(Adds banking index, analyst quote, details, background)
By Ebru Tuncay
ISTANBUL, Sept 19 (Reuters) - Turkey’s banks agreed to help businesses that are struggling to pay off debt, a move that sent shares of lenders sharply higher on Wednesday as investors bet it could ease bad loans.
Turkey’s banks face a potential deluge of bad debt after the lira plunged 40 percent this year, driving up the cost for companies to service their foreign currency loans. JPMorgan estimates that the private sector has around $146 billion in external debt maturing in the year to July 2019.
The agreement, which went into effect on Wednesday, regulates the framework for loan restructurings, taking into account recent market developments and their effects on the Turkish economy, the TBB banking association said in a statement, without elaborating.
Banks and financial institutions that have signed the agreement account for 90 percent of outstanding loans, with the remainder expected to sign shortly, the TBB said.
The Istanbul bourse’s index of bank stocks surged 6.4 percent following the announcement, its biggest one-day advance in almost two months.
The agreement eased some worries over systemic risks to the banking sector, one banking analyst said, adding it could mean lower loan-loss provisions - the money banks set aside to cover bad loans.
“Because a serious amount of provisions would need to be allocated for these loans, these provisions may be freed up and this would reflect positively on the banks’ net income,” said the analyst.
Ratings agencies Moody’s and Fitch have both sounded alarm about the outlook for banks. Fitch has estimated that banks’ foreign-currency lending stood at around 43 percent of all loans.
Finance Minister Berat Albayrak has said he does not expect any problems in the banking sector and that Ankara would be willing to step in with support in the event of a problem. (Writing by Ezgi Erkoyun and Ali Kucukgocmen; Editing by David Dolan and Elaine Hardcastle)