Few would dare to follow as the Spanish bank BBVA carries on betting in Turkey

As Carlos Torres Vila, head of BBVA, explained why the Spanish lender was ready to take over all ownership of a Turkish bank guarantee, It does not always sound like advertising that is always offered on businesses.

But then the 55-year-old BBVA chair could not ignore the incident – years of economic mismanagement and chaotic politics led by Turkish President Recep Tayyip Erdogan.

“We’ve seen recurring problems, rising prices and falling costs, and we have suffered in our body and blood, as a result of the drop in sales,” Torres said Monday, as BBVA reported. plans to pay € 2.25bn for the remaining 50 percent of the Guarantee, as it has been building the unit since 2011.

The BBVA currency, which may be one of the largest exports to Turkey in recent years if the owners and regulators approve, strengthened the stock market. But BBVA shares closed 4 percent, with Citigroup analysts describing the deal as “dangerous”.

While there was excitement over the agreement in Istanbul, business executives and experts warned that it was too early to say whether the move would bring more revenue to a country whose well-being and 83m strong people have long pledged foreign investment.

“Most Westerners consider the political risk of Turkey to be very high at the moment,” said Jonathan Friedman, a Wallbrook expert who is at risk of global violence and an adviser to ESG.

Instead, the BBVA agreement is in line with the traditional practice of foreign diplomats in Turkey: while the newcomers remain very cautious, some of the companies that have been around for a long time are ready to increase their commitment.

Torres appreciated the opportunity to hold the rest of the Guaranteed as a major component, among other things due to the close understanding of the Spanish bank of the Turkish lender, who had already been included in the BBVA accounts.

“At these rates the risk is lower,” experts said. “We know the economy well, we have spent it for ten years, we have seen the progress of the crisis and the return of the euro.”

Over the past five years the Guarantee has averaged € 1.2bn to € 1.3bn on all benefits per year, he added – although the Turkish lira has dropped by 70% against the euro since the beginning of 2016.

The currency fell again on Thursday after the central bank cut interest rates, rejecting warnings from investors that this would boost inflation. The lira drop was large enough to attract BBVA shares, which closed 5.5 percent downward.

Ahmet Burak Daglioglu, chief of the Turkish state finance office, which is responsible for foreign investment, stressed that “the risk of those outside Turkey is higher than those inside Turkey.”

That was the assertion made by Cavit Habib, head of the Turkish Danish service provider ISS, which has been in the country for 16 years and this year found a place management company. “Sitting here and looking at foreign objects are two different things,” said Habib.

Also BBVA is not the only foreign company that wants to end the major crisis. Ford Otosan, a joint venture between US car manufacturers and the largest Turkish car company that started nearly a century ago, announced in March that it wants to invest € 2bn over the next five years.

Huhtamaki, a Finnish CD producer who first entered Turkey in 1997, acquired the local company Elif Plastik for € 412m in September. “It is not a new market for us. This makes it easier, “said Katariina Hietaranta, an employee at Huhtamaki, adding that most of the exports” significantly help reduce the risk of money laundering “.

However, international companies already in Turkey do not ignore these threats, including the permanent erosion of democratic rights and the rule of law. One foreign official said he was living in fear of being hit by a “terrible, political” tax that could land a hefty fine. “It is not just a matter of sticking to the courts, and that you will not appeal successfully,” he said.

Erdogan’s determination to keep growth ahead for whatever reason, as well as the ongoing disruption of the central bank, has shattered the lira and left Turkey moving around. Although the IMF predicts that the economy will grow by about 9 percent this year, that increase comes with the risk of inflation at 20 percent.

The departure of companies from Turkey in recent years has been well-known, including Japanese carmaker Honda and domestic manufacturer manufacturer in the US Whirlpool. UniCredit, Italy’s second-largest bank, joined them this month, announcing plans to sell the remaining 20 percent of Turkish lender Yapi Kredi in 2022.

Andrea Orcel has begun to simplify UniCredit’s global operations since becoming a major executive in April. The idea of ​​losing its share in Yapi Kredi was part of the process, with UniCredit selling small items in countries with limited availability.

But an expert on banking plans said a lack of money in Turkey’s major markets, including political uncertainty in Ankara, also played a role in the UniCredit election.

Turkish officials say foreign economic figures for this year will rise to levels seen in 2019 and 2020, down 15 years, contributing to the growth of technology in the country.

The tech startups, who often live in Istanbul, have ridiculed what is happening because capitalists, business owners and independent investors are pouring money into Getir’s favorite, a delivery program, and Trendyol, an ecommerce page.

Turkish cattle also show growing faith among opposition parties that Erdogan could be forced out of the 2023 election, but it could happen soon.

“The common denominator is that all Turkey wants is for one person to retire and the country can go competitive,” said Charles Robertson of Renaissance Capital, an upcoming bank that focuses on markets.

Yet analysts like Friedman at Wallbrook said betting that the worst was still a big gamble. He added: “Investing in a raise seems to be a less risky one than an attempt to lower it.”

Additional reports of Owen Walker in London