Business World

Tuesday 21 February 2017

Turkey's banks face rise in funding costs after coup

Lionel Laurent

Published 19/07/2016 | 02:30

Policemen stand atop military armored vehicles after troops involved in the coup surrendered on the Bosphorus Bridge in Istanbul, Turkey July 16, 2016. REUTERS/Murad Sezer
Policemen stand atop military armored vehicles after troops involved in the coup surrendered on the Bosphorus Bridge in Istanbul, Turkey July 16, 2016. REUTERS/Murad Sezer

Turkey's financial industry is under pressure after last weekend's attempted coup. It's too early to gauge the economic impact - but analysts are already warning of the threat of higher funding costs, currency volatility and loan losses to the country's banks. That spells trouble for the European banks that betted big on Turkey's growth prospects - and vindicate Citigroup's decision to quit at a loss in 2015.

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On paper, Turkey should be an attractive market for overseas banks: its economy and population are growing, demand for lending is increasing and the country is on a path that could conceivably lead to European Union membership.

In practice, profit has proven elusive. In 2014, HSBC's Turkish unit made a bigger loss than any of the 46 banks in the country, according to Bloomberg News. Currency weakness has hit even the biggest players, such as Spain's BBVA, which last year wrote down its investment in Garanti - one of Turkey's top banks - by about €1.8bn due to the falling lira.

So far, most banks have held on to their Turkish operations. Demand for these assets is limited and the cost of a hurried exit has seemed high. In February, HSBC decided to keep its Turkish operation and shrink it after failing to find a buyer. Italy's UniCredit had been mulling a sale of its stake in Yapi Kredit Bank, Bloomberg News reported in May.

By contrast, BBVA has doubled down on the country, boosting its stake in Garanti to 39pc last year. But the after-effects of the failed coup may vindicate those that managed to back out of their Turkish bets, such as Citigroup.

It sold its stake in Akbank in stages after writing down the value of the holding by $1.2bn in 2012. (Bloomberg)

Irish Independent

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