Collection : the biggest issue to watch in 2019…

In meetings I held with some Turkish financial institutions, I found out that debt collection problems have become more widespread in October and November. Interestingly, there is a sharp and persistent gap between the cost of funding and credit rate, which means gross profit from non-performing loans sold to asset management companies, is much higher when compared to previous periods. Experienced financiers say, “In times like these, profit margins look larger on the paper”.

Another interesting thing is that those, who were once wealthy enough to acquire any enterprise they want, are today stuck in a position where they are in desperate need of those enterprises’ money. However, credit agencies have no intention to provide long-term loans to any person or any company, no matter who they are or what influence they have, without investigating their cash flow. I think we will have to soon accept the reality of overly secured credit market. Bankers, however, insist their prospective borrowers have flawless cash flow, let alone secured loans.

Many financial institutions want to sell some of their non-performing loans to asset management companies. However, I guess they will continue to float their customers, who can make repayments even though not regularly, on overnight rate for a little while more.

“A little advice…”

There is some sort of loan relationships that “finance loss” in most of the sectors, which means those who have once been complaining, “Banks are taking part of our own profit”, may say, “We incur losses together” today, but of course they don’t.

I have a little advice: Financial Institutions should design their budgets considering the possibility of bad loans equivalent to at least 1.5% of their monthly loan volume. I think, in 2019, institutions’ ability to collect debt will seal their fates.

Next year’s budgets will probably get revised several times. All those budgeting will turn into trash in case IMF’s high expectation for USD/TRY movements becomes a reality because parameters IMF is talking about have nothing in common with the parameters defined in the New Economic Plan.

By the way, we can expect more cross border operations in 2019. I think next year’s agenda will mostly revolve around diplomacy and global conflicts.