Regulator keeps a close eye on bad loans
Güncelleme Tarihi:
by Erdal Sağlam - Referans
Oluşturulma Tarihi: Şubat 03, 2009 00:00
ANKARA - Bad loans, a primary risk for banks, have been under close supervision, says Tevfik Bilgin, chief of the Banking Regulation and Supervision Agency.
Turkey’s banking watchdog expects banks to record bad loans amounting to less than 10 percent of total loans by the end of this year, said Tevfik Bilgin, the chief of the Banking Regulation and Supervision Agency, or BDDK.
Deeming credit as the biggest risk for banks, Bilgin said the BDDK was keeping a close eye on the rate of bad loans. Unpaid loans, a bank's primary risk, rose to 25 percent in 2002, when Turkey underwent a banking crisis, Bilgin said. It will not be as bad this year because even international banks, which had financial problems at home, invested in Turkish units, he said, adding that most of the private sector players’ debt was secured.
"The worse case scenario would be the bad loan rate at 10 percent. If this figure is reached then our capital adequacy ratio (or CAR) declines an average of 2.5 points. However, no bank drops below 8 percent," said Bilgin, responding to questions directed at him by business daily Referans’ Editor-in-Chief Eyüp Can Sağlık and the newspaper’s Ankara Representative Erdal Sağlam.
"We have been conducting studies on bad loans for the past two months," Bilgin said. "Our studies are related to generating formulas to keep a company going, before a bank forces a company to file for bankruptcy due to bad loans, if the bank believes the company has potential."
In the past a loan would become a bad loan if payments were not received in 90 days, said Bilgin. "We are now saying do not wait that long. If there is problem it should be solved as soon as possible, because in case of a bad loan then banks will pressure you," he added. "Banks and troubled companies should meet as soon as possible and sketch out new payment plans. If another problem is experienced 10 months from that point on, then companies should be given two more chances," said Bilgin. "We have given companies three chances to pay off bad loans. The main reason for that is to try and help companies entrusted by banks, which have the potential and the ability to provide employment opportunities, to overcome times of crisis. The final decision, once again, is up to the banks.
"Companies for the most part, however, work with not just one, but three banks. This new formula could help a company solve its debt problem with one bank, Bilgin said. "On the other hand if 70 percent of the company’s debt is owed to one bank, 5 percent to a second bank and 25 percent to the third bank, things could become more challenging, especially if the second bank demands its payment ahead of anyone else. Maybe in the near future another solution can be generated to solve that problem," he added.
Back in September, the rate of bad loans stood at 3.4 percent, but now it stands at 3.7 percent, said Bilgin. "What is important is not the rate though, it is the trend," he added.
"There was a 27 percent increase in bad consumer loans between September and Jan. 16. Unpaid credit card debts during the same period reached 21 percent. From the start of this year until Jan. 16, some 2.37 percent of consumer loans turned into bad loans. Some 6.9 percent of credit card loans have also become bad loans during the same period," said Bilgin. "On the other hand, back in September, the rate of bad consumer loans was 1.82, while the rate of the unpaid credit card debts was 5.9 percent," he added.
"If a bank’s CAR is between 18 to 20 percent or if its 30 percent then it would be wrong for me to tell the bank not to distribute payments. On the other hand if a bank’s CAR has declined to near the 12 percent level, then it would be a good idea to call off dividend payments," said Bilgin. "Nearly 50 to 60 percent of external borrowings have been renewed during the months when the banks felt the most uneasiness."
The private sector is one topic that should really be focused on, Bilgin said. "What if the private sector enters a bottleneck in funding in 2009? We do not have a clear picture of what the private sector have shown as collateral in their borrowings. If their collateral is in euro-bonds or deposits, then there is no problem. But if they have given a factory as a collateral then some assets may be taken over by foreigners."
Deeming credit as the biggest risk for banks, Bilgin said the BDDK was keeping a close eye on the rate of bad loans. Unpaid loans, a bank's primary risk, rose to 25 percent in 2002, when Turkey underwent a banking crisis, Bilgin said. It will not be as bad this year because even international banks, which had financial problems at home, invested in Turkish units, he said, adding that most of the private sector players’ debt was secured.
"The worse case scenario would be the bad loan rate at 10 percent. If this figure is reached then our capital adequacy ratio (or CAR) declines an average of 2.5 points. However, no bank drops below 8 percent," said Bilgin, responding to questions directed at him by business daily Referans’ Editor-in-Chief Eyüp Can Sağlık and the newspaper’s Ankara Representative Erdal Sağlam.
"We have been conducting studies on bad loans for the past two months," Bilgin said. "Our studies are related to generating formulas to keep a company going, before a bank forces a company to file for bankruptcy due to bad loans, if the bank believes the company has potential."
In the past a loan would become a bad loan if payments were not received in 90 days, said Bilgin. "We are now saying do not wait that long. If there is problem it should be solved as soon as possible, because in case of a bad loan then banks will pressure you," he added. "Banks and troubled companies should meet as soon as possible and sketch out new payment plans. If another problem is experienced 10 months from that point on, then companies should be given two more chances," said Bilgin. "We have given companies three chances to pay off bad loans. The main reason for that is to try and help companies entrusted by banks, which have the potential and the ability to provide employment opportunities, to overcome times of crisis. The final decision, once again, is up to the banks.
"Companies for the most part, however, work with not just one, but three banks. This new formula could help a company solve its debt problem with one bank, Bilgin said. "On the other hand if 70 percent of the company’s debt is owed to one bank, 5 percent to a second bank and 25 percent to the third bank, things could become more challenging, especially if the second bank demands its payment ahead of anyone else. Maybe in the near future another solution can be generated to solve that problem," he added.
Back in September, the rate of bad loans stood at 3.4 percent, but now it stands at 3.7 percent, said Bilgin. "What is important is not the rate though, it is the trend," he added.
"There was a 27 percent increase in bad consumer loans between September and Jan. 16. Unpaid credit card debts during the same period reached 21 percent. From the start of this year until Jan. 16, some 2.37 percent of consumer loans turned into bad loans. Some 6.9 percent of credit card loans have also become bad loans during the same period," said Bilgin. "On the other hand, back in September, the rate of bad consumer loans was 1.82, while the rate of the unpaid credit card debts was 5.9 percent," he added.
"If a bank’s CAR is between 18 to 20 percent or if its 30 percent then it would be wrong for me to tell the bank not to distribute payments. On the other hand if a bank’s CAR has declined to near the 12 percent level, then it would be a good idea to call off dividend payments," said Bilgin. "Nearly 50 to 60 percent of external borrowings have been renewed during the months when the banks felt the most uneasiness."
The private sector is one topic that should really be focused on, Bilgin said. "What if the private sector enters a bottleneck in funding in 2009? We do not have a clear picture of what the private sector have shown as collateral in their borrowings. If their collateral is in euro-bonds or deposits, then there is no problem. But if they have given a factory as a collateral then some assets may be taken over by foreigners."