Turkish Banking Sector - Earnings Slow in July on Lower CPI Linker Yields for State Banks

The Turkish banking sector's July earnings data came out yesterday. Banks posted TRY3,689 mln net income in July, down 12% m-o-m and flattish y-o-y, for a 13.3% ROE. Compared with the 2Q17 monthly average, July net income was down 9%, while it was up 12% relative to the 3Q16 monthly average. State banks were mostly responsible for the earnings contraction, while private banks' earnings were nearly flat over the 2Q17 monthly average. The NIM contraction among state banks of 52 bps in July compared with 2Q17 pulled down their net income, while private banks posted flattish NIM. Since the core spread contraction was more or less the same at state and private banks, the earnings contraction at state banks owed to lower yields on CPI linkers due to seasonality. We think the data suggests private banks should outperform state banks in the near term. It is also positive for TSKB, as the performance of investment and development banks stood out.