Turkey: Gimme shelter

3 min
Stéphane Colliac
Stéphane Colliac Senior Economist for France and Africa

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).