Earnings Review / Garanti Bank (GARAN TI) - High ROE prevails: Maintain Buy
Garanti announced a 3Q18 net income of TRY1,673m (-12% q-q, +7% y-y), in line with the RT consensus (TRY1,607m) and above our estimate (TRY1,575m). Earnings would be 2% q-q higher and ROE could have been 17.2% instead of 14.8% (vs 12.5% at Akbank) if we adjust for TRY700m discretionary reserves and lowered provision coverage. Core revenues grew 16% q-q thanks to 8pp upward CPI-adjustment to 18% and strong fee growth (30% y-y), despite contracted core spread (-7bp vs BNPPe -58bp). Opex grew by just 12% y-y, half that of inflation and unlikely to be matched by any other bank in our coverage. Trading line was supportive on FX gains from fully hedged provisions, while swap costs remains elevated. Net provisioning costs surged on new NPL inflows and currency impact such that the net total CoR went further north to 439bps (in-line) from 231bps in 2Q. NPL coverage dropped 4pp q-q to 60%.
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.
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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