Turkish Banks ATMs/Bloomberg
Banks are being left to carry the burden amid a surge in demand from some of the country’s industrial giants to restructure their liabilities, on top of a jump in bad loans.
Monday 08, April 2019
(Bloomberg) --Turkish companies are struggling to get off the hamster wheel of debt as foreign borrowings run near record highs due to a plunge in the lira that has driven up the cost of their obligations in dollars and euros.
Lenders are also pulling back on providing new credit as the financial system comes under increasing pressure from the recession and an inflation rate of almost 20 per cent.
While the lira has recovered from the all-time low it hit in August, the currency is still down by a third against the dollar since the beginning of 2018. The result is that Turkey’s debt amounts to 40 per cent of gross domestic product (GDP), exceeding ratios in Eastern Europe’s 10 biggest emerging markets and that of South Africa, which together averaged 22 per cent.
Efforts by President Recep Tayyip Erdogan’s administration to prop up growth by stoking a credit binge -- and leaning on banks to lend at rates barely above inflation -- are biting borrowers and lenders alike.
Renewable energy company Bereket Enerji Uretim was the latest firm to ask banks to reorganise $5 billion of loans, meaning Turkey’s largest companies have either completed or sought at least $28 billion of restructurings, up from $18 billion a year ago.
Other companies are also weighing their options. Cukurova Holding, a founding stakeholder in the country’s biggest mobile-phone operator, is considering asking state-owned Ziraat Bankasi to rearrange a 10-year $1.6 billion loan taken in 2014.
Additionally, Ferry-boat company IDO is working with Lazard to restructure $500 million.
More than half of the liabilities of Turkish companies are to banks based in the country, over double the ratio in 2008, according to central bank data. Non-performing loans as a percentage of total credit rose to 4.11 per cent in February from around three per cent at the beginning of 2018.
The energy industry alone has more than $51 billion in outstanding debt.
All of Turkey’s large infrastructure projects, including Istanbul’s $11 billion new airport, are financed through foreign-currency loans taken out mainly with local lenders. Their ability to repay is hindered because most of their income is in lira.
Fitch Ratings said that the lira’s depreciation inflates foreign-currency risk-weighted assets of banks and dents their capital ratios.
NPLs could worsen significantly given the weaker economic outlook, higher interest rates and pressure on foreign-currency borrowers, added Fitch.