Recent Development

The Banking Regulatory and Supervisory Authority (the "BRSA") issued a press release on 17 September 2019 on the financial structure review and impact analysis recently conducted.

A Brief Sector Analysis

  • The BRSA's financial structure review revealed that TRY 46 billion worth of loans should be classified as NPLs. These NPLs belong mostly to energy and construction companies. In this respect, the banks which are notified by the BRSA will need to reclassify these loans and set aside the required reserves by the end of 2019.
  • The BRSA further stated that the Turkish financial institutions' global capital adequacy ratio fell from 18.2% to 17.7%, whereas the rate of NPLs increased from 4.60% to 6.3%.
  • Lastly, the BRSA stated that the total amount of Common Equity Tier 1, Additional Tier 1 and Tier 2 (except earnings contributions) in the banking sector increased to TRY 49 billion in the last twelve months.

Conclusion

The BRSA's analysis suggests that the banking sector maintains a sound capital structure while a substantial amount of loans needs to be reclassified as NPLs.

Basell III's capital adequacy floor is 8% and the BRSA has been imposing 12% for Turkish market for several years whereas the actual capital adequacy is still remarkably above this rate, 17.7%.

It is expected that the reclassification will ramp up concerned banks' lending as it will be a major step to clean up the balance sheet without any need for fresh capital.