EBRD Draws Road Map for Turkish Banks to Tackle Bad-Loan Problem
EBRD Draws Road Map for Turkish Banks to Tackle Bad-Loan Problem
(Bloomberg) -- European Bank for Reconstruction & Development will present a set of proposals to Turkish authorities and banks on Friday on how to overcome the nation’s bad-debt predicament.
The London-based lender is suggesting that the definition of non-performing loans be updated in line with those of the European Banking Authority and that guidance be given on how banks value and manage collateral for credit. It is also urging that a longer-term solution be put in place on how troubled debt is restructured.
“The NPL problem in Turkey appears not as big as it was thought to be in the past and not as big as it used to be in some eastern and central European countries,” Bojan Markovic, deputy director for economics, policy and governance at the EBRD, told reporters in Istanbul Thursday. “But it’s important to do contingency planing and fix the roof when the sun is shining.”
Read more: EBRD Urges Transparency on Turkey Bad Loans Before Offering Help
Turkish lenders are struggling with a rising pile of problematic loans and demands from companies to restructure borrowings as the economy stutters. The banking regulator asked lenders in September to reclassify about $8.1 billion worth of loans as non-performing by the end of the year.
EBRD, in its strategic outlook for 2019-2024, said growing non-performing loan concentration is burdening the banking sector and limiting credit growth. The bank also identified the improvement of legal, institutional or regulatory frameworks for how unpaid loans can be resolved as a key objective for strengthening the resilience of the financial sector.
A lack of clarity in classifying exposures, regulations on the sale and transfer of bad loans, and restrictions on reductions and write-offs due to embezzlement risk are among impediments the EBRD mentioned in its report.
Clearing those regulatory and legal hurdles will open up the bad loans market for foreign investors and will help build up a sustainable NPL resolution, according to the EBRD. Securitizing bad loans would be a quick solution to clear banks’ balance sheets and attract specialized foreign investors, it said.
EBRD has invested 11.5 billion euros ($12.7 billion) in 300 projects in Turkey in the past decade and helped raise another 2.3 billion euros from external sources for the developments.
To contact the reporters on this story: Asli Kandemir in Istanbul at akandemir@bloomberg.net;Ercan Ersoy in Istanbul at eersoy@bloomberg.net
To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Paul Richardson
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