Halkbank (HALKB TI) - Top-line grows; swap costs drag: Maintain Hold
Halkbank’s 2Q19 net income of TRY310m (+2% q-q, -72% y-y) was in line with our estimate (TRY318m) and RT consensus (TRY316m). This quarter a big ticket energy sector-related corporate loan became an NPL. Halkbank decreased its NPL coverage by 10ppt to offset this loan’s (TRY794m) impact on earnings; else the bank would have a net loss of cTRY500m. Core revenues expanded 27% q-q on a wider core spread (1ppt vs BNPPe: 60bp), higher securities yield and strong fee growth (44% y-y). But higher trading losses on elevated swap costs (+46% q-q) weighed on earnings. Opex rose only 3% y-y, the best performance among the peers in our coverage, while net provisioning costs declined q-q due to provisioning reversals on lower NPL coverage. Net total CoR declined to 67bp from 103bp a quarter ago, while NPL coverage fell to 63%. Halkbank keeps booking tax reversals (TRY42m, 1Q: TRY190m) related to its Bahrain operations. ROE remained q-q flat at 4.2% (peers 12.4%), the lowest ROE among the top-tier peers in our coverage.
We cut our 2019-21E EPS to factor in 2Q results, leading to a lower GGM-based TP of TRY6.24. Maintain HOLD.
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.
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