Non-performing loans in Turkey’s banking sector have been on a “significant” rising trend as of late, although banks have so far successfully managed their bad debts, the head of Turkey’s largest listed lender, Isbank, said last week.
Adnan Bali is the latest banking executive to sound a note of caution about rising bad debts at Turkish banks, which face slowing growth in an economy where private investment is weak and many companies are already overleveraged.
“It is clear that we have entered a significant rising trend,” Bali told reporters at a news conference in Istanbul when asked about non-performing loans (NPLs). “But I think NPL ratios are being managed well. The problem seems bigger than it is because the loan base is not growing.”
The average NPL ratio rose to 3.3% in the first quarter from 2.8% in the same period a year ago, regulatory data showed, while the biggest jump in bad loans was to small and medium-sized businesses, which rose to 4.4%.
The actual NPL ratio is close to double the average ratio once write-offs and restructured loans are included, the head of the Turkish Banking Association, Huseyin Aydin, said recently.
Both Aydin and Bali said the current level of bad loans was manageable.
However they warned that measures needed to be taken to ensure the banking sector remained healthy.
“Measures that are hitting capital adequacy ratios and high transaction costs on banks have to be reconsidered,” Bali said, referring to a raft of regulatory measures introduced in 2011 to curb loan growth and cut the current account deficit.
The outlook for bank regulation has become less certain after new Prime Minister Binali Yildirim trimmed some of the powers of Deputy Prime Minister Mehmet Simsek, including removing oversight of capital markets and commercial lenders from his portfolio.
Yildirim is a close ally of President Tayyip Erdogan, who favours growth through consumption and wants cheap credit to fuel that.
Simsek, an anchor of foreign investor confidence, is seen as an advocate of fiscal prudence and orthodox economics.
“The government may take measures to boost exports and comfort sectors like tourism and energy.
Those measures may help increase banks’ asset quality,” said Sadrettin Bagci, an analyst at Istanbul-based Deniz Invest. “I do not expect an ease in banking regulations as this has got to do with financial strength.”