Who will rescue Turkey private lenders?
Private banks rightly ask the questions of who will bail them out, when loans generously distributed to needs consumers and companies with no cashflow fail to return? Even before the Covid-19 outbreak laid low the Turkish economy, the bad loan problem in the banking system was endemic, papered over by ever-more generous “regulatory forbearance” by BRSA
Turkey’s privately owned commercial banks reduced their loan portfolio by TL4.6 bn, according to official stats. Total lending soared over the interim, thanks to relentless efforts by state banks not to turn anyone who comes through the door of their branches empty-handed. The reluctance exhibited by private lenders at a time of national emergency angered President Erdogan, who cautioned them to fall in line or else. His economy czar Mr. Berat Albayrak and the chairman of the banking regulator BRSA, Mr. Ali Akben, too, joined the chorus of scapegoating private lenders.
Private banks rightly ask the questions of who will bail them out, when loans generously distributed to needs consumers and companies with no cashflow fail to return? Even before the Covid-19 outbreak laid low the Turkish economy, the bad loan problem in the banking system was endemic, papered over by ever-more generous “regulatory forbearance” by BRSA.
Now, banks are fighting back, requesting Erdogan to stop putting them on the spot. According to Bloomberg, they met with BRSA head Akbank to explain their plight.
Turkish banks are hitting back at criticism from President Recep Tayyip Erdogan that they’re not supporting the economy by appealing to their regulator to smooth tensions with the government.
Lenders not owned by the state highlighted their efforts to help restructure troubled loans during talks on Tuesday with Mehmet Ali Akben, the head of the banking regulator, according to a copy of the minutes seen by Bloomberg News. The institutions also pointed to a drop in credit demand and more favorable terms offered by state-owned lenders as hindering their ability to compete, reports Bloomberg.
The backlash from lenders also comes after the Turkish leader on Monday issued a stern warning to private banks, saying they weren’t “passing the test” in extending loans to troubled businesses.
Representatives for the lenders voiced concern with the regulator that they are being singled out and urged that authorities don’t discriminate between state and private financial firms, the minutes of Tuesday’s conference call shows. The constant criticism was also weighing on the morale of bankers, they were cited as saying.
The lenders also cautioned that pressures over asset quality and capital levels are building and will be more visible in the second half of the year, the document shows.
Akben was cited in the minutes as saying that the priority of lenders should be to support the economy, that private banks should be pricing new loans at reasonable rates, and that they shouldn’t increase interest rates for restructured loans.
According to an equity analysis report by HSBC London research team, circulated in the Turkish press, bad loans of the banking system will catapult to over 9% of the total from 5% now. The second category of delinquent or risky loans could soar to 17%. The government fails to understand the basics of the commercial banking business. It may relax macro-prudential rules, but banks still need to make provisions and estimates for bad loans when they go abroad to seek syndicated loans. Additionally, almost 40% of the system has non-resident owners, which make these banks subject to other banking jurisdictions, which impose stricter disclosure rules.
President Erdogan could actually end up chasing off foreign banks from Turkey in his zest to keep loans flowing out business.
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