Turkey's Planned Lifeline for Builders Will Also Please Banks

(Bloomberg) -- A rescue plan drawn up by Turkey’s Ministry of Treasury and Finance would allow construction and real estate companies to offload unsold stock to a state-backed fund and channel most proceeds toward repaying the country’s wobbly banks.

Two associations of Turkish builders, known as Inder and Gyoder, on Tuesday asked members to present an inventory of unsold real estate to a government-backed property investment trust Emlak Konut.

Under the plan as outlined in a document sent to builders by the two associations, companies will apply to the fund to buy their unsold units at a discount to market prices, with 70 percent of the proceeds going to their creditors.

The measures will be a boon for banks, which have been struggling to deal with a rising number of restructurings after the lira dropped 40 percent against the dollar this year, making it one of the world’s worst-performing currencies, and hurting firms’ ability to repay foreign-currency loans. The energy industry alone owes $51 billion to the nation’s banks. Construction is another problematic industry.

“It is proving that the real estate market and construction segment are suffering and could be a source of serious trouble,” said Bloomberg Intelligence banking analyst Tomasz Noetzel. “These measures bode well for banks as they will reduce new bad debt flow and we may see more similar steps to help economy.”

Bank Shares

The Borsa Istanbul banking index pared losses after the report of the plan on Tuesday. It was down almost 2 percent at the close in Istanbul, faring worse than the country’s benchmark stock gauge. The 13-member Borsa Istanbul Banks Sector Index lost 29 percent this year mostly because of worries on the asset quality, under performing the benchmark index’s 17 percent decline.

Priority will be given to companies already struggling to service bank debt, according to the plan, in a sign that policy makers are showing as much concern for lenders as for construction firms. The Ministry of Treasury and Finance is taking the lead in planning and putting together the necessary funds.

The ministry and Turkey’s banking association, which is providing assistance to policy makers alongside Emlak Konut, couldn’t be reached for comment on the plan.

The plan also comes amid expectations that the government will take comprehensive measures to address a pile-up of bad loans, which have jumped 35 percent since the beginning of the year to around $16 billion, even though non-performing loans and capital adequacy ratios remain relatively healthy at 3.2 percent and 18 percent, according to banking watchdog data at the end of September.

Emlak Konut said in a public filing on Tuesday that it was making an inventory of finished real estate units and called media reports about its work untrue, without elaborating.

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