Turkish banks shelve plan to offload bad loans – Bloomberg

Turkey’s banks have suspended a plan to offload bad debt into a special management company, Bloomberg reported on Tuesday.

The companies have decided they will be better off dealing with the soured loans themselves, rather than selling them en masse at a heavy discount, Bloomberg said, citing people familiar with the matter that it did not identify.

The plan could be revived should Turkey experience another economic shock, the people said.

Investors in Turkey, as well as the International Monetary Fund and European Bank for Reconstruction and Development (EBRD), have recommended that the Turkish authorities set up a special vehicle to deal with the problem debt even after official data showed a decline. The banking regulator has relaxed definitions of what constitutes a bad loan to encourage lenders to restructure the borrowing and provide more.

Lending to consumers and businesses has been a key element of a government plan to drive economic growth since a currency crisis swept through the country in 2018. The government has stepped up those efforts since the outbreak of the COVID-19 pandemic in March, which has led to a deep economic contraction.

But concerns among investors about the loans have contributed to sharp declines for the lira and cuts to the country's sovereign debt rating. The currency slumped to a record low of 7.96 per dollar last week, extending losses this year to about 25 percent. It has since strengthened to trade at about 7.85 per dollar.

Talks between Turkish banks and investors on a plan for the bad loans broke down last year due to disagreements about what constituted soured lending. Instead, banks have attempted to retrieve the arrears, soften repayment terms, or sell it to collection agencies at a discount.