Daily Bulletin - Thu, Sep 3, 2015‏

Yesterday was a disappointing day for TRY investors carrying long positions. On a day, when Moody’s stated base case for Turkey is keeping investment grade rating, TRY-denominated assets could not rally.  Moody’s commentary could not even sustain a 5-minute short-covering rally in BIST. BIST closed the day flat, TRY basket and yields were higher.

 

·    Rising geopolitical risks (kidnappings in Baghdad + PKK terrorism), Koza Ipek Holding investigations and overall EM weakness may be perceived as the main reasons.

 

·    Turkey’s risk premium, 5-year CDS rose 8.1% in 2 trading days = worst performance in EM.

 

·    This morning, we expect a slightly higher opening for BIST equities just based on S&P500 close from last night. TRY basket is trading @ 5-day highs at 3.13 and traded above 3.14 yesterday despite positive Moody’s commentary.

 

·     August CPI print will be released at 8:00am London time – consensus = 0.11%. Expect tight range trading until U.S August NFP tomorrow.  

  

·     BIST100 short-term technicals:

• TRY : Support = 72.8k / 72.0k ; Resistance : 74.5k / 75.3k ; Last trade : 73.7k
• USD : Support = $24.8k / $24.5k ; Resistance : $25.2k (10-dma) / $25.9k ; Last trade : $25.0k

 

Turkish Banks - 1Q14 Earnings Preview

Earnings season is expected to kick off on April 28 with Halkbank results followed by Garanti Bank on April 29 and then Yapi Kredi Bank on April 30. 1Q14 earnings performance of Turkish banks is again expected to be not much effective on the market mood, in our view. However closely monitored loans, loan composition and the duration mismatch will be our main focus areas.

TURKISH BANKS - Rate cap to trigger EPS cuts

Cap on overdraft rates affects full-year pre-tax income by 4.3%
The Central Bank of Turkey (CBT) put a cap on the interest rate of overdraft accounts, linking it to the credit card monthly interest rate of 2.2%. Although overdraft accounts comprise only 1.1% of the total loan book of the banks that we cover, we expect the negative impact on annualised income to be 4.3%.

Volume gains insufficient to offset rate cap impact
The annual interest rate on overdraft accounts is likely to drop by a sizeable 17ppt to 26%, shaving around TRY1.3b in interest income from the banks that we cover. Volume gains are not expected to be sufficient 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.

Vakifbank to be the most negatively affected
We have cut the monthly interest rate from an estimated 3.6%, which we obtained through channel checks, to 2.2%. While some banks used to charge lower rates for individuals, they tend to charge more to corporates, bringing the starting point to the same level for almost all the banks across the board. Accordingly the cap is expected to lower the interest income on these loans by around 40% ceteris paribus, and the negative impact on annualized income is expected to be around 4.3%. The regulatory pressure and the government’s willingness to

Equities : Turkish Banks : Re-rating confirmed, but getting closer to our target prices

* Well-deserved re-rating confirmed but limited potential for further share price rises makes range-bound trading likely

* We look for the sector to post earnings growth of 7% in 2013 with a 13bp NIM contraction and flattish CoR

* Halkbank is our key OW idea, also a GEMs Super 15 constituent; we downgrade Isbank to Neutral (from OW)

Re-rating confirmed, but further potential for share price rises limited: Turkish banking sector stocks confirmed their new fair value range (average 2013e P/BV of 1.30-1.55x) after posting a strong rally followed by a brief correction over the past 12 months. Unless strong fundamental catalysts emerge, we see the current valuation levels as the new normal for the Turkish banks - so range-bound trading is highly likely in the mid-term. Trading at an average 2013e PE of 10x and PBV of 1.35x, with an ROAE of 14.4%, we believe the sector's current valuations are fair (compared with international peers). We increased our target prices for Turkish banks by an average of 9% owing to strong mark-to-market gains on their book values and average CoE of 12.5% (down from 13.2%). Our bottom-up potential return is 16% on average (13% excluding Halkbank).

TURKISH BANKS - 4Q12 earnings preview

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.

 

teb ytr

Moody's: Turkish banking system outlook remains stable

Moody's: Turkish banking system outlook remains stable

 

Global Credit Research - 24 Jan 2013

 

Frankfurt am Main, January 24, 2013 -- The outlook on the Turkish banking system remains stable, says Moody's Investors Service in a new Banking System Outlook published today. The key drivers of the outlook are (1) the rating agency's view that moderate economic growth and improving sovereign financial strength will create supportive operating conditions for banks, despite downside risks from the euro area crisis, volatile markets and investor risk aversion; and (2) banks' sufficient resources to absorb an expected gradual increase in non-performing loans (NPLs). These factors are partially offset by Moody's expectations that (1) banks' net profit margins will likely decline further amid low interest rates and rising competition; and

 

(2) bank funding profiles, while still sound, are becoming less robust with loan growth outpacing deposit growth.

 

The new report, entitled "Banking System Outlook: Turkey", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.

TURKISH BANKS - MONTHLY BRSA FIGURES

The banking sector’s net profit dropped 2% m-m in August, led primarily by foreign and state deposit banks (SB), while private local deposit banks (PLB) achieved a 27% m-m rise helped by a normalised effective tax rate (from 28% in July) and lower other and general provisions. On y-y bases, bottom-lines surged on wider spreads and the low CPI base of last year. The average net income of July and August was 3% lower than the 2Q12 monthly average for the sector while being 1% and 4% lower for SB and PLB, respectively.

The positive trends are: 1) 24bp m-m total loan-deposit (L-D) spread expansion where a similar rise in September would bring the q-q L-D spread widening to c.20bp in 3Q12; 2) only 8bp m-m NIM contraction, despite large pressure from CPI-linked bonds, on the back of lower funding costs; 3) more limited but further MTM gains, bringing total QTD increase in the sector’s equity to 4%; and 4) some decline in the pace of opex growth. The negative developments are: 1) specific CoR adjusted for the drop in NPL coverage remains high at 113bp, indicating to a 30bp q-q increase for 3Q12; 2) collections continue to get weaker as other non-interest income is on track to be 35% lower q-q in 3Q12; and 3) loan demand is weak and geared towards unsecured segments such as credit-cards and general purpose cash.

Turkish Banks 1Q12 Earnings Preview

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.