Top Turkish bank sells bad loans for 5% of value

Yapı Kredi bank, the fourth-largest listed bank in Turkey, sold 500.8 million liras ($123 million) of non-performing loans at 5.6 percent of book value.

The size of the discount put on the bad loans, sold to debt collectors including Sümer Varlık and Hayat Varlık, may indicate the financial stress banks, Turkish corporates and consumers are under after the lira sank against the dollar and inflation surged into double figures and remained there.

Yapı Kredi, owned by leading Turkish conglomerate Koç Holding, said the loans it sold were in arrears. It didn’t provide any further details in a statement to the Istanbul Stock Exchange on Friday.

Some Turkish companies are struggling to repay their debts after government stimulus measures widened the current account deficit to almost 6 percent of economic output. Concerns that Turkey’s economy is overheating have pushed the lira to a record low against the dollar and led to a surge in interest rates charged by banks to consumers and businesses. Turkish President Recep Tayyip Erdoğan called snap elections last week for June 24, citing economic factors and the war in neigbouring Syria.

Turkish banks commonly sell swathes of non-performing loans to debt collecting agencies to improve their balance sheets and profitability.

Non-performing loans in Turkey, or lending that is more than three months in arrears, stood at 2.9 percent in February. The ratio reached a high of 17 percent in January 2003, following a financial crisis, and a low of 2.7 percent in June 2012.

As well as selling off the debt, Turkish banks tend to work with companies and consumers to restructure and extend the repayment periods of loans rather than classify them as non-performing, meaning that data may not reflect the true picture of financial problems in the industry.