Turkey to plan help for banks ahead of bad-loan surge

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Monday 17, September 2018

(Bloomberg)--The Turkish government will unveil measures to help banks tackle the expected pile-up of bad loans resulting from the lira’s plunge and soaring interest rates, according to people with knowledge of the matter.

The plan will seek to mitigate the need for capital injections and propose carving out non-performing loans for transfer to a state-designated entity.

Shares of Turkish banks rallied on the news. Even before the currency crisis worsened in August, Turkey’s lenders were struggling to deal with a pile-up of restructurings. The lira has dropped about 40 per cent against the dollar this year, matching the Argentine peso as the world’s worst-performing currency and hurting Turkish firms’ ability to repay foreign-currency loans.

The measures were discussed in a series of meetings between bank executives and senior government officials last week, according to one of the people. On Thursday, Treasury and Finance Minister Berat Albayrak is expected to announce a medium-term economic programme with fiscal and macroeconomic targets for the next three years, and the help for banks will likely be unveiled then, the person said.

The Treasury and Finance Ministry did not immediately comment on the plan when reached by Bloomberg.

The lira’s losses in August were triggered by US sanctions on two Turkish ministers over the detention of an American pastor, and they accelerated when US President Donald Trump imposed tariffs on some of the nation’s imports. That exacerbated existing concern about President Recep Tayyip Erdogan’s unconventional economic views and opposition to interest-rate increases.

Last week, the central bank defied Erdogan, jacking up rates to 24 per cent, more than expected, though the currency is still trading below where it was in July.

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