Risks and opportunities in Turkey

The recent forays by Greek banks into the Turkish market, namely the acquisition of two Turkish banks by National Bank of Greece and EFG Eurobank, have raised concerns over the viability of such moves. National’s move was especially controversial due to the size of the bank it acquired (Finansbank is Turkey’s fifth-largest privately owned bank and ninth overall), its valuation ($5.5 billion) and the financial crisis in Turkey that saw the lira fall by some 30 percent and the Istanbul Stock Market, including Finansbank’s shares, plunge since National Bank announced the acquisition of a 43 percent stake in Finansbank on April 3. Concerns were also voiced that Turkish customers would not trust a bank controlled by «the enemy» (i.e. the Greeks) and would rush to take their savings elsewhere at the first sign of escalating tension between the two countries. A few weeks after National’s move, EFG Eurobank announced a more modest acquisition, a 70 percent stake in Tekfenbank. Tekfenbank, ranked 28th among Turkey’s 47 banks by assets, was valued at $300 million, which means that EFG Eurobank and National Bank both paid 3.6 times the banks’ book values. The difference in the size of the acquisitions was no coincidence. As Gikas Hardouvelis, Eurobank’s chief economist, explained in a presentation at the Harvard Club of Greece on Wednesday, «EFG follows a more conservative approach.» As for National Bank’s acquisition, the former chief economic adviser to former prime minister Costas Simitis said, «National Bank of Greece took a brave step at a bad time.» Why bad? First, Hardouvelis said, profitability in Turkey will decline in the short run. Second, he said, National’s major long-run risks are «the creation of a brand name and (National’s) ability to manage its employees in Turkey.» Paul Mylonas, National’s chief economist and chief of strategy, the event’s other speaker, was more optimistic. «Turkey (meaning the Turkish economy) has turned the corner,» he said. He called the market events that followed the announcement of the Finansbank acquisition «turbulence, not a crisis.» «We do not feel like some brave pioneers,» said Mylonas, responding to Hardouvelis’s assertion, adding that short-term developments counted for little since the decision to invest in a Turkish bank was taken with an outlook on «the next 20 or 30 years.» Both speakers were upbeat regarding the Turkish economy: The process of EU accession imposes economic discipline, Hardouvelis said, while «irreversible» structural reforms improve efficiency and shift power away from the so-called «deep state,» the security apparatus, the judiciary and state bureaucracy. The recovery since the economic crisis of 2001 has provided benefits to a large sector of the population and economic reforms «will be difficult to undermine in the future.» Both Hardouvelis and Mylonas were upbeat about Turkey’s banking system and its stability, with Mylonas further touting National’s «proven track record» in integrating foreign acquisitions. He called market risks «measured.» For Hardouvelis, the risks are mostly political, such as the possibility of weak coalition governments after next year’s election, the likely failure of EU accession negotiations, and increased Kurdish militancy.