Factbox: European banks’ exposure to Turkey

MILAN (Reuters) – Turkey’s economic crisis poses a threat to European banks with business in the country.

Spain’s BBVA (BBVA.MC), Italy’s UniCredit (CRDI.MI), France’s BNP Paribas (BNPP.PA), Dutch bank ING (INGA.AS) and Britain’s HSBC (HSBA.L) 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.

But Turkey’s trouble are feeding risk aversion among investors, who worry about financial market turmoil spreading to other emerging countries or even Italy, which faces key decisions over its budget and credit ratings after the summer.

Here is a summary of the five banks’ Turkish exposure and of analyst estimates of the possible impact of the crisis:

BBVA

The Spanish group controls 49.9 percent of Turkish bank Garanti (GARAN.IS) after raising its stake in February last year.

Garanti Bank, which has a book value of 4.4 billion euros ($5 billion) for BBVA, had $84 billion in assets as of June 30.

Garanti accounts for around 13 percent of group earnings, according to Deutsche Bank, which estimates that a worst case scenario would wipe around 12 percent off BBVA’s group equity.

Analysts at JPMorgan Cazenove on Friday cut their 2019-2020 earnings per share (EPS) estimates for BBVA by around 6 percent 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.

BBVA also said it kept a prudent currency hedging policy to curb volatility of the group’s core capital ratio and limit any impact on earnings. A 10 percent drop in the value of the lira takes 2 basis points off BBVA’s core capital ratio, it said.

UNICREDIT

Italy’s biggest bank owns around 40 percent of Yapi Kredi (YKGYO.IS), Turkey’s fourth-largest bank, through a local joint venture.

Deutsche Bank estimates a 4 percent 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 around 3 percent 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.

ING

The Dutch bank has a fully-owned subsidiary in the country, ING Turkey.

Deutsche Bank analysts estimate a worst case scenario would translate into a hit of around 4 percent for ING’s book value due to the loss of equity as well as of intragroup funding.

JPMorgan Cazenove sees an up to 87 basis point erosion of ING’s core capital under an extreme scenario due to the large intragroup funding exposure.

ING did not respond to a request for comment.

BNP PARIBAS

The French group controls 72 percent of the Economy Bank of Turkey (TEB), partly through a local joint venture.

Deutsche Bank analysts estimate Turkey accounts for around 2.5 percent of BNP Paribas’ pretax profit. In a worst case scenario, the banking group would lose 1.7 percent of its net book value, they say.

A person close to BNP said the group’s exposure to Turkey was very limited, accounting for only about 2 percent 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.

HSBC

The banking group operates HSBC Turkey in the country and Deutsche Bank estimates it would lose $400 million or 0.3 percent of total group equity under a worst case scenario. A spokeswoman for HSBC declined to comment.

Reporting by Valentina Za in Milan, Andres Gonzalez Estebaran in Madrid, Inti Landauro in Paris, Lawrence White in London; Editing by Mark Potter

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