No Other Banks Are This Exposed to Turkey, Argentina, Brazil…. Emerging Markets Haunt Spanish Banks

To diversify from the euro-debt-crisis, the biggest Spanish banks pushed deeply into Emerging Markets. Now, they’re in a new crisis.

Almost exactly six years ago, the Spanish government requested a €100 billion bailout from the Troika (ECB, European Commission and IMF) to rescue its bankrupt savings banks, which were then merged with much larger commercial banks. Over €40 billion of the credit line was used; much of it is still unpaid. Yet Spain’s banking system could soon face a brand new crisis, this time not involving small or mid-sized savings banks but instead its alpha lenders, which are heavily exposed to emerging economies, from Argentina to Turkey and beyond.

In the case of Turkey’s financial system, Spanish banks had total exposure of $82.3 billion in the first quarter of 2018, according to the Bank for International Settlements. That’s more than the combined exposure of lenders from the next three most exposed economies, France, the USA, and the UK, which reached $75 billion in the same period.

According to BIS statistics, Spanish banks’ exposure to Turkey’s economy almost quadrupled between 2015 and 2018, largely on the back of Spain’s second largest bank BBVA’s madcap purchase of roughly half of Turkey’s third largest lender, Turkiye Garanti Bankasi. Since buying its first chunk of the bank from the Turkish group Dogus and General Electric in 2010, BBVA has lost over 75% of its investment under the combined influence of Garanti’s plummeting shares and Turkey’s plunging currency.

But the biggest fear, as expressed by the ECB on August 10, is that Turkish borrowers might not be hedged against the lira’s weakness and begin to default en masse on foreign currency loans, which account for a staggering 40% of the Turkish banking sector’s assets

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