TURKISH BANKS - Good tidings ahead
We forecast total net earnings of our coverage universe to decline 16% in in 2019 but grow 48% growth in 2020. We think the potential decline in inflation coupled with possible rate cuts in 1H20 should push the cost of funding further down while supporting NIMs. We foresee net CoR sliding from the 2019 highs of 230bp to an average 197bp in 2020 as we expect provisions to fall on improved IFRS-9 parameters of the banks. We foresee loans growing at an average of 14% in 2020 for our coverage universe, wherein we factor 17% growth for TRY loans and 3% contraction for FX loans.
We believe the Turkey banking sector is well poised to deliver long-term (2019-30E) ROE of 16%, c5ppt above the benchmark yield, implying 0.8x target P/BV vs the average 2020E P/BV of 0.6x. We upgrade Yapi Kredi to BUY from Hold on rising efficiency levels on the digitalisation efforts by the bank, a moderating cost base, and improving spreads. We upgrade TSKB to BUY from Hold owing to its long-term low-cost funding structure and attractive valuation. Akbank, Garanti Bank and Isbank remain our top picks.
Akbank is a commercial bank. Co. operates in five segments: Retail banking offers a range of retail services, such as deposit accounts, loans, credit cards, insurance products and asset management services; Corporate and Small and Medium Size Enterprises banking provides financial solutions and banking services; Treasury Activities conducts regional and foreign currency spot and forward transactions, bonds and other domestic securities; Private banking offers banking and investment transactions for upper-income groups and the International banking provides services for foreign trade financing and Turkish Lira clearances, and money transfers through agent financial institutions.
Turkiye Garanti Bankasi is a private banking group based in Turkey. Co. operates as an integrated financial services group in every segment of the sector including corporate, commercial, SME, payment systems, retail, private and investment banking together with subsidiaries in pension and life insurance, leasing, factoring, brokerage, and asset management. Co. provides a range of financial services to 13 million customers through a distribution network of 994 domestic branches; 6 foreign branches in Cyprus, Luxembourg and Malta; 3 international representative offices in London, Dusseldorf and Shanghai with more than 4,152 ATMs, a Call Center and internet.
Turkiye Halk Bankasi (Halkbank) is a banking and financial services company based in Turkey. Co. offers corporate and commercial banking products and services to a range of customers, from individuals to large corporations. Co.'s operations include: consumer and retail banking, consumer loans, credit and debit cards, deposit and overdraft accounts, payroll services, corporate and commercial banking, budget loans, credit line facilities, cash management, investment banking, brokerage, factoring, leasing and insurance services, and tradesmen/SME banking. As of Dec 31 2011, Co. operates 771 branches and had total assets of TL92,160,657,000.
Turkiye Is Bankasi is a commercial banking group based in Turkey Co. is engaged in the provision of private, retail, commercial and corporate banking, money market and securities market operations as well as international banking services. Co. provides services to corporations, SMEs and other trading companies (excluding real trading persons) within the course of its corporate and commercial operations. Co. is organized into two main business segments: Banking segment, which includes corporate, retail and private banking, as well as treasury; and non-banking operations, which are followed according to insurance, ‘investment and finance' and ‘manufacturing and trading' segments.
Turkiye Sinai Kalkinma Bankasi is a private development and investment bank. Co. provides its clients with an array of products and services in the corporate banking, investment banking and advisory business lines. Co. serves its corporate clients in investment banking through solution oriented treasury products in addition to corporate finance activities such as mergers, public offerings and bond issuances. Co. mainly operates in investment and corporate banking segments. As of Dec 31 2014, Co. had total assets of TL6.23 billion.
Turkiye Vakiflar Bankasi (Vakifbank) is a banking and financial services company based in Turkey. Co. offers products and services that cover corporate, commercial, investment and small-scale enterprise banking as well as the retail and private banking sectors. Co. also provides financial leasing, portfolio management, real estate, insurance and factoring services through its financial participations. Co.'s deposit products include time and demand deposits, as well as loans comprise spot loans, foreign currency indexed loans, consumer loans, automobile and housing loans, working capital loans, gold loans, foreign currency loans, eximbank loans, and pre-export loans.
Yapi Ve Kredi Bankasi is a financial services group. Co. serves its customers through its retail banking segment comprising of individual banking, Small and Medium Size Enterprises banking and card payment systems, corporate and commercial banking as well as private banking and wealth management segments. Co.'s operations are supported by domestic subsidiaries in asset management, brokerage, leasing and factoring as well as international banking subsidiaries in the Netherlands, Russia and Azerbaijan. As of Dec 31 2014, Co. had total assets of TL194.96 billion and total deposits of TL107.63 billion.
TEB Investment equity research analysts and strategist team consists of 8 analysts with an average finance sector experience of 15 years and special focus on international investors.
With our 6 equity research analysts we cover 93 companies across 21 sectors, reflecting 80% of the total market capitalization of all BIST companies and 86% of the BIST100 companies. Our strategy team provides in depth top-down and bottom-up market views with insight on FX and bond markets by publishing sectoral and strategic reports both in English and Turkish.
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