Subject: The Spanish banks exposure to Turkey
On 15 November 2021, coinciding with the official visit of Spain’s Prime Minister Pedro Sanchez in Turkey, the O-SII Spanish BBVA announced the purchase of more than 50% of the Turkish bank Garanti.
BBVA shares fell by more than 11% between 15 and 19 November.
In Turkey, economic policies and banking supervision are controlled by President Erdogan, who regularly ousts Central-Bank governors, and who believes that high interest rates generate inflation.
On 23 November, the Turkish lira hit a record low of 12 against the dollar? after Erdogan announced the Turkish central bank’s plans to continue cutting interest rates.
In 2018, the ECB was already concerned about Spanish banks’ exposure to Turkey because of the lira’s devaluation -5.1 against the dollar.
The FT suggested investors not to take “the same gamble” as the BBVA’s.
1.How does the exposure of Spanish banks to Turkey change with this recent acquisition?
2.How does the ECB assess the risk for the BBVA Group of further interest rate cuts in Turkey as announced by Erdogan?
3.Considering that the takeover needs the Turkish supervisor’s approval, how does the ECB evaluate the risk involved given the characteristics of Turkey’s political regime under President Erdogan?