Turkey plans to limit dividends: if BBVA’s bid for Garanti is completed, the bank would raise its risk profile (Turkey ~24.6% of NAP)

BBVABBVA to see risk profile rise in Turkey as country plans to limit dividends

Bankinter | The Turkish banking sector regulator (BDDK) is planning to limit the payment of dividends charged against 2021 results. For the time being, it is an informal recommendation made to the Turkish Banking Association. There is, however, no formal confirmation.

Bankinter analyis team’s opinion: The regulator’s intention would be understandable – improve solvency in the face of the weak Lira, which has racked up a fall of >80% vs the dollar since 2021. But it’s bad news for shareholders for the following reasons: (i) It would eliminate the dividend yield for the sector – at the moment, banks can pay out up to 10% of Net Attributable Profit – and the possibility of cash repatriation to foreign banks, (ii) it raises doubts over the capacity of the sector’s resilience and/or sparks considerations about a deterioration in the credit quality of the banks’ balances in coming months.

BBVA (BBVA) controls 49.85% of Turkish lender Garanti and in October launched a bid for the the remaining 50.15% of capital. The operation is expected to happen in H1 2022. So BBVA would increase its risk profile (Turkey would account for ~24.6% del NAP vs ~14.0% currenlly), amid a delicate time from a macro point of view. President Erdogan is putting pressure on Turkey’s Central Bank to lower interest rates, arguing that this would boost exports and employment. This strategy contradicts economic orthodoxy and market requirements. It also cuts estimates for the banking sector’s results.

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