Emirates NBD To Pay 14% Less For Turkey's Denizbank After Lira Slide

Dubai’s biggest bank will save about $400 million in a deal to buy Turkey’s Denizbank after the lira slumped and economic growth stalled since the deal was announced 10 months ago.

Emirates NBD will now pay 15.48 billion lira ($2.75 billion) for Sberbank's wholly-owned Turkish unit, according to a statement. That compares with 14.6 billion lira it agreed to pay for Denizbank on May 22, the equivalent of about $3.2 billion at the time.

The purchase is both Turkey’s largest M&A deal since 2012 and the Dubai bank’s biggest acquisition. The deal is expected to close in the second quarter.

The United Arab Emirates’ second-biggest bank is taking the reins at Istanbul-based Denizbank as President Recep Tayyip Erdogan leans on lenders to lower interest rates and reverse a decline in credit to pull the Middle East’s biggest economy out of its first recession in a decade.

It also comes as financial institutions face a rising pile of bad debts and restructuring demands from companies struggling to repay loans denominated in foreign currencies.

The lira lost 17 percent against the dollar since the deal was signed, plumbing a record low in August, amid tensions with the US and increasing signs the economy was fraying.

The currency’s crash has fuelled inflation of almost 20 percent that is cutting into disposable income. The deteriorating climate is likely to undermine banks’ asset quality, raising the risk that the public sector will be called on to support parts of the domestic corporate and banking system, S&P Global said last month.

Still, Gulf-based lenders are attracted to Turkey with its young and under-banked population of more than 80 million people - dynamics they can’t find domestically, where expansion opportunities are limited.

Emirates NBD had $136 billion in assets at the end of December, while Denizbank had $37 billion, according to data compiled by Bloomberg.