Political Risk Analysis - Quick View: Atilla Verdict Threatens Turkish Banks - MAR 2018


The Latest: On January 3, Mehmet Hakan Atilla, a former official at Turkish state-owned lender Halkbank, was found guilty by a US court of evading US financial sanctions on Iran. While the guilty verdict only applies to Antilla, the prosecution presented evidence during the trial that they said showed Halkbank, and several other Turkish banks and government officials, were also complicit in the money laundering scheme.

What Next: Although the guilty verdict as it stands only applies to Atilla, the case will now be considered by the US Treasury, which will decide whether or not to take punitive action against Halkbank or any other Turkish banks they deem to have also been involved. This decision will ultimately be taken by the OFAC, a division of the Treasury that reports directly to the Treasury Secretary. OFAC's options, if it finds any wrongdoing among Turkish banks, range from fines to more severe measures including sanctions.

Implications: If additional action is taken, we believe Halkbank and other Turkish banks are much more likely to face fines rather than sanctions, which could cripple the Turkish economy. Fines would carry negative implications for the Turkish banking sector and for investor sentiment towards Turkish assets more broadly. While it is hard to speculate on the size of possible fines, they would almost certainly hit capital levels and cause significant reputational damage. Indeed, Turkish banks access to vital external financing channels has been drying up lately ( see 'Risks Rising As Financing Channels Dry Up', November 16), reflecting in part a sharp rise in tensions between Turkey and the West in recent years, and the verdict is likely to place additional pressure on already strained relations. Western financing is crucial not only for the Turkish banking sector, but more broadly for the financing of Turkey's sizeable current account deficit. Interestingly, the reaction across financial markets has been relatively muted following the decision, with Halbank's share price rising by over 4% and Turkey's benchmark equity index at all-time highs in local currency terms. However, we would expect this to change if the US Treasury does decide to take additional punitive measures.

Halkbank Share Price Up Following Verdict
Turkey - Halkbank Share Price, TRY (weekly)
Source: Bloomberg, BMI

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