Turkish banks' distressed debt exceeds $46B amid idle bad loan market
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- 31 Oct 2022
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Turkish banks are struggling to attract international investors to take on their swelling ranks of nonperforming loans amid differing views on valuations and concerns over economic and political uncertainty in the country.
Sales of Turkish nonperforming loans, or NPLs, have slumped since 2019, while the level of distressed debt in the banking system has continued to grow, according to an S&P Global Market Intelligence analysis. Recent legal reforms have paved the way for more foreign investment in the domestic NPL market but interest has so far remained scarce.
The high risk premium that foreign investors would want to put on any Turkish assets for purchase would not match banks' sale price expectations, Ozan Cığızoğlu, a partner leading financial services consulting in Turkey at PwC unit Strategy&, told Market Intelligence. This would only widen the existing price gap in the Turkish NPL market, which is not likely to kick into higher gear before elections in June 2023 and the macroeconomic outlook improves, he said.
For Turkish lenders, this means souring debt will remain on their balance sheets for longer and potentially increase as borrowers repayment ability deteriorates amid the weak economy and high inflation. More NPLs would require higher provisions from banks, weighing on their profitability, capitalization and their ability to lend to the economy.
Soured debt rising
The level of NPLs and Stage 2 loans — those classified as being at significant risk of default — held by Turkish banks as of June 30, have both exceeded the 2021 full-year totals, Market Intelligence data shows. The total amount of NPLs reached 192.67 billion lira and that of Stage 2 loans rose to 667.48 billion lira, bringing the overall distressed debt total in the system to over 860 billion lira, or more than $46 billion, at June-end. The total amount for full year 2021 stood at 791.48 billion lira, of which 191.18 billion lira were NPLs. Read More...
