The European Bank for Reconstruction and Development (EBRD) has been become increasingly involved in Turkey in recent years. The following is an entry on its website on February 18th, 2019 :
“The Bank is a leading institutional investor in Turkey and has invested over €11 billion in 283 projects in Turkey since 2009, with a focus on investment in sustainable energy, improving infrastructure, strengthening the competitiveness of the private sector, deepening capital and local currency markets, and promoting regional and youth inclusion and gender equality. The overwhelming majority of EBRD investments in Turkey are in the private sector. Last year alone the EBRD invested over €1 billion in Turkey, of which one-third - €331 million – was extended in local currency.”
On March 27th, 2019, EBRD made an announcement that it would steadily increase its lending over the next three years, despite the fact that its 2018 profits had more than halved to Euros 340 million from Euros 772 million in 2017. The bank, which invests in 38 economies from Morocco to Mongolia, stated that the fall in profits was due to “adverse conditions across equity markets and currency depreciations in a number of the emerging economies where the EBRD is active." It added that "Provisioning charges rose on the back of developments in Turkey, where the economy slowed sharply amid a significant currency decline."
On April 4th, 2019, Arvid Tuerkner, the EBRD managing director for Turkey, announced that the bank, if asked, was ready to help Turkey tackle the growing level of unpaid and problem loans in its banking sector. EBRD is clearly aware that non-performing bank loans are likely to remain at high levels as the Turkish economy remains blighted by recession, a weak lira and depleted foreign currency reserves.
It is not clear how EBRD will help, but we must assume that it will increase its investment in Hayat Varlık, a former Lehman Brothers subsidiary and leading non-performing loan purchasing and collection company in Turkey. EBRD is a 12% shareholder in Hayat Varlık and on February 18th, 2019, lent Varlık TL 100 million to help the NPL management company buy more NPLs from local banks and other financial institutions EBRD had previously invested a total of TL 76 million in seven issuances of bonds issued by the company. The Bank had also provided the company with TL 120 million in loans, half of which it had syndicated to ICBC Turkey.
The Turkish banking sector, often considered a key anchor of the country’s economy, is under stress following the lira’s depreciation and a sharp slowdown of the economy. EBRD is aware that an increase in NPLs can affect banks’ cost of funding, profitability, and may impair their capacity to lend to the real economy. The bank believes that boosting Hayat Varlik’s ability to acquire and manage NPLs will help clean up the banks’ balance sheets and free up their capacity for new lending. It will also contribute to a strong and efficient NPLs market in the country.
The announcement by EBRD on April 4th offering to help relieve the pressure on Turkish banks was partially responsible for a small recovery in the Turkish lira and the stock market that day. This was accepted as positive news, but there is little EBRD can do in fact in face of the magnitude of the potential loan problem in Turkey. It cannot be expected to directly bail out companies which will inevitably go bankrupt. The bank will no doubt simply help buy out NPL’s from the banking system. These will be at knock down prices on which it intends to make a profit.