TURKISH BANKS - Banking monthly - October 2018
For Oct-18, banking sector profit was TRY3.7b (-10% m-m, cumulative +12% y-y). We attribute the m-m drop to a surge in trading losses and contracted spreads. Net provisions almost halved m-m on lower specific and free provisions post 3Q’s IFRS 9 macro assumption adjustments. The net total CoR slid to 89bp, from 182bp in September. The NPL ratio rose to 3.5% from 3.2% in 3Q, with a stable 70% NPL coverage. The sector delivered an ROAE of 11% (-1.2pp m-m) and an 18.2% CAR (+10bp m-m).
Private banks’ (PBs) earnings were better than those of state banks (SB) in October due to a higher securities yield coupled with a major m-m drop in net CoR for PBs. Weak securities yields and higher net CoR m-m on generic provisions were the main culprits of SBs net loss in October.
While one month results are not indicative of the whole 4Q, we believe PBs earnings will outperform that of SBs in 4Q. We advise investors to focus on banks with easier access to cheaper deposits, with better asset quality, high liquidity and strong capital adequacy. We recommend adding exposure to Akbank (BUY), Garanti (BUY) and Vakifbank (BUY) ahead of the 4Q results.
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