Turkey should be selective in helping companies with problem loans - economist

Turkey should be selective in helping companies that demand to restructure their debts, as the country’s resources are now limited, said Nilüfer Sezgin, chief economist at İş Portfoy at a conference in Istanbul on Friday, T24 reported.

Turkey’s current financial vulnerability is a result of high foreign currency-denominated debt which has not been used in an efficient way that needed prioritising sectors that will contribute more to country’s growth, according to Sezgin. 

The lira dropped 28 percent against the dollar in 2018 and has a further 13 percent of its value this year, making the foreign currency-denominated debt more difficult to repay. 

The economy slumped into a recession in the second half of last year, while pessimism among manufacturers, the service industry, retailers and builders is also increasing, official data published on Thursday showed

The government has announced a plan to help banks deal with tens of billions of dollars of unpaid debts owed by real estate and energy firms by taking them off their balance sheets and placing them in special funds. Four or five Turkish power plants with a total of $1.5-$2 billion problem loans will be transferred to the planned energy fund, a Garanti Bank executive said on Thursday.

“I am talking about the giants in construction industry,” said Sezgin at the conference on “The Financial Risks and Opportunities of Turkish Economy,” organised by the country’s top business group and Koç University. 

“If a company is impossible to save, then it should be left. The resources have already depleted. There are still resources, but they are decreasing day by day, therefore we have to be selective. If (resources) directed to this company, then no resources will be left for others,” the economist said. 

Construction and energy sectors get the lion’s share in loans, while their contribution to productivity is low, according to Sezgin.

Turkey has two options to prevent a crisis in the banking system, T24 quoted Gizem Öztok Altınsaç, an economist at Özyeğin University, as saying. The first option is to knock IMF’s door to find extra resources, while the second option is to establish funds that will manage non-performing loans, the economist said. 

“However this is a difficult mechanism, as there is such a problem: You are not only handling one sector, there are not problems only in energy or real estate, others have problems too,” Altınsaç said.