Banco Bilbao Vizcaya Argentaria, the European bank with the largest branch in Turkey, suffered a market decline as Turkey’s presidential election was inconclusive, favoring incumbent President Recep Tayyip Erdogan, who kept interest rates low.
BBVA shares fell 4.5% in Madrid on Monday, making it the worst-performing stock in the Stoxx Europe 600 index.
Mr Erdogan’s unorthodox policy of lowering interest rates despite rising inflation has been bad for the banks. The country also has a large current account deficit and a still overvalued currency.
According to DBRS Morningstar, BBVA owns a majority stake in Turkiye Garanti Bankasi, the second largest private bank in Turkey, with an 8% market share in terms of total assets. At the end of 2022, Garanti accounted for 9% of BBVA’s total assets, making Turkey BBVA’s third largest market after Mexico and Spain.
Garanti shares fell 10% in Turkey.
BBVA increased its presence in Turkey in 2021 when another major European bank, Italy’s UniCredit, left the company. The Spanish bank has long recognized the risks in Turkey but said its growth potential, young population and low borrowing are too good to ignore.
The Turkish operation posted a profit of 277 million euros, equivalent to about 300 million US dollars, in the first quarter, compared to a loss of 76 million euros a year earlier.