Turkish banking sector enters new wave of M&A http://today.reuters.com/news/articleinvesting.aspx?type=mergersNews&storyID=2006-09-08T100615Z_01_L08758743_RTRIDST_0_FINANCIAL-TURKEY-BANKS.XML
Fri Sep 8, 2006
By Emma Ross-Thomas
ISTANBUL, Sept 8 (Reuters) - Turkey's banking sector, already peppered with foreign players, is entering a new phase of merger activity, which is expected to stir even greater competition in the fast-growing market.
Over the last few years, a series of foreign lenders, including Fortis (FOR.BR: Quote, Profile, Research) (FOR.AS: Quote, Profile, Research), GE Capital (GE.N: Quote, Profile, Research) and BNP Paribas (BNPP.PA: Quote, Profile, Research), have bought into the sector at increasing premiums, in deals worth about $10 billion.
But after an inflation shock, a slide in currency and stock markets and a sharp rise in interest rates -- along with shrinking global risk appetite -- prices this time will be more modest.
Ankara is privatising Halkbank -- Turkey's sixth largest bank with assets of around 33 billion lira ($22.4 billion) -- via a block sale, while medium-sized private Oyakbank is also up for sale.
The banks represent almost the last major chances for a foreign player to enter EU candidate Turkey, but the scarcity factor will not necessarily boost their price, analysts say.
"I think we have seen the peak of valuations with Denizbank (DENIZ.IS: Quote, Profile, Research). It was the top of the market in terms of overall valuations and the potential buyers were more aggressive," one banking analyst said. "I think it was a one-off."
Price to book calculations vary, but according to one measure Denizbank went for 4.6 times book value to Dexia (DEXI.PA: Quote, Profile, Research), higher than the previous record holder Finansbank (FINBN.IS: Quote, Profile, Research), which was sold to Greece's National Bank (NBGr.AT: Quote, Profile, Research) at 3.6 times.
Halkbank, attractive for its extensive network of about 600 branches, also has disadvantages as a state-run bank which analysts say would need a shake-up, possible job cuts and improvements to efficiency.
Recent volatility in Turkish markets will also take its toll. "Risk perceptions have changed ... I think you're entering a more rational period," another analyst said. "People are beginning to think about risks and there are plenty of risks around."
One of the greatest challenges banks face now is competition and that will likely increase if an aggressive new player arrives on the block. Banks are battling for deposits, which analysts say is eating into their margins.
"In Latin America, competition from foreign players brought significant changes in terms of efficiency ... So (Turkish) banks will be forced to be more aggressive and more innovative," Goldman Sachs analyst William Mejia said.
AK BANK PUZZLE
The other bank coming up for sale is Akbank (AKBNK.IS: Quote, Profile, Research), which told Reuters in August it was considering selling 20 percent to a strategic partner.
But analysts and bankers say such a deal would not be attractive as a buyer would not have control. It is 66 percent owned by Sabanci Holding (SAHOL.IS: Quote, Profile, Research), the family of the same name, and related companies.
Some investment bankers say a strategy could be to get a foothold in the hope of taking control at a later stage.
"That's the only thing you could think of in terms of a justification," the first analyst said.
Oyak Bank intended to sell 50 percent, but faced with weak appetite, said it could go up to 100 percent, bankers say.
Ankara has told its major creditor, the International Monetary Fund, it will also sell Ziraat Bank, Turkey's second largest bank which traditionally focuses on the agricultural sector, but no timetable has been set.
As for Halkbank, how much will be sold has not been announced but the bank has been meeting potential investors, banking sources have said. While the government aims to sell the whole thing, some bankers say 100 percent of Halkbank might be too much to swallow.
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