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Nov 08 2018

UniCredit in $1 billion Turkey write-down

Italian bank UniCredit wrote down its investment in Turkey by almost $1 billion.

The Milan-based bank said on Thursday that it had booked an 846 million euro ($967 million) impairment for its 41 percent stake in its Turkish subsidiary Yapı Kredi, the country's sixth-largest bank by assets.

A slump in the Turkish lira against the dollar of almost a third this year and an economic downturn have hit the country's banking sector hard. Non-performing loans are climbing and banks are being forced to restructure borrowing for thousands of troubled companies. Yapı Kredi is also the biggest provider of credit card loans in the country.

As a consequence, UniCredit’s net profit was just 29 million euros in the third quarter, much lower than a 907 million-euro average estimate in a survey of analysts provided by the company.

A report by Goldman Sachs in July had said Yapı Kredi was among the most exposed of Turkey’s banks to a slide in the lira’s value, pointing out that its excess capital would be largely eroded should the lira fall to 6.3 per dollar. The currency reached a record low of 7.22 per dollar in August but has since recovered to trade at 5.42 against the U.S. currency.

Yapı Kredi’s shares have lost more than half of their value in euro terms this year.

Ratings agencies including Standard & Poor’s and Moody’s have cut their ratings on Turkish sovereign debt and the country’s banks into junk territory, citing an overheating economy and worsening finances.

The Turkish economy is expected to grow by just 0.4 percent next year, according to the International Monetary Fund. Moody’s sees the economy contracting by 2 percent.

Spain’s BBVA bank is also exposed to the Turkish finance industry by its controlling interest in Garanti Bank, also one of the country’s largest lenders. NBD bank of Dubai is currently wrapping up the purchase of a majority stake in a smaller Turkish lender, Denizbank, from Sberbank of Russia.

Loans under close watch at many Turkish banks now exceed 10 percent of total loans. More than 3 percent of lending is now considered to be non-performing.Still, the access to credit for Turkish banks is improving.

Yapı Kredi became the latest to secure financing on international markets on Oct. 30 after successful syndicated loans by Akbank and İşbank since August, when the currency crisis was at its height.

The bank signed dollar and euro-denominated borrowing totalling $1.1 billion over 367 days, which included tranches of $275 million and 690.7 million euros.