- The lira crisis is bad enough to push Turkey from 7% GDP growth into recession, according to Capital Economics.
- Contagion will be limited - the Turkish economy just isn't that big.
- But the equivalent of 6% of Spain's GDP is exposed to Turkey, and BBVA bank will be worst hit.
- Italy and France will take some punches, too.
LONDON - "The plunge in the lira, which began in May, now looks certain to push the Turkish economy into recession and it may well trigger a banking crisis."
That's the first, alarming, sentence in a note from Capital Economics' chief global economist Andrew Kenningham that was sent to clients on Friday.
But don't worry too much, he adds. The Turkish economy is so small that there is little chance of global contagion, of the kind we saw with the Greek debt crisis or the US real estate market in the 2000s.
Still, Turkey and Spain look likely to take serious hits, Kenningham says.
The Turkish lira lost 14% of its value vs. the US dollar at the time of writing on Friday. It has declined 34% since the start of the year. Previously, Turkey's economy had been growing at a healthy clip of about 7% a year. But with foreign money running for the exits, the country is now entering a crisis.
The immediate problem for Turkish banks is that many of the assets they hold are loans made in foreign currencies. As the lira declines in buying power, those loans are becoming more expensive for customers to pay back - and that could mean widescale defaults.
On its own, that would not be much of a problem (unless you are Turkish). With "GDP of around $900bn, Turkey's economy accounts for just one percent of the world economy, at market exchange rates, which is slightly smaller than the Netherlands," Kenningham told clients.
Spain, however, has a particular problem. Kenningham writes: "Spanish banks' exposure to Turkey is equivalent to around 6% of Spanish GDP, much of which is due to BBVA's stake in Turkey's second largest private bank." About 25% of BBVA's bank capital is exposed to Turkey, according to Capital Economics. BBVA stock was down 6% on the news.
Examples of European bank exposure to the Turkish financial sector, according to the Financial Times:
- Spanish banks are owed $83.3 billion
- BBVA (Spain) owns just under half of Garanti Bank.
- French banks are owed $38.4 billion
- BNP Paribas (France) holds 72.5% of TEB.
- Italian banks are owed $17 billion
- Unicredit (Italy) has a €2.5 billion investment in 40.9% of Yapi Kredi.
Capital Economics
A ranking of countries and their exposure to Turkish banks, as a percentage of GDP.
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