Turkey’s efforts to clean up bad debt have stalled - Reuters

Turkish government efforts to restructure non-performing loans have stalled as bankers declined or put on hold plans to deal with bad loans to the construction and the energy sectors, Reuters reported on Wednesday citing people familiar with the matter. 

The lira lost 28 percent of its value in 2018 and is down about 8 percent this year. Turkish firms are lumbered with more than $220 billion in foreign-denominated debt, while the known restructuring requests by Turkish companies total almost $20 billion. 

In April, the government announced plans to establish a fund to secure credit from private banks to pay energy companies’ $13 billion debt. The government was planning to do the same for the construction sector.

Reuters said that interviews with more than a dozen bankers, company executives and advisers showed that there had been little progress over the past three months in plans for debt restructuring.

“Everything is just at a standstill,” Reuters quoted an unnamed banker involved in discussions between lenders, companies and government officials, as saying. “The government and everyone is in wait-and-see mode before they take any further action, and people are looking to next year,” the banker said.

Hopes that the economy will recover in a short time as well as limited guidance from the government are partly behind the lack of progress, Reuters said. The Treasury told Reuters that banks had not reached an agreement on a fund model required for restructuring bad loans of companies facing cash flow problems.

The banks and indebted companies are looking for the government to provide assistance for reducing restructuring costs through tax breaks and making it easier for foreign investors to acquire bad debt, Reuters said citing three sources.

The Turkish parliament on Wednesday approved a bill that would eliminate some obstacles for dealing with non-performing loans such as tax exemptions for loan restructuring and legal protection for bankers. Sözcü newspaper reported on Saturday that the bill covered 400-billion lira ($70 billion) worth of bad loans to Turkish companies. 

In the construction sector, disagreements over the value of partly built or vacant condominiums, offices and shopping malls across the country have stalled restructuring efforts, while there has been some progress in the energy sector with private lender Garanti Bank in May outlining a strategy that involved banks taking over energy plants with a view to selling them down later when they became profitable, Reuters said.