As Turkish Lira Collapses, Foreign Banks in Turkey Rue the Day

The biggest loser: BBVA, Spain’s second biggest bank.

Few foreign banks are as exposed to the risks currently affecting Turkey than Spain’s second biggest lender, BBVA. The bank owns about half of Turkey’s third biggest lender, which provides roughly 15% of its global revenues. But those revenues are under threat as the value of the currency they’re denominated in, the Turkish Lira, continues to fall.

In 2016, when Turkey’s president Recep Tayyip Erdogan declared a state of emergency after a failed coup d’état, Deutsche Bank analysts alerted that BBVA is the most vulnerable among all European banks to risks linked to political turmoil in Turkey. But rather than heeding the warning, BBVA doubled down on its bet by increasing its stake in Garanti.

On Monday, Garanti shares tumbled 4.8% to 8.11 Lira. Today it ticked up a smidgen to 8.15 lira. The main spark for the sell off was Erdogan’s victory in Sunday’s elections, which made him executive president of Turkey, meaning he is now both head of state and head of government. As such, his overbearing influence over the economy is, if anything, likely to grow, and that is unwelcome news for many investors.

Year-to-date, Garanti shares are down 26%.The stock is denominated in lira, and the lira has has plunged 19% year-to-date against dollar and 17% against the euro. The currency devaluation plus the slide in the bank’s share price combined make for a 39% loss year-to-date for a euro-based investor, such as BBVA

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