Investors Bet Against Turkey Banks as Debt Wave Gains Force


Investors are bracing for trouble at Turkey’s banks as some of the nation’s biggest conglomerates struggle to repay their debts.

The Borsa Istanbul Banks Index, which comprises 13 lenders, underperformed the Borsa Istanbul 100 by 20 percent over the past year. Valuations dropped to a nine-year low in November, and have remained there. The banks index trades at 4.9 times estimated earnings, compared with 7.6 times for the broader market. While financial institutions were once the driver of the market, accounting for almost half its value, today they account for less than a third.

“Restructuring demands are already pressuring banks’ valuations and will continue to do so,” said Cagdas Dogan, a banking analyst at BGC Partners Inc. in Istanbul. “More loans will be classified as under ‘close watch’ and the fact that the banks will set aside more provisions under new regulations may have a negative impact on earnings.”

In a latest sign of turbulence, billionaire Ferit Sahenk’s Dogus Holding AS is said to have asked lenders to restructure as much as $2.5 billion in loans. The lenders are already in talks with Godiva Chocolates owner Yildiz Holding AS to refinance as much as $7 billion, and are trying to get payments restarted after Otas failed to pay back the $4.8 billion loan it took to buy phone company Turk Telekom. The joint venture of Italian energy firm Ansaldo Energia SpA and Turkey’s Unit Investment NV is said to have started talks to restructure $700 million.

Investors are left wondering who’s next, and how it ends.

Lira Devaluation

All this comes against the backdrop of a plunge in the national currency, which has lost more than 50 percent of its value against the dollar in the past 5 years. The lira fell to new records against the dollar and euro on Tuesday, at 4.08 and 5.03 respectively. The banks index dropped as much as 3.2 percent.

Government efforts to keep banks extending loans aggressively probably aren’t helping. A lending spree since 2016 was fueled by a government guarantee and pushed the banks’ loan-to-deposit ratios to record highs at nearly 130 percent. When the ruling Justice and Development Party came to power in 2003, the ratio was about 40 percent.

Credit Boom

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