MNI POLICY: Euro Bank Regulators Not Yet Talking Turkey

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By Luke Heighton

     LONDON (MNI) - Banks, central banks and regulators are united in their

response to this week's crisis for the Turkish lira, and for the most part

remain tight-lipped in their public responses, while signalling that any

potential losses are small and containable.

     BaFin, the German bank regulator, said it had discussed the situation and

was "assessing the risks and issues on an ongoing basis".

     The organisation was "not concerned about the potential overall impact on

the German banking system", but that "it is impossible to predict how the

current situation will develop," a spokesman told MNI.

     As the crisis unfolded, the European Central Bank was said to be

"concerned" at the exposure of some of the euro zone's largest lenders. The Bank

of International Settlements (BIS), the European Banking Authority (EBA) and the

Central Bank of Turkey remain predictably tight-lipped.

     --NORTHERN EXPOSURE

     Figures for 2017 released by the Central Bank of Turkey showed that German

banks provided 11% of loans from abroad to Turkey's private sector, second only

to the UK.

     Today, Germany ranks only sixth on the list of Turkey's international

lenders, behind Spain ($80billion), France ($30billion), Italy and the US (both

$18billion) and the UK ($16billion), with loans worth $12billion outstanding at

the end of March.

     The EBA said it was monitoring developments, and "liaising closely" with

the ECB's Single Supervisory Mechanism, while the central banks of Turkey, Spain

and the Netherlands declined to comment.

     Spain's BBVA, Italy's UniCredit, France's BNP Paribas and the UK's HSBC are

the most exposed to Turkey, both directly and via their subsidiaries, along with

ING of the Netherlands -- a notable absence from the BIS data.

     BBVA controls 49.9 of Garanti bank, which has a book value of EUR4.4billion

and controlled assets of around $84billion as of June 30, accounting for some

13% BBVA earnings, according to analysts at Deutsche Bank.

     UniCredit owns around 40% of Yapi Credit, accounting for approximately 2%

of group revenues. Turkey accounts for some 2.5% of BNP's pre-tax profit,

Deutsche Bank estimates, thanks to its 72% stake in Economy Bank of Turkey.

     A worst case scenario would see BBVA lose around 12% of its group equity,

while UniCredit and ING would lose 4%, and BNP around 1.7%, Deutsche Bank said,

while HSBC's book value could fall by 0.3% -- equivalent to around

USD400million.

     --SUPRANATIONAL LENDERS

     Private businesses owe an additional EUR7.4billion (including undisbursed

commitments) to the European Bank for Reconstruction and Development (EBRD),

which currently funds 237 mostly private portfolio projects in the country,

with, 30% of funds going to financial institutions, 30% to industry, commerce

and agribusiness, 23% to infrastructure projects, and the remaining 17% to the

energy sector.

     Turkey is also indebted to the the European Investment Bank (EIB) and the

European Investment Fund (EIF), which in 2010 awarded loans and guarantees worth

EUR250million plus EUR30million in guarantees to the sector to help small and

medium-sized enterprises and micro-enterprises in Turkey's lesser developed

provinces.

     Whether the currency crisis will carry through in the form of an increase

in defaults for dollar denominated loans, compounded by the effects of runaway

local inflation and declining consumer confidence, remains to be seen.

     However, President Erdogan's decision to call a snap general election in

June was motivated in part by a recognition that economic volatility was on the

increase and unlikely to improve. His decision to double down on his critics

abroad -- and in the U.S. in particular -- suggests the events of this week have

not dented his characteristic appetite for confrontation.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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