Moody’s expects problem loans at Turkish banks to rise

Moody’s expects problem loans at Turkish banks to rise

LONDON
Moody’s expects problem loans at Turkish banks to rise

Moody’s ratings expects problem loans at Turkish banks to increase to more than 4 percent of loans over the next 12-18 months compared with a low of 2.9 percent in May, the ratings agency said in a statement on July 16.

Moody’s said a spike in the problem loans was credit negative for Turkish banks, citing a report by the banking watchdog.

Turkey’s Banking Regulatory and Supervisory Authority (BDDK) released problem loan data for the week that ended June 29.

The data showed a 7 percent (or $800 million) increase from the prior week, the largest weekly jump in more than 10 years.

A number of drivers point to a significant increase in banks’ problem-loan ratio, according to Moody’s.

“We expect Turkey’s GDP growth to slow to 2.5 percent this year and 2 percent in 2019, from a credit-fuelled 7.4 percent last year. The Turkish lira has depreciated about 25 percent year to date against the U.S. dollar, putting negative pressure on companies with unhedged foreign-exchange debt, particularly in the construction and energy sectors,” it added.

A strong, consistent rise in problem loans would also weaken asset quality and require larger loan-loss provisions, it also noted.

Turkish banks, Moody's, banking watchdog