Non-performing loans (NPL) in the Turkish banking industry are rising but banks are successfully managing their bad loans, Reuters reported on May 30 citing the head of Isbank, one of the country’s largest private lenders.

According to the data from the industry watchdog BDDK, the NPL/total loan ratio increased to 3.29% (TRY51bn or around €15.5bn) at the end of March from 2.84% a year ago and it was up from 3.1% at end-2015. The banking industry’s loan volume rose by 1.8% compared to end-2015 to TRY1.5tn as of end-March. Turkish banks’ net income increased by 23% y/y to TRY8.2bn in the first three months of the year.

“It is clear that we have entered a significant rising trend,” Isbank’s CEO Adnan Bali said, however, adding that NPL ratios are being managed well. The problem seems bigger than it is because the loan base is not growing, according to Bali. The largest increase in NPLs is in the SME loan segment that rose to 4.4%, Reuters noted. Data of the BDDK showed that bad loans in this segment amounted to TRY17.15bn in March, up from TRY12.1bn, or 3.5% in total loans extended to small and medium-sized companies a year ago.

“Measures that are hitting capital adequacy ratios and high transaction costs on banks have to be reconsidered," Bali said, referring to a raft of regulatory measures introduced in 2011 to curb loan growth and cut the current account deficit. Following a recent cabinet reshuffle, Prime Minister Binali Yildirim, a close ally of President Recep Tayyip Erdogan, has handed over the responsibility for the Banking Regulation and Supervision Agency (BDDK) and the Savings Deposit Insurance Fund (TMSF) to Deputy Prime Minister Nurettin Canikli, another close ally of the president. Those agencies were supervised by Deputy PM Mehment Simsek before. Erdogan is pressuring the central bank to cut interest rates to stimulate the economy.

The government expects Turkey’s $720bn economy to grow 4.5% this year, picking up from last year’s 4%. But, international institutions find this forecast rather optimistic. The European Commission expects growth to slow to 3.5% in 2016, according to its latest forecasts released earlier this month. As exports have been weak, consumer spending remains the main engine of growth. Consumer credits increased to TRY388bn in March from TRY365bn in the same month of 2015.