ANKARA: HSBC faces a tough task selling its loss-making retail arm in Turkey, where it has been hamstrung by tough competition and faces a decline in both economic growth and investor confidence.
Chief Executive Stuart Gulliver said in February HSBC’s four problem businesses — Brazil, Mexico, Turkey and the United States — needed to improve or be sold.
The bank has started the process of selling the Turkish retail business, according to four sources with knowledge of the matter.
That may prove hard as HSBC’s network of nearly 300 branches is not enough to provide a new entrant with sufficient scale, yet too costly for smaller local players.
It will not be an easy sale. Big Turkish banks already have many branches, so buying HSBC’s branches would not make much sense for them,” said one of the sources, an investment banker.
A newcomer would be more interested in buying its banking licence rather than its branches. There isn’t much appetite for Turkish banks now, and foreign banks aren’t sitting on loads of cash either.”
To cut costs and reduce complexity, the London-based lender is pulling out of countries and businesses that are unprofitable or lack scale. It is also expected to sell its retail arm in Brazil.
It has the 13th largest branch network in Turkey, well behind some state-run banks and major private lenders Isbank and Garanti Bank, whose top shareholder is Spain’s BBVA.
HSBC’s Turkish retail business has $4 billion of assets and could be sold at around book value, meaning the bank would not see a gain or loss on the sale, analysts at Citi said.
It is keen to keep its profitable commercial and investment banking businesses in Turkey, but could be forced to sell all of the units together to draw a buyer, the sources said.
Any foreign interest is likely to come from cash-flush Chinese or Qatari banks, said one source.
Turkey remains a difficult market for foreign banks, particularly in retail lending, where competition is stiff and local lenders offer sophisticated services such as biometric ATMs and multiple currency accounts.
HSBC’s retail business has lost money for the last three years, more than doubling losses in 2013 and again in 2014, when it lost $155 million, hit by regulatory changes capping interest rates on credit cards and overdrafts.
While investment banking profits have remained stable, commercial banking has seen profits drop sharply over the last three years. Overall, HSBC lost $64 million in Turkey last year.
Turkish banks’ return on equity (ROE) averaged 11.4 percent in 2014 and could fall to 10.4 percent this year, according to the Turkish banks association. Global emerging market banks average an ROE of around 14 percent according to Thomson Reuters data.
