Turkey Eases Rules on $8 Billion of Bad Loans as Banks Balk

(Bloomberg) -- Turkey's banking regulator eased measures on how banks classify credit to once-troubled companies, helping lenders to potentially avoid adding more non-performing loans to their books, according to people familiar with the matter.

The Banking Regulation and Supervision Agency, or BDDK, will now leave it to lenders to decide which company loans need to be reclassified as non-performing, said the people, who asked not to be identified because the changes haven't been publicly announced. Banks won't have to book the loans of businesses that have restructured borrowings or bolstered cash flows as non-performing, they said.

A representative for the BDDK declined to comment.

“Showing this flexibility in response to banks' assessment that not all loans specified by the regulator were non-performing, should help,” said Cagdas Dogan, a banking analyst at BGC Partners in Istanbul. Banks “with relatively tighter capital positions” will benefit most.

The 12-member Borsa Istanbul Banks Sector Index rose 1.3% by 3:28 p.m. in the nation's biggest city to head for its highest closing price in more than two months.

The watchdog in September ordered banks to reclassify 46 billion liras ($8 billion) of debt as non-performing by the end of the year and set aside enough provisions to cover them. It is now backing down after banks complained that healthy businesses were included in the list, the people said. The move was aimed at getting banks to write off bad debt faster so they could ramp up lending to help fuel the struggling economy.

Read more: Turkey Tells Banks to Reclassify $8.1 Billion Debt as Bad Loans

A notice of the change to the September directive was sent to banks last month, the people said. Loans already reclassified as non-performing before the November order aren't covered, they said.

Huseyin Aydin, head of the banks association of Turkey, said in September that banks had already booked between 10 billion liras and 15 billion liras as non-performing loans, so the amount wouldn't be as high as the regulator had asked.

Read more: Turkey Lira Loans Rise at Fastest Annual Pace in Over a Year

In September, the regulator said the reclassification of the loans would raise the industry's non-performing loans ratio to 6.3% from 4.6%, while average capital adequacy ratio would retreat to 17.7% from 18.2%. Banks average non-performing loans ratio stood at 5.15% in October.

--With assistance from Asli Kandemir.

To contact the reporter on this story: Kerim Karakaya in Istanbul at kkarakaya2@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, ;Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Taylan Bilgic

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