Just as the recession continues to hit the Turkish economy, the credit cycle has tightened markedly and banks face ascending Non-Performing loans (NPLs). The prudential regulator expects NPLs to reach 6% of total loans by year-end, twice the level exhibited before the August 2018 currency crisis and still +2pp above the January figure. This deterioration of payment behavior is fully understandable since corporate debt is high (75% of GDP), in foreign currency (about two-thirds) and the TRY has lost more than -50% last year. But the worst is yet to come, since industrial production was still in contraction for the 6th straight month in February (-5.1% y/y) and the manufacturing PMI is also still in contractionary mode (47.2 in March). The deteriorating payment behavior is translating into higher unemployment (14.7% in January from 11.6% in October) and a likely increase in insolvencies (+5% in 2019). A further deterioration should be prevented through capital injection and loan restructuring, which may entail an upside risk on public debt ratios (33% of GDP in 2018).
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Weekly Export Risk Outlook 17 April 2019