After last week’s failed coup, Turkey will be the focus of the financial markets for the next few weeks. The long-term investability of the country has now been thrown into question as political turmoil coupled with economic uncertainty, and currency volatility is almost sure to scare investors away.
Luckily, most US companies have limited exposure to Turkey’s economy; most European companies also have limited exposure. However, European banks are more exposed than most to the now volatile region. A report from Deutsche Bank released the beginning of this week picked out Spanish banking giant BBVA and Italy’s UniCredit as the two European banks with the most exposure to the region. Exposure to Turkey represents around 5% of each bank’s loan portfolio and over 10% of group profits.
Europe’s banks set to suffer from Turkey coup
BBVA is particularly exposed. The group controls 39.9% of Garanti Bank, Turkey’s second-largest private bank after acquiring 15% of the Turkish group back in July 2015. The Turkish division accounts for 14% of BBVA’s pro forma profits.
UniCredit controls 40.9% of Yapi Kredit Bank, one of the first nationwide private banks in Turkey and the fourth largest privately owned bank by asset size. Earnings from Yapi account for 14% of the UniCredit group’s net profit and 4% of the bank’s loan portfolio.
BBVA and UniCredit European banks with exposure to Turkey. The drive by European banking giants to gain exposure to Turkey’s rapidly growing emerging market has left many with some exposure to the region — exposure which managements may now be reconsidering following last week’s events. Last year BBVA wrote down its investment in Garanti by around €1.8 billion due to the falling lira.
BNP Paribas is exposed to Turkey through its wholly-owned retail bank TEB. Loans to customers in Turkey represent 2.5% of BNP’s total loan book and account for an estimated 3% to 4% of group pre-tax profit.
ING’s exposure to Turkey comes via its ING Bank A.S. subsidiary, which was originally formed to take charge of the opportunity available in Turkey. ING’s management has branded Turkey as one of the bank’s ‘Challenger and Growth’ markets. Luckily, the group’s growth in the region got off to a slow start, and exposure to Turkey only amounts to 2.1% of ING’s loan book and 2.5% of group profit before tax.
HSBC tried to sell is Turkish business last year but decided to retain the operation after struggling to find a buyer. And it’s easy to see why according to Bloomberg in 2014 HSBC’s Turkish unit made a bigger loss than any of the 46 banks in the country. HSBC’s Turkish exposure represents less than 1% of group loans and risk-weighted assets.