Turkey's banking watchdog the Banking Regulation and Supervision Agency (BDDK) on Tuesday told banks to write off TL 46 billion of loans by year-end and set aside loss reserves.

According to the BDDK's asset quality review process, it has been determined that the total amount of loans that should be classified as non-performing loans (NPL), mostly comprising of loans to the construction and energy sectors, amount to TL 46 Billion.

"In that context, the BDDK has sent the related banks the official instructions regarding the loan reclassifications and maintaining an additional level of provisions for expected credit losses, which should be complied by the banks before the end of 2019," it said in a statement.

The regulation is expected to raise the banks' NPL ratio to 6.3% from 4.6%, the watchdog said.

It added that the Turkish banks' capital adequacy ratio (CAR) would slip by 50 basis points to a still-high 17.7%, due in part to the dictate on NPLs, according to what it called a "prudent" analysis based on July data.

In a statement, the BDDK said the banks have raised cash over the last year, and core and secondary capital have risen by TL 49 billion.

"Studies conducted show that the industry as a whole maintains its healthy and strong structure and the standing capital structure is at a level that can easily manage asset quality-based risks," it said. The BDDK had previously estimated that the capital adequacy the ratio will drop to 15.5% while the NPL ratio will reach 6% by the end of 2019.