Turkish Banks Have Been Unable to Recoup Bad Loans From State Fund Since August

Turkish banks have not been receiving compensation since August for non-performing loans made to companies covered by guarantees from the state Credit Guarantee Fund (KGF), five sources familiar with the matter said. The KGF is designed to stimulate the economy by guaranteeing loans to small- and medium-sized firms that could not otherwise obtain credit, Reuters reported. Such loans were widely used in 2017 to boost the economy, prompting the biggest credit growth in recent years. Economic development has been a cornerstone of President Tayyip Erdogan’s success during 16 years in power and he has prioritised high growth, repeatedly calling for low interest rates to boost lending. But the economy faced severe headwinds last year when the lira plunged 30 percent to the dollar, hitting some businesses’ ability to pay off loans and leading them to seek debt restructurings or protection from creditors. Read more