Turkey Tells Banks to Reclassify $8.1 Billion Debt as Bad Loans

Turkey took its boldest step yet to clean up the growing pile of bad debt held by banks, Bloomberg News reported. The Banking Regulation and Supervision Agency, or BDDK, told lenders for the first time to reclassify 46 billion liras ($8.1 billion) of loans as non-performing by the end of the year and set aside enough provisions to cover them, it said in a statement late Tuesday. The reclassification of the loans, mostly to construction and energy firms, will bring the industry’s non-performing loan ratio to 6.3% this year, slightly higher than the watchdog’s December prediction of 6%. It also reduces banks’ capital adequacy ratio to 17.7% from 18.2%, the regulator said. While the directive could hurt earnings this year, the faster banks write off bad debt, the faster they can ramp up lending. Read more