EUR 114.33 For Business Accounts Only

ISBANK 4Q18 Update - Weak margins masked by one-off gains

ISBANK 4Q18 Update - Weak margins masked by one-off gains

Isbank reported TL2,196mn unconsolidated net income in 4Q18, well above the TL1,502mn consensus and TL1,489mn BGC estimates. Yet, results include a TL350mn unexpected free provision reversal, a TL128mn pension deficit provision reversal (as opposed to TL135mn provision expectation, leading to TL263mn higher-than-expected income in 4Q), and TL724mn income from subsidiaries (as opposed to the c.TL475mn guidance, leading to TL249mn higher-than-expected income in 4Q, via real estate revaluations in subsidiaries). Combined, these three items make up TL862mn higher income compared to our expectations, explaining more than the TL732mn higher-than-estimated pre-tax income. This means that the bank’s core banking results were indeed weaker than our expectations, mainly driven by a lower-than-forecast FX & trading adjusted net interest income, despite the well-below-peer-average 100bps cost of risk in 4Q18. We have fine-tuned our earnings estimates, mainly reflecting the higher-than-expected subsidiary support, and since our 12M TP of TL5.43/share offers a limited 2% total return potential, we maintain our HOLD rating for Isbank.