Turkey puts more pressure on banks to clean up bad debts - Reuters

Turkey has forced banks to take losses on $8 billion in bad loans this week to kick-start lending and boost its economic recovery after losing patience with them, Reuters reported on Friday citing bankers, senior government officials and industry advisers.

The Turkish banks are scrambling to meet a year-end deadline to restructure loans or ready them for sale, Reuters said, as Ankara is aggressively forcing banks to deal with a mounting pile of bad debt.

Turkey’s economy is recovering from last year’s currency crisis that caused a recession in the second half of 2018 and left banks to deal with Turkish companies’ restructuring requests for some $20 billion of debt.

Turkey’s banking regulator BDDK on Tuesday said lenders must reclassify 46 billion liras ($8 billion) in debt as non-performing loans (NPLs) and set aside extra cash to cover possible losses.

Five sources told Reuters that the move had been driven by the government’s desire for banks, especially more cautious private ones, to extend more credit and help meet Turkish President Recep Tayyip Erdoğan’s goal of 5 percent economic growth next year.

Banks and investors held meetings this year as Turkey sought to shift tens of billions of dollars of the loans into special funds, but talks had stalled over basic principles including what defined an NPL.

“The government has lost patience and wants action. We knew that nothing was happening in August, so it was just a matter of who was going to lose patience first,” Reuters quoted a senior banker involved in talks with the BDDK and government as saying.

A government official told Reuters that, during weeks of calls with the BDDK, the banks had sought broader “structural changes” and had proposed merging or cancelling projects underpinning some of the loans.

The lenders warned the authorities against forcing them to recognise losses on such large exposures before year-end, preferring instead to spread them over several years, Reuters quoted the senior banker as saying. “But the government was not convinced,” Reuters said. 

The industry has been expecting that a new economic programme to be announced by the Turkish Treasury and Finance Minister Berat Albayrak in the coming weeks may reveal further details of banks' troubled loan liabilities and what the government plans to do about them.