Fine-tuning estimates,
raising TPs on lower cost of equity
We slightly raise our earnings estimates (1% each for 2012 and 2013 on aggregate) for the 10 banks we cover. We raise our TPs 16% on average due to: 1) a lower CoE as we lower our risk-free rate assumption, to 7.5% from 8.0%, 2) stronger-than-forecast equity build-up during 4Q12, and 3) time value of money as we refresh our valuations.
Upgrade Isbank to BUY; Downgrade Garanti & Halkbank to HOLD
We upgrade Isbank to BUY from Hold as we factor in stronger ROEs in the medium term, on the back of further improvements on the opex and fee-generation fronts and increased focus on deposit cost controls. We downgrade Garanti Bank and Halkbank to HOLD from Buy, mainly on valuation grounds.
Peak loan-deposit spreads to have supported 4Q12 results
We expect bank earnings to have increased 17% q-q and 23% y-y in 4Q12, on the back of NII growth, led by a c.50bp q-q expansion in loan-deposit spreads and higher returns from CPI-linked bonds. We estimate gains in NIM to have been offset by higher provisions in both specific and general forms, the former due to a c.15bp q-q rise in NPL ratio adjusted for portfolio sales and the latter due to higher q-q loan growth than 3Q12. We think that spreads peaked in 4Q12, to be followed by stabilisation in 1Q13 and a steady decline thereafter due to downward re-pricing on assets with limited room for funding costs to come down. However, given the depressed levels of 1H12 we forecast NIMs to come down by a limited 11bp y-y in 2013. On asset quality, stronger y-y GDP growth and increased availability of loans at lower costs should address potential problems. Nevertheless, we factor in a 13bp y-y rise in net CoR in 2013, which suggests continuation of 2H12 levels, reflecting a high level of restructured and category-II loans, as well as the aging process of fresh NPLs from 2012. We look for 11% y-y EPS growth in 2013 on average, where the main downside risk is harsh macro-prudential measures by regulators, should there be acceleration in capital inflows and loan growth to undesirable levels. Main upside risk could be a rationalisation in lending rates in response to the 15% loan growth cap by the CBT to ensure the continuation of the current healthy spreads.
We slightly raise our earnings estimates (1% each for 2012 and 2013 on aggregate) for the 10 banks we cover. We raise our TPs 16% on average due to: 1) a lower CoE as we lower our risk-free rate assumption, to 7.5% from 8.0%, 2) stronger-than-forecast equity build-up during 4Q12, and 3) time value of money as we refresh our valuations.
Upgrade Isbank to BUY; Downgrade Garanti & Halkbank to HOLD
We upgrade Isbank to BUY from Hold as we factor in stronger ROEs in the medium term, on the back of further improvements on the opex and fee-generation fronts and increased focus on deposit cost controls. We downgrade Garanti Bank and Halkbank to HOLD from Buy, mainly on valuation grounds.
Peak loan-deposit spreads to have supported 4Q12 results
We expect bank earnings to have increased 17% q-q and 23% y-y in 4Q12, on the back of NII growth, led by a c.50bp q-q expansion in loan-deposit spreads and higher returns from CPI-linked bonds. We estimate gains in NIM to have been offset by higher provisions in both specific and general forms, the former due to a c.15bp q-q rise in NPL ratio adjusted for portfolio sales and the latter due to higher q-q loan growth than 3Q12. We think that spreads peaked in 4Q12, to be followed by stabilisation in 1Q13 and a steady decline thereafter due to downward re-pricing on assets with limited room for funding costs to come down. However, given the depressed levels of 1H12 we forecast NIMs to come down by a limited 11bp y-y in 2013. On asset quality, stronger y-y GDP growth and increased availability of loans at lower costs should address potential problems. Nevertheless, we factor in a 13bp y-y rise in net CoR in 2013, which suggests continuation of 2H12 levels, reflecting a high level of restructured and category-II loans, as well as the aging process of fresh NPLs from 2012. We look for 11% y-y EPS growth in 2013 on average, where the main downside risk is harsh macro-prudential measures by regulators, should there be acceleration in capital inflows and loan growth to undesirable levels. Main upside risk could be a rationalisation in lending rates in response to the 15% loan growth cap by the CBT to ensure the continuation of the current healthy spreads.
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