Turkey's Bad-Loan Talks In Deadlock as Banks and Investors Clash

(Bloomberg) -- Turkish banks disagreed on almost everything with potential investors when they met for the first round of talks about unloading a mountain of bad loans, according to people who were at the gathering in Istanbul last week.

The deadlock between potential buyers, including Goldman Sachs Group Inc. and Bain Capital LP, involved the price and structure of any transaction, some of the people said, asking not to be identified because the gathering was private.

Attendees couldn’t even agree on the definition of a non-performing loan, one of the people said. The meeting was at a working level and discussions were preliminary, the people said.

While the plan to clear up the banks’ books is a key part of government plans to bolster a weakened financial system, some of the participants questioned whether there would even be more talks, some of the people said. Bank capital ratios are being squeezed after companies requested about $28 billion of debt-restructurings after a 28% plunge in the lira against the dollar last year.

Ownership Stake

Investors demanded a 30% discount on the face value of the loans and an ownership stake in the troubled assets of lenders, one of the people said. For their part, the banks refused to write-off the loans and instead wanted to restructure them, another person said.

The 13-member Borsa Istanbul Banks Sector Index rose as much as 2.2% on Thursday, paring losses this year to 1.1%.

The meeting, organized by PwC, was the first such gathering since Treasury and Finance Minister Berat Albayrak unveiled plans last month to carve out non-performing energy and real-estate loans. The debt would then be transferred to two funds that will be run by banks, as well as local and international investors.

PricewaterhouseCoopers, Goldman Sachs and Bain declined to comment.

What Bloomberg Intelligence Says:

Negotiations to create special funds and clean up the banks’ balance sheets “may be lengthy and difficult.”

Non-performing loans, up more than 15% this year to $18 billion, will “unlikely show any sign of easing in the coming months, given the lira’s recent slide, heaping more pain on the embattled economy.”

-- Analysts Tomasz Noetzel and Jonathan Tyce
-- Click here for the research

High levels of borrowings in the corporate sector, where foreign liabilities exceed assets by almost $200 billion, is aggravating risks to the financial system, especially considering that more than half of those debts are owed to domestic banks, Moody’s Investors Service said in an emailed report on Thursday.

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