Shares of the Spanish bank Banco Bilbao Vizcaya Argentaria (NYSE:BBVA) traded more than 7% lower as of 11:30 a.m. today after the head of Turkey's central bank was fired over the weekend.
BBVA has operations in many different parts of the world including Spain, the U.S., Mexico, South America, and Turkey. In 2020, net profits from the company's operations in Turkey made up more than 14% of total profits.
Over the weekend, President Recep Tayyip Erdogan of Turkey fired central bank governor Naci Agbal, who had recently raised interest rates to counter inflation, a move that Erdogan did not approve of. The firing of Agbal marks the third time Erdogan has fired the central bank chief since 2019.
To replace Agbal, Erdogan installed Sahap Kavcioglu, a former banker, who apparently also does not approve of raising interest rates. The move sent Turkey's currency, the lira, down 15% near its all-time low.
According to Reuters, Sean Callow, a senior currency strategist at the Australian bank WestPac, said, "The lira is being smashed by investors fearing that the custodian of its value does not share their hopes for a stable currency underpinned by positive real interest rates." Callow also said that the lira could drop further.
The move by Erdogan could make Turkey's currency very volatile, which is spooking investors. It could also lead investors to think that inflation will get out of control if Turkey is unwilling to raise rates, and that there is no free market in the country.
Also, Banco Bilbao does a lot of business in Europe, which could see its own currency run into issues if the trouble from Turkey spills into the nearby region.