■
Sector view
unchanged; we upgrade Halkbank to Outperform and downgrade Yapi Kredi to
Neutral. Turkish
banks' performance relative to EEMEA peers has been volatile this year and
stands at 12% underperformance ytd, post 28% outperformance in 2012. We think
the sector is fairly valued at a 14% P/E discount on 2014E and 4% P/BV premium
on 2013E vs EEMEA peers. We review our TPs and estimates, upgrade Halkbank to
Outperform and downgrade Yapi Kredi to Neutral.
■
In-depth look into
growth and margin dynamics. In this report, we show that Turkish banks' balance sheet growth is
capped by funding constraints and note that the very low interest rate
environment was not as positive as consensus anticipated. Turkish banks'
sustainable NIM will be supported by higher rates and, in the absence of
regulatory measures hurting profitability and assuming rates stabilise at
reasonable levels, the sustainable RoE–CoE differential could even expand, in
our view.
■
Regulatory pressures
continue to hurt profitability. We carry out sensitivity analyses for the recent regulatory measures
such as BRSA's draft amendment, the interest rate cap for overdraft loans and
cuts for the interest rate cap on credit card and overdraft loans. These
suggest a 7.4% average hit to 2014E pre-tax earnings for the banks in our
coverage.
■
We upgrade Halkbank
to Outperform from Neutral. Halkbank has the highest sustainable RoE generation potential among
large-cap Turkish banks and is favourably positioned against increasing
interest rates and regulatory pressures. The recent underperformance of the
stock creates an opportunity to add exposure, in our view.
■
We downgrade Yapi Kredi
to Neutral from Outperform. Yapi Kredi has outperformed the ISE Banks index by
10% since June and is now fairly valued at 1.1x 2013E P/BV and 7.6x 2014E P/E,
on our estimates. We continue to view Yapi Kredi as a good long-term investment
but we would wait for more attractive relative valuations to add further
exposure
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