Turkish asset manager Actus Portfoy is reportedly in the final stage of launching a first-of-its-kind-in-Turkey $150mn fund with a foreign partner to invest in non-performing loans (NPLs) weighing down corporates.

Reuters on October 25 reported a source with direct knowledge of the effort as saying Actus Portfoy—a unit of Global Yatirim Holding that manages Turkish lira (TRY) 830mn ($144mn)—would manage the fund and was in talks to find a foreign partner. Actus has done some hiring, they added.

Last year’s currency crisis plunged Turkey into recession and sent NPL rates soaring with construction, energy and other companies unable to service tens of billions of dollars of foreign-currency debt.

“[Actus is] conducting talks to find a foreign partner for the fund, they are setting up a team for that. This fund will be in an independent structure,” the person, who requested anonymity, was cited as saying.

“The fund will operate like a special purpose vehicle. It will make equity investments and receive stakes from the companies, and the fund will be a shareholder,” they added.

It emerged earlier this year that Goldman Sachs, US-based Bain Capital, the European Bank for Reconstruction and Development (EBRD) and Cerberus were also interested in Turkish problem loans, but nothing has so far come of that interest.

Turkey’s banking sector has a credit volume of TRY2.6 trillion lira. Its NPL ratio stood at 4.64% at the end of August, according to banking watchdog data.

Growth rate forecast at 0%

In early October, the World Bank’s Europe and Central Asia Economic Update for autumn 2019 forecast that Turkey would see a growth rate of 0% in 2019.

The report said that Turkish banks had adequate liquid foreign exchange to cover their short-term liabilities and were well-capitalised, with the capital adequacy ratio above 17%.

It added observations including: “However, the banking sector remains exposed to deteriorating asset quality and the risk of further currency fluctuations. The regulator has asked lenders to reclassify $8.1 billion in bad loans by the end of 2019, which would raise the NPL [non-performing loans] ratio to an estimated 6.3 percent. A significant share of loans (12 percent) is under close monitoring. The Turkish banking system’s profitability will also suffer from reduced business volumes and higher funding and hedging costs."

In late September, a banker briefed Reuters that Turkish banks have some TRY296bn in “Stage 2 loans”—loans for which the risk of non-payment has increased significantly—on their books. Between 15-20% of that total would become NPLs under a “worst case scenario,” he reportedly added.

In mid-September, the head of Turkey’s banking association disclosed that around half of theTRY 46bn ($8.1bn) of loans that officials have instructed lenders to reclassify as non-performing come from the energy and construction sectors.

Huseyin Aydin said during an interview with broadcaster NTV that banks would need to provision TRY 12bn for the new NPLs. Most of the loans to be categorised as NPLs were in foreign currencies and they did not include debt belonging to state-run firms, he added.

The demand for the reclassification of the loans came as government officials grew impatient with the lack of progress on bad debt, clogged credit channels and an unwillingness by banks to write off loans. In line with the Erdogan administration’s determination to quickly reboot the economy, to the point where it achieves a 5% expansion next year, the officials have set out to take a more aggressive stance when it comes to turning on the credit taps.