Turkey’s loan boom ends with a whimper and bankruptcy fears

One of Berat Albayrak’s most poisonous legacies was forcing private banks –via regulator BRSA—to lend at below-inflation interest rates. Turkey’s loan growth momentum (as measured by 13-week moving average growth of toa loans)  reached 50%  over summer months.  The replacement of former economy czar with the Lutfi Elvan-Naci Agbal )CBT governor)  duo spelled an end to forced lending, as the sudden increase in policy rates passed rapidly through to loan rates, curtailing demand.

At the end, Turkey enters the new year with a shrinkage of total loan portfolio.  As it transpired in countless countries, at numerous times in recent history, the end of the credit boom spells a sudden jump in non-performing loans, increasing insolvencies and as sharp drop in GDP growth.


The chart below, in Turkish, illustrates the massive fluctuation in loan growth rates in the short span of 12 months.  The red line indicates total loans, while blue and green stand for state and private banks.


Over the last data week ending total loans were up by 0.3% in TL terms w/w. TL loans remained flattish while FX loans decreased by 0.6% on weekly basis. TL loans declined by 0.8% ytd (state: -0.6%, private: -0.9%). Retail loans contracted by 0.7% y-t-d, while FX loan contraction is at 0.8%, comments the economics team at YF Finans brokerage house.


Sector’s NPL ratio remained flattish at 4.1%, while provisioning ratio increased to 74.0% from 73.3% in the previous week. As per our previous comments, no major change would be realized on this front in 1H21 despite the macro risks, as the negative impact on asset quality is likely to come with a certain lag –extended further by BRSA measures that eases NPL recognition rules until June 2021. In the meanwhile, Stage II loans are likely to increase; and as underpinned by recent banking sector data, provisions are likely to remain elevated, YF adds.


Yet, the official NPL ratio is only a fiction sustained by macro-prudential forbearance of BRSA and amendments made to Turkish Commercial Law, which postponed write-offs of capital due to soaring FX debt servicing costs.



ParaAnaliz (our sister Turkish news site) columnists Messrs Ercan Uysal and Erol Tasdelen claim the true NPL could be as high as 15%.


Alongside the loan whimper, rates increased from 8% in summer months to 20% in most categories, posing a huge roll-over risk for corporates, for which loans are re-priced in 3 or 6 month intervals.

Announcing the demise of the Turkish banking system


Several Turkish analysts expressed concern that a quartier of TL815 bn of consumer loans, not backed by purchases of houses or consumer durables, called “general expenditure loans” in Turkish banking lingo are very unlikely to be repaid, as the broad definition of unemployment is estimated at 25-29% of the total labor force.  Ongoing weekend lockdowns and closure of all restaurants, bars and cafes will probably last another two months, durign which at least 30% of the dining establishments and small kiosks will go down, claims the Association of Restaurateurs.



WATCH:  2021 Economic Forecasts for Turkey


The lockdowns and other restrictions are very likely to lead to rapid increases in NPLS in both consumer and corporate loan category.


Guidance by large private banks suggests total loan growth will not exceed 15% in 2021, or “0” in real terms; as CPI is not expected to decline towards 12% before 4Q2021. The result is a sharp shrinkage of financing in the economy, compounded by Naci Agbal’s promise of prolonged tight monetary policy.

Past loan boom-bust cycles have clearly demonstrated that with a one quarter lag, Turkish GDP closes follows loan growth. E.G. no loan growth, no GDP growth.

The author is surprised that forecasters who bravely predict 4-5% GDP growth fail to see or recognize this correlation. His GDP growth estimate remains a modest 2%–at best.

By Atilla Yesilada, GSP country analyst

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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.