Turkish banking stocks are on course for their worst year in a decade -- and third-quarter earnings reports starting this week will show why, Bloomberg News reported. Spiraling inflation, a surge in interest rates and a plunge in the lira amid tensions with the U.S. are battering the economy. Companies and individuals are finding it harder to repay their loans, causing bad debts to swell and eating into earnings as lenders increase provisions and bolster capital buffers to brace for more defaults.
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A group of lenders including the European Bank for Reconstruction and Development hired Lazard Ltd. to manage the restructuring of a $500 million loan for an Istanbul ferry company part-owned by Stagecoach Group Plc founder Brian Souter, Bloomberg News reported. The banks, including several local firms, gave the mandate to New York-based Lazard on Tuesday, according to Necmi Riza Bozanti, chairman of the company, Istanbul Deniz Otobusleri AS. He favors turning the debt into a lira-based liability, he said.
Restructured foreign currency loans in Turkey will be converted to Turkish lira at the central bank exchange rate in force on the day of restructure, a presidential decree said on Thursday, a move that could damage banks if the lira continues to fall against the dollar, Reuters reported. The decree published in the Official Gazette allowed the day’s lira rate to be used in companies’ restructuring of forex loans as private sector debt continues to grow.
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Who bought 10.9 billion liras ($1.8 billion) of Turkish state banks’ subordinated debt in hurried sales last week? That’s the question that’s been dominating talk among local economists and investors, with speculation focusing on whether assets from the nation’s unemployment fund were deployed to boost the lenders’ capital buffers. The banks haven’t provided many details, saying the sales were private, Bloomberg News reported. State-controlled Turkiye Vakiflar Bankasi TAO sold 4.99 billion liras of Tier-1 notes with a fixed-rate coupon payment on a semi-annual basis.
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Turkey’s finance minister tried to rebuild shattered market confidence in his government’s ability to manage the economy by promising to cut public spending by nearly $10bn in a sweeping austerity programme that would put the brakes on growth, the Financial Times reported. The announcement by Berat Albayrak, who was put in charge of the economy two months ago by his father-in-law, President Recep Tayyip Erdogan, comes just a week after a surprise decision by the central bank to sharply raise interest rates in the face of a mounting currency crisis.
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Turkey’s banks agreed on Wednesday to help companies struggling with debt as the country’s finance minister prepared to set out a plan seen as critical to limiting the fallout from a currency crisis, the Financial Times reported. The Banks Association of Turkey said the nation’s lenders would strive to accommodate companies that needed a temporary reprieve on loan repayments because of “a temporary disruption of the balance between income and expenditure”.
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Yeşil Kundura, one of Turkey’s oldest shoe brands, has been granted bankruptcy protection on Monday, Ahval reported on a Hürriyet newspaper story. Turkish business groups have been struggling to stay afloat, as the lira has dropped more than 40 percent against the dollar this year, while, after weeks of inaction, Turkey’s Central Bank raised its benchmark interest rate of 17.75 percent by 625 basis points to protect the lira and to control the rising inflation.
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The Turkish government will unveil measures to help banks tackle the expected pile-up of bad loans resulting from the lira’s plunge and soaring interest rates, according to people with knowledge of the matter, Bloomberg News reported. The plan will seek to mitigate the need for capital injections and propose transferring non-performing loans to a state-designated entity, said the people, who asked not to be identified because the deliberations are confidential. The measures are likely to be announced on Thursday, one of the people said.
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Turkey’s central bank sharply raised interest rates—defying President Recep Tayyip Erdogan’s demand to cut them—in an attempt to counter the country’s economic problems and reverse growing investor aversion to emerging-market economies, The Wall Street Journal reported. The central bank increased its main interest rate to 24% from 17.75% on Thursday, citing concerns over price stability and saying it would maintain a tight monetary-policy stance until the inflation outlook improves significantly.
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An interest rate hike by Turkey’s central bank on Thursday might just be the lesser of two evils for the country’s beleaguered companies, Bloomberg News reported. On the one hand, a steep rate increase could stem the slide in the lira that has boosted dollar-debt costs by more than 40 percent this year. On the other, pausing would spare the already bruised balance sheets of companies, which have had to contend with a near doubling in local borrowing costs.
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