Turkey Wake up call: Macro and Political News, 24th January

This analysis by GLOBAL Securities is presented to you by Raiffeisen Centrobank AG. Raiffeisen Centrobank AG acts solely as a distributor of this analysis and has not introduced any material changes to the content of this analysis or any recommendation included herein.

Wake – up call

BIST inched down 0.17% yesterday as earlier gains were reversed in profit taking later in the day. After its negative open and pull-back to its intraday bottom of 122.2k in early trades, index turned north and climbed 1,200 points in the first 1.5 hours. Then the market traded in a tight range in positive territory until 3:45PM when selling pressure intensified, erasing earlier gains and leading to a small negative close. Banks lost 0.32% on average with weakness in VAKBN, HALKB, and GARAN vs some gains in AKBNK and ISCTR. BIMAS, AEFES, CCOLA, DOAS, and TAVHL stood out as better performers while THYAO, PGSUS, TOASO, EKGYO, TKFEN, KOZAA, KRDMD, and SISE were among the weakest non-financials. Coming to this morning, our local macro agenda is rather quiet and BIST seems off to an uptick start given some recovery in global markets. Lira is barely changed with USDTRY pair floating around the 5.9350 mark. U.S. futures are up 0.1% in early trades on top of their 0.3-0.4% overnight gains from when we left and Asian markets are mostly trading with small increases for the day.
Macro and Political News:
(+) German Chancellor Merkel to visit Turkey today… German Chancellor Angela Merkel will visit President Erdogan today to discuss bilateral relations and international issues. The agenda of the two leaders’ meeting includes Syrian refugees heading toward the Turkish border after fleeing the regime attacks on Idlib and the Turkey-EU migration pact. While Merkel is expected to express Germany’s concerns about a new migration wave that could arrive in Europe from Syria through Turkey, President Erdogan is expected to highlight Turkey’s disappointment over EU’s failure to deliver its commitments stemming from the migration pact. Erdogan’s plan to build a safe zone in northern Syria for refugees is another topic to be discussed. The latest developments in the conflict-ravaged countries of Syria and Libya are other important topics of the two leaders’ main agenda. Bilateral relations between the two countries, possible steps to enhance cooperation, and Turkey’s process of accession to the EU are also among the agenda items for leaders’ meeting. Germany is preparing to take over the term presidency of the union in June.
(=) Treasury and Finance Minister: Turkey excels in debt management and growth capacity among EMs… Treasury and Finance Minister Berat Albayrak said Thursday during the World Economic Forum that Turkey’s public debt to GDP stands at 32%, well below the Maastricht criteria and the EU average, which hovers around nearly 90%. He emphasized that both the public and the private sector have a robust capability to manage the debt stock and strong balance sheet. Speaking on corporate and private debt, the minister underscored that the Turkish corporate debt level is better compared to other emerging markets and far below the corporate debt in advanced economies. Albayrak explained: “Most of the Turkish private sector has accumulated profits and revenues thanks to the competitive export capacity. Most of their borrowing is in the local currency. This has enabled them to manage their borrowing capacity and ensure a strong balance sheet”.
(=) Turkey stresses independence of Central Bank at Davos… Addressing a panel discussion of World Economic Forum in Switzerland, Thursday, Treasury and Finance Minister Albayrak stressed the independence of the Central Bank. Albayrak said the Turkey’s Central Bank is responsible for not only ensuring price stability but also financial stability while adding that monetary policy should comply with the government's economy policy targets as the emerging economies need to grow and boost employment and investments. Albayrak said Turkey’s Central Bank is as independent as the FED.
(=) Trade Minister: Sanctions, protectionism hit Turkish exports to Iran and Iraq by nearly USD2.3bn… Trade Minister Ruhsar Pekcan told Turkish broadcasters BloombergHT on the sidelines of the 50th World Economic Forum in Davos. Pekcan said the embargo imposed by the U.S. on Iran, as well as protectionist measures put forth by Iraq, both major trading partners of Turkey, have significantly hit Turkey’s exports to both countries. Pekcan stated that exports worth around USD1.5bn have been affected by the embargo imposed on Iran, whereas Iraq has imposed some bans with its own protectionist measures, amounted nearly USD800mn worth of Turkish exports.
Pekcan further underscored that protectionist measures and trade policies slowed global growth and global trade growth, noting that the figures realized in both were the lowest in the last 18 years. She stressed that Turkey had managed to achieve major success in such an environment. Pekcan added that Turkey now aims to turn toward exports with high value-added and continues work to increase exports of medium high technology goods. Pekcan also noted that she had met with her American counterpart Wilbur Ross on the sidelines of the event, adding that they recalled the USD100bn trade volume target – a goal set and reiterated by President Erdogan and U.S. President Trump – which she said they had not given up on regardless of political tensions.The minister also elaborated on the customs union update with the EU, stressing that the EU needs it as much as Turkey. Pekcan stressed that talks on the update have to begin in 2020. To remind, Turkey is the only non-European Union country with a customs union agreement with the bloc.
(=) The CBRT MPC Munities: Improvement in inflation expectations continues… The CBRT published this year’s first MPC minutes on Thursday. In the report, the CBRT said that inflation expectations continue to improve and are broadly in line with the CBRT’s projection of 8.2% by year-end. The bank stressed that its own policy will depend on further disinflation. Inflation has been a pressing issue for the economy since the second half of 2018, when it surged to almost 25.24% in October as steep depreciation in the Turkish lira pushed up the price of imported goods. The inflation rate in December came in at 11.84%. Turkey was expected to close 2019 with inflation at around 12%, as laid out in the New Economic Program (NEP) for 2020-2022 announced by the government in September 2019. The program forecasts inflation to stand at 8.5% in 2020, 6.0% in 2021 and 4.9% in 2022.
The CBRT highlighted in the January MPC report that Turkish policymakers must keep a lid on financial volatility and deliver predictable fiscal policies to keep the economic recovery on track. The report added that in order to “minimize a likely inflation-growth trade-off, it will be crucial that macro-financial policies (reduce) financial volatility... and that the predictability of the fiscal policy continues to be reinforced. While the bank has said it has less room to continue easing policy, analysts expect it to cut rates a little more in the coming months. Lastly the MPC minutes added that keeping the disinflation process on track with the targeted path requires the continuation of a cautious monetary stance.
(=) Consumer confidence was almost flat in January… Outlook for the consumer confidence remains subdued. TURKSTAT consumer confidence index (seasonally adjusted) came in at 58.8 in January, almost unchanged from a month earlier. But as for the details, relatively sharp deterioration in the sub-items of buying time condition of durable goods; statement on current financial situation of households; inflation expectations; and the general economic situation are noteworthy.
(+) Foreign bond holdings decreased last week… According to the CBRT data, during the week of January 10-17, foreign investors were net buyers of USD300mn in the equity market, and net sellers of USD325mn in the bond market. There has been USD5mn inflow in the corporate bond market. Equity flows in 52-week total terms, turned to outflow of USD251mn from an inflow of USD261mn in the previous week, while bond market outflows increased to USD3.3bn from USD3.1bn in the same period. Finally, corporate bonds outflows rose to USD229mn from USD214mn.
Sector and Company News:

(=) ENKAI bought 119k lots of its own shares with TRY6.64 per share.

(=) According to the weekly banking data released by BRSA on Thursday, total loans in banking sector inched up 21 bps weekly and increased by 10.8% YoY. The elevation is evident in the personal finance loans in the consumer loans segment by approximately 30 bps and 30.62% in yearly terms. While it is clearly flattish for commercial loans segment that hovering around 25 to 30 bps, consumer credit card segment contracted slightly by approximately 2% weekly. Inevitably in an unforeseeable exchange rate environment, Fx indexed loans continues its declining trend in each time frame but it is evident most significantly in YoY terms by -65%.

On the deposit front, the general trend of positive spread between deposit-loan growth continues. While total loans increase 21 bps weekly, total deposits increased by almost 1% in the same time frame that gives the banking sector a buffer for funding opportunity in the near future. Deposit growth in commercial institutions has been number one by 223 bps increase while official and other institutions have the same growth in the negative way, -220 bps weekly.

One important factor we closely monitor, total Fx deposits indicated another increase by 123 bps weekly, continues its growing YoY trend by 19.57%. In other words, the dollarization in Turkish economy still keeps its track in the first two weeks of 2020.

(TL, mn) 17/01/2020 w/w y-t-d
Total Loans 2,645,459.42 0.21% -0.05%
Consumer Loans 472,175.86 0.27% 1.03%
Housing 200,474.16 0.28% 0.61%
Vehicle 6,972.75 -0.63% -1.11%
Personal Finance 264,728.95 0.29% 1.40%
Consumer Credit Cards 113,758.15 -1.91% -2.60%
Commercial and Other Loans 2,059,525.41 0.31% -0.15%
Installment Commercial Loans and Corporate Credit Cards 434,122.58 0.25% -0.07%
SME Loans 613,095.83 0.25% 0.22%
Fx Indexed Loans 11,452.21 -1.14% -3.01%


Total Deposits 2,573,739.27 0.98% 0.25%
Natural Person 1,593,125.69 0.65% -0.13%
Demand 366,385.38 2.22% 1.73%
Time 1,226,740.31 0.19% -0.67%
Commercial Institutions 826,099.81 2.23% 1.04%
Demand 225,123.64 2.40% 1.94%
Time 600,976.18 2.17% 0.71%
Official and Other Institutions 154,513.77 -2.20% -0.01%
Demand 38,543.79
10.78% 13.65%
Time 115,969.97 -5.86% -3.85%
Deposits Subject to Insurance 703,866.94 1.02% 0.70%

Total Fx Deposits with Banks (USD, mn) 217,510.23 1.23% 1.63%


(=/+) THYAO announced its 2020 guidance. Accordingly the company expects total number of passengers carried to reach 78-80 million including 31.5-33 million on domestic routes, 46-47 million on international routes. While passenger load factor is expected to be 81% - 82%, total Available Seat Kilometers (ASK) will increase by 8.5% to 10% compared to 2019. Capacity (ASK) increase is expected to be 7% in Turkey, 7% in Middle East, 2% in Europe, 17% in Far East, 16% in Americas and 10% in Africa regions. In 2020, cargo/mail carried is expected to increase by 7% - 8% reaching 1.60 to 1.65 million tons. Average jet fuel (including fuel hedge) is expected to be 690-700$/ton in 2020. The company is targeting to generate 14.5-14.8 billion USD of consolidated sales revenue. Cost per available seat kilometer (CASK), excluding fuel is expected to be flat. EBITDAR margin is targeted to be in the band of 23% and 25%. The pax numbers, revenue and EBITDAR margins are slightly higher than our expectations. The pax expectations correspond to 5-7% YoY increase. We will revise our estimates accordingly with the new expectations, and our initial thoughts about the guidance are positive.