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Turkey wants banks to erase US$1.9bn to stimulate credit

RECLASSIFICATION:The regulator wants banks to write off credit to three energy firms to clear their balance sheets and make way for new lendings

Bloomberg

Turkey wants its banks to write off loans to some energy projects as part of a larger plan to clear lenders’ books, an effort aimed at boosting credit in the nation’s ailing economy.

Banking regulator BDDK wants credit extended to at least three gas-fired power plants to be classified as non-performing loans (NPLs), people with knowledge of the matter said.

They are ACWA’s US$1 billion plant in Kirikkale, Gama Enerji’s US$900 million project near Ankara and a US$1 billion facility run by Ansaldo Energia SpA and its partners in Gebze, the people said, asking not to be identified discussing confidential talks.

Turkiye Garanti Bankasi AS, Turkiye Is Bankasi AS, Akbank TAS, European Bank for Reconstruction and Development, Denizbank AS and Yapi Kredi Bankasi AS are among the banks that lent to those projects, according to data compiled by Bloomberg.

The total original loans on these projects were nearly US$1.9 billion.

Authorities were working on a plan to clear bank balance sheets, saying details would be announced later.

The push for those three particular projects is part of a broader blueprint that policymakers are working on, people familiar with the matter said.

CAPITAL BOOST?

Under the program, the government would also be prodding lenders to boost capital to restore buffers and create room for new credit in their balance sheets.

Its preparation shows the Turkish government is unlikely to put up with historically low levels of loan growth for much longer as Turkish President Recep Tayyip Erdogan pushes for measures to get the economy expanding at a much faster pace.

Many banks privately told policymakers that they were not keen on being forced to reclassify massive amounts of debt as NPLs so quickly, the people said.

Turkish companies have borrowed about US$60 billion since 2003 to finance investments into new power generation and distribution, according to a Boston Consulting Group report.

With the Turkish lira sliding faster than most producers can raise electricity prices, some utilities are not earning enough to repay foreign-currency loans, posing a great risk to banks.

Last year’s currency crash amplified this mismatch. Average electricity prices are about US$54 per megawatt-hour, compared with US$81 in 2010 — part of the reason why there is a surge in demand from power producers to restructure their liabilities.

About two-thirds of the loans taken out by the energy industry are yet to be repaid, Garanti deputy CEO Ebru Dildar Edin said.

As much as US$13 billion needs to be restructured, with gas plants making up a bulk of it, she said earlier this year.

Turkish Treasury and Finance Minister Berat Albayrak said in July that the government would not cover any losses incurred by banks, which have reorganized nearly half of 400 billion liras (US$70 billion) of troubled loans.

Albayrak sees a pickup in growth once the rest of the bad loans are dealt with.

RISKS

Turkey came out of a recession during the first quarter, but is still expected to fall far short of the official full-year growth target of 2.3 percent.

Erosion in economic confidence and rising joblessness helped Turkish opposition deal the most stinging electoral defeat to Erdogan in a municipal vote this year.

Reclassifying US$1.9 billion of the debt would add 40 basis points to the industry’s NPL ratio, taking it to 5 percent, lower the capital adequacy ratio of the sector by 2 percentage points to 16.22 percent and reduce the average return on equity by 4 percentage points to 8.6 percent, TEB Investment analyst Ovunc Gursoy said.

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