On July 14, Turkish President Recep Tayyip Erdogan extended the Financial Restructuring Law for two years, a presidential decree published in the Official Gazette shown July 15th.
The law entered into force on July 14, 2019 for a period of two years, with Erdogan having the right to extend it for two years.
On the basis of the law, a financial restructuring framework agreement was approved by the banking supervisory body BDDK in September 2018. It was signed by 28 banks in December 2018.
According to the framework agreement, if the creditors covering two-thirds of a syndicated loan agree to sign a contract with the debtor as part of the agreement, then all creditors are obligated to restructure the entire loan. .
The banking association provides monthly data on restructurings under the agreement. Thus, 56 billion Turkish Liras (TRY) of loans were restructured for a total of 230 companies from October 2019 to the end of May 2021.
TBB also obtains separate data from the banks on debt restructuring which does not fall within the scope of the framework agreement.
However, the association notes that the figure does not reflect the actual volume of restructuring since responding to its request is not mandatory and banks do not provide complete data.
As a result, TBB members reported that they had restructured an additional TRY 216 billion in loans by the end of March 2021.
In May, Istanbul airport operator IGA signed a debt restructuring agreement with local banks for 5.8 billion euros in loans.
The combined lending volume of Turkish banks stood at TRY 3,903 billion as of July 13.
In June, BDDK extended its regulatory forbearance measures for local banks until the end of September.
In December, forbearance measures for “zombie” companies were also extended, with the new deadline set for the end of 2021. Therefore, companies that should file for bankruptcy are not required to do so.
The abstention measures make it impossible to monitor the actual situation that exists with regard to the Turkish banking sector and its loans to the real estate sector.
” Let’s be realistic. There is [sunk] loans that we keep afloat, ”Huseyin Aydin said in February in his last TV interview while he was still head of the Turkish banking association, TBB.
Since 2016, Turkish banks have been feeling the heat amid economic fluctuations and government pressure. The expansion of the state’s Credit Guarantee Fund (KGF) resulted in a substantial amount of deprecated loans.
The banking problems intensified after the crash of August 2018. Faced with this crisis, the tolerance measures put in place to contribute to the consolidation of bank balance sheets have been strengthened.
With the arrival of the coronavirus pandemic (COVID-19), the problems of the Turkish banking sector are somewhat out of control.
The forbearance measures allow the country’s banks to register a loan as a non-performing loan (NPL) after 180 days rather than 90 days.
Turkish banks also use the central bank’s average currency purchase rate over the past 252 days to calculate their capital adequacy ratios.
At the end of March, the percentage of problem loans in the Turkish banking sector was estimated at around 15% of total loans.
The Turkish authorities do not provide actual data sets on problem loans, KGF loans or restructured loans.
A curious reality is that government-run banks increased their loan portfolios in 2020, but they have the lowest NPL ratios.