Turkey Wake up call: Macro, Political and Equity News, 25th March

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Wake – up call

BIST jumped 5.98% yesterday as bulls seem to have returned from hibernation in global markets. Index gap opened higher at 87.5k in the morning and spent good part of the day in the 87-88k range. Market gained further traction after 3:30PM as the strength in U.S. futures became convincing and added to its increases until the close that happened to be near its intraday peak. Banks led by GARAN and AKBNK added 7.84% on average and were joined by various non-financials like TTKOM, TUPRS, ASELS, DOAS, aviation and retail stocks, and Koza Group names. TCELL was the only blue-chip to close lower. Today, our local macro agenda showcases the March'20 Manufacturing Capacity Utilization Rate (stood at 76.0% in February'20 and was 74.3% back in March'19) and Real Sector Confidence index (was at a 21-month high of 106.9 in February'20 and had stood at 102.1 back in March'19) both to be released at 10AM local time. BIST is headed for another strong start on continued recovery in global peers and in lira (USDTRY at 6.4502 vs 6.4784 at yesterday's closing bell). U.S. futures are down c.0.5% in early trades but holding onto bulk of their 2.9-4.1% overnight gains from the hour we left and Asian markets are all trading visibly in the green.
Macro and Political News:
(=) Erdogan: Turkish institutions take steps in coordination amid COVID-19… President Erdogan said on Tuesday that Turkish authorities and institutions continue taking steps in coordination to stem the spread of the coronavirus in the country. Erdogan said on Twitter that those who smuggle products abroad through various channels and sell these products at extortionate prices in Turkey would be held accountable. Erdogan went on to say that the use of public transportation has dropped by around 80% in 15 metropolitans across Turkey due to the country’s measures against the spread of the pandemic.
(+) EU to revisit migrant deal with Turkey… The new European Union report on the 2016 deal with Turkey on migrants is due out this Thursday. EU foreign policy chief Josep Borrell told an online news conference that the diplomatic service document will analyse the prospects of future EU-Turkey ties based on the March 2016 agreement, including the topics of visa liberalization and the customs union, issues Turkey says the EU failed to keep its promises on. European heads of states and governments will possibly discuss the findings at their videoconference on Thursday. Recall, in March 2016, Ankara and Brussels signed an agreement to reduce the number of migrants taking the dangerous Aegean Sea route to Europe and to find a solution for the influx of refugees heading to EU countries. According to the deal, Turkey was promised a total of EUR6bn in financial aid, which was initially designed to be given to the country in two stages and to be used by the Turkish government to finance projects for Syrian refugees. Visa freedom for Turkish citizens was also a perk of the agreement. In addition, the customs union between Turkey and the EU was to be updated. Although the first stage of funding was provided to Turkey, the EU has yet to fulfil the second stage or other provisions such as establishing the visa-free deal for Turkish citizens and updating the customs union.
(+) Treasury and Finance Minister: Many virus-hit firms, sectors can defer taxes… Turkey on Tuesday announced a host of sectors and classes eligible for deferred tax payments in light of the coronavirus outbreak. Treasury and Finance Minister Berat Albayrak said on Twitter that about 1.9 million taxpayers will benefit from these deferments. Albayrak’s remarks came after President Erdogan last week announced a series of steps to backstop the economy to help cushion the effects of the outbreak with an aid package of TRY100bn. Professionals eligible for deferred tax payments include the self-employed, farmers, tailors, grocers, lawyers, financial advisers, architects, engineers, doctors and dentists. Sectors that can delay their tax payments include retail and shopping centers, the iron, steel and metal industry, the automotive sector, logistics and transportation, textiles, entertainment, mining, construction, the media and health care services. Albayrak said that for the sectors specified, the ministry postponed payments regarding withholding tax returns and VAT declarations in April, May and June for six months. The tax payments of citizens who are over 65 or have chronic illnesses were also postponed due to their being barred from leaving their homes amid the outbreak.
(+) More Turkish lenders extend support to customers amid pandemic… The Export Credit Bank of Turkey (Turk Eximbank) Tuesday introduced a support package for exporters in a move to alleviate financial difficulties caused by falling demand for exports amid the coronavirus outbreak, while more banks said they would postpone loans in case of need and provide liquidity support to their customers. Three banks said in separate statements that they will postpone loans of individuals and firms and also provide flexibility to their customers. In a statement, the bank said it extended credit repayment terms by three to six months depending on exporter demand, the commitment closure term by a year, prolonged rediscount credit terms to two years and eased insurance terms. The move aims for exporters to continue production and maintain employment as they see orders falling or being cancelled due to virus fears.
The country’s public and private lenders – including VakıfBank, Ziraat Bank, Halkbank, İş Bank, Akbank and participation banks Vakıf Katılım and Ziraat Katılım – on Monday announced support packages for their customers to soften the impact of the outbreak. They have offered some flexible loan payment options for customers and corporate debt restructuring, especially for badly hit tourism and transportation sectors
In a separate statement Tuesday, Halkbank said it will provide tradesmen and craftsmen with a cash loan and commercial card support, both of up to TRY 25,000. Another participation bank, Kuveyt Turk, Tuesday also said in the case of demand, it could postpone for three months the credit card debts of all its customers affected by the outbreak.
(=) Fitch: Turkish participation banks outpace conventional banks in segment growth… Fitch Ratings report says the growth in Turkish participation banking has surpassed the growth of conventional banks in recent years, despite the increasing volatility in the markets. In a statement shared last week, the international credit rating agency said that although Turkish participation banks’ share of sector assets remains small and concentrated, it is growing and the segment growth has consistently outpaced that of conventional banks in recent years despite heightened market volatility – though growth has been from a low base – reflective of the entrance of three state-owned banks since 2014 and the segment’s generally above-average risk appetite. Note that the participation banks’ share of sector assets was 6.3% at end-2019 compared with the government’s target of 15% for 2025.
The Fitch Report highlighted that medium-term prospects for the segment are supported by the expanding networks of the state-owned participation banks, Turkey’s growth outlook, and the favourable demographics of having a Muslim-majority population, adding that short-term risks began to ease at the beginning of 2020, but concerns about the pandemic of the new type of coronavirus pose downside risks to banks’ asset quality and credit profiles. The statement pointed out that the profitability performance of participation banking was sensitive to weakening in asset quality and price pressure on loans.
The amount of capital of participation banking is sufficient, the statement further stressed, but the amount should be examined with a 50% decrease in risk weighting on participation accounts and high leverage rates of banks. Recall, the Turkish government founded three new state-owned participation banks between 2015 to 2019, broadening access and increasing competition. In February last year, the country's Banking Regulation and Supervision Agency (BRSA) granted a banking license to Turkiye Emlak Katilim Bankasi (EmlakBank), bringing the number of participation banks – known as participation banks locally – to six in the country.
The other five participation banks are state-controlled Ziraat Bankasi and VakifBank, which received licenses to conduct participation banking in 2015 and 2016, respectively, along with Albaraka Turk, Kuveyt Turk, majority-owned by Kuwait Finance House, and Turkiye Finans.
(+) Foreign arrivals in Turkey jump 3.8% in February prior to large-scale coronavirus restrictions… The number of foreign tourists arriving in Turkey jumped by nearly 3.8% in February despite the coronavirus pandemic prior to worldwide travel restrictions. Over 1.73 million foreigners arrived in the country last month, compared to 1.67 million a year earlier, according to Culture and Tourism Ministry data. A total of 3.52 million tourists arrived in the country in the January-February period, a 9.68% year-on-year increase.
The pandemic has effectively shut down the global tourism industry. Yet in February, many countries had reported a slump in foreign arrivals even before major travel restrictions were imposed. The outbreak emerged right when the Turkish tourism industry had entered a strong period of recovery with sharp rises in the number of foreigners coming to visit the country. It is now, however, bracing for heavy losses during the upcoming travel season as the pandemic brings waves of travel restrictions and cancellations. March figures are expected to reflect the first effects of the pandemic on the travel industry, which accounts for around 12% of the national economy.
The government has already stepped up to support the industry. In this regard, the tourism accommodation tax was being suspended until November, while debt repayments of companies affected by the pandemic will be postponed for a minimum of three months. Also, the country’s public and private lenders on Monday announced some flexible loan payment options, with some offering the possible restructuring of corporate debt, specifically for the hard-hit tourism and transportation sectors.
Tourists from Germany accounted for 9.18% of all foreign arrivals, with the number of visitors totalling over 159,000 last month. In February, Turkey attracted over 152,000 guests from Bulgaria, or 8.79% of the total number of international tourists, and more than 132,000 from Georgia, or 7.65%. Some 97,547 tourists arrived from Iran, one of the countries hardest-hit by the coronavirus. Around 17,305 tourists arrived from Italy, currently the most ravaged nation outside of China. Almost 45,000 tourists arrived also from another devastated country, France.
In 2019, the country enjoyed an all-time high with more than 45 million foreign visitors. It previously looked to welcome 58 million foreign visitors and generate USD40bn from tourism activities in 2020, up from USD34.5bn the country earned in 2019, a 17% increase compared with 2018. The start of this year also seemed promising, as the industry enjoyed its best January ever with 1.8 million arrivals, a 16.1% year-on-year surge.
(=) Turkish Treasury borrowed TRY4.2bn from domestic markets… Turkish Treasury borrowed TRY4.2bn from domestic markets on Tuesday. Some TRY3.6bn of three-year Turkish lira overnight reference rate (TLREF)-indexed bonds – new issuance – to be settled on Wednesday and mature on June 21, 2023 were sold in an auction. The total tender was TRY4.48bn with a 79.5% accepted/tendered rate. The term rate of the 728-day Treasury bills was accepted at 2.52%, while the average annual simple and compound interest rates were 10.10% and 10.49%, respectively. The Treasury also issued lease certificates worth TRY600mn on Tuesday. The certificates will be settled on Wednesday, while their maturity day is March 23, 2022.

Sector and Company News:

ENKAI bought 262k lots of its own shares with TL5.96-6.00 price range per share.

(-) YATAS Due to the outbreak of coronavirus the Company announced it has closed its stores starting from March 24, temporarily.

(=) VAKBN bought 6.6mn lots of VakıfBank International AG shares from VakifBank Pension Fund in return for TL56mn and became 100% owner of VakifBank International AG.

(=) TCELL participated the rights issue of its 100% subsidiary Lifecell through injecting €12mn.

(+) TCELL increasedi its fund for buybacks to TL450mn from TL300mn.

(=) SAHOL BoD member and shareholder Serra Sabanci bought 172k lots of SAHOL shares with TL7.12-7.30 price per share. Her shares in SAHOL reached to 7.22% after this transaction.

AYGAZ sold its idle land in Bursa province in return for TL50mn.

(=/+) SOKM started home delivery services. The Company will deliver the customer orders on determined time schedules via mobile application/web site. The concept of the application is similar to the Migros Hemen service offered by MGROS.

(=) According to the presidential decree announced today, the loans payments of tradesmen to HALKB will be postponed three months by the end of March 2020 under the condition of not terminating any employment contract. Additionally, HALKB has been authorised to provide with low interest loans to tradesmen who need liquidity. HALKB’s expected losses from this loan program will be compensated by Ministry of Treasury and Finance.

(=) TOASO will pay out TL2.40 DPS today. Reference price: TL13.32.

(-) BRISA is to reduce its production starting from March 25 at its Izmit and Aksaray factories as the Covid-19 creates several order cancellations.