Turkey banks oppose ‘bad bank’ plan advocated by Ernst & Young

Turkish bankers are reluctant to sign up to a plan to establish a “bad bank” to handle a pile of non-performing loans, Reuters reported on Thursday.

Some banks in Turkey are concerned that the blueprint would require them to book large losses, seven industry sources told Reuters. They want foreign stakeholders involved, it said.

Ernst & Young handed the proposal, commissioned by Turkey’s Banking Association, to the companies last week.

“It’s early right now to talk about it, but we are not willing to be a part of this project,” one senior banker said, according to Reuters.

Non-performing and restructured loans in Turkey have jumped since a currency crisis in 2018 caused some companies and consumers to default on their borrowing. NPLs could increase to 12 percent of total loans next year from around 4.5 percent currently, Standard & Poor’s said last month.

The government is hoping that a “bad bank” will allow lenders to offload the loans, freeing up cash for more lending to the economy, which the International Monetary Fund says will probably contract by 5 percent this year.

Turkish President Recep Tayyip Erdoğan said this week that he expected the economy to grow strongly in the second half of the year.

“If the difference between the book value and the transfer price is significant then some of the banks may opt not to participate,” said Filippo Alloatti, a senior analyst at Hermes Investment Management, according to Reuters.

Talks between Turkish banks and foreign investors about buying up bad loans failed following the currency crisis due to arguments about what constituted a bad loan.

One top banker said there were “different opinions between lenders”, with some of the companies seeing no value in transferring their NPLs, while others said ensuring only modest losses would be crucial, Reuters said.

Treasury and Finance Minister Berat Albayrak, Erdoğan’s son-in-law, endorsed the “bad bank” concept last week