Banco Bilbao Vizcaya Argentaria SA may begin treating Turkey as a hyperinflationary market in its accounts as soon as the second quarter, CEO Onur Genç said.
With inflation in Turkey at 61% in March, the Spanish bank expects to change the way it presents local subsidiary Turkiye Garanti Bankasi AS in its accounting. This will likely result in an initial positive impact on capital and tangible book value as nonmonetary assets are reevaluated, though the country will have a very limited contribution to the group's profit and loss statement in the first year, Genç said on an April 29 earnings call.
Genç described the change as "a bit aesthetic." "The value is still there. The capital contribution is there. But on the P&L you might show a lower figure ... than what you would have been doing without hyperinflationary accounting."
BBVA's cost of risk for Turkey fell to 1.00% in the first quarter from 1.34% in the year-ago period and 1.33% in the fourth quarter of 2021, even as economic instability in the country persisted.
The bank has reduced its Turkish loan book more than 50% over the past five years and lost market share as a result of its de-risking efforts, Genç said. Foreign exchange remains its key risk factor in the market, the CEO said.
The bank already treats Argentina and Venezuela as hyperinflationary markets in its accounts.
Garanti deal
BBVA earlier this week raised its bid for the remaining shares of Garanti that it does not currently own. The higher price is justified even amid geopolitical and local economic instability as BBVA sees long-term value in the market. It has determined the move as superior to other capital deployment initiatives, Genç said.
"Our expectation is that there will be fluctuations and negative news coming from Turkey in the short term. We do think some of that negative news is already priced in," Genç said. "But in the long term, this investment gives us a good opportunity for value creation."
The bank has set a deadline of May 18 for shareholders to accept the offer. It has already surpassed the 50% threshold to about 60% ownership, which gives it further optionality to manage its stake, CFO Rafael Salinas said on the call.
Record results
BBVA posted what it described as its best-ever quarterly results for the first three months of 2022, with reported attributable net profit rising 36.4% year over year to €1.65 billion. The bank upgraded its full-year net interest income guidance for Spain and Mexico and said it is on track to achieve its 2024 targets.
Shares of BBVA were up more than 5% in morning trading in Madrid.
