An unprecedented rise in the number of cheques not honoured by banks in Turkey due to insufficient funds illustrates how the country’s economy is grappling with a severe liquidity crunch.

The figures on the difficulties, obtained from the Turkish Banking Association (TBB) Risk Centre, were reported by Kronos on November 20.

The TBB numbers showed that the value of cheques that bounced leapt to a record high of Turkish lira (TRY) 8.1bn ($281.5mn) in October alone, marking a 100% m/m increase. And in 10M23 there was a 171% y/y increase in bounced cheques, with the combined value amounting to TRY 44bn ($1.53bn).

Another TBB figure, covering 7M23, reported by Arabian Gulf Business Insight (AGBI), showed the value of bounced cheques at TRY 21.6bn ($792mn), less than half what the figure stood at three months later.

The total for the full year of 2022 was TRY 16.3bn, while for the full year of 2021, the volume was TRY10.3bn.

The growing crisis with bounced cheques is partly ascribable to the Turkish central bank’s monetary tightening cycle, which has seen the policy rate move from 8.5% to 35% in the course of a few months. The cycle has led to commercial loan interest rates approaching 60%. Companies, as a result, are in a fight to secure credit at tolerable rates.

The bleak situation adds to the difficulties facing Turkey’s many “zombie” companies and companies that face falling to the zombie curse.

bne IntelliNews reported on November 2 how Turkey’s trade ministry has extended “regulatory forbearance” measures that apply to “zombie” companies until the end of 2024. The move was confirmed by an announcement in the Official Gazette.

The extension means that companies will not be required to take into account exchange rate losses when calculating equity losses.

If a company’s loss is equivalent to 50% of capital or 2/3 of legal reserves, the firm is by law obliged to hold a general meeting within a year that will conclude in either liquidation or a fresh capital injection, according to the current applicable Turkish legislation. However, the “zombies” are now not obliged to follow the legal procedure until 2025.

Another curious reality in Turkey is that the government-run banks have boosted their loan books since 2020, yet they have the lowest non-performing loan (NPL) ratios.

Turkish banks also weigh 0% risk for FX-denominated government paper on their balance sheets when calculating their capital adequacy ratios.