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European bank stocks lose more ground as concerns on Turkey spread

PARIS (Reuters) - Shares in Europe’s major banks lost further ground on Monday, as concerns about Turkey’s deepening currency crisis spread to other emerging markets.

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The euro zone banking equity index .SX7E was down 1.6 percent, hovering near its lowest level this year and falling for the fourth session in a row.

Turkey’s lira pulled back from a record low against the dollar on Monday morning after the central bank pledged to provide liquidity and cut reserve requirements for Turkish banks, but the currency’s meltdown continued to shake global markets. The lira has lost most than 40 percent of its value so far in 2018.

The Russian rouble hit its lowest level since early 2016, under pressure from the lira’s slide and investors’ concerns about new U.S. sanctions against Russia.

Shares in European banks were hit across the board for the second trading session in a row, with those exposed to Turkey and other emerging markets suffering the steepest losses.

“There is a panic move on all emerging market currencies, the stress spreads on the South African rand, the Indian rupee or the Mexican peso,” said analyst Alexandre Baradez from brokerage IG Group.

Shares in Spain's BBVA BBVA.MC, Dutch bank ING ING.AS and Italy's UniCredit CRDI.MI - which all have units in Turkey - shed more than 3 percent, extending Friday's losses. BNP Paribas BNPP.PA fell 1 percent.

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Analysts at JPMorgan Cazenove and Deutsche bank calculated the impact on the four banks of a potential exit from Turkey, including the write-down of their assets there and the loss of intergroup funding.

The JP Morgan report said the hit on the core capital would be “a significant but manageable” 87 basis points for ING and 53 basis points for BBVA. UniCredit’s core capital ratio would actually benefit from not having to set aside money for forex losses linked to the lira depreciation. BNP would have a limited capital impact of 3 basis points.

Deutsche Bank saw worst-case scenario equity losses for the four banks at 12 percent of group equity for BBVA, 4 percent for UniCredit and ING, and under 2 percent for BNP Paribas.

“This is not our base case, but even if it were to occur, the impact should be manageable for European banks,” it said.

A BNP Paribas spokeswoman declined to comment on the analysts figures. UniCredit and ING did not immediately comment.

BBVA did not immediately comment on the analysts’ data but a spokesman for the bank noted that BBVA’s CEO Carlos Torres recently said every 10 pct depreciation of the lira in Turkey leads to an impact of around 2 basis points on the bank’s capital ratio.

European banks with large businesses in emerging markets such as Societe Generale SOCGN.PA in Russia or Santander SAN.MC in Mexico also saw their shares losing ground on Monday. Santander fell 2.5 percent and Societe Generale dipped 1.3 percent.

(This version of the story was refiled to add missing word in headline)

Reporting by Inti Landauro, Sudip Kar-Gupta, Andres Gonzalez Estebaran, Valentina Za, Bart Meijer and Thyagaraju Adinarayan, Editing by Helen Reid and Jon Boyle

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