share this article!

5 Minutes, by Read more* Authorities want lenders to be prepared for another credit crunch* Capital injections are expected as the economy picks up speed, according to sources * NPL forbearance deadline looms at the end of September* Asset management firm remains the leading solution -sources ISTANBUL, July 8 (Reuters) – Turkey’s president, Recep Tayyip Erdogan, has vowed Senior bankers and government officials believe Turkey is mulling a fresh capital injection for state banks, but they also need a plan to deal with lingering bad debt after the lenders drained their resources helping Ankara fight COVID-19. While their privately held counterparts were more cautious, state banks nearly doubled their lending last year, assisting the $720 billion economy in avoiding a downturn and mounting a strong recovery, aided by a quick coronavirus vaccine program. Authorities now want bankers to be ready for another surge of loans later this year or next year to meet pent-up demand from builders and other borrowers, according to six people who spoke on the condition of anonymity to Reuters. However, their depleted capital needs to be replenished, especially since they require provisions tmsnrt.rs/3qVvF82. ahead of a September deadline for more sour loans to be categorized as non-performing loans, particularly those from the hard-hit service sectors (NPLs). “Last year, the state banks went above and above in terms of large-scale project financing. There was an excessive use of resources, and they need capital support to be strengthened “According to one official with knowledge of the situation. “As certain past loans are repaid, there will be a need for more credit expansion in some sectors of the economy, at least for the next year,” the source said. However, according to bankers and government officials, no final government decision has been made on a capital injection or what to do about unpaid so-called Stage 2 loans and NPLs, the majority of which have been lingering on the balance sheets of both private and public lenders since the 2018 currency crisis. According to two of the sources, transferring them to one or more asset management companies, or “bad banks,” is still a viable possibility. The Turkish Treasury did not respond to a request for comment right away. Bank capital adequacy ratios “are now at a decent level,” according to a Turkey Wealth Fund official, who added that the fund “is always ready to support banks if there is a need.” In early 2020, the fund infused 21 billion lira ($2.5 billion) into the top three state banks, just as their lending increased by 90%, including low-interest loans to help with the pandemic’s aftermath. IN THE YELLOW In the face of rising costs and the central bank’s 19 percent policy rate, which is supposed to combat almost as high inflation, public lenders are incurring losses. The two largest state banks had negative net interest income in the first quarter, whereas the largest private lenders, such as Garanti Bank, Is Bank, Akbank, and Yapi Kredi, had positive net interest income. Halkbank’s overall net profit fell 93 percent year over year, while Vakifbank and Ziraat Bank’s profits fell 56 percent and 49 percent, respectively, in the quarter. According to a top banker, they urgently require funds in order to produce further credit expansion later this year or next. “It’s not a question of capital sufficiency or liquidity requirements. It’s a question of their ability to increase fresh loan growth. That is why state banks require immediate capital infusions “added the banker. “Growth cannot be achieved with current capital levels,” a second top banker told Reuters. RESOLUTION OF NPL The rapid loan growth and exposure to industries like tourism and hospitality, according to Fitch Ratings, “concerns remain high” for the sector, which could compound risks for banks already saddled with bad construction and energy debt. Turkey’s significant reliance on cheap foreign borrowing was exposed during the 2018 crisis, which slowed economic development until the first quarter of this year, when the economy grew by 7%. Despite the improving economy and a low sector NPL percentage of 3.7 percent, the BDDK bank regulator has prolonged a forbearance period until September 30, after which many Stage 2 loans will have to be categorized as non-performing. According to data from the Banking Association, “watch list” loans increased by 23% to 370 billion lira at the end of last year. According to Reuters, the deadline heightened the need of a capital injection, especially considering state banks’ low loan-loss provision ratios. “If the grace period… is not extended again,” a third banking source added, “banks may face a considerable rise in provisions for NPLs.” A year ago, Ernst & Young presented banks with a model for an asset management company (AMC) that would hold billions of dollars in nonperforming loans and alleviate the long-standing problem, albeit the concept was met with skepticism by some lenders. “The asset management firm may be able to help you handle these concerns. Otherwise, it doesn’t appear to be simple “a second government official stated. Forbearance granted by the NPL “It is impossible to go on indefinitely. We must face the facts.” (1 lira = 8.6787 lire) Ebru Tuncay and Orhan Coskun contributed reporting, while Jonathan Spicer and Emelia Sithole-Matarise edited the piece./nRead More

share this article!