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Turkish state-owned bank lending spree to stave-off COVID-19 crash

Still reeling from the aftermath of the currency crisis in Summer 2018, Turkish corporates are poorly positioned to weather a fresh storm caused by the coronavirus pandemic, according to market participants polled by Debtwire.

“The next wave of restructuring was expected to hit at the end of2020 or beginning of 2021, but it will be earlier now,” an Istanbul-based financial advisor said.

However, a surge in lending in the economy – particularly from state-owned banks – and government decreed reductions in local interest rates mean that many companies will be able to refinance their debts, despite their stressed positions, the market participants noted.

According to the Central Bank of Turkey’s banking sector statistics, loan growth in the banking sector amounted to 30.35% year-on-year.

“There is a state of relief right now with the provision of additional liquidity and legal protections for three-to-six months because ofCOVID-19," the financial advisor continued.

While Turkey’s main state-owned lenders – Halkbank, Ziraat Bankasi and Vakifbank – may not be the lead bank on some recent transactions, they have provided more than 70% of domestic commercial loans since the beginning of the year, said a lawyer.

Of some TRY 72.4bn worth of new local currency credit provided between 6 March and 10 April, TRY 52.6bn was provided by state-owned banks, according to a Sozcu report.

“All banks – but especially state-owned banks – are providing big loan volumes with really low interest rates,” said a second Istanbul-based financial advisor, adding that in the current environment, lenders are very flexible in terms of extending debt maturities.

The weighted average interest rate of Turkish lira-denominated commercial loans (excluding corporate overdraft account and corporate credit cards) has fallen to 9.61% today, compared to 23.81% in July 2019, according to data from the TurkishCentral Bank.

Meanwhile, for US dollar commercial loans, the average rate has dropped to 3.49% from 7.42% over the same period.

Credit and deposit growth March 2017 to June 2020


TL= Turkish lira; YP= FX; Toplam=Total

Source: Turkish Banking Association 

Earlier this year, both Yildiz Holding and Dogus Holding, two Turkey-based conglomerates that concluded debt restructurings in 2018, separately announced that they were in talks with their creditors to lower the interest rates on their syndication deals.

With the heavy involvement of state-owned banks in the latest wave of financial distress, there remains little incentive to put in place an effective restructuring framework that allows haircuts, as opposed to amend and extend solutions, said the first financial advisor.

Watchlist sectors

The COVID-19 outbreak has adversely affected various sectors globally, but with specific regard to Turkey, the crucial hospitality and tourism sectors have been particularly hard hit, said the first financial advisor.

Turkey’s tourism revenue in 2019 was as much as USD 34.5bn, but the country will be lucky if it generates around USD 10bn this year, he added.

Many banks have postponed almost all loan repayment dates for six to 12 months for companies working in the hospitality sector, the first financial advisor continued.

Wholesale retailers and aviation have been pummelled by COVID-19lockdowns globally, the first financial advisor said, noting that the big airlines in Turkey, such as Turkish Airlines and Pegasus will survive, but will likely face serious capital erosion.

However, second tier market players in the service provider sector, such as airport operators and caterers, will be very badly hit, he added.

Elsewhere, although shopping malls are open in Turkey. people are not visiting them as much as they used to pre-coronavirus, raising significant concern throughout the wholesale retail sector, the first financial advisor continued. 

Falling exports to the European Union are another cause for concern and although there has been a partial recovery, growth remains sluggish, he added.

Turkey’s export volume to the EU has declined by 9% in 1Q20, according to a local news report quoting the data released by the Ministry of Trade.

Lastly, the automotive sector is also on the watchlist of all financial restructuring advisors globally. For Turkey, first tier automotive parts suppliers are on the radar, said the first financial advisor.

Sozcu reported earlier this month that the total production in the automotive sector in 1H20 had declined by 28%, while automobile production had fallen by 26%.

Suppliers were still able to collect their money since the payments in this sector are usually done within 60 to 90 days after procurement. The true decrease in cash flows will be seen in July, August andSeptember, the first financial advisor added.

Risky recovery

The lending-led recovery that Turkey's Minister of Treasury andFinance Berat Albayrak has pushed since the 2018 currency crisis could prove dangerous in the current situation, noted an international investor, delaying –but also potentially expanding – an eventual credit crunch.

So far, President Recep Tayyip Erdogan has steadfastly refused to countenance a deal with the IMF, which would, according to the investor, helpTurkey deal with its fiscal response and corporate debt restructuring. Whether Erdogan will change direction in this regard “nobody knows”, the investor concluded.

Asli Orbay Reporter, Arbitration and Litigation Debtwire CEEMEA

Asli Orbay is a reporter working for Debtwire CEEMEA, with a focus on arbitration, litigation and distressed situations. Prior to joining Debtwire, Asli worked as a banking and finance lawyer for Clifford Chance in Istanbul. Asli holds an LLM in international economic and trade law and a she is currently a PhD candidate studying at Brunel University.

Asli Orbay Reporter, Arbitration and Litigation Debtwire CEEMEA

Asli Orbay is a reporter working for Debtwire CEEMEA, with a focus on arbitration, litigation and distressed situations. Prior to joining Debtwire, Asli worked as a banking and finance lawyer for Clifford Chance in Istanbul. Asli holds an LLM in international economic and trade law and a she is currently a PhD candidate studying at Brunel University.

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