Turkish firms don't have the cash to reduce their debts – report

Turkish companies don't have enough cash to pay down their debts because of high interest rates in the country, local media including Artı Gercek said on Monday citing a report by consultancy firm Besfin.

At first glance, Turkish firms are no more leveraged than companies in other countries. Their capital to asset ratio is typically about 37 percent compared with an average of 43 percent in 13 comparable countries, Besfin said in a report that analysed the financial situation of more than 8,900 companies in Turkey.

But Turkish firms are paying much higher interest rates on loans, meaning that they can’t reduce their debt load, Besfin said. They are paying three times more in interest than firms in the United States and 17 times more than companies in Japan. Compared with Poland, Mexico, Italy, Brazil and China, their interest payment commitments are two to three times greater, Besfin said.

“In terms of financing their assets, manufacturing companies in Turkey are no more leveraged than equivalent firms in developed nations such as the United States and Italy,” said Besfin Chief Executive Officer Ferda Besli. “But they are paying a lot of interest. They don’t have enough cash in their hands to reduce their debts.”

A currency crisis last year and a resultant economic recession have brought the debt obligations of Turkish firms into focus. Banks in the country are seeing a sharp increase in bad loans and requests by companies to restructure their borrowing.

Turkish small and medium-sized enterprises are currently paying about 2 percent per month in interest payments on their loans, according to Turkish online credit broker hangikredi.com. Inflation in Turkey stands at 19.7 percent and, unlike consumer loans, monthly repayments on business loans in the country vary in line with the inflation rate.