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Turkish Banks Wanting to Sell Bad Debts Have Willing Buyers

Turkish Banks Wanting to Sell Bad Debts Have Willing Buyers

(Bloomberg) -- Turkish banks wanting to offload a rising collection of bad loans may find willing buyers at European Bank for Reconstruction and Development and International Finance Corp. Banks rallied the most in almost three months, while the lira extended gains.

EBRD and IFC, as the World Bank Group’s private-sector investment arm is also known, would be willing to make the investments as part of their global strategy to support banks in the countries in which they operate, according to executives from the institutions.

The lira’s crash in the second half of 2018 and a recession in the Middle East’s biggest economy is making it harder for companies to repay debt, especially in foreign currencies, causing a deterioration in the asset quality of banks. Turkey’s banking regulator estimates that the ratio of non-performing loans to total credit may climb to as high as 6 percent this year from 4.1 percent at the end of February.

“EBRD is interested to deepen its work in the NPL space in Turkey,” Arvid Tuerkner, the institution’s managing director for Turkey, said in an emailed response to questions. “We haven’t been approached yet with a proposal to invest in an NPL vehicle or special purpose vehicle, but would look at it, and are ready to engage, if the structure meets our commercial and sound banking requirements.”

‘Positive Impact’

The 13-member Borsa Istanbul Banks Index gained momentum toward the end of the day to close 6 percent higher, the biggest one-day jump since Jan. 16. The lira extended gains that snapped two days of losses, strengthening 0.9 percent against the dollar to 5.5762 by 6:53 p.m. local time. GCM Securities analyst Enver Erkan said the gains followed the “positive impact of the news flow” of the willingness of EBRD and IFC to step in.

Turkish lenders will probably sell about 10 billion liras ($1.8 billion) of bad-loan portfolios this year, an increase of 33 percent from 2018, said Hilmi Guvenal, chief executive officer of Hayat Varlik Yonetimi AS, in which EBRD has a 12 percent stake. Banks may receive up to 500 million liras this year from the sale of NPLs to asset managers such as Hayat Varlik, he said in a Feb. 26 interview. There are 19 distressed-loan buyers in Turkey.

“Supporting an orderly restructuring of problem loans by the financial sector is part of IFC’s country strategy in Turkey,” Turkey country manager, Arnaud Dupoizat, said. “Mobilizing funding from the private sector to resolve NPLs helps to increase the liquidity of banks, freeing up capital for new lending and supporting the broader economy, especially small-and medium-sized businesses.”

London-based EBRD, which in 2017 started a 300 million-euro ($337 million) program to help with souring loans, has so far financed a total of 63.3 million euros in equity and debt for NPL purchases by asset managers in Greece, Turkey and Bulgaria, according to an emailed statement. IFC, which has committed $5.4 billion to distressed assets globally, has invested in a restructuring fund for Central and Eastern Europe, as well as acquired NPL portfolios in Bulgaria, Montenegro, Romania and Greece, among others.

To contact the reporters on this story: Kerim Karakaya in Istanbul at kkarakaya2@bloomberg.net;Ercan Ersoy in Istanbul at eersoy@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, ;Onur Ant at oant@bloomberg.net, Vernon Wessels, Ross Larsen

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