Credit Volume Surge and Rising Non‑Performing Loans: Shifting Risk Landscape

The Turkish Banks Association (TBB) Risk Center’s June 2024 bulletin reveals a steady expansion in credit volume alongside a notable rise in non‑performing loans (NPLs).

Micro and Macro Drivers of Credit Expansion

The credit portfolio grew 12%, reaching TL 1.2 trillion. This expansion was bolstered by a 15% increase in the SME segment and an 8% improvement in large‑project financing. The easing of inflationary pressures and the Central Bank’s steady 13.5% policy rate helped fuel loan demand.

The Surge in Non‑Performing Loans

■NPL ratio rose to 5.2% in June, up from 4.8% the previous month.

■Total NPL stock stood at TL 58 billion, a 9% increase versus the prior quarter.

■Most affected sectors: construction (6.1%), retail (5.8%), and energy (5.5%).

Liquidity and Capital Implications for Banks

■The Credit Growth Rate (CGR) lifted banks’ return on equity by 1.3 percentage points.

■The rise in NPLs nudged Risk‑Weighted Assets (RWA) up by 0.4%, prompting additional capital buffers under Basel IV compliance.

■Liquidity coverage ratios (LCR) remained robust at an average of 115%, while short‑term funding costs fell to 4.2%.

Policy and Regulatory Responses

■The Central Bank maintained its 13.5% policy rate and introduced a Credit Expansion Guideline that eases collateral requirements for SME loans.

■TBB launched a new Risk Monitoring Platform (RMP) to enhance transparency and early detection of deteriorating loan quality.

While the credit volume surge reinforces recovery signals, the uptick in NPL ratios compels banks to reassess risk appetite. The expansion in SME lending offers short‑term growth upside, yet collateral quality and sector‑specific vulnerabilities remain key long‑term stability concerns. Strengthening capital buffers and integrating early‑warning systems for NPLs will be essential to avert a potential credit crunch.