David O'Byrne in Istanbul -
News that the National Bank of Greece (NBG) will in April reduce its stake in Turkey's Finansbank from 99.8% to 60% would be guaranteed to attract attention even in the most stable of investment climates. After all, public offerings in big Turkish retail banks are far from common.
But NBG's decision generated more interest than would normally be the case, coming as it does only three months before a Turkish general election in which the future of the country's parliamentary system is apparently at issue, in the midst of a rancorous spat between the country's currently non-executive president and the nominally independent Turkish central bank, ahead of a widely anticipated US interest rate rise that is expected to impact especially emerging markets, and only a week after Citibank announced it was selling its 9.9% holding in Turkey's Akbank.
However, while the timing of the sales could be construed as panicked exits, the root cause of both is internal issues faced by both banks rather than any sudden loss of faith in the Turkish banking market.
Bad time to sell
Notably, NBG's plan to reduce its stake in Finansbank, the country's eighth largest by asset size, will not involve the Greek lender selling 30% of its existing stake. Rather, in the short term it will involve a rights issue for somewhere over 20% plus a small direct share sale, taking the company's stake in Finansbank down to 73%, with the possibility of a further sale later to reduce NBG's holding to 60%. Moreover the planned sale is no short-term expediency aimed at reducing exposure to the – currently at least – volatile Turkish market.
Analysts confirm that with Turkish stocks having taken a hit over the past two weeks due to the ongoing domestic political uncertainty, the average price/book ratio for Turkish banks has fallen from around 1.25-times two months ago to below 1-times, the timing of the sale is bad. But the move lies with the European Commission’s competition office, which following a bailout of NBG and other Greek banks in the wake of the Eurozone crisis has instructed the bank to reduce its stake in the Turkish subsidiary. That final decision came as part of an agreed restructuring plan agreed in July last year. Analysts also point out that announcements by NBG and Finansbank confirm that there are no plans for the Greek lender to reduce its stake below 60%, meaning that it will remain in Turkey, and in control of Finansbank for the long term.
Similarly, analysts caution about drawing too many conclusions from Citi's decision to divest its 9.9% stake in Akbank, Turkey's fourth biggest by asset size, for $1.2bn. Again they point out that while market conditions are bad – with Citi reportedly taking a hit of as much as $800mn on the price it paid for the stake in 2007, immediately prior to the global financial crisis when Turkish banking shares were trading at a substantial premium – the sale is part of the US bank's own restructuring plans. These are the result of the increased capital provisions required by the Basel III international banking accord and follows Citi's sale of 10.1% of Ak in 2012 for $1.15bn, after which it entered a three-year lockdown on the remaining 9.9% – a period which ended this month.
Certainly, despite the two sales, international interest in Turkey’s banking sector does not appear to be waning. Spain’s Banco Bilbao de Vizcaya Argentaria announced only in November that it would increase its stake in Turkey's third biggest bank, Garanti, by 15% to nearly 40%. And China's ICBC announced earlier this year that it would pay $316m for 76% of Tekstilbank.
However, questions do remain over both the future "health" of Turkey's bank sector and of that of the Turkish economy as a whole.
Grabbing some Asya
Questions over the independence of Turkey’s bank sector regulation were raised in February when Turkey's Savings Deposit Insurance Fund seized preferred shares in Bank Asya and took over management of the bank, which is widely understood to be controlled by the Hizmet movement of rogue Turkish cleric Fetullah Gulen, who for the past two years has been locked in a Byzantine political struggle with Turkish President Tayyip Erdogan.
Worries were further exacerbated following reports claiming that Turkey's biggest bank, Is Bankasi – 28.1% of which is held in trust for Turkey's main opposition party, the Republican Peoples Party – would also be taken over. These reports have been strenuously denied by both sides.
At the same time an ongoing standoff between Erdogan and the nominally independent central bank over the latter's interest rate policy have sent both the Turkish lira and stocks, including banking stocks, tumbling.
Such instability could be written off as merely the unfortunate downside of the Turkey's impending general election.
However with Erdogan having publicly stated that he hopes his ruling Justice and Development will be returned with a two-thirds majority in parliament in order that they can change the Turkish constitution and bring in a presidential system, questions are likely to remain until something approaching long-term political stability is regained.
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