Turkish state banks denounce and fail to collect underfunded personal loans

Turkish state-owned banks have granted swathes of personal loans under a government guarantee program and have failed to collect defaulted loans, the Sözcü newspaper reported on Thursday.

The loans total Lira 27.9 billion, up from Lira 21 billion in April last year, when 3.66 million people applied for the loan, Sözcü said, citing unidentified industry officials. The number of personal loans has now reached 6.2 million, he said.

Public banks have loaned money mostly without paying attention to the applicants’ financial situation, the newspaper said.

The Turkish government has used the Credit Guarantee Fund (KGF) to stimulate economic growth by lending to businesses on preferential terms. In 2020, 673.4 billion lire in loans were issued under this program, according to the KGF annual report.

Public banks have focused on collecting unpaid commercial loans rather than personal loans, economist Atilla Yeşilada said, according to Sözcü. “If they pay, they pay, if they don’t pay, they don’t pay,” he said.

Private banks have now cooled down to issue loans through the KGF, as they were promised that unpaid loans would be covered, but were then asked to restructure them instead, Yeşilada said.

The proportion of bad debts as a percentage of total loans is around 15% in Turkey, not the 4% cited by official sources, he said.

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