Page 58 - TURKRptDec19

November 8 presented a report to Turkish regulators and banks that makes 30 recommendations on how Turkey can restructure laws and markets to enable foreign companies to easily buy some of the tens of billions of dollars in bad debt held by its lenders​. The proposals include permitting the securitisation of non-performing loans (NPLs), the protection of lenders from embezzlement charges and allowing sales to firms licensed elsewhere.
The BDDK banking regulator in September instructed the banks to reclassify around $8bn in loans and provision for losses.
Bankers and the EBRD met in October to study regulatory changes to allow foreign investors to easily buy Turkish NPLs, a market that some say could be based on some $50bn in debt.
Presently, Turkish banks can only sell NPLs to fellow Turkish banks or domestic asset management companies. A series of efforts this year to clean up the debt have been abandoned, with lenders reluctant to sell to hungry outsiders, leaving Turkey’s secondary loan market mostly dormant.
The EBRD has recommended opening the market to investors looking to securitise the loans, adopt in-court restructuring procedures and to train and appoint specialised judges. It said that its advice was in line with what Italy, Greece and Spain have done in years past.
If sufficient changes to regulations and laws are made Turkish banks may enter into talks with foreign distressed-debt traders and funds. But some demands for sharp discounts, or haircuts, on the loans may be heard.
“Banks will tell you they would love to sell, but the bid-ask spread is too large and the investors don’t want to spend as much,” Bojan Markovic, the EBRD’s deputy director of economics, policy and governance, was cited as saying.
“But as we see more certainty coming, [such as] reclassification of NPLs, this bid-ask spread will slowly diminish,” he added. “The further you postpone the resolution and dealing with it, the bigger the problem is.”
SC Lowy and Houlihan Lokey are reportedly among prospective international players scouting for business opportunities from Turkey’s attempts to clean up its multibillion-dollar bad loan market that is a hangover from the derailed debt-fuelled era of turbo-charged growth​. “I’m hopeful we can do a deal before the end of the year with Turkish banks,” David Beckett, head of Europe for SC Lowy, a debt trader with a sell-side business which also invests from its own balance sheet, told Reuters on November 1. “Banks are taking indications on potential deals and discussing liquidity options with us and that’s a good first step.”
Turkish banks have a tight a year-end deadline to ready loans for sale or restructure them following an official order to write off around $8bn in bad loans and set aside loss reserves. The Erdogan administration has grown impatient with private banks that it sees as not moving fast enough to revive an economy brought low by last year’s currency crisis and consequent recession.
Foreign debt traders and advisory firms have until now seen few presented opportunities in the secondary loan market. Much corporate debt is held by local banks, but until now they have been unwilling or unable to sell because of regulatory hurdles and archaic rules. An example is that Turkish banks selling assets at a discount can risk falling foul of embezzlement rules. To help ease the situation, in July a draft law was submitted to Turkey’s parliament. It would deliver tax exemptions to loan restructurings and legal protection for bankers.
As much as $50bn in distressed debt is estimated by analysts to be weighing
58​ TURKEY Country Report​ December 2019 ​ ​www.intellinews.com