Momentum on Spanish Banks Hold Despite TRY Depreciation

• Momentum on Spanish banks has remained firm in the past week despite the sharp TRY depreciation in May (top chart).
• Renewed geopolitical tensions and the ‘dovish’ CBRT have been weighing on the lira; TRY is the worst performing currency this month, down nearly 7% against the USD (so far).
• Turkey also confirmed its opposition to NATO membership for Sweden and Finland; hence, the political divergence with the EU could have also been a ‘negative’ driver of TRY.
• We saw last year that every negative shock on TRY was associated with a strong selloff in Spanish banks due to their significant exposure to Turkey (bottom chart).
• The vast majority of the Spanish exposure to Turkey comes from BBVA, through their local subsidiary Garanti, which represented 14.4% of the group's net profit in 2019 ('normal' economic year).
  • BBVA is up nearly 10% since its low of 4.5 reached on May 6.
• Even though some analysts are not very concerned on BBVA and Spanish banks outlook (question of profitability and not of solvency for BBVA), a sustain period of TRY weakness could eventually lead to a significant consolidation in Spanish banks.

Source: Bloomberg/MNI/BIS