Turkey wants banks to write off US$1.9bil debt


Bad debts: Albayrak sees a pickup in growth once the rest of the bad loans are dealt with. — Reuters

ISTANBUL: Turkey wants its banks to write off loans to some energy projects as part of a larger plan to clear lenders’ books, an effort aimed at boosting credit in the nation’s ailing economy.

Banking regulator BDDK wants credit extended to at least three gas-fired power plants to be classified as non-performing loans, according to people with knowledge of the matter.

They are ACWA’s US$1bil plant in Kirikkale, Gama Enerji’s US$900mil project near Ankara and a US$1bil facility run by Ansaldo Energia SpA and its partners in Gebze, the people said, asking not to be identified discussing confidential talks.

Turkiye Garanti Bankasi AS, Turkiye Is Bankasi AS, Akbank TAS, European Bank for Reconstruction and Development, Denizbank AS and Yapi Kredi Bankasi AS are among the banks that lent to those projects, according to data compiled by Bloomberg. The total original loans on these projects were nearly US$1.9bil.

The BDDK wasn’t immediately available for comment. An official at Turkey’s Treasury and Finance Ministry acknowledged that authorities were working on a plan to clear bank balance sheets, saying details would be announced later.

The push for those three particular projects is part of a broader blueprint that policy makers are working on, according to people familiar with the matter. Under the program, the government would also be prodding lenders to boost capital to restore buffers and create room for new credit in their balance sheets.

Its preparation shows the Turkish government is unlikely to put up with historically low levels of loan growth for much longer as President Recep Tayyip Erdogan pushes for measures to get the economy expanding at a much faster pace.

Many banks privately told policy makers that they weren’t keen on being forced to reclassify massive amounts of debt as NPLs so quickly, the people said.

Turkish companies have borrowed around US$60bil since 2003 to finance investments into new power generation and distribution, according to a Boston Consulting Group report. With the lira sliding faster than most producers can raise electricity prices, some utilities aren’t earning enough to repay foreign-currency loans, posing a great risk to banks.

Last year’s currency crash amplified this mismatch. Average electricity prices are about US$54 per megawatt-hour, compared with US$81 in 2010 – part of the reason why there is a surge in demand from power producers to restructure their liabilities.

About two-thirds of the loans taken out by the energy industry are yet to be repaid, according to Ebru Dildar Edin, a deputy chief executive officer at Garanti. As much as $13 billion needs to be restructured, with gas plants making up a bulk of it, she said earlier this year.

Treasury and Finance Minister Berat Albayrak said in July the government won’t cover any losses incurred by banks, which have reorganised nearly half of 400 billion liras (US$70bil) of troubled loans.

Albayrak sees a pickup in growth once the rest of the bad loans are dealt with. Turkey came out of a recession during the first quarter but is still expected to fall far short of 2.3% official growth target for the entire year. Erosion in economic confidence and rising joblessness helped Turkish opposition deal the most stinging electoral defeat to Erdogan in a municipal vote this year.

Reclassifying US$1.9bil of the debt would add 40 basis points to the industry’s NPL ratio, taking it to 5%, lower the capital adequacy ratio of the sector by 2 percentage points to 16.22%, and reduce the average return on equity by 4 percentage points to 8.6%, said TEB Investment analyst Ovunc Gursoy. The 13-member Borsa Istanbul Banks Sector Index fell as much as 1.4% on Friday.

“We believe that the government is working on a broader plan to bring a resolution to energy sector NPLs, which is likely to be revealed before the year end, ” he said. “Admitting the problems and taking certain steps to find solutions is a constructive move in our view.” — Bloomberg


   

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