1Q12: The Weakest Quarter of the Year
Turkish banks will announce 1Q12 financials starting from the last week of April with Garanti Bank being the first on April 25. The deadline for banks to report BRSA bank-only 1Q12 earnings is May 15. 1Q12 is likely to be the weakest quarter of the year; as we expect 1Q12 earnings to contract by 16% YoY and 9% QoQ for the banks in our coverage. In assessing banks’ 1Q12 earnings, we specifically put more emphasis on YoY earnings growth as first quarters give the first implications for the full year earnings growth. We also attach equal importance to quarterly loan-deposit spread evolution in evaluating banks’ 1Q12 earnings performance, as it is a good indicator for comparing banks’ managerial strength in asset & liability management.
The highlights of the 1Q12 financials can be summarized as: i) meager loan and deposit growth as a result of the slowing down economic activity ii) 35bps QoQ contraction in loan deposit spreads as quarterly rise in deposit costs especially on the TL front materialized higher than the quarterly upward repricing in loan yields in 1Q12 (80bps QoQ rise in blended TL deposit costs vs. 40bps QoQ rise in TL loan yields). iii) CPI linkers will contribute positively to banks’ YoY earnings growth in 1Q12, as we expect CPI linker yields to materialize at 13.5% in 1Q12 vs. its 1Q11 level of 5.2% iv) Fee income and operating expenses will not be supportive for earnings in 1Q12. We expect fees to remain flat on a YoY basis for the banks in our coverage due to the amendments in documentation and asset management fees that came into effect in 1Q12. We also project above inflation opex growth in 1Q12 with a YoY rise of 13% for the banks in our coverage. v) Normalizing other income (NPL collections) and provision expenses is also likely to weigh on banks’ YoY earnings growth in 1Q12. vi) All in all; we estimate banks’ 1Q12 earnings to contract by 16% YoY in 1Q12. On a QoQ comparison, the RoAEs are likely to contract by around 2pp from 16.7% in 4Q11 to 14.7% in 1Q12.
Banking sector loans grew by a meager 2.3% in 1Q12, bringing the YoY loan growth down to 24.3% (20.5% in FX adjusted terms) as of end-1Q12. We expect the YoY loan growth to slow down further to 15% level in FX adjusted terms in 2Q12, as CBT’s recent hawkish statements which underlines the need for acting proactively against inflationary risks implies that the tight liquidity environment will be even tighter in 2Q12 with more volatility in interest rates and less volatility in currency. We believe that the CBT will prefer to rely on its O/N rate corridor policy rather than going for a policy rate hike, yet the duration of CBT’s tightening periods is likely to be longer than the previous ones.
2Q12 is likely to be the best quarter of 2012 in terms of NIM dynamics. In 4Q11 banks increased their loan rates by 1.8pp, which will start contributing positively to the banking sector NIM in 2Q12, considering the 5 months duration gap in the sector. Moreover, deposit costs are likely to experience a quarterly decline in 2Q12, as TL deposit costs switched to a declining trend in February after seeing its peak in January, yet the level of CBT’s tightening will set the stage for the quarterly decline in deposit costs in 2Q12. We also project inflation to post a sharp YoY decline in May, providing some room to the CBT for loosening its tight TL policy to some extent. May inflation data will be out in early June, and we believe that there will be better entry levels to bet on banks’ strong 2Q12 earnings expectations in June.
In terms of earnings performance; Garanti Bank, Halkbank and Vakifbank are likely to be better off in 1Q12, while Akbank and Isbank has the potential to surprise the market on the downside.