Garanti Bank (GARAN TI) - Spread widens; NPL coverage up: Maintain Buy
3Q19 net income, at TRY1,304m (-32% q-q, -22% y-y), stood in line with our estimate (TRY1,327m) and RT’s (TRY1,272m) estimate. Net earnings would have been 46% higher at TRY1,908m assuming flat NPL coverage q-q in 3Q19. Core revenue rose 3% q-q on widened core spread (+34bp vs BNPPe: in-line), despite lower linker revenues on revised in-house CPI assumption (-2.5ppt). Fees surged 28% y-y (BNPPe: 21%) led by payment systems and non-cash loans, while opex grew 20%. Swap related trading losses continued to weigh on earnings. Net total CoR rose to 315bp from 190bp in 2Q19, while NPL coverage jumped to 62% (+3.8ppt q-q). ROE fell to 10.2% (15.0% assuming flat NPL coverage) from 15.5% in 2Q19, which could be one of the highest ROE among peers after Akbank (11.1%, 10.0% assuming flat NPL coverage) in 3Q19.
We have revised FY19-21E earnings post the 3Q19 results primarily due to the new provisioning cost estimates. We maintain a BUY on the stock on strong long-term ROE at 19%.
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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