During complex times for Turkey, banks, at least, can rest assured that their system is running smoothly, is well capitalized and well regulated.
Yet there are concerns that Turkey’s high and growing level of corporate debt might be starting to squeeze the sector.
İnan Demir, chief economist at Finansbank, notes that nonperforming loans last year rose 25 basis points, to 3.1%, despite GDP growth of 4%. According to the bank’s econometric model, that kind of growth should have reduced NPLs by 20 basis points.
This year “has not gotten off to a good start on the asset quality front,” he says. “It appears that the sustained currency weakness that has been in place since mid-2013 has been taking its toll on Turkey’s nonfinancial sector, which carries large, short FX positions,” he says.
The banking sector’s net external debt rose to 17% at the end of 2015, against 15% at the end of 2013, and it continues to suffer a shortage of profitable, large-scale private businesses as most of Turkey’s big energy and infrastructure projects are state-led. However, analysts say the rise in bad debt is more a function of a slowing in credit growth generally, and that the sector’s core strengths give it resilience.
“We see the recent pickup in the NPLs as more of a normalization after a very volatile time; we anticipate a 3.5% NPL ratio for the system at end-2016,” says Bulent Sengonul, head of research at İş Investment in Istanbul.