Turkey eases rules on $8.1bn of bad loans after banks balk

Turkey’s banking regulator eased measures on how banks classify credit to once-troubled companies, helping lenders to potentially avoid adding more non-performing loans to their books, according to people familiar with the matter.

The Banking Regulation and Supervision Agency, or BDDK, will now leave it to lenders to decide which company loans need to be reclassified as non-performing, said the people, who asked not to be identified because the changes haven’t been publicly announced. Banks won’t have to book the loans of businesses that have restructured borrowings or bolstered cash flows as non-performing, they said.

A representative for the BDDK declined to comment.

The watchdog in September ordered banks to reclassify 46bn liras ($8.1bn) of debt as non-performing by the end of the year and set aside enough provisions to cover them. It is now backing down after banks complained that healthy businesses were included in the list, the people said. The move was aimed at getting banks to write off bad debt faster so they could ramp up lending to help fuel the struggling economy.

A notice of the change to the September directive was sent to banks last month, the people said. Loans already reclassified as non-performing before the November order aren’t covered, they said.

Huseyin Aydin, head of the banks association of Turkey, said in September that banks had already booked between 10bn liras and 15bn liras as non-performing loans, so the amount wouldn’t be as high as the regulator had asked.

In September, the regulator said the reclassification of the loans would raise the industry’s non-performing loans ratio to 6.3 per cent from 4.6 per cent, while average capital adequacy ratio would retreat to 17.7 per cent from 18.2 per cent. Banks average non-performing loans ratio stood at 5.15 per cent in October.