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May 16 2019

Turkish banks, investors disagree on bad loans in key talks

Turkish bankers and investors had serious disagreements during talks to offload non-performing loans from banks’ balance sheets, Bloomberg reported on Thursday citing people who attended discussions last week.

The deadlock between the investors – who included Goldman Sachs and Bain Capital – and the bankers included the price and structure of every potential transaction, the people said, according to Bloomberg’s Ercan Ersoy and Aslı Kandemir.

There was even disagreement on the definition of a non-performing loan, one of the attendees at the preliminary meetings said. Some of the participants questioned whether more talks would take place at all, the news wire said.

A plan to offload troubled loans from banks’ balance sheets into special funds is a lynch-pin of the government’s plans to strengthen the Turkish financial system and rescue the economy from a deep economic recession. A currency crisis last year has partially eroded banks’ capital. Some of their clients are struggling to repay foreign currency debt, meaning the banks are renegotiating the terms of the lending or classifying it as non-performing.

Investors also sought a 30 percent discount on the face value of the loans in order to take part in the plan, Bloomberg said. They also demanded a stake in the troubled assets, one of the people said.

Turkish bankers attending the meetings refused to write off the loans and said they should be restructured instead, according to Ersoy and Kandemir.  

The meeting was the first between the two sides since Treasury and Finance Minister Berat Albayrak announced plans in April to deal with the troubled loans of the energy and real estate industries, according to Bloomberg.

Turkish firms have requested that banks restructure about $30 billion of the loans.

The talks to set up special funds to deal with the troubled debt may be lengthy and difficult, Bloomberg reported.

Goldman Sachs is among investment banks who have warned that Turkish banks face capital depletion should the lira continue to slide against the dollar. In a report last summer, Goldman said two major banks could see their capital largely erode should the lira weaken to 6.3 against the U.S. currency.

The lira fell 0.4 percent to 6.02 per dollar in Istanbul on Thursday. Losses this year total about 13 percent after a decline of 28 percent in 2018.

Turkish corporates’ foreign currency borrowing exceeded $310 billion as of February, equal to almost 40 percent of the country’s economic output. The debt totals almost $200 billion when subtracting the companies’ foreign exchange assets.