Yapi Kredi Bank (YKBNK TI) - High NPL coverage prevails: Maintain Hold
Yapi Kredi reported 4Q18 net income of TRY1,081m (-3% q-q, +23% y-y), above our estimate (TRY891m) and the RT consensus (TRY913m). Lower-than-expected net provisions on lower NPL coverage (10ppt q-q) and reversals (TRY530m) largely explains the deviation. Core revenues contracted 3% q-q on narrowed core spread (-2.8ppt q-q vs BNPPe -1.5pp), while 9pp upward CPI-adjustment and strong fee growth (+35% y-y) backed the top-line. Trading losses were insignificant as swap costs were nil. Like peers, fee income expanded by a solid 35% y-y in 4Q, while opex increased 19% y-y on pension fund provisions. Net total CoR rose to 440bp (3Q: 374bp) on new NPL inflows, while NPL coverage fell to 72%, still well-above the peer average at 58%. ROE slid 51bp q-q to 10.9% (18YE 13.5%). Assuming its coverage level at the peer average, its 18YE ROE would have been 17.3% (Akbank 13.5%, Garanti 15.1%).
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.
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