April 4, 2019 / 5:01 PM / 2 months ago

UPDATE 1-EBRD says ready to increase Turkish bad loan help if asked

(Adds market reaction, quote)

By Marc Jones and Tom Arnold

LONDON, April 4 (Reuters) - Turkey’s lira and banking stocks staged a late rally on Thursday after the European Bank for Reconstruction and Development said it was ready to help Turkey tackle the growing level of unpaid and problem loans in its banking sector if asked.

Soured bank loans are expected to remain at high levels as the Turkish economy remains blighted by recession, a weak lira and depleted foreign currency reserves.

“The EBRD is interested to deepen its work in the non-performing loan (NPL) space in Turkey,” said Arvid Tuerkner, EBRD managing director for Turkey.

The EBRD is already a shareholder in Hayat Varlik, a former Lehman Brothers subsidiary and leading non-performing loan purchasing and collection company in Turkey.

“We haven’t been approached [by Turkish authorities] yet with a proposal to invest in an NPL vehicle/SPV, but would look at it, and are ready to engage, if the structure meets our commercial and sound banking requirements,” Tuerkner added.

The EBRD has previously supported countries including Turkey, Greece, Bulgaria and Cyprus to address high levels of non-performing loans.

The news helped the lira to a late surge on Thursday, rising 0.8 percent against the U.S. dollar. The Turkish stock market index also rallied 4.1 percent, led by banking stocks.

Turkey’s dollar-denominated bonds climbed, with the 2043 issue adding 1.5 cents in the dollar.

The EBRD’s offer of assistance was one of several factors helping support the lira, along with S&P Global saying that Turkey’s credit rating was not currently at risk and “better than expected” reserves numbers, said Cristian Maggio, head of emerging markets strategy at TD Securities.

The Turkish central bank’s net international reserves stood at 164.69 billion lira ($29.71 billion) as of March 29, it said earlier on Thursday.

“The most logical explanation is that there’s a reversal of some of the investment flows into Turkey. But liquidity remains very poor and so limited flows have the potential to move markets,” Maggio said, adding that he still expected a significant depreciation in the lira against the dollar by the end of the third quarter. (Editing by Catherine Evans)

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