Turkey Wake up call: Macro, Political and Equity News, 27th March

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 added 2.77% yesterday as continued rebound in major U.S. indices seemed to be lifting all the boats. After an indecisive start around the 89k mark, BIST100 cautiously turned north after 11AM but the gains could not be sustained until after 3PM when the market got strong traction. BIST100 added 2,500 points until the close that was near the daily peak. Banks climbed 3.67% on average as a heavy-handed buyer swept GARAN. Aviation stocks, Koza Group names, TTKOM, KCHOL, SAHOL, ASELS, ARCLK, and MAVI topped the gainers while EREGL, AEFES, CCOLA, FROTO, and GUBRF stood out among the handful of decliners. Our local macro agenda for today showcases TurkStat's March’20 Economic Confidence Index due at 10AM local time. The index had climbed 0.5% on a sequential basis to a 22-month high of 97.5 in February. BIST seems off to a flattish start as U.S. futures are down 1.7% in early trades in reversal of good part of their 1.9-2.2% overnight gains from the hour we left while Asian indices are mostly trading in the green as they play catch-up with yesterday's gains in Western peers. Lira is a tad weaker with USDTRY at 6.4032 vs 6.3951 at yesterday's closing bell.
Macro and Political News:
(=) President Erdogan: Turkey will overcome coronavirus in ‘two-three weeks’… President Erdogan said that Turkey will overcome the coronavirus outbreak in two to three weeks through good measures and with as little damage as possible. In a televised address to the nation, Erdogan said Turkey was prepared for every scenario on the outbreak and urged Turkish nationals to show patience, understanding and support. Erdogan added that by breaking the speed of the virus’ spread in two to three weeks, we will get through this period as soon as possible and with as little damage as possible.
Ankara has taken a series of measures to contain the virus, including limiting the use of public spaces, imposing a partial curfew on the elderly, as well as closing schools, cafes, and bars, banning mass prayers, and suspending sports matches and international flights. Assuring that the government would always stand by tradesmen and craftsmen, President Erdogan said the unemployment fund and credit guarantee fund would be strengthened, adding that Turkey would earmark TRY7bn (USD1.1bn) in support of workers with minimum wage. Also, he announced that the Turkish government would recruit 32,000 new health sector professionals.
(+) Turkey Wealth Fund inks USD5bn MoU with China’s Sinosure… The Turkey Wealth Fund (TWF) and China Export and Credit Insurance Corporation (Sinosure) have inked a Memorandum of Understanding (MoU) to promote bilateral economic, trade and investment cooperation. TWF issued a statement on Thursday that Sinosure will recommend Chinese enterprises to TWF that are relevant to investors, contractors and financial institutions concerning projects especially in energy, petrochemicals and mining sectors, addressing the current account deficit of Turkey. Sinosure will also consider providing insurance support up to USD5bn with respect to the financing activities. TWF had recently announced its investment plans in these sectors as well as its contribution to the logistics infrastructure investments of Turkey.
Wang Tingke, the CEO of Sinosure, said that as China’s Belt and Road Initiative (BRI) and Turkey’s “Middle Corridor” project progress, the economic, trade and investment cooperation between China and Turkey become more and more frequent. He added that the MoU is an important milestone for deepening cooperation between TWF and Sinosure. TWF CEO Zafer Sonmez said China has been a strong trade and business partner to Turkey and they are pleased to bring cooperation to a new level with this agreement.
To remind, TWF is the sovereign wealth fund and the country’s strategic investment arm. Established in 2016 with the main objectives of increasing the value of the state-owned assets in its portfolio and contributing to Turkey’s strategic investments, public shares of 13 companies in eight strategic sectors – including national flag carrier Turkish Airlines (THY), Ziraat Bank, Halkbank, Borsa Istanbul Stock Exchange (BIST), Turkish Post and Telegraph Organization (PTT), Petroleum Pipeline Company (BOTAS), Turkish Petroleum Corporation (TPAO) and Turksat, as well as three licenses and real estates – were transferred to TWF.
(=/+) Self-isolation to open up 10,000 more jobs for delivery service sector in Turkey… The decision by authorities to urge people to stay home amid efforts to curb the spread of the new coronavirus increased demand for delivery services, leading companies to change their employment plans accordingly. Some 10,000 additional jobs are expected to open up in the field, sector representatives predict. The closure of cafes and restaurants and the restriction of free movement of those over the age of 65 have further caused a boom in demand for take-out services. Orders for door-to-door delivery services have already increased by over 50% compared to a regular day before the pandemic.
There are currently 250,000 field workers in Turkey for those kinds of services. Over 150,000 of them are cargo workers – both from the private sector and the Turkish Post and Telegraph Organization (PTT) – and over 100,000 are motorcycle couriers. The sector representatives now foresee a 10% increase in the employment rate of both the e-commerce and delivery sectors.
In this regard, Turkey’s supermarket chain Migros said earlier it will hire 1,000 people in the next two weeks for its online delivery services to meet the increased demand for online orders during the coronavirus outbreak. According to an announcement by the Turkish retail giant’s HR department, the new hires will be responsible for the collection and preparation of online orders at the company’s warehouses and chain stores. The company has also started to offer a free online delivery option for people over the age of 60 after the outbreak. CarrefourSa, on the other hand, said that it would shift the market employees from time to time to the virtual market and make temporary recruitment if needed.
(=) Turkey held first tender for massive Kanal Istanbul project… Turkey held its first tender Thursday for building a huge canal on the edge of Istanbul. A Ministry of Transport and Infrastructure spokesman said that the tender is for the planning phase of reconstructing two historic bridges located in the area where Kanal Istanbul is expected to run, signalling progress on the project. The canal is projected to connect the Black Sea north of Istanbul to the Marmara Sea to the south and is estimated to cost TRY75bn (USD11.6bn). The lane is expected to ease shipping traffic on the Bosphorus and prevent accidents. In the tender, five companies bid on Thursday for the planning of the reconstruction of the historic Odabasi and Dursunkoy bridges. After the tender process, preparatory work will take approximately one and a half years. The construction is expected to take an additional five and a half years and the project is expected to be completed in seven years.
(+) Turkish lenders’ financial stimulus to create vital resources for firms, protect employment… A financial stimulus package announced by public lenders on Wednesday, in line with government measures to cushion the economic fallout from the coronavirus pandemic, will provide vital resources for small and medium-sized enterprises (SMEs) and will be instrumental in maintaining the current employment rate, according to business representatives. In the context of the support package, three conventional banks – Ziraat, Halkbank and VakifBank – and two participation lenders – Ziraat Katilim and Vakif Katilim – announced their packages, available to all enterprises that are feeling the pinch from the outbreak. To qualify for support, companies cannot cut their number of registered employees from the end of February.
The package will provide a 36-month loan, with 7.5% annual interest and a six-month non-payment period. Banks will accept credit applications for up to TRY100 mn (around USD15.5mn). This is plan is seen as a vital resource will be created, especially for SMEs. Plus, employment protection being one of the criteria is extremely important.
(=) Interior Minister: 80% of life stopped in Turkey due to outbreak… Interior Minister Suleyman Soylu has said that Turkish citizens, especially those living in metropolises, have been abiding by the “social isolation” principles laid out by the government, adding that almost 80% of life “stopped” in Turkey. Soylu said on March 26 in an interview with a private broadcaster that there is a 73% decline in inter-city bus services, adding that these services can also be suspended if needed. On intra-city traffic, Soylu said that there has been an 80% decline.
Sector and Company News:

ENKAI bought 500k lots of its own shares with TL5.87-5.98 price range per share. By this transaction, ENKAI completed the last share buyback program announced in last February which was up to 10mn lots.

(=) THYAO halted its flights to New York between March 27-April 17.

(=) TAVHL bought 156k lots of its own shares at TL15.21 average share price.

(=/+) CEOEM, event and organization company, has applied to the “short-time working allowance”, a support program of the governement.

(-) KARSN will halt production at its plants for 9 days starting from April 1, 2020 due to negative impacts of Covid-19 on supply chain and deliveries.

(=) FROTO Haydar Yenigün, GM of Ford Otosan, announced that they have started manufacturing components with 3D printers and simple molds in order to support the production of medical materials needed in the fight against coronavirus outbreak.

(-) KORDS will halt production at its Brazil plant (starting from March 26, 2020) and several parts of Turkey plant (starting from April 1, 2020) for two weeks due to negative impacts of Covid-19 on supply chain and deliveries.

(+) KFEIN won the "Data Analytics" tender with a price of TL 13.8mn. The project duration is 2 years. The scope of service is to make business intelligence analysis scenarios using machine learning and artificial intelligence technology and as a result, to develop solutions.

BRSA weekly banking data… According to weekly BRSA banking data, total loans increased 1.62% weekly and 7.82% y-t-d. Unlike the general trend since the beginning of the year, last week GPLs remained flattish, up by only 11 bps however still leader of the loan growth segments. The effects of regulatory measures that will be effective by March 20 will be reflected in two weeks later BRSA banking data. The largest expansion in loans have been the commercial loans segment both weekly and monthly, up by 2.16% and 5.63% respectively. It will be more likely to observe further expansions in commercial loans due to the support programs of public and private banks for corporates as well as SMEs for Covid-19 outbreak mainly aims for preventing employment losses and bankruptcies of firms because of cash flow problems.
The NPL amount inched up by 54 bps WoW and the declining trend of NPL ratio continues with the contribution of loan growth. For the week of March 20th , the NPL ratio of banking sector has been 5.38% down from 5.44% last week.
On the deposit front, total deposits increased by 1.26% WoW and 7.62% y-t-d. Last week, official institutions’ deposits indicated a very substantial weekly downward movement by 11.26%, from TRY193bn to TRY171bn.
As for the FX deposits of residents, real persons reduced their FX deposits as third week in a row, by USD2.66bn, down by 2.52% while corporates remained flattish, down by 17bps. A very low average FX deposit rates (0.83% for USD and 0.09% for EUR, up to 1 month maturity) might lead depositors to partially convert their FX deposits. Although real persons indicated FX deposit reduction three weeks in a row, we find it useful to keep observing actions of depositors in the upcoming weeks to be able to call it a “downward trend”.


(TL, mn) 20/03/2020 13/03/2020 21/02/2020 22/03/2019 03/01/2020 w/w m/m y/y y-t-d
Total Loans 2,853,958 2,808,501 2,719,476 2,481,912 2,646,894 1.62% 4.95% 14.99% 7.82%
Consumer Loans 507,999 507,299 491,592 399,543 467,381 0.14% 3.34% 27.15% 8.69%
Housing 210,245 209,855 205,749 183,436 199,268 0.19% 2.19% 14.62% 5.51%
Vehicle 7,054 7,061 6,964 6,244 7,051 -0.10% 1.29% 12.97% 0.04%
GPL 290,700 290,383 278,878 209,863 261,062 0.11% 4.24% 38.52% 11.35%
Consumer Credit Cards 114,049 116,418 115,007 99,381 116,791 -2.03% -0.83% 14.76% -2.35%
Commercial and Other Loans 2,231,910 2,184,784 2,112,877 1,982,989 2,062,722 2.16% 5.63% 12.55% 8.20%
Installment Commercial Loans and Corporate Credit Cards 465,393 462,414 447,015 417,025 434,411 0.64% 4.11% 11.60% 7.13%
SME Loans 655,646 648,162 628,793 627,227 611,735 1.15% 4.27% 4.53% 7.18%
Fx Indexed Loans 10,136 10,438 10,744 27,291 11,808 -2.90% -5.66% -62.86% -14.16%

(TL, mn) 20/03/2020 13/03/2020 21/02/2020 22/03/2019 03/01/2020 w/w m/m y/y y-t-d
Non Performing Loans 153,578 152,756 152,335 105,782 150,758 0.54% 0.82% 45.18% 1.87%
Consumer Loans 13,764 13,747 13,665 12,727 13,355 0.12% 0.72% 8.15% 3.07%
Housing 1,207 1,216 1,243 1,097 1,269 -0.71% -2.83% 10.07% -4.85%
Vehicle 196 197 200 234 201 -0.10% -1.94% -16.18% -2.17%
GPL 12,360 12,334 12,222 11,396 11,885 0.21% 1.13% 8.46% 4.00%
Consumer Credit Cards 6,559 6,563 6,486 6,712 6,323 -0.06% 1.12% -2.27% 3.74%
Commercial and Other Loans 133,254 132,446 132,183 86,343 131,081 0.61% 0.81% 54.33% 1.66%
NPL Ratio 5.38% 5.44% 5.60% 4.26% 5.70% -1.06% -3.93% 26.26% -5.52%

(TL, mn) 20/03/2020 13/03/2020 21/02/2020 22/03/2019 03/01/2020 w/w m/m y/y y-t-d
Total Deposits 2,762,849 2,728,415 2,653,769 2,204,854 2,567,331 1.26% 4.11% 25.31% 7.62%
Natural Person 1,695,828 1,677,349 1,637,952 1,337,521 1,595,204 1.10% 3.53% 26.79% 6.31%
Demand 431,954 418,424 393,761 260,339 360,147 3.23% 9.70% 65.92% 19.94%
Time 1,263,875 1,258,925 1,244,191 1,077,183 1,235,056 0.39% 1.58% 17.33% 2.33%
Commercial Institutions 896,006 858,227 847,454 727,469 817,594 4.40% 5.73% 23.17% 9.59%
Demand 272,427 260,275 244,081 186,259 220,838 4.67% 11.61% 46.26% 23.36%
Time 623,579 597,953 603,374 541,209 596,757 4.29% 3.35% 15.22% 4.49%
Official and Other Institutions 171,015 192,839 168,363 139,865 154,533 -11.32% 1.58% 22.27% 10.67%
Demand 38,594 51,067 38,310 33,275 33,914 -24.43% 0.74% 15.99% 13.80%
Time 132,421 141,771 130,053 106,590 120,619 -6.60% 1.82% 24.23% 9.78%
Deposits Subject to Insurance 734,090 730,713 719,832 512,904 698,978 0.46% 1.98% 43.12% 5.02%

Total Fx Deposits with Banks (USD, mn) 217,521 216,177 216,490 188,907 215,062 0.62% 0.48% 15.15% 1.14%


(USD, mn) 20/03/2020 13/03/2020 21/02/2020 22/03/2019 03/01/2020 w/w m/m y/y y-t-d
Total FX Deposits of Residents 181,594 184,026 185,098 175,693 184,087 -1.32% -1.89% 3.36% -1.35%
Real Persons 102,895 105,555 106,644 98,665 107,919 -2.52% -3.52% 4.29% -4.66%
Dolar ($) 69,135 70,778 71,732 67,696 73,788 -2.32% -3.62% 2.13% -6.31%
USD Eqv. of Euro 31,172 32,253 32,544 28,921 31,705 -3.35% -4.22% 7.78% -1.68%
Corporates 74,908 75,035 74,308 71,748 72,360 -0.17% 0.81% 4.40% 3.52%
Dolar ($) 37,010 36,840 35,150 39,508 37,364 0.46% 5.29% -6.32% -0.95%
USD Eqv. of Euro 36,885 37,135 38,051 31,499 34,181 -0.67% -3.07% 17.10% 7.91%


CBRT international reserves… According to the latest CBRT data released on Thursday, the Central Bank’s gross international reserves declined by 10.2% WoW from USD104.3bn to USD93.6bn. The decline in gross reserves has been 11.35%y- t-d. Net international reserves declined by 10.45% from USD34.3bn to USD30.7bn WoW however, as for the y-t-d figures, the decline in net reserves has been 25% from around USD41bn to USD30.7bn.


Exhibit 1: The change in gross and net international reserves of CBRT

CBRT International Reserves (USD,mn) 20/03/2020 13/03/2020 21/02/2020 22/03/2019 03/01/2020 w/w m/m y/y y-t-d
Net Reserves 30,738 34,323 34,547 26,136 40,985 -10.45% -11.03% 17.61% -25.00%
Gross Reserves 93,583 104,314 102,818 92,517 105,561 -10.29% -8.98% 1.15% -11.35%
Source: CBRT analytical balance sheet

Exhibit 2: The graph for gross and net international reserves of CBRT beginning from Jan-19


Source: CBRT analytical balance sheet


Non-residents' net flow of securities… According to the CBRT data released on Thursday, during the week of 13-20 March, non-residents executed net outflow of USD308mn from equities and USD742mn from GDDOs. As of last week, non-residents’ net total flow of securities has been USD-1.81bn from equities and USD-4.08bn from GDDOs y-t-d.


Exhibit: Non-residents’ y-t-d net flow of securities (Weekly)


Source: CBRT weekly securities statistics