European Banks’ Subsidiaries in Turkey: Well Positioned to Withstand Potential Headwinds

This commentary focuses on the exposure of European banks in Turkey, and assesses their overall resilience to potential shocks after the upcoming elections.

Key highlights include:

• European banks’ Turkish subsidiaries will likely face increased pressures in the near-to-medium term.

• However, we expect the Turkish subsidiaries to remain largely resilient against potential shocks given sound capital, provisioning and liquidity buffers.

• In an adverse scenario, in which the European banks would fully write down their investments in Turkey, we would not foresee any severe contagion risks for the European banks.

“We consider that European banks’ Turkish subsidiaries are currently implementing conservative risk strategies in anticipation of potential headwinds,” notes, Halil Senturk, Assistant Vice President, Global FIG at DBRS Morningstar. “They are building up credit provisions for potential asset quality deterioration, as well as maintaining adequate capital cushions for currency shocks, and solid foreign currency liquidity buffers for potential foreign currency outflows.”