Turkish banking shares fall after regulator reveals $8 billion in bad loans

Turkish banking stocks fell in Istanbul, led by a unit of Italian bank UniCredit, after the industry regulator said lenders must reclassify 46 billion liras ($8 billion) in debt as non-performing loans (NPLs) and set aside extra cash to cover possible losses.

The increase in bad debt means NPLs in the sector rose to 6.3 percent of total loans from 4.6 percent, the regulator said in a statement late on Tuesday. Banks will be required to set aside the extra loan-loss provisions to cover the new NPLs by the end of the year, it said. The regulator had previously estimated that bad loans in the industry may total 6 percent of total loans by December.

Turkey’s main banking index dropped 0.6 percent to 144,172.16 points. Meanwhile, the main BIST 100 index of shares, which also includes industrial firms, climbed 0.1 percent to 101,573.76 points.

Yapı Kredi Bank, a joint venture between UniCredit and Koç Holding, Turkey's biggest industrial group, slid 3.2 percent to 2.4 liras per share. Işbank fell 2 percent to 5.99 liras a share. State-run Vakıfbank lost 1 percent to 5.22 liras.

The announcement by the regulator was the first concrete move by the Turkish authorities to force banks to deal with a mounting pile of bad debt caused by a currency crisis that peaked in August last year. Ever since then, investors have been calling on Turkey to start a clean-up of the balance sheets of banks, which also contain tens of billions of dollars of restructured loans.

Most of the loans reclassified as non-performing are owed by construction and energy companies, the regulator said, adding that banks were very well capitalised and would easily absorb any losses.

The regulator did not provide details about any other risky loans in the banking system that may be classified as NPLs, which banks are owed the money and by whom, and what further plans, if any, it had to tackle troubled debt.

Turkish Treasury and Finance Minister Berat Albayrak is due to announce a new economic programme in the coming weeks that may reveal further details of banks' troubled loan liabilities and what the government plans to do about them.