Turkey corporate debt jumps to 69 percent of GDP in pandemic - central bank

Turkey’s central bank said corporate debt as a percentage of GDP rose to 69 percent in August, partly due to a credit scheme announced by the government to mitigate the effects of the COVID-19 pandemic.

Company indebtedness, including loans and bonds, increased from 56 percent of GDP in January, the central bank said on Friday in a summary of its biannual Financial Stability Report.

Turkish companies have borrowed more and sought to restructure their loans with banks on better terms to help deal with the pandemic and spur growth in their businesses. The authorities have backed those efforts through the Credit Guarantee Fund and by instructing banks to delay debt and interest repayments.

Companies’ financial indebtedness in foreign currency rose by 2.1 percentage points to 39 percent of GDP in August from a year ago, driven by a slide in the lira’s value but then mitigated by a deleveraging of foreign currency loans, the central bank said.

“The corporate sector total financial indebtedness ratio still hovers well below the global average,” the bank said. “The tightening in financial conditions observed as of August is expected to limit the corporate sector’s indebtedness ratios in the period ahead.”

Non-performing loans (NPLs) in Turkey have remained relatively stable at 4.1 percent of total loans as of September due to repayment waivers and a loosening of the classification by the authorities of what constitutes bad debt, the central bank said.

The maturing of government-backed loan incentive schemes and repayment waivers, and a slowdown in loan growth means non-performing loans in the country are expected to increase in the coming period, the bank said.

Still, a fast rebound in the economy should keep NPLs at reasonable levels, it said.