Daily Management Review

Turkey orders banks to write off $ 8 bln of bad debts


The Turkish financial authority instructed banks to write off 46 billion liras ($ 8.1 billion) of bad debts by the end of the year, and create reserves to cover losses, Reuters reports. This, as the agency notes, is one of Ankara’s most aggressive steps to eliminate the worst consequences of last year’s currency crisis.

Kevin Hutchinson
Kevin Hutchinson
First of all, the authority referred to loans issued to the most affected sectors: energy and construction. This is expected to increase the bad loans ratio of banks from 4.6% to 6.3%, reports BDDK (Banking Regulation and Supervision Agency of Turkey).

The regulator took such a step a year after the worst stage of the currency crisis in Turkey, which caused a sharp increase in inflation and interest rates due to the fact that the country's economy fell into recession.

The Turkish lira lost almost 30% against the dollar last year, and fell by some more 7.8% this year, even though price increases and monetary policy began to weaken.

While the economy is showing signs of recovery, banks’ efforts to resolve the bad debt problem worth about $ 20 billion have ceased in the summer. All initial plans, as Reuters reported, were rejected or postponed.

An agency source familiar with the plans of the Ministry of Finance said that since then the government has shown more signs of impatience regarding the lack of progress regarding bad debts, clogged credit channels and the reluctance of banks to write off loans.

According to the source, the Ministry of Finance intends to take a more aggressive stance on this issue.

source: reuters.com