Of all the large financial institutions in the world, Spanish banks have the largest exposure to main trouble-spots in emerging markets, mainly Turkey and Latin American Countries.

When it comes to Turkey, Spain has an exposure of $82.3bn, which is more than 1/3 of all international bank exposure as can be seen below.

Source: Bank of International Settlements

This is mostly due to BBVA’s (BBVA US), massive exposure to Turkiye Garanti Bankasi, Turkey’s third largest bank. As can be noted by BBVA’s share price development this year has been all but rosy as the market has priced in the Turkish exposure.  

Reuters notes on 10th of August;

Turkey accounted for 373 million euros of BBVA’s its first half net attributable profit, 14 percent of the group total, suggesting that it may be the most vulnerable to the country’s market turmoil. 

The markets are fearing that Turkish borrowers have a big part of loans in foreign currencies and these might not be hedged. With the Turkish Lira dropping significantly this year, risk lies in Turkish borrowers defaulting on their loans and that would hit any bank with that exposure.

Financial Times writes that the ECB is worried about European banks exposure to Turkey:

The ECB is concerned that Turkish borrowers might not be hedged against the lira’s weakness and begin to default on foreign currency loans, which account for a staggering 40% of the Turkish banking sector’s assets, the FT reported.

Source: ft.com

BBVA’s (BBVA US) CEO recently said the bank aims to stay in Turkey no matter what.

BBVA is “very comfortable” and maintains its commitment to Turkey despite the collapse of the lira. The CEO of BBVA, Carlos Torres, has assured that the bank is “very comfortable” with its commitment to Turkey and its majority stake in Garanti and has not changed its bet, despite the political instability and the recent decision of keep interest rates, which has caused a collapse of the Turkish lira.
Source: Europapress.es

We are not sure being comfortable is the right strategy. It reminds of some of the wordings heard as the Spanish property market started collapsing 10 years ago.

In Argentina, where the economy and currency is spiraling out of control, the Spanish Banks exposure is almost 50% of the total foreign bank exposure according to Bank of International Settlement;

Source: Bank of International Settlements

In addition, Spanish banks have large exposure to other Latin American countries that might be facing financial troubles ahead. IMF raised some major concerns in the end of 2017;

The significant international presence of Spanish banks provides welcome diversification effects but may also have significant implications for inward and outward spillovers. The share of financial assets abroad has grown continuously for the Spanish banking sector, with the largest international exposures by financial assets concentrated in the United Kingdom, the United States, Brazil, Mexico, Turkey and Chile.

As can be seen below, Brazil, Mexico, Turkey and Chile represent a big part of their total exposure.

Source: IMF

In Mexico which is another big market for Spanish Banks, the exposure is $160bn, which is over 40% of the total foreign bank exposure according to Bank of International Settlement;

Source: Bank of International Settlements

Beyond BBVA (BBVA US), the other main big bank in Spain, Santander (SAN US), also carries massive exposure to Latin American countries.

Source: IMF

Santander (SAN US) has just like BBVA US (BBVA US) lost substantial part of its value this year. Its share price is down over 30% this year.

Source: charts by Bloomberg

It is important to keep an eye on these banks in case things deteriorate further. Further collapse in the Emerging Markets could start bringing rather big problems for these big banks and defaults could occuring.

Remember during the last crisis, it was the smaller Spanish institutions that got severely hit. This time around it is affecting the big players.

Ironically it is 10 years ago that Spain asked the Troika for a bail out?