Bloomberg/Kerem Uzel

Regulation

Turkish regulator told banks to reclassify $8.1 billion debt as bad loans

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The Banking Regulation and Supervision Agency (BDDK) said that the banking sector maintains its health and strong structure.

Thursday 19, September 2019 BY KUDAKWASHE MUZORIWA

Turkey’ BDDK said that lenders should reclassify TRL 46 billion ($8.1 billion) of loans as non-performing (NPLs) by the end of the year and set aside enough provisions to cover them.

The reclassification of the loans, mostly to construction and energy firms, will bring the industry’s non-performing loan ratio to 6.3 per cent this year, slightly higher than the regulator’s December 2018 prediction of six per cent.

BDDK stated that the reclassification also reduces banks’ capital adequacy ratio to 17.7 per cent from 18.2 per cent.

Banks’ capital levels and asset quality have been under scrutiny as lenders have been struggling with the fallout of a currency crash in 2018, a wave of debt-restructuring demands from companies as well as a slowing economy, and they are reluctant to lend more before they clear their balance sheets of existing problem loans.

Turkish lenders are currently trading at slightly over half of their book value as concerns on asset quality scare off investors.

According to the BDDK, while the NPL ratio was 4.6 per cent at the end of July, investors said that this could be higher if loans under close watch were included.

The regulator said that it regularly advises banks on how to strengthen their capital and that they had added TRL 49 billion to their capital base, excluding contributions from retained earnings, over the past year.

Analysts said that lenders have as much as TRL 13 billion of free provision, which they usually set aside when profits are high, banks with higher free provisions set aside will have higher buffers to defend their earnings. Garanti is said to be leading the sector with TRL 2.5 billion of free provisions to release.

 

TAGS : NPL, Banking Regulation and Supervision Agency, Lira

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