Turkey announced a plan to monitor banks’ health, while stopping short of laying out measures to alleviate worries about a bad-loan burden.
Future policies “will help the banking sector to strengthen, and the real economy to have access to credit at affordable rates, while creating room for credit restructuring if needed," Treasury and Finance Minister Berat Albayrak said in a news conference in Istanbul on Thursday.
The situation is still being studied, and policies will take heed of “global examples and Turkish past experience,” he said, as he announced the nation’s economic program for 2019-2021 and a “health assessment” watch for lenders. “Making sure that the banks continue financing businesses is one of the priorities,” he said, without giving more detail.
The government will begin assessing the financial health of lenders on Monday, Albayrak said in a televised interview on CNNTurk on Thursday evening.
His remarks failed to assuage investors concerned that a crunch is coming from the sinking lira, surging interest rates and struggling borrowers. The lira initially jumped almost two per cent after Albayrak announced revised economic targets, before trimming those gains. It was 0.3 per cent higher as of 6:10 p.m. local time. The Borsa Istanbul Banks Index fell 2.8 per cent, dragging the benchmark gauge 0.5 per cent lower.
“The press conference has been a disappointment both on the forecasts and the announcements,” said Guillaume Tresca, a strategist at Credit Agricole SA in Paris. “First, there is nothing really concrete on the foreign-exchange financing of the corporate and banking sectors. Likewise, there is no announcement about a ‘bad bank’ or how they will deal with non-performing loans; nothing about a more independent central bank."
People familiar with the government’s plans said earlier this week that one of the options being considered to clean up banks’ balance sheets, if needed, was the transfer of non-performing loans to a state-designated entity. However, the head of Turkey’s banking regulator, Mehmet Ali Akben, told the Dunya newspaper that such a move isn’t in the plan.
Turkish businesses had $331 billion of foreign liabilities at the end of June. When netted against their foreign-exchange assets, the shortfall is $216 billion. Lenders have also been struggling to deal with a rising number of restructurings after the lira dropped 40 per cent against the dollar this year, second only to the Argentine peso as the world’s worst-performing currency. The plunge is hurting firms’ ability to repay foreign-currency loans.
On Wednesday, the Banks Association of Turkey began implementing a regulator-approved framework of rules on loan restructuring. The new rules may help a large swathe of industries, with the energy sector alone owing $51 billion to local lenders.