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2.8 “Private banks will soon have to choose whether to extend loans and raise capital or stand aside”
Turkey’s three state-owned lenders—Ziraat Bank, Vakifbank and Halkbank—now account for 48% of loans on the Turkish market, up from 30% at the end of 2014, according to a May 27 Reuters look at the country’s banking sector that examined the difficult situation faced by shareholders in Turkish private banks.
The sector return on equity is down to 11.5% from nearly 25% in 2007, when foreign banks piled into Turkey, it added. Inflation and lira depreciation are above 10%.
Net profit at the state banks rose 83% y/y in Q1, but by only 9% and 4%, respectively, at private and foreign rivals. State banks do not write provisions for potential, or already accrued but rolled over, NPLs.
Financial fallout from the coronavirus (COVID-19) crisis could hasten mergers or retreats by some of Turkey’s private and foreign-owned banks, ceding more ground to state-owned lenders, bankers and analysts were quoted as saying.
“Years of government pressure to defer dividends and drive Turkey’s stop-start growth have tested the patience of shareholders, who bankers and analysts say are unlikely to back new capital raisings or battles for market share,” the article said.
If private banks do consolidate or retrench, this would tighten Ankara’s control over a financial sector in which state banks play an increasing role and accelerate a shift of foreign investors away from Turkish assets, nine bank executives, advisers and analysts interviewed by Reuters, were quoted as saying.
Hobbled by weaker finances as a result of the coronavirus pandemic, Ankara is now more likely to intervene and reduce the ability of private banks to service foreign debt obligations, credit ratings agency Fitch Ratings said in May.
Turkey adopted an asset ratio rule in response to the pandemic. It is forcing private banks to lend more and purchase more government bonds, while the country’s sovereign wealth fund lately injected Turkish lira (TRY) 21bn ($3bn) into state banks. Capital injection was only financial hokey pokey, state institutions gave some papers among each other.
In the last six months, Italy’s UniCredit reduced its stake in Yapi Kredi, while Britain’s HSBC also considered pulling back from Turkey.
Private banks will soon have to choose whether to extend loans and raise capital or stand aside—the article cited a senior adviser to Turkish banks as saying that it would be “out of the question” for shareholders to agree to raise capital given the risks of doing business in Turkey.
“If an opportunity comes, private bank owners would consider rushing to the exit. But there is currently no way out,” the adviser reportedly said, citing the unfolding pandemic, hard-to-value assets and a lack of buyers.
Turkey’s 40 or so private banks were left holding tens of billions of dollars of non-performing loans (NPLs) after the 2018 lira crisis. The Erdogan administration is presently addressing lira depreciation that some analysts fear could turn into ‘lira crisis part II’.
14 TURKEY Country Report July 2020 www.intellinews.com
