Turkish gov’t to prepare a legal framework for debt restructuring

Hüseyin Aydın, the Chair of the Banks Association of Turkey, announced that the Turkish government is preparing a legal framework for debt restructuring
Tuesday, 14 August 2018 18:14

An agreement under the name of "the Ankara Approach" for restructuring debts of companies had been prepared between the government and the Banks Association of Turkey (TBB) just before the elections held on June 24, 2018, according to some reports. It had also been stated after the elections that a commission formed within TBB began to work on certain issues such as the determination of criteria regarding debt restructuring, the completion of negotiations between the companies and banks within 150 days, and establishment of special purpose vehicles (SPV) in cases of the presence of a creditor bank.

Hüseyin Aydın, the Chair of the Banks Association of Turkey and the General Directorate of the Agricultural Bank of Turkey, said on Thursday that "We are working on a legal framework of debt restructurings with the Turkish government."

Aydın claimed that "It is wrong to consider the loans of a company restructuring only 30% of its bank borrowings as 'bankrupt' [which means decreasing it to Group 3]."

"I believe that the Group 1, which is an arrangement for cash flow in performing loans, should not force the Group 2. The same goes for people. As long as we can do these, we could improve the perception," he continued.


Commenting on the recent news reporting some banks, particularly Turkey’s third largest bank Garanti Bank and state-owned Halkbank, have sold their accounts receivable, Aydın has ignored "the time value of money" ─ which is one of the most basic concepts of financial monopolies ─ by claiming that the loans have been collected "sooner or later".

"Some our banks are selling their accounts receivable. I have never sold them at the banks I have worked as the general directorate [currently Ziraat Bank]. So what happened? I saw that we could get its 75-80% back within 4-4,5 years. We have departments working on especially these kinds of issues. Thus, we are able to collect the loans by restructuring them in these departments. Even non-performing loans [frozen receivables] are disguised capital for banks," Aydın also noted.

Claiming that no one has encouraged the debt restructuring, Aydın said, "But if this is a necessity, we will do it. We should not do anything that we should not do."

The energy sector in Turkey is currently suffering from an increasingly unstable situation with a rapidly declining Turkish lira, and it is one of the riskiest sectors with its $51 billion in loans. While the depreciation in Turkish lira leads to a significant decline in revenues in the sector, it becomes more difficult to refinance. It had been claimed in July 2018 that the Turkish government would undertake the debts of companies in the energy sector, meeting their deficit.