HSBC 'considering Turkey, Armenia exits'

HSBC 'considering Turkey, Armenia exits'
Turkey's business districts, such as Levent in Istanbul, have lost some allure.
By bne IntelliNews January 29, 2020

HSBC is reportedly considering selling its Turkey business and may also dispose of, or downsize, its Armenia operation.

The banking and financial services group has concerns about Turkey’s volatile currency and economic outlook, sources familiar with the matter were quoted as saying by Reuters on January 29. As part of broader cost-cutting measures under interim CEO Noel Quinn, HSBC is also seeking to sell or shrink its business in some other markets, the sources were also cited as saying. These include countries where it has small-scale operations that struggle to compete with local players, including Armenia, Greece and Oman.

HSBC will seek to sell its banking business in Turkey if it can find a local buyer, the sources were also quoted as saying, adding that no final decision has yet been taken.

The bank’s time in Turkey was also last year marred by its country CEO Selim Kervanci being taken to trial on a charge of insulting Turkish President Recep Tayyip Erdogan by retweeting a ‘Hitler’ video. Kervanci was acquitted in April.

Erdogan's relations with foreign investors may be further soured if Volkswagen opts not to build a big car production plant in Turkey. The project seemed all set to go ahead until the Turkish invasion of northeast Syria last October, at which point company officials baulked at the prospect of laying down a foundation stone across the border from a battlefield.

Unicredit’s ‘Turxit’

Turkey, struggling to recover from the 2018 lira crisis that led to the recession-hit year of 2019—and claims that officials essentially locked down and manipulated capital and currency markets at will as they struggled to contain the economic turmoil—may also face a ‘Turxit’ by Unicredit. The 50:50 Koc Financial Services (KFS) joint venture between Unicredit and Turkey’s Koc Group that controls third biggest Turkish lender by assets Yapi Kredi Bank is being unwound. Unicredit appears to hope investors will reward it with a richer valuation if it is less exposed to the risky Turkish economy.

Spanish banking group BBVA has also lately been involved in a banking market move that impacts the Turkish market. In mid-January, it put up for sale Garanti Bank Romania, a bank that it holds via its near-50% stake in Garanti Bank Turkey.

HSBC has operated in Turkey since 1990. It has already downscaled its presence in Turkey from some 315 branches and around 6,000 staff in 2013 to around 80 branches and 2,000 staff as of September last year, according to data from the Banks Association of Turkey.

Volatility in the lira—which lost 36% of its value against the dollar across 2018 and 2019—and Turkey’s wider economic problems have hit HSBC’s returns. It flagged rising expected loan losses in the country in its 2018 annual report.

The lender previously attempted to sell its business in Turkey in 2015. Dutch lender ING was among the interested parties, but the sale never occurred. HSBC instead pursued branch closures and job cuts. That path saw it swing from losses in 2014 and 2015 to a profit of Turkish lira (TRY) 456mn ($77.02mn) in the first nine months of 2019. Despite that improved performance, the risks from currency volatility and the economic situation mean HSBC still wants to exit Turkey, Reuters quoted its sources as saying.

Interim CEO Quinn is expected to announce his cost-cutting measures when the bank reports annual results and its new strategy on February 18.