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08 December 2019

Turkey eases rules on $8 billion of bad loans as banks balk

In September 2019, the Turkish bank regulator said the reclassification of the loans would raise the industry’s non-performing loans ratio to 6.3 per cent from 4.6 per cent, while average capital adequacy ratio would retreat to 17.7 per cent from 18.2 per cent.

Bloomberg/Kerem Uzel

Turkey’s banking regulator eased measures on how banks classify credit to once-troubled companies, helping lenders to potentially avoid adding more non-performing loans to their books, reported Bloomberg.

The Banking Regulation and Supervision Agency (BDDK) will now leave it to lenders to decide which company loans need to be reclassified as non-performing. Turkish banks will not have to book the loans of businesses that have restructured borrowings or bolstered cash flows as non-performing.

In September 2019, the watchdog ordered banks to reclassify TRL 46 billion $8 billion) of debt as non-performing by the end of the year and set aside enough provisions to cover them. BDDK is now backing down after banks complained that healthy businesses were included in the list. The move was aimed at getting banks to write off bad debt faster so they could ramp up lending to help fuel the struggling economy.

A notice of the change to the September 2019 directive was sent to banks last month. Loans already reclassified as non-performing before the November order are not covered.

Huseyin Aydin, the Head of the Banks Association of Turkey, said that Turkish banks had already booked between TRL 10 billion and TRL 15 billion as non-performing loans, so the amount would not be as high as the regulator had asked.

Turkish lenders average non-performing loans (NPLs) ratio stood at 5.2 per cent in October 2019.

RELATED STORIES: Banking Regulation and Supervision Agency Turkish banks NPLs





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