Turkish Banking Sector - Earnings Slow in May due to High Opex, Swap Costs

The Turkish banking sector earnings data for May was released yesterday. Net income for the sector increased 19% y-o-y to TRY3,714 mln, for a 13.7% ROE. However, this growth was significantly below the figures for 4m17 (59% y-o-y) and 5m17 (50% y-o-y ): the April-May monthly average came in 10% below the monthly average in 1Q17, while earnings contracted 12% m-o-m in May, indicating a slowdown. High opex growth (up 23% y-o-y in May) and a doubling in trading losses due higher swap costs were the main culprits behind the slowdown. Meanwhile, the y-o-y earnings growth is attributable to NII expansion and good NPL collections. In short, with the exception of the 23% opex growth, the May data was broadly in line with expectations. The data also suggests that private banks may have stronger financials and could outperform their state counterparts over the near term.