Alarming Rise in Energy Loans

Turkish banks have been lending to energy industry firms at a rapid clip. The share of the industry in total corporate loans rose from 3% in 2007 to 7.4% in 2H15, and this came amid a lending boom that had been a major concern about the economy.

According to the Turkish banking watchdog (BRSA) data, total energy loans were 151 million liras that accounted for 7.36% of total corporate loans which was 2,058 million liras as of the end of the month of July. Bank loans apparently started to boost energy investments in Turkey in later 2007 when the industry only presented 3% of the total cash lent to the businesses.

Nevertheless the industry definitely has not taken a toll on banks as the non-performing loan rate for the industry stood at 1.37% while 2.87% of the total corporate loans were considered as bad. However, the NPL for energy industry grew such a fast pace that the bad loans had more than tripled since May 2014. Considering that the contribution of the industry to the total output of the economy that had remained steady, the over-investment fears loom in the industry. This also makes essential to assess the appropriateness of Turkey’s current energy investment levels.

Turkey - Energy Loans v Total Corporate Loans - GrowthTurkey - Bad Energy Loans vs Total Bad Business LoansTurkey - Energy Industry Share in Total Business Loans and GDP Contribution

Things are definitely not sticking out like sore thumb at the moment, Turkish policy makers may need to move fast to bring investment growth down, or over-investment will contribute to further financial fragility leading, ultimately, to the point where credit cannot expand quickly enough and investment will collapse anyway.