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MENA - ENGLISH

Turkey's bad-loan sales to take off and peak in 2023, AMC head says

NPL sales will start intensely next year and reach a peak in 2023

Turkish lira banknotes are seen in this photo illustration taken in Istanbul January 7, 2014. Image for illustrative purpose.

REUTERS/Murad Sezer
By Ebru Tuncay, Reuters News

ISTANBUL- Turkey's banks are expected to ramp up sales of bad loans over the next three years and offload some $7-$10 billion, with the market peaking in 2023, the head of the Turkish Asset Management Companies Association said in an interview.

Sales should pick up beginning on Oct. 1 when a regulator ends a pandemic-era forbearance period that stopped banks from classifying many of the loans as non-performing, or NPLs. 

Sezin Unludogan, chair of the association, told Reuters banks are expected to sell 5-6 billion lira ($563-$676 million) worth of non-performing, watch-list and write-off loans this year in total, after already offloading 2.7 billion lira.

By the end of 2024, she said buyers will have snapped up between 63 billion and 88 billion lira worth of the distressed debt - a problem that has simmered on lenders' balance sheets since a currency crisis three years ago.

"We expect NPL sales will start intensely next year and reach a peak in 2023, since the sector's NPL portfolio has risen since 2018," Unludogan said on Friday, adding that stage-two "watch list" loans increased as initial pandemic fallout eased.

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The banks hold some 600 billion lira in problem loans including 420 billion lira in watch-list loans and 150 billion lira in NPLs, the association says. Some 25 billion lira in loans are classified as write-offs.

Total sector loans were worth 3.88 trillion lira at the end of June.

Banks have been saddled with the bad debt since the 2018 crisis exposed the vulnerabilities of highly leveraged Turkish companies. Efforts to resolve the issue, including plans to set up a fund or an asset management company, have fizzled.

FOREIGN INVESTORS

Turkey's NPL ratio dropped to 3.7% at the end of July, from 5.36% at the end of 2019, due to the forbearance measure and a spike in cheap credit to boost the economic recovery.

Unludogan said foreign investors should enter Turkey's NPL market once sales begin to ramp up.

"Foreign investors are conducting negotiations," she said, adding they are picking and choosing bad loans from around the world.

"When volumes increase foreign investors will get a share. Asset management companies can handle the current level of sales from banks with their current equities, but if the volume increases too much, foreign investors will be needed."

Investors such as Japan's ORix, Bain Capital and Cerberus were among those interested in buying distressed assets from Turkish banks when the lira crisis hit in 2018, though few deals materialized.

($1 = 8.8786 liras)

(Editing by Jonathan Spicer and Mark Heinrich) ((jonathan.spicer@reuters.com; Reuters Messaging: jonathan.spicer.thomsonreuters.com@reuters.net @jonathanspicer))


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