June 23, 2020 / 4:08 PM / 12 days ago

S&P: Problem loans in Turkish banking sector to exceed 20% by 2021

LONDON, June 23 (Reuters) - S&P Global Ratings said on Tuesday it estimated problematic loans at Turkish banks would rise to more than 20% by next year, citing pressures from the country’s economic recession and the slide of the lira.

Despite a relatively low level of reported non-performing loans (NPLs) of 4.6% at the end of May, the ratings agency cited a number of pressure points faced by Turkey’s banks, including high corporate sector indebtedness compared to other emerging markets.

“Risks are further exacerbated by some specific characteristics ... namely, the accelerated lending through the Credit Guarantee Fund (CGF), and more recently via state banks, as well as the high proportion of foreign currency lending,” S&P added, saying foreign currency lending stood at almost 37% of gross loans.

“We expect NPLs to reach 11%-12% by 2021, while problematic loans (NPLs plus restructured loans) will pass to more than 20% of loans from about 10% in September 2019,” S&P said in a note.

Earlier on Tuesday, Turkish Finance Minister Berat Albayrak called on banks to speed up restructuring of loans and said the government would support the formation of an asset management company to take on loans of problematic companies from all banks.

S&P added it considered checks and balances within the Turkish institutional system weak, which raised questions about the quality of regulation and perceived independence of the watchdog and the central bank.

The ratings agency added it classified Turkey’s banking sector in its assessment framework in the same group as Azerbaijan, Egypt, Kazakhstan, Greece, Bangladesh and Argentina. (Reporting by Karin Strohecker; Editing by Mark Potter)

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