Turkish non-performing loans on ‘significant’ rising trend: Leading bank chief

İş Bank head Adnan Bali also told reporters that measures needed to be taken to ensure the banking sector remained healthy.

“The Turkish economy’s growth has slowed down in recent years… We have seen that non-performing loans have recently been on a significant rising trend, but I believe banks have so far successfully managed their bad debts. As the loan base has not been growing in a rapid manner, some problems may be seen bigger than they actually are,” he said during a meeting in Istanbul. 

The average NPL ratio rose to 3.3 percent in the first quarter from 2.8 percent a year ago, regulatory data showed, while the biggest jump in bad loans was those to small and medium-sized businesses, which rose to 4.4 percent.

He noted that some measures in the fields of capital adequacy rates (CAR) and brokering costs were the key to enabling the banking sector to continue offering its functions in a heathy way. 

“I believe that some problems with the CAR system need to be resolved. In terms of brokering costs, a detailed review is needed to decrease some of burdens over our shoulders,” he said, adding that branch fees, which were made compulsory for banks to pay after the 2001 banking crisis, were later becoming permanent.

“Even in the subsidized regions, it is a must to pay these fees. This is contradicting with the rules of doing business or creating employment,” he said. 


High costs, low net rate margins

Bali noted that İş Bank’s CARs were one of the best in Turkey, but they worked under crucial limitations in doing business due to high costs. 

“For instance, when the dollar parity rises, the value of dollar-based loans increases in Turkish Lira terms even if any new loans are not offered. At this time, a buffer is needed to be mobilized to maintain the balance. All of these are restrictive policies,” he said. 

Bali said that the equity on returns was lower than deposit rates in Turkey, adding that banks’ return on equity levels have now regressed to 10-11 percent, from 18-19 percent in 2010. 

“Banks’ equity owners can gain 2-3 percentage points of yields more if they become deposit banking customers. The banking system cannot create new business capacity by offering additional loans with net rate margins at 3.5 percent or below,” he added. 

The head of the Banks’ Association of Turkey (TBB), Hüseyin Aydın, warned of a slowing down in the sector’s balance sheet growth, asking for acceleration in returns on equity growth on May 27.

He also stated that Turkey’s banking watchdog, the BDDK, should act to lift regulations that were slowing equity capital growth.