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Spanish lender BBVA offers to buy out rest of Garanti in bet on Turkey

2 min read . Updated: 15 Nov 2021, 08:20 PM IST PATRICIA KOWSMANN, The Wall Street Journal

Offer to take full control comes as Turkey faces punishing inflation and diminished confidence in President Erdogan

International lender Banco Bilbao Vizcaya Argentaria SA plans to double down on its presence in Turkey, in a rare boost for the country’s beleaguered financial system.

BBVA, Spain’s second-largest lender by assets, offered Monday to buy out the 50.2% of a Turkish bank, Turkiye Garanti Bankasi A.S., that it doesn’t already own. The $2.6 billion bid comes as Turkey faces punishing inflation, a sliding currency and diminished confidence in President Recep Tayyip Erdogan’s unorthodox economic management.

In a call with analysts, BBVA Chief Executive Onur Genç, who was formerly Garanti’s deputy CEO, acknowledged the risks, but said Turkey’s growth potential, young population and low borrowing levels were too good to ignore. BBVA said household debt in the country was low, at around 17% of gross domestic product, compared with an average 69% for the European Union. The price tag for Garanti was also attractive given the depressed value of the lira against the euro, analysts said.

“Turkey is a country with strong fundamentals and long-term potential, despite short-term volatility," Mr. Genç said.

Garanti’s shares were up almost 10% in Istanbul on Monday, while Madrid-listed BBVA shares fell around 3%. Benjamin Toms, an analyst at RBC Capital Markets, said the economics of the deal seemed attractive, but, “some investors may have preferred the excess capital to have been spent in a less political geography."

Meantime, another major European bank is leaving Turkey completely. Last week, UniCredit SpA, Italy’s largest lender, said it would sell its remaining stake in a local Turkish bank by next year. UniCredit decided in 2019 to exit Turkey, followed a plunge in the Turkish lira, which made it harder for borrowers to repay dollar and euro-denominated debt.

Turkey’s economic challenges have grown since then, amid rapid inflation and fleeing foreign investment. Mr. Erdogan frequently interferes in central bank decisions, firing governors who don’t support his strategy of cutting interest rates to encourage economic growth.

A new central bank governor installed this year has cut interest rates, adding to inflationary pressures. Inflation rose to 19.89% in October, Turkey’s highest rate in 2½ years, according to the country’s statistics agency. The rate cuts and departing foreign capital have weighed on the lira, which has lost more than a quarter of its value since last year against the dollar and the euro. It recently weakened to 10 lira to the dollar, from less than 2 lira to the dollar a decade ago.

The rising cost of basic goods including food, medicine, and energy is fueling public discontent with Mr. Erdogan, who has ruled Turkey as both prime minister and president for much of the last two decades.

BBVA sold its U.S. operations to PNC Financial Services Group Inc. in 2020 for $11.6 billion, pivoting to invest more in Spain and emerging markets. The bank said it could use part of the money to invest in its main markets, which included Spain, Turkey and Mexico. Assuming Garanti’s shareholders accept the offer, the transaction would increase BBVA’s profit per share by close to 14% in 2022.

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