EXCLUSIVE Turkish banks prepare for capital recovery after pandemic fight -sources

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  • Authorities want lenders ready for another credit boom
  • Capital injection expected as economy accelerates – sources
  • End of September deadline looms for NPL abstention
  • The asset management company remains the leader in source solutions

ISTANBUL, July 8 (Reuters) – Turkey is considering another injection of capital for state banks, but it also needs a plan to deal with persistent bad debts after lenders deplete their resources to help Ankara fight COVID-19, according to senior bankers and government officials.

While private peers were more conservative, state banks nearly doubled their lending last year, helping the $ 720 billion economy avoid a contraction and stage a strong recovery aided by a rapid vaccination campaign against coronaviruses.

Now, authorities want lenders ready for another wave of credit later this year or next to meet pent-up demand from builders and other borrowers, the six sources told Reuters on condition of anonymity. .

But their depleted capital needs a boost, especially since they need provisions before the end-September deadline, when the worst-off loans – including those in hard-hit service sectors – will have to. be classified as non-performing loans (NPL).

“State banks have gone above and beyond last year by financing large projects. There has been excessive use of resources and they need to be strengthened with capital support,” said an official with knowledge of the matter. .

“As some past loans are repaid, further credit growth will be needed for some sectors of the economy at least for the next year,” the person said.

Bankers and officials said, however, that no final government decision had been made on a capital injection, or what to do about overdue loans and non-performing loans, most of which remained in abeyance. files of private and public lenders since the monetary crisis of 2018.

Transferring them to one or more asset management companies, or a “bad bank,” remains a top option, two of the sources said.

The Turkish Treasury did not immediately comment.

An official from the Turkey Wealth Fund said that banks’ capital adequacy ratios “are currently at a good level”, adding that the fund “is always ready to support banks in times of need”.

The fund injected 21 billion lira ($ 2.5 billion) of capital into the big three state-owned banks in early 2020, just before their lending increased by 90%, including low-rate loans. of interest aimed at mitigating the fallout from the pandemic.

IN THE RED

Public lenders are losing money in the face of high costs and the central bank’s 19% key rate, which is supposed to fight almost as high inflation.

The first quarter results show that the net interest income of the two largest state-owned banks was in the red while the largest private lenders, including Garanti Bank (GARAN.IS), Is Bank (ISCTR.IS), Akbank (AKBNK.IS), Yapi Kredi (YKBNK.IS), were in the dark.

Halkbank’s (HALKB.IS) overall net profit fell 93% in the quarter compared to last year, while Vakifbank (VAKBN.IS) and Ziraat Bank fell 56% and 49% respectively .

They are in dire need of capital in order to generate another credit expansion later this year or next, a senior banker said.

“It’s not a question of capital adequacy ratio or liquidity needs. It’s a question of their ability to spur new lending for growth. That’s why state-owned banks need an urgent capital increase, “said the banker.

A second senior banker told Reuters: “Growth cannot be achieved with current capital levels.”

NPL RESOLUTION

Fitch Ratings agency said last month that “risks remain high” for the sector due to rapid growth in loans and exposure to sectors like tourism and hospitality, which could exacerbate risks for banks already struggling with bad construction and energy debts.

The 2018 crisis exposed Turkey’s heavy reliance on cheap foreign credit and severely hampered economic growth until the first quarter of this year, when the economy grew by 7%.

Despite the economic recovery and a low sector NPL ratio of 3.7%, banking regulator BDDK extended a forbearance period – introduced last year – until September 30, after which many Phase 2 loans should be classified as non-performing.

Data from banking associations shows watchlist loans increased 23% to Lit 370 billion at the end of last year.

Bankers told Reuters the deadline made a capital injection more urgent, especially given the relatively low loan loss allowance ratios of state banks.

“Banks could face a significant increase in bad debt provisions if the grace period (…) is not extended again,” said a third banking source.

A year ago, Ernst & Young submitted to the banks a plan for an asset management company (AMC) that would house billions of dollars of NPL and alleviate the long-simmering problem, although some lenders are reluctant to this plan.

“It may be possible to resolve these issues through the asset management company. It doesn’t look easy otherwise,” a second government official said. The NPL’s abstention “cannot go on forever. We have to face reality.”

($ 1 = 8.6787 lire)

Reporting by Ebru Tuncay and Orhan Coskun; Editing by Jonathan Spicer and Emelia Sithole-Matarise

Our Standards: Thomson Reuters Trust Principles.


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