Wednesday, December 7

BBVA takes another hit from the Turkish lira

BBVA suffers on the stock market and loses interest from investors due to monetary policy in Turkey, where the country’s president, Recep Tayyip Erdogan, has promised to lower interest rates even further.

After knowing the news, the value is left more than three percent of its capitalization in the bag this Monday.

Likewise, this situation has also caused Bankinter analysts to cut the recommendation from ‘buy’ to ‘neutral’.

“BBVA’s fundamentals are solid (Ordinary RoTE at pre-Covid-19 levels, excess capital and share buy-back) but it is inevitable that the price will suffer due to the instability that Turkey is experiencing,” writes Rafael Alonso, an analyst at Bankinter.

BBVA, increasingly exposed to Turkey

And is that BBVA’s interests in Turkey are getting higher and higher. There, BBVA controls 49.85 percent of the Turkish bank Garanti, although in October it launched a takeover bid for 50.15 percent of the remaining capital.

With this operation, BBVA has increased its growth potential but also its risk profile at a delicate time from a macroeconomic and geopolitical point of view.

Specific, Garanti will represent 24.6 percent of BBVA’s cash flow after the operation, compared to the current 14 percent.

And the situation in Turkey is tricky, with the lira about to close its worst year in three decades due to monetary policy in the country.

The Turkish lira plummets and hurts BBVA

Specifically, the Turkish lira is changed this Monday to 17 for one dollar, which means to be placed at 1994 levels.

Basically, the reason for the additional depreciation that the country’s currency is experiencing this Monday has to do with comments made by its president, the Islamist Recep Tayyip Erdogan.

Erdogan has promised to lower rates even further, contradicting statements made by the Turkish Central Bank last week, in which he indicated his intention to pause the cycle of cuts, after making four consecutive cuts.

The market did not like these statements by Erdogan, as Rafael Alonso explains: “This strategy contradicts economic orthodoxy and market demands for various reasons. The first is that real interest rates are too negative (inflation rose to 21.3 percent in November from 19.9 percent previously) in a foreign-dependent economy (with a current account deficit around the 3.7 percent of GDP) ”.

Turkey, against the tide of emerging markets

Secondly, “the Central Bank’s interventions in the foreign exchange market fail to halt the fall of the lira and, thirdly, most emerging markets advocate raising rates as an antidote to inflation (Brazil, Russia, Mexico, Peru , Hungary…) ”, adds this expert.

Finally, “the credibility of the Central Bank has suffered after lowering rates last week (some 100 100 basis points to 12.5 percent)”, in view of the details on the direction of the policy in 2022 that the institution plans to publish shortly.

Thus, although it seemed that the time had come for Spanish banks thanks to the reopening of economies, the omicron variant of Covid-19 and news like this are slowing down their recovery.

The consensus is optimistic with BBVA

Despite the bad news coming from Turkey, the consensus of analysts continues to value the bank of Basque origin positively.

Thus, after revaluing by 21.5 percent in the year, 51.5 of the experts continue to recommend buying the security (17 analysts); while 42.4 percent prefer to hold (14 analysts) and 6.1 percent opt ​​for a sales council (2 analysts).

As for the target price, this stands at 6.46 euros, compared to a current price of 4.84 euros, which gives it a potential of 33.5 percent after the recent collection of benefits.