras in parallel financing from the Industrial and Commercial bank of China (ICBC).

The EBRD invested more than 1 billion euros in Turkey last year. While it has invested more than 11 billion euros since 2009, it has largely placed the funds in the energy and construction industries.

It last lent to Turkish firms in March, approving a loan of almost 1 billion liras to Turkish appliance maker Arçelik.