Turkish banks have to write off bad loans
The Turkish Banking Regulation and Supervision Authority (BRSA) is forcing the country’s financial institutions to radically clean up their balance sheets. As the Financial Times reported on 18 September, Turkish banks must reclassify about 46 billion Lira (7.34 billion Euros) of their loans as non-performing. This means that the sector’s overall ratio of non-performing loans will increase to 6.3 percent by the end of the year; for comparison: in July the figure was still 4.6 percent.
To implement the measure, the banks must first build up new provisions. The capital adequacy ratio will deteriorate from 18.2 to 17.7 percent across the industry.
From the BRSA’s point of view, however, this step is necessary. Because: With this measure, the regulatory authority wants to put a stop to the excessive lending of banks in recent years. Due to this, the Turkish economy grew by more than ten percent in 2017 alone. In the meantime, however, more and more of the loans cannot be repaid – and are paralysing the banking business.
By declaring the loans to be “non-performing”, the financial institutions are not only given the opportunity to write them off. Above all, they can turn to new businesses again. Financial Times