Spain’s BBVA underscores support for Erdoğan lending boom

Spanish bank Banco Bilbao Vizcaya Argentaria (BBVA) underlined its support for Turkey’s efforts to revive economic growth through a lending boom and restructured debt.

In a second-quarter earnings statement on Wednesday, Garanti BBVA, the bank’s Turkish unit, signalled that it was fully behind President Recep Tayyip Erdoğan’s policies, which have drawn criticism from ratings agencies and economists for threatening a revival of the country’s economic and financial imbalances.

Garanti BBVA CEO Recep Baştuğ said the bank was meeting the needs of all its customers for the deferral and restructuring of their loan payments during what he termed “a challenging period”.

The bank has deferred and restricted the payments of more than 800,000 loans worth 35 billion liras ($5 billion) in the first half of the year, Baştuğ said. It has also expanded its loan book by 49 billion liras, he said.

Turkey’s government has flooded the economy with cheap loans from state-run banks and urged private lenders to follow suit to help boost economic growth. Standard & Poor’s warned last week that the borrowing boom threatened to revive economic imbalances in the country, which suffered a currency crisis in 2018.

Garanti BBVA said it provided the largest support to the Turkish industrial sector in recent history in terms of both liquidity and loan restructuring. It said any eligible business or consumer was granted loans, leading to record high growth of 28 percent in corporate lending.

The bank stressed that the loan support was not undercutting its financial health.

“Capital, asset quality, and liquidity are key aspects of banking at all times,” Baştuğ said. “Our capital has been the main support factor throughout this period. With respect to asset quality, we are the bank setting aside the highest loan provisions, and our conservative approach will continue.”

BBVA became a partner in Garanti, one of Turkey’s largest listed banks, in 2011 and increased its stake in 2015 and 2017 to 49.85 percent, making it the largest shareholder. BBVA rebranded the company as Garanti BBVA in June last year.

The Turkish lira hit a record low of 7.269 per dollar in early May on concern for a revival of economic and financial instability in the country. The currency fell to 7 per dollar on Thursday despite attempts by the central bank to defend it.

Turkey’s central bank is supporting the lending splurge with interest rates set at below the rate of inflation. Economists say the policy may not be sustainable, pointing to the tens of billions of dollars it has spent supporting the lira and to accelerating inflation. The central bank’s benchmark interest rate is 8.25 percent compared with consumer price inflation of 12.6 percent.