ISTANBUL BLOG: Officials scrub out NPLs as Baron Jim ticks off Turkey bashers

ISTANBUL BLOG: Officials scrub out NPLs as Baron Jim ticks off Turkey bashers
If Jim O'Neill would just cut the talk of a "crisis" he can have all the Turkish Statistical Institute data series he wants.
By Akin Nazli in Belgrade November 28, 2019

What to make of Turkish officials’ latest move to free up lenders struggling under the weight of swollen non-performing loan (NPLs) portfolios? Banking watchdog BDDK this week informed local lenders they are to delete toughest-to-collect Group 5 NPLs from their balance sheets. This will enable the banks to allocate less provisions and thus write out higher profits but, get this, they will at the same time retain their right to collect the non-performing debt in default.

Bad debt, of course, rocketed after the Turkish economy was thumped by the summer 2018 currency crisis brought on by the irresponsible debt-fuelling of the populist Erdogan administration’s dash for headline-grabbing growth—but rather than make the required effort to deliver convincing mechanisms to clear it up, officials appear to have spent most of their God-given hours making it invisible. No surprise, it’s par for the course for this regime, as drastic as their actions are.

The move against Group 5s makes it even more challenging to track the real situation with NPLs in Turkey. The official data was already pretty much useless given debt restructurings and the deployed classification methodologies.

The BDDK has raised eyebrows many times in the past. Think of the changes in capital adequacy ratio calculations it brought in after Moody’s Investors Service and Fitch Ratings cut Turkey’s credit ratings to junk following the failed July 2016 coup.

No bones

Make no bones about it, the official economic and financial data in Turkey is so often surreal. The financial markets are subject to undeclared interventions, the media and judiciary quail before the powers that be or practice sycophancy and the political masters for nearly two decades absurdly and relentlessly talk up their apparent mighty achievements—synthetic achievements that aren’t standing and won’t stand the test of time, hence the barely concealed emergency stations amid the Erdogan ranks as the top brass demand the shoring up of what threatens to slip away.

The now neverending need to distract the populace from reality with nationalistic and “patriotic” words and actions was nicely demonstrated the other day. Top rhetorician and president, Recep Tayyip Erdogan, ignoring previous promises to hit a centenary-of-the-republic 2023 deadline, spoke of Turkey’s project to make an indigenous top-class fighter jet. “Tiring of what he must do to secure high-end weaponry from major powers, [E]rdogan has decided the Turks will build their own fighter jets within five years,” Julian Rimmer of Investec noted on November 27.

Across the last two decades, Erdogan has been building his own cars, battle tanks, drones, submarines… you name it (in fact lately he’s been mulling why it is that Turkey has no nukes). Everything falls behind schedule and the described projects are often infeasible, but you’ve got to stay patriotic about it!

In the meantime, let’s thank the deities, and Michael Bloomberg, for globalisation’s financial journalism as it stands today. For it is blithe hacks that help keep the wheels turning. Simply get the latest official data readouts and faithfully report them as the latest instalments of reality. And the show goes on. But what if the data is blatantly manipulated? Well, there are plainly two options: Obey the manipulations, play the fool and stay out of the firing line, or mount tedious and often vain efforts to search for crumbs of the actuality, shrouded as it is amid the utter darkness spread by the sinister propaganda machines steadily working away.

Non-simplistic observations

On November 26, British economist and Chatham House chairman Jim O'Neill, or Baron O’Neill of Gatley, turned his gaze to Turkey. The former Goldman Sachs Asset Management chairman and ex-Conservative government minister stated that in his eyes “contrary to simplistic economic observations, Turkey got through the economic crisis reasonably well”.

O’Neill picked a correspondent of Turkey’s government-run Anadolu Agency news service (famous for its accurate reporting did someone say?) for a London interview in which he contended that an economic crisis plagues Turkey no more. That might seem very generous of our lauded expert, but then we must ask ourselves “Crisis? What crisis?” The Erdogan government has never accepted that Turkey has been in an economic crisis on its watch.

O’Neill did not elaborate in detail on his non-simplistic observations but he was generous enough to enlighten mere mortals just a little more by adding that “Turkey seems to have got through what could have been a very bad economic crisis [in the] past two years. So far, reasonably well.” That was the case, he added, “particularly with the current account balance having adjusted, and the economy not as weak as many would have thought. So, Turkey remains as interesting, as complex as always.”

Indeed. Interesting. And Complex. Nicely said. No clichés or euphemisms there. Pure compliments for underdeveloped Third World primates.

Anadolu reminded readers that O’Neill who—let’s underline this once more—hates simplistic economic observations, is famous for coining some of the most intricate terms in economic literature, namely BRICS (Brazil, Russia, India, China and South) and MINT (Mexico, Indonesia, Nigeria, and Turkey).

Having assured Brits that the UK economy will do well post-Brexit, O’Neill also told Anadolu that if Turkey joined the European Union it would be "enormously positive" for the bloc.

“On top of that Turkey has staggeringly complex neighbours in [the] South, Iran and Iraq and Syria. What the western world finds quite tricky with Russia, your current leadership seems to find a way of navigating all these complex neighbours,” he went on.

Not on the agenda in this interview was how Erdogan dived into the Middle East to become a modern-day Ottoman Sultan but ended up with only a Qatar alliance and how the despot has been played like a ping-pong ball between Donald Trump and Vladimir Putin.

When asked if Turkey could achieve its target of ranking among the top 10 economies of the world (let’s remember the currency crisis wrecked Turkey’s trajectory towards becoming a trillion-dollar economy, it is currently stuck around $720mn in GDP), O’Neill said it might be possible within the next decade.

“[…] in the next decade, as long as Turkey does the right thing, whatever that is, it has a chance,” he added.

If O’Neill wants to crunch Turkey’s esoteric official economic data and work out “whatever that is”, he’s very welcome, but right now he’s got bigger things on his mind, specifically a no-deal between the US and China on trade leading towards recession. However, again keeping a big distance from simplistic observations, O’Neill told his eager interviewer: “What gives me some hope; China is as worried as I am, so they are going to do something [..] Because US has an election next year, Trump will try to make a deal with China.”

Fanciest of footwork

Ahhh, just feel the stress drain away, but at the same time it must be said that Turks could never be truly anxious about an impending recession because they have a finance minister who pulls off the fanciest of footwork.

On November 27, the man in question, Erdogan son-in-law Berat Albayrak previewed the upcoming Q3 GDP data and kindly gave his insights on Q4. The Turkish economy he said—and don’t doubt it—has grown about 1% in Q3 and will grow by 4-5% in Q4. The previous day Erdogan let the second-order experts know that policy rates along with inflation will fall into the single digits in the near future and will remain there in 2020. Isn’t it so very good to have these leaders with their unerring certainty?

"There you go... it’s official, the end of anything other than single digit inflation in Turkey—by decree...," Timothy Ash of Bluebay Asset Management remarked in a note to investors.