July 17, 2019 / 2:56 PM / in 7 months

Turkish banks have not yet agreed model to move bad loans off balance sheets -finance ministry

ISTANBUL, July 17 (Reuters) - Turkish banks have not yet agreed on a model for a fund that will remove problem loans in the construction and energy sectors off banks’ balance sheets, the Treasury and Finance Ministry told Reuters on Wednesday.

The ratio of problem loans in Turkey’s banks has increased sharply in the wake of a currency crisis that saw the lira lose nearly 30% against the dollar last year. That decline caused the cost of servicing foreign currency debt for companies to surge, leading to a build-up of bad loans in the banking system.

Finance Minister Berat Albayrak announced in April a plan to remove bad loans from banks’ balance sheets, which included the formation of two funds to which energy and constructions loans will be moved.

The Treasury and Finance Ministry said banks were still working on the model and that it was too early to say that the plan was abandoned.

“Our banks will decide on their own which method of solution they will choose on the problem loans,” the ministry said in a statement to Reuters.

“While the fund model isn’t enough on its own, we see benefit in it being on the menu as an alternative model to resolve problematic assets.”

The ministry said there was currently no plan for the state to fund restructurings. “Our state has formed a transparent and institutional framework for restructurings through laws and regulations, and it provides incentive for restructurings with tax breaks.”

It said that if necessary, additional measures could be taken to increase the efficiency of loan markets and to lower risk premiums. (Writing by Ali Kucukgocmen and Tuvan Gumrukcu Editing by Dominic Evans)

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