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Burgan picks up Eurobank bargain in Turkey

Kuwaiti lender pays $355 million for Eurobank Tekfen; Greek seller bolsters capital levels

Kuwait’s Burgan Bank is to purchase the Turkish subsidiary of EFG Eurobank in a $355 million deal set to inject capital into the struggling Greek lender, as Burgan continues its international expansion.

The purchase is the latest part of a trend of Greek banks offloading foreign assets in emerging Europe, and of Middle Eastern lenders expanding into Turkey.

Burgan has agreed to purchase a 99.26% stake in Eurobank Tekfen, and Burgan is also to acquire Eurobank’s $280 million of Turkish loans. The entire acquisition of Eurobank Tekfen, which was put up for sale in July, is to be funded through cash.

Analysts say the quality of Eurobank’s loans in Turkey has improved recently, with the bad-debt ratio dropping from around 7% to 4.5%. Return on equity is not as attractive, standing at around 7%. Nevertheless, Turkey is a growing market and the idea is that a presence there could benefit Burgan in the longer term.

"The impact is looking to be mostly positive for Burgan, and $350 million is a good price given the number of branches and clients Tekfen has," says Mandagolathur Raghu, head of research at investment company Markaz.

Tekfen has 60 branches across Turkey, and its latest annual report indicated a loan-to-deposit ratio of 101.8%.

"I would expect Burgan to aggressively target an increase in deposits, and focus lending on consumers and SMEs in particular," says Cagdas Dogan, banking analyst at BNP Paribas Securities Services. "However, I’m somewhat sceptical as to how well this would work. It hasn’t worked particularly well for smaller banks, simply because the banking space in Turkey is dominated by the big names."

A number of Greek banks have been scaling back their international operations in response to the European crisis. Early last month, reports indicated that Alpha Bank was close to selling as much as 30% of its emerging Europe units to the European Bank for Reconstruction and Development.

Among other Middle Eastern banks, Qatar National Bank has been in talks for the purchase of DenizBank, the Turkish subsidiary of Franco-Belgian lender Dexia. And Lebanese Bank Audi obtained a Turkish banking licence in December.

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