10% shaved off annualised
pre-tax income
Overdraft accounts constitute 1.9% of the total loan book of Vakifbank, compared with the 1.1% average for our coverage. The Central Bank (CBT) capped the interest rate of overdraft accounts, linking it to the credit card monthly interest rate of 2.2%, which means an around 1.4ppt drop that may result in a 10% negative impact on annualised pre-tax income.
Further cap rate cut may come
Annual interest on overdraft accounts is likely to drop by a sizeable 17ppt, to 26% with CBT’s action, shaving around TRY220m off Vakifbank’s interest income. Volume gains are not expected to be enough to offset the negative impact. Moreover, the cap is set to be further reduced by the CBT in tandem with the reduction in credit card interest rates.
Downgraded to HOLD, TP cut to TRY7.30 from TRY8.10
Our revised TP offers limited upside potential, so we cut our recommendation to HOLD. The key downside risks to our GGM & EERM-based TP are 1) slower economic growth pushing NPL ratios higher and lowering fees, and 2) rise in interest rates lifting cost-of-funding. Upside risk is faster GDP growth in a moderate competitive environment.
Cap rate cut may trigger profit-taking
Although we still like the prudent management and the transformation story of Vakifbank, the recent move of the CBT is likely to put pressure on the shares. The bank has been on an improving operational efficiency path, but the recent move by the CBT is sizeable enough to shave around 10% off of our net earnings forecasts for the bank. Therefore, we cut our earnings estimates by 10% for 2013-2017 and downgrade our rating to HOLD. The CBT’s action may be seen as a profit-taking opportunity given its 24% outperformance against the banking index since the beginning of the year. We also remove Vakifbank from our top picks.
Overdraft accounts constitute 1.9% of the total loan book of Vakifbank, compared with the 1.1% average for our coverage. The Central Bank (CBT) capped the interest rate of overdraft accounts, linking it to the credit card monthly interest rate of 2.2%, which means an around 1.4ppt drop that may result in a 10% negative impact on annualised pre-tax income.
Further cap rate cut may come
Annual interest on overdraft accounts is likely to drop by a sizeable 17ppt, to 26% with CBT’s action, shaving around TRY220m off Vakifbank’s interest income. Volume gains are not expected to be enough to offset the negative impact. Moreover, the cap is set to be further reduced by the CBT in tandem with the reduction in credit card interest rates.
Downgraded to HOLD, TP cut to TRY7.30 from TRY8.10
Our revised TP offers limited upside potential, so we cut our recommendation to HOLD. The key downside risks to our GGM & EERM-based TP are 1) slower economic growth pushing NPL ratios higher and lowering fees, and 2) rise in interest rates lifting cost-of-funding. Upside risk is faster GDP growth in a moderate competitive environment.
Cap rate cut may trigger profit-taking
Although we still like the prudent management and the transformation story of Vakifbank, the recent move of the CBT is likely to put pressure on the shares. The bank has been on an improving operational efficiency path, but the recent move by the CBT is sizeable enough to shave around 10% off of our net earnings forecasts for the bank. Therefore, we cut our earnings estimates by 10% for 2013-2017 and downgrade our rating to HOLD. The CBT’s action may be seen as a profit-taking opportunity given its 24% outperformance against the banking index since the beginning of the year. We also remove Vakifbank from our top picks.
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