European banks exposed to Turkey’s currency crisis

Spain’s BBVA, Italy’s UniCredit, France’s BNP Paribas, Dutch bank ING and Britain’s HSBC most exposed

Turkey’s economic crisis poses a threat to European banks with business in the country.

Spain's BBVA, Italy's UniCredit, France's BNP Paribas, Dutch bank ING and Britain's HSBC are the most exposed to Turkey and vulnerable to its free-falling currency.

Analysts see as manageable even a worst case scenario which they deem unlikely at present – under which these banks would be forced to write off completely their local operations or exit the country.

Spain's BBVA controls 49.9 per cent of Turkish bank Garanti after raising its stake in February last year. Garanti Bank, which has a book value of €4.4 billion for BBVA, had $84 billion in assets as of June 30th.


Garanti accounts for about 13 per cent of group earnings, according to Deutsche Bank, which estimates that a worst-case scenario would wipe about 12 per cent off BBVA's group equity.

Analysts at JPMorgan Cazenove on Friday cut their 2019-2020 earnings per share (EPS) estimates for BBVA by about 6 per cent to take into account a further weakening of the lira and rising credit losses for lenders in Turkey amid slower growth.

BBVA said it was comfortable with its stake in Garanti and had great experience in managing businesses in volatile emerging countries under a model which made each unit fully responsible for its own capital and liquidity management, preventing any liquidity transfers from the parent company to the group’s subsidiaries or among them.

Worst-case scenario

Italy's biggest bank Unicredit owns about 40 per cent of Yapi Kredi, Turkey's fourth-largest bank, through a local joint venture. Deutsche Bank estimates a 4 per cent hit to UniCredit's equity in a worst-case scenario.

However, JPMorgan Cazenove analysts see instead a 59 basis point boost to UniCredit’s core capital in the event of a write-off thanks to lower risk weighted assets and the reversal of currency reserves with a negative value which the bank has been forced to increase recently as the lira slid.

The broker cut its 2019/2020 EPS estimates for UniCredit by about 3 per cent due the Turkish situation.

A spokeswoman for UniCredit said to refer to its first-half financial report for any information on its Turkish exposure. In presentation slides for those results, UniCredit said Yapi Kredi accounted for 2 percent of group revenues and a 10 percent drop in the lira would cut 2 basis points off its core capital ratio.

Deutsche Bank estimates that HSBC would lose $400 million or 0.3 percent of total group equity under a worst case scenario. A spokeswoman for HSBC declined to comment on its subsidiary in Turkey.

Loss of equity

Dutch bank ING has a fully-owned subsidiary in the country, ING Turkey. Deutsche Bank analysts estimate a worst-case scenario would translate into a hit of about 4 per cent for ING’s book value due to the loss of equity as well as of intragroup funding. ING did not respond to a request for comment.

France’s BNP Paribas controls 72 per cent of the Economy Bank of Turkey (TEB), partly through a local joint venture.

Deutsche Bank analysts estimate Turkey accounts for about 2.5 per cent of BNP Paribas’ pre-tax profit. In a worst-case scenario, the banking group would lose 1.7 per cent of its net book value, they say.

A person close to BNP said the group’s exposure to Turkey was limited, accounting for only about 2 per cent of the bank’s loans. The person said TEB was funded locally with deposits and equity and was a well-managed bank with systematically healthy profits. – Reuters