After the euro debt crisis, Spain’s alpha-lender sought greener pastures in the Emerging Markets. That bet is coming home to roost.
Few, if any, global banks have bet as large, or as recklessly, on fast-growth emerging markets as Spanish lender BBVA. In the first half of 2018 its subsidiaries in Turkey, Mexico, Argentina, and other Latin American economies provided roughly half of its revenues and over 60% of its global operating profits. Now, with the current emerging market downturn deepening and contagion spreading from one market to another, BBVA is beginning to pay the price for its elevated exposure.
The bank’s shares, at €5.20 a share, have plunged 18% since the beginning of August, when the latest phase of Turkey’s crisis began, and are down 26% year-to-date. The bank’s debt is also getting more costly to service. The main reason is BBVA’s exposure to roughly €76 billion of Turkish assets, through its ownership of around half of Turkey’s third largest lender, Turkiye Garanti Bankasi AS. Many of those assets are loans to Turkish companies denominated in foreign currencies, making them much more difficult to service as the Turkish lira crumbles.
Last week, a BBVA spokesperson reported that senior executives at the bank now saw the cost of ensuring BBVA’s loan book in Turkey against risks rising to 200 basis points in 2018. That’s 50 basis points higher than the last estimate, in July. The bank has also revised down its economic growth forecast for Turkey and has acknowledged that the potential impairment risks in Turkey’s energy and real estate sectors, to which BBVA is highly exposed, are higher than originally estimated…