PUBLICACIONES EN EL ÁMBITO INTERNACIONAL 15

(1999 = 100) 125 120 115 110 105 100 125 120 115 110 105 100 financial strength index

average

2002 2003 2004 2005 2006 2007 2008 2009 Sources: CBRT and BRSA.

(including mortgage loans and credit cards). Slightly less than half of the portfolio consists of corporate loans (excluding SMEs) and a little over one-fi fth is constituted by loans to SMEs. Despite the slowdown in credit growth, credit risk continues to represent the largest risk factor for the banking sector. Non-performing loans (NPLs) 40 _{amounted to 5.3% of total loans,} up from 3.7% at the end of December 2008. The non-performing loan ratio of corporates rose to 4.9% by the end of 2009, up from 3.7% at the end of the previous year. The NPL ratio for SME loans reached 7.6% at the end of 2009, from 4.8% at the end of 2008, underlining the larger impact of the crisis on SMEs. For loans to micro-enterprises only (slightly over one-third of SME loans), the NPL ratio amounted to 10.5%. The increase in the NPL ratio for other corporate loans was more moderate. Although the level of NPLs for SME loans is a source of concern, it is expected to decrease as a result of the support of the Credit Guarantee Fund, which is being used to guarantee SME loans (see section 4.7).

The non-performing loan ratio of households stood at 6% at the end of 2009, up from 3.7% at the end of 2008. The NPL ratio for credit cards rose to 10.4% at the end of 2009, compared with 6.5% one year earlier. Deterioration in the other consumer lending segment, with the NPL ratio increasing from 3% in 2008 to 5.5% in 2009, could become a source of concern because of the tight margins in this business segment. Since repayments on housing loans are prioritised owing to the fear of losing property, NPL ratios for this segment are lower than for credit cards or other loans, including car loans, where the NPL ratio reached 10.3% at the end of 2009 from 6.0% at the end of 2008.

Looking ahead, NPLs may continue to weigh on the profi tability of the Turkish banking sector. Even though the latest fi gures show a decrease in the NPL ratio, asset quality is a lagging indicator and thus some renewed deterioration cannot be ruled out. However, the high number of non-performing credit card loans that are

rescheduled, as stipulated in Law 5464 on bank cards and credit cards (see section 4.3) or on a voluntary basis, are expected to have a positive effect on NPL ratios.

Credit-risk stress tests performed by the CBRT have shown that the NPL ratio would need to rise by more than 15 percentage points before the solvency threshold (capital adequacy ratio) of 12% came under threat.

Household debt rose steadily in previous years to reach 14.6% of GDP by the end of 2009. However, this level is still low when compared with that in many other countries. Hence, interest payments represent only 2.3% of gross disposable income. The percentage of foreign exchange-denominated or indexed loans and that of fl oating rate loans is low, making households less vulnerable to unfavourable developments in economic conditions. At the same time, the low proportion of fl oating rate loans (only 0.03% for housing loans at the end of October 2009) prevents existing debtors from reaping the benefi ts of the recent cuts in interest rates. As regards households, it is also worth noting that strong social links in Turkey bolster repayment capacities. The high unemployment rate remains a major source of concern, as it climbed to 14% in 2009 41 _{from 11% in 2008.} Both domestic and foreign sales were adversely affected during the crisis, leading to a decrease in the net profi ts of the corporate sector. Firms in manufacturing suffered the most. Indeed, NPLs are highest in the textile as well as in the beverages, food and tobacco industries, and have increased strongly in machinery and equipment and also in the metal manufacturing industries. However, high levels or increases in NPL

For Turkey, non-performing loans include loans and other 40

receivables classifi ed as loss, doubtful loans and other receivables, and loans and other receivables with limited collectability. According to “The BRSA Regulation on the Procedures and Principles for Determination of Qualifi cations of Loans and Other Receivables by Banks and Provisions to be Set Aside”, published in Offi cial Gazette 26333 of 1 November 2006, loans are recorded as non-performing receivables when they are more than 90 days past their due date.

Based on AMECO data, spring 2010. 41

ratios have also been observed in other sectors such as wholesale and retail, construction and agriculture. These sectors, in which NPL ratios were highest or increasing the most, form an important part of the banking sector’s sectoral exposures.

As with households, debt among corporates as a percentage of GDP increased only moderately in 2009 and is still low in comparison with international levels. In contrast to households, around half of corporate loans are short-term loans. Hence, corporates were able to benefi t from the recent interest rate cuts, either for foreign exchange loans or loans denominated in Turkish liras. Nevertheless, this also makes them more vulnerable to an increase in interest rates.