March 6, 2019 / 10:04 AM / 6 months ago

Japan's Orix, Bain Capital in talks to buy problem Turkish loans - sources

ISTANBUL, March 6 (Reuters) - Japanese financial services group Orix Corp and U.S. private equity firm Bain Capital are in talks to invest in non-performing loans (NPLs) at Turkish banks, three sources close to the matter said.

Last year's currency crisis in Turkey, followed by an economic slowdown, has left many companies struggling to manage cash flows and debt. Some banks are looking to strengthen their balance sheets by selling NPLs and loans under close monitoring.

Turkish banks' NPL ratios stand at more than 4 percent and are expected to rise, while loans under close monitoring, which are at their highest rates in years, have also sparked interest from foreign funds.

"What these funds are interested in is mostly one-time transactions - so the purchase of big loans containing a single credit from banks," one of the sources said.

"They prefer loans that may have guarantees, like project financing loans for real estate or ship financing."

Expectations that the volume of NPLs in Turkey will grow has created "serious foreign fund interest", another source said, although companies not based in Turkey are not able to buy the NPLs directly from Turkish banks.

"Foreign funds that want to enter NPL sales here need to have established firms here or bought shares from an existing company. This is being discussed, the source said.

Turkey's banking watchdog says the percentage of NPLs could rise to 6 percent this year and some economists see it going even higher.

Last month, Standard and Poor's said it expected the NPL ratio of Turkish banks to top out at around eight percent in 2019, and added that a broader definition of problem loans would reach 15-20 percent.

"Companies such as Japan's Orix and the U.S.'s Bain Capital have been holding intense talks with financial consultants since September to enter the Turkish market," another source said. The two companies declined to comment.

The sources also said Turkey would be one of the focal points at the NPL Europe conference in London this week.

"We see that there is a serious foreign fund interest ahead of the conference as well. These funds usually closely watch increasing NPLs of countries after crises. Turkey is one of them," said one source.

Other countries at the conference include Ireland, Ukraine, Greece, Spain and Italy.

$1 = 5.3714 liras Additional reporting by Junko Fujita in Tokyo Writing by Tuvan Gumrukcu Editing by Louise Heavens

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