(Bloomberg) -- On the face of it, Emirates NBD PJSC’s acquisition of Turkey’s Denizbank AS has become about $1 billion cheaper. Still, the deal could prove to be the riskiest yet for Dubai’s biggest bank.

Since Emirates NBD agreed to buy the Turkish lender from Russia’s Sberbank for 14.6 billion liras -- worth $3.2 billion on May 22 -- the value of the acquisition has fallen to about $2.27 billion in dollar terms after a 28 percent plunge in the lira, with most of that occurring last week. A deal is expected to close later this year.

The lira plunge “might trigger a materially adverse clause that would benefit Emirates NBD, creating the possibility of renegotiating the deal with Sberbank,” Arqaam Capital Ltd. analysts led by Jaap Meijer said in a note on Sunday. This could reduce the purchase price and make it “more manageable from a capital perspective.”

Emirates NBD is “closely monitoring” events in Turkey, a spokesman said in an emailed statement on Sunday. The sales and purchase agreement contains various terms as part of the overall commercial arrangement, which are confidential and cannot be disclosed, he said.

Financial Crisis

Turkey’s highly-competitive banking sector of 51 lenders is under pressure as investors worry that the country is sliding toward a full-blown financial crisis. The lira slumped as much as 17 percent against the dollar on Friday after President Recep Tayyip Erdogan showed no signs of backing down in a standoff with the U.S.

Turkish banks are also being squeezed as a supply of government-backed credit starts to run out and as the government presses banks to keep extending loans at interest rates that barely make up for inflation.

The deal has value for Emirates NBD “because of the growth opportunities and diversification benefit, but they are entering at the wrong time, which might require a higher capital injection into Denizbank,” Bloomberg Intelligence analyst Edmond Christou said in an email. “Non-performing loans will increase, lending growth will decline from double digits to high single digit rate and margins will be pressured as the cost of funds rises.”

Faced with limited expansion opportunities at home, Turkey’s young and under-banked population of over 80 million is an attractive proposition for Gulf-based lenders. Qatar National Bank bought National Bank of Greece SA’s Turkish unit in 2016 and Commercial Bank of Qatar took full ownership of Alternatifbank AS the same year.

Denizbank, which mainly offers retail and corporate banking as well as loans to the agriculture and tourism industries, posted a second-quarter net income of 700.7 million liras ($109 million).

“It all boils down to the commercial terms and clauses that they have negotiated with DenizBank,” Aarthi Chandrasekaran, a vice-president at Shuaa Capital PSC, said by email. “A depreciation of 41 percent against the dollar is a big deal, and if this decline is not contained then it could possibly move the initial purchase agreement.”

To contact the reporter on this story: Arif Sharif in Dubai at asharif2@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, Stefania Bianchi, Keith Campbell

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