Overview and the way forward
Between 2008 and 2020, banks, factoring, leasing and other financial institutions sold a total of TRY 62.6 billion worth of NPLs, in terms of unpaid principal balance (UPB), to the AMCs.
We expect total NPL sales volume of TRY 73 billion between 2021 and 2023 according to our macro-base scenario
Gross loan volume is expected to reach the range of TRY 5.5-6.1 trillion in 2023 from TRY 3.9 trillion in 2020, according to our three macroeconomic scenarios
Resulting NPL ratio out of gross loan volume, is expected to increase from 4.1% in 2020 to 4.8%-6.6% in 2023
Since the enactment of the communique governing the foundation and operations of NPL servicing platforms (so-called Asset Management Companies, “AMCs”) in Turkey in November 2006, NPL servicing has become institutionalized and well regulated by the Banking Regulatory Supervisory Agency (“BRSA”). Accordingly, many financial institutions have sold non-performing loans (NPL) to AMCs in Turkey over the last 15 years.
Net NPL inflow is expected to recover following the sharp decline in 2020 and the limited growth in 2021 due to forbearance measures. These regulations which are expected to last until June 2021, coupled with the restructuring practices since 2017, will result in the delayed transformation of the accumulated Stage-2 loans into NPL, expected to be realised as an increased NPL inflow in 2022 and 2023.
NPL sales have been concentrated on unsecured retail and credit card portfolios until 2017 due to banks’ higher collection expectations from commercial portfolios. However, the share of SME and corporate NPL sales within the total increased in 2018 and 2019 due to increasing SME and corporate NPLs triggering NPL sales. Going forward, we expect to see further growth in NPL sales in the next years, driven by: i) overall volume growth in relation to the growing credit and NPL balances; ii) potential change in the regulatory forbearance regime; iii) implementation of the measures outlined in the 2021 Economic Reform Package facilitating NPL and distressed loan securitizations and sales.
In summary, we expect loans and NPL to grow in line with the GDP estimates (similar to the prior years), which would yield regular NPL sales by banks and other financial institutions. Hence, we foresee attractive growth opportunities for AMCs in the Turkish NPL purchasing market.