Turkish NPLs set to soar as macro woes mount
Autumn bank refinancing round under scrutiny; analysts warn of US sanctions tail risk.
Non-performing loan ratios in Turkey are tipped to rise sharply as the effects of currency depreciation and rising interest rates feed through to the real economy.
According to official figures, bad debts accounted for just 3% of outstanding loans in the Turkish banking sector at the end of August, but analysts say the real number could already be much higher.
“The solvency of Turkish banks will be weaker than reported figures,” Moody’s said in a ratings note published on August 28. “Banks are reporting problem loans and performing loans with severe deterioration since origination in an inconsistent manner.”
Turkey’s lenders have been encouraged by the local banking regulator to under-report bad debts in the tourism sector for more than a year and were also asked not to rank the $4.75 billion owed by Turk Telekom shareholder Otas as problematic during the continuing restructuring process.
Following the lira’s collapse in early August, the Banking Regulation and Supervision Agency (BDDK) also relaxed the criteria for loan restructuring and fixed exchange rates for provisioning – and capital – calculations at levels not seen since the end of June.
Asset quality is expected to deteriorate further as Turkish corporates struggle to service foreign currency debt and smaller businesses feel the effect of surging inflation.