Turkish Banks Pause Plan to Offload Bad Loans in Recovery Bet

Turkish banks suspended a plan to create an asset-management firm to take over their problematic debt in a bet that they’d be better off recovering some of the loans themselves rather than unloading them at a discount.

Lenders are reluctant to sell non-performing loans for less than what they’re worth when they can restructure the borrowings and collect what is owed, people familiar with the matter said, asking not to be identified because the matter is sensitive. The plan can be revived if there’s another economic shock, the people said.

Banks are gambling on International Monetary Fund predictions that the $750 billion economy will expand 5% next year after contracting by the same margin in 2020. Lenders have been key to President Recep Tayyip Erdogan’s focus to keep fueling credit demand to prioritize growth above all else, even before the coronavirus pandemic struck.

Turkish Banks Pause Plan to Offload Bad Loans in Recovery Bet

Despite a currency crisis and a wave of debt restructurings to help businesses hit by measures to contain the Covid-19 outbreak, non-performing loans as a percentage of total credit declined to 4.1% at the end of August from 5.3% in January, according to data compiled by the banking regulator. Bad debts could become more of a headache when the pace of lending decelerates, according to the European Bank for Reconstruction and Development.

The nation’s banks have been grappling since May last year with how to spin off their souring debt so they’ll have more room to keep lending. Talks were said to have deadlocked almost as soon as they began over the pricing and structure of potential transactions, while a renewed push in December to get it done by the first quarter of this year also stalled.

Work on the asset-management plan is ongoing, the Banks Association of Turkey said, without giving further details.

©2020 Bloomberg L.P.

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