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Turkey Working on Bad Debt Roadmap to Boost Lending, Growth

Turkey Working on Bad Debt Roadmap to Boost Lending, Growth

(Bloomberg) --

Turkey is working on a plan to rid banks of their non-performing loans as policy makers step up attempts to boost lending and growth.

The banking regulator, known as BDDK, will soon ask the nation’s lenders to slash the bad-debt ratio in their balance sheets so that credit to industrialists starts flowing again, according to people with direct knowledge of the matter.

As part of a plan that’s been approved by the Ministry of Treasury and Finance, the regulator will ask commercial banks to develop their own roadmaps to lower NPL ratios, one of the people said, asking not to be identified because the discussions have yet to be made public.

Lenders will either have to sell bad debt to investors or increase the size of their loan books to push down NPL ratios. Banks will have until the end of 2020 to meet bad-debt targets, and the regulator will check progress monthly. Both the ministry and the banking regulator declined to comment.

The bad-debt plan is the latest step in the government’s efforts to kickstart the economy through faster credit growth. Some commercial banks remain reluctant to increase lending before they clean up their balance sheets. Capital levels and asset quality have come under scrutiny following last year’s currency crash, which triggered wave of corporate debt-restructuring demands.

The move “confirms once more that credit induced growth remains the government’s priority,” said Wolfango Piccoli, co-president of Teneo Intelligence in London. “Rebalancing the economy, devising a new economic model are distant concerns for a government that seems to be focused mainly on a short term fixes and wins,” he said by e-mail.

The ratio of bad loans to total credit in the system stood at 5.2% in October and may reach 6.3% by the end of the year, according to the banking regulator. The government wants the banks to reduce the average ratio to 2% to 3% by the end of 2020, one of the people said.

Ambitious Target

President Recep Tayyip Erdogan’s government dramatically increased its 2020-2022 economic growth target to 5%, arguing it can be achieved without stoking inflation and generating the yawning current-account gap that dogged previous upswings. Success will hinge on the strength of the private sector, investment and exports.

Turkey’s banking regulator in September told lenders to reclassify 46 billion liras ($8 billion) of loans as non-performing by the end of the year. Bloomberg reported on Thursday that it later decided to let lenders determine which company loans need to be reclassified as non-performing, and revised how banks classify credit to once-troubled companies, potentially helping them avoid adding more problem loans to their books.

To contact the reporters on this story: Kerim Karakaya in Istanbul at kkarakaya2@bloomberg.net;Cagan Koc in Istanbul at ckoc2@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Riad Hamade at rhamade@bloomberg.net, Amy Teibel, Paul Sillitoe

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