Turkish banks need to restructure $13 billion of power firms' debt

Turkey’s banks need to restructure between $12 billion and $13 billion of loans granted to power producers and distributors -- a manageable amount, the country’s banking association said.

The restructuring of about $10 billion of the lending will be completed this year, the Banks Association of Turkey (TBB) said in a statement on Tuesday, according to local media including Dünya newspaper. The loans form part of total debt stock of the sector of about $47 billion, it said.

“The classification and calculation of provisions for these loans has been performed according to international financial models and supervision,” the TBB said. “Rates of provisioning could differ between banks because of projections of cash flow and loan collateral valuation.”

Turkey’s banks have been saddled with tens of billions of dollars of troubled loans after a currency crisis hit the economy in the summer of last year. The government has also suppressed the price of power, hurting the balance sheets of energy companies. Much of the bad debt in question belongs to energy firms and to companies operating in the real estate industry.

Investors have cited the mounting pile of troubled private sector debt as a potential major threat to Turkey’s economic and financial stability.

The Turkish authorities want the country’s banks to write off loans awarded for some energy projects as part of a larger plan to clean up banks’ books and boost lending to the wider economy, Bloomberg reported last week.

The nation’s banking regulator wants $1.9 billion of credit granted to at least three gas-fired power stations to be classified as non-performing as part of the plan, the news wire said, citing people with knowledge of the matter.

In the worst-case scenario, the loans to be restructured in the power sector could affect the capital adequacy ratio of the banking industry by a maximum of 0.23 percent if they are fully provisioned for, the association said. The impact on the non-performing loans of banks would be 0.22 percent of total lending by banks, it said.

"Even if acting in the most conservative way possible towards these loans, the impact will be rather limited and of a manageable and sustainable level," the association said.