Page 18 - TURKRptNov19

Turkish banks have adequate liquid foreign exchange to cover their short-term liabilities and were well-capitalised, with the capital adequacy ratio above 17%, the report went on, adding: “However, ​the banking sector remains exposed to deteriorating asset quality and the risk of further currency fluctuations​. ​The regulator has asked lenders to reclassify $8.1 billion in bad loans by the end of 2019, which would raise the NPL [non-performing loans] ratio to an estimated 6.3 percent. A significant share of loans (12 percent) is under close monitoring. The Turkish banking system’s profitability will also suffer from reduced business volumes and higher funding and hedging costs​."
In its outlook, the report also said: “​Inflation, which remains high despite a slight decrease in prices pressures, disproportionately impacts low-income households. The continuation of adverse trends in the medium term would increase poverty and put some of the poverty reduction gains of the last decade at risk. External buffers have eroded over the last year; rebuilding them would afford greater confidence in Turkey’s capacity to absorb future shocks​.”
Latest IMF outlook sees 2019 growth of 0.2% in Turkey following fiscal support​. “The upward revision to 2019 growth relative to the April 2019 forecast reflects a shallower-than-expected downturn in Turkey in the first half of the year as a result of fiscal support.”
Looking at economic fixes the IMF advises Ankara put in place, the report said: “In Turkey, ​a comprehensive and clearly communicated policy plan is needed to repair private balance sheets​; ​increase public balance sheet transparency​; and ​ultimately restore the credibility, independence, and rules-based functioning of economic institutions​.
“To achieve these goals, the policy agenda should include (1) keeping monetary policy rates on hold until there is a durable downturn in inflation and inflation expectations, which would also help underpin the lira and rebuild reserves; (2) steps to bolster medium-term fiscal strength; (3) ​restoring confidence in banks through thorough assessment (third-party asset quality reviews, rigorous stress tests), credible bank recapitalization plans, and reining in state bank credit​; (4) further improving the insolvency regime and the out-of-court restructuring framework to promote meaningful restructuring solutions and free up lending capacity to healthy and productive firms; and (5) focusing structural reforms to support more sustainable, total-factor-productivity-led growth.”
18​ TURKEY Country Report​ November 2019 ​ ​www.intellinews.com