Turkey's Debt Mess Looms Even as Albayrak Sees 'Clean Slate'

A street vendor stands next to his stall in front of a jewelry shop in Istanbul, Turkey, April 11, 2019. (Reuters)
A street vendor stands next to his stall in front of a jewelry shop in Istanbul, Turkey, April 11, 2019. (Reuters)
TT

Turkey's Debt Mess Looms Even as Albayrak Sees 'Clean Slate'

A street vendor stands next to his stall in front of a jewelry shop in Istanbul, Turkey, April 11, 2019. (Reuters)
A street vendor stands next to his stall in front of a jewelry shop in Istanbul, Turkey, April 11, 2019. (Reuters)

Turkey’s finance minister said on Monday that steps taken by the government would give banks a “clean slate” to begin lending again, but bankers and analysts said Ankara needed to do more to understand the extent of the mess and to finally clear it up.

Two senior bankers said that big lenders may not completely abide Ankara’s most aggressive move so far: a directive two weeks ago for banks to reclassify as non-performing loans (NPLs) some 46 billion lira ($8.2 billion) in debt.

Sour loans are among the worst hangovers from last year’s currency crisis, which knocked some 30% off the Turkish lira and left companies unable to service what were once cheap foreign-currency loans.

Turkish banks held some 124 billion liras in NPLs at the end of August, up from 79.5 billion lira a year earlier.

Finance Minister Berat Albayrak, in an annual presentation of economic forecasts, said “we have taken innovative steps for banking-sector NPLs,” adding it was time for private banks to take a “proactive role” in extending credit.

“We will see the beginning of a clean slate for banks in the upcoming period. We think they will return to providing financing,” Albayrak said in Ankara, according to Reuters.

Private banks in particular have hesitated to lend since the economy tipped into recession, citing uncertainty around fiscal policy and continued volatility in the lira, and hoping the Treasury would ease any losses on the loans.

Inaction on the bad debt through the spring and summer frustrated the government, which itself was not willing to put money on the line.

That prompted the BDDK banking watchdog to issue the directive on September 17 telling banks to provision for losses on the NPLs.

But the two senior bankers involved in NPL discussions said that, before the BDDK made its 46 billion-lira announcement, big lenders had already reclassified as NPLs some 10-15 billion lira worth of the loans.

The bankers added that the rest covered by the BDDK directive may not be reclassified, in part because banks have restructured part of it.

“This BDDK decision should be interpreted as leaving it up to the banks to decide,” one of them said, requesting anonymity because he was not authorized to speak publicly about the issue.

Beyond the 46 billion liras, banks have on their books some 296 billion liras in so-called Stage 2 loans, or those for which the risk of non-payment has increased significantly, the banker said.

Between 15-20% of that would become NPLs under a “worst case scenario,” he added.

Banks are considering strategies to hang on to the loans long enough to extract some profit. Reuters reported last week that among them is creating an asset management company (AMC), sometimes called a “bad bank,” to house higher-quality NPLs.

The International Monetary Fund said banks’ impairment and restructuring practices should be reviewed, and urged stress tests on the assets and other measures to shore up market confidence.

“Further steps to clean up bank and corporate balance sheets would support financial stability and stronger and more resilient growth over the medium term,” the IMF said in a report last week.



IMF and Arab Monetary Fund Sign MoU to Enhance Cooperation

The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki - SPA
The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki - SPA
TT

IMF and Arab Monetary Fund Sign MoU to Enhance Cooperation

The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki - SPA
The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki - SPA

The International Monetary Fund (IMF) and the Arab Monetary Fund (AMF) signed a memorandum of understanding (MoU) on the sidelines of the AlUla Conference on Emerging Market Economies (EME) to enhance cooperation between the two institutions.

The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki, SPA reported.

The agreement aims to strengthen coordination in economic and financial policy areas, including surveillance and lending activities, data and analytical exchange, capacity building, and the provision of technical assistance, in support of regional financial and economic stability.

Both sides affirmed that the MoU represents an important step toward deepening their strategic partnership and strengthening the regional financial safety net, serving member countries and enhancing their ability to address economic challenges.


Saudi Chambers Federation Announces First Saudi-Kuwaiti Business Council

File photo of the Saudi flag/AAWSAT
File photo of the Saudi flag/AAWSAT
TT

Saudi Chambers Federation Announces First Saudi-Kuwaiti Business Council

File photo of the Saudi flag/AAWSAT
File photo of the Saudi flag/AAWSAT

The Federation of Saudi Chambers announced the formation of the first joint Saudi-Kuwaiti Business Council for its inaugural term (1447–1451 AH) and the election of Salman bin Hassan Al-Oqayel as its chairman.

Al-Oqayel said the council’s formation marks a pivotal milestone in economic relations between Saudi Arabia and Kuwait, reflecting a practical approach to enabling the business sectors in both countries to capitalize on promising investment opportunities and strengthen bilateral trade and investment partnerships, SPA reported.

He noted that trade between Saudi Arabia and Kuwait reached approximately SAR9.5 billion by the end of November 2025, including SAR8 billion in Saudi exports and SAR1.5 billion in Kuwaiti imports.


Leading Harvard Trade Economist Says Saudi Arabia Holds Key to Success in Fragmented Global Economy

Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
TT

Leading Harvard Trade Economist Says Saudi Arabia Holds Key to Success in Fragmented Global Economy

Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).

Harvard University economics professor Pol Antràs said Saudi Arabia represents an exceptional model in the shifting global trade landscape, differing fundamentally from traditional emerging-market frameworks. He also stressed that globalization has not ended but has instead re-formed into what he describes as fragmented integration.

Speaking to Asharq Al-Awsat on the sidelines of the AlUla Conference for Emerging Market Economies, Antràs said Saudi Arabia’s Vision-driven structural reforms position the Kingdom to benefit from the ongoing phase of fragmented integration, adding that the country’s strategic focus on logistics transformation and artificial intelligence constitutes a key engine for sustainable growth that extends beyond the volatility of global crises.

Antràs, the Robert G. Ory Professor of Economics at Harvard University, is one of the leading contemporary theorists of international trade. His research, which reshaped understanding of global value chains, focuses on how firms organize cross-border production and how regulation and technological change influence global trade flows and corporate decision-making.

He said conventional classifications of economies often obscure important structural differences, noting that the term emerging markets groups together countries with widely divergent industrial bases. Economies that depend heavily on manufacturing exports rely critically on market access and trade integration and therefore face stronger competitive pressures from Chinese exports that are increasingly shifting toward alternative markets.

Saudi Arabia, by contrast, exports extensively while facing limited direct competition from China in its primary export commodity, a situation that creates a strategic opportunity. The current environment allows the Kingdom to obtain imports from China at lower cost and access a broader range of goods that previously flowed largely toward the United States market.

Addressing how emerging economies should respond to dumping pressures and rising competition, Antràs said countries should minimize protectionist tendencies and instead position themselves as committed participants in the multilateral trading system, allowing foreign producers to access domestic markets while encouraging domestic firms to expand internationally.

He noted that although Chinese dumping presents concerns for countries with manufacturing sectors that compete directly with Chinese production, the risk is lower for Saudi Arabia because it does not maintain a large manufacturing base that overlaps directly with Chinese exports. Lower-cost imports could benefit Saudi consumers, while targeted policy tools such as credit programs, subsidies, and support for firms seeking to redesign and upgrade business models represent more effective responses than broad protectionist measures.

Globalization has not ended

Antràs said globalization continues but through more complex structures, with trade agreements increasingly negotiated through diverse arrangements rather than relying primarily on multilateral negotiations. Trade deals will continue to be concluded, but they are likely to become more complex, with uncertainty remaining a defining feature of the global trading environment.

Interest rates and artificial intelligence

According to Antràs, high global interest rates, combined with the additional risk premiums faced by emerging markets, are constraining investment, particularly in sectors that require export financing, capital expenditure, and continuous quality upgrading.

However, he noted that elevated interest rates partly reflect expectations of stronger long-term growth driven by artificial intelligence and broader technological transformation.

He also said if those growth expectations materialize, productivity gains could enable small and medium-sized enterprises to forecast demand more accurately and identify previously untapped markets, partially offsetting the negative effects of higher borrowing costs.

Employment concerns and the role of government

The Harvard professor warned that labor markets face a dual challenge stemming from intensified Chinese export competition and accelerating job automation driven by artificial intelligence, developments that could lead to significant disruptions, particularly among younger workers. He said governments must adopt proactive strategies requiring substantial fiscal resources to mitigate near-term labor-market shocks.

According to Antràs, productivity growth remains the central condition for success: if new technologies deliver the anticipated productivity gains, governments will gain the fiscal space needed to compensate affected groups and retrain the workforce, achieving a balance between addressing short-term disruptions and investing in long-term strategic gains.