Forex

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The Turkish crisis escalated over the past week and has sent flight risk contagion ripples through emerging markets. The fallout extends to those that are Turkey's biggest lenders. There are five banks most exposed with Spains BBVA the most at risk.


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Spanish, French and Italian Banks most linked to Turkey. There are five banks most exposed to the Turkey crisis with the speed of the Lira's fall expected capital ratio pressure with losses  from bond portfolios and exchange right effects.  Should the crisis deepen or even leave bonds, equities and other Turkish assets att hese new levels than debt haircuts will be likely to follow.

Which Banks Are Most Exposed

  • BBVA 13% of total loan book; Equity Group CETI of 11%, via Garanti (50% ownership)
  • UniCredit 4% of loans, Equities 6% via Yapi Kredi (~40% ownership)
  • ING 2% of loans, Equities 2%  via wholly owned subsidiary
  • BNP 2% of loans, Equities 2% via TEB (72% ownership)
  • HSBC via wholly owned subsidiary

Turkish Loans From European Banks

What analysts are saying:

UBS 

  • Reduced earnings contribution from Turkey already priced-in at BBVA and UniCredit
  • Expects no re-rating for these two stocks until greater clarity around local policy response is available
  • In a more negative scenario, may see liquidity constraints (~75% of liabilities are less than one year duration), book value impairments, debt haircuts or hyperinflation accounting.

Citi

  • European banks’ Turkey exposure is 1% of group based on the latest EBA data
  • For the four most exposed banks, it is 4% of the total: BBVA is most exposed
  • Share price performance discounts high probabilities of banks walking away from Turkey; sees ~40% probability for BBVA, close to 50% for ING

Morgan Stanley

  • Estimates limited disruption in wholesale funding, based on balance sheet structure
  • Sentiment may lead to negative read across to other emerging markets, risk assets may hinder short-term recovery

Emerging Markets Central Banks Assets

Deutsche Bank

  • Don’t expect systemic implications from lira crisis and believe the impact should be broadly manageable for European banks
  • See five European banks (BBVA, UniCredit, ING, BNP, and HSBC) with a notable presence or exposure to Turkey: BBVA, via Garanti (50% ownership); UCG, via Yapi Kredi (~40% ownership); ING, via wholly owned subsidiary; BNPP, via TEB (72% ownership); HSBC, via wholly owned subsidiary
  • Depending on how the situation proceeds, there may be “significant” capital and earnings implications

European Banks Exposed to Turkey

The takeway is that these analysts give the impression the situation is manageable and the worse case scenarios are also manageble. The contagion affect is real as we saw in Argentina today. Very much a combination of a banker's bubble combined with not wanting to be alarmist to further escalate banks exposures (their own),

Source: Bloomberg, TradersCommunity 

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