Spain’s BBVA may have to set more money aside to cover Turkey risk
BBVA, which owns just under a 50 percent stake in Turkish bank Garanti, makes around 11.5 percent of its profits in Turkey.
Senior executives at Spain’s second-biggest bank told analysts on Sept. 5 they now saw the cost of ensuring BBVA’s loan book in Turkey, against risks, rising to 200 basis points in 2018, a spokesman for the bank said on Sept. 6.
When it published its quarterly results in July, the bank had estimated that cost of risk would reach 150 basis points this year.
Turkey’s widening rift with the United States and investor concerns about monetary policy have sent the lira down by more than 40 percent this year.
This is a particular vulnerability for Turkish banks as more than a third of their lending is in foreign currencies.
Analysts at ABN AMRO say BBVA is the international lender most exposed to Turkey and the bank’s shares have fallen more than 26 percent this year, including a 2.5 percent decline on Sept. 6.
The executives also said the bank had revised down its economic growth forecast for Turkey and now saw higher potential impairment risks in the energy and real estate sectors.
“A worse macro leads to higher provisions (...) The other element for the increase in the cost of risk ... from foreign currency denominated lending,” JBCapital Markets said in an analyst note.
“The most relevant exposure is to the energy sector,” the broker said.
An increase of 50 basis points in the cost of risk would be equivalent to around 250 million euros ($290 million) in additional gross provisions, taking into account the bank’s loan portfolio at the end of June, according to Reuters calculations and in line with analysts views.
BBVA did not specify how much money it would need to set aside.
A spokesman for the bank said that whilst the cost of risk has increased, net interest income (NII) - profit from loans minus funding cost - from the Turkish bank would benefit from higher inflation as half of the bank’s fixed-income portfolio is hedged.
BBVA has said that its exposure to Turkey is limited to the 4.4 billion euro book value of its Garanti stake and that there is no possible contagion to the rest of the bank as there is no internal funding or loans between the group and Garanti.