Turkish Private Banks – Earnings Preview and Sector Update (Gedik Yatırım)

Turkish Private Banks - Earnings Preview and Sector Update
 
4Q22 Expectations - We expect moderate results in the banking sector led by Isbank and Akbank. Although banks' room for maneuver in creating core spreads has been limited by the price cap/growth restrictions on TL commercial loans and TL deposit share regulations recently, we expect swap adj NIMs will continue to widen by 89bps qoq thanks to high CPI yields and lower swap costs. On the other hand, we expect strong fee income growth to continue at an average of 21% qoq, while OPEX should increase by an average of 32%. At the same time, we expect that provisions to increase by 16% qoq to start 2023 prudently despite of no detrimental NPL inflows. Specifically, we expect Yapıkredi's strong CPI linker yields to offset higher operating costs and provision expenses, which should be higher than the sector, and that Yapı Kredi to have a softer bottom line quarter, indicating a slight decline of -2% qoq. Despite the fact that Isbank's CPI linker yields were flat this quarter due to the bank's CPI accounting policy, we expect the bank to stand out from peers with 29% qoq growth due to its strong participations income and normalized risk costs. With strong CPI linker yields, we expect Akbank to follow Isbank with quarterly net income growth of 21% qoq.
 
Outlook 2023: In 2023 margins should be lower impact from CPI linker and increasing regulation pressure reduce - expecting 12% earnings decline. In the first half of 2023, similar to 2022, if the current cyclical environment continues, we expect TL loan growth to remain decent while, Lira deposits should grow faster than TL loans due to the regulation impact. Currently, Isbank still has a TL deposit share of 40%’s, which is well below the target, while peers are between 50% and 60%, and we think it is important that exceeding target of 60% means that they will have to buy less fixed-rate low-yield bonds and pay less commissions as well. On the other hand, due to the fact that 2023 is an election year, the predictability is low, but regardless of the results, in the second half of 2023 we expect (1) a trend towards more orthodox CBRT policy and the gradual increase in interest rates to around 25%, (2) a sharp slowdown in economic activity and lending activity, and (3) somewhat higher NPL inflows. As a result, we expect average NIM (swap adj.) to decline 193bps yoy and average net income down -12% yoy in our 2023E. Surely, if we see a higher interest rate environment than our assumption in 2H23, that should weigh on banks' balance sheets and profitability. We believe, after the start of the transition to orthodox policies, private banks with a good strategy in this phase can create attractive opportunities for 2024 after a tough 2H23.
 
Valuation: Our valuation is driven from the Gordon Growth model. Our 8-year forecast horizon assumes a 25% RfR (gradually decreasing based on macro assumptions), 5.5% equity risk premium, 1.15 beta and 23.8% CoE. While maintaining our “Outperform” recommendation in Akbank, Garanti, İş Bankası and Yapı Kredi, and our price targets implying an average 44% upside potential for our coverage. Top picks: With high liquidity, strong capital buffers and high CPI linker portfolios, we highlight Yapı Kredi and Akbank in 2023. Note, based on 2023 estimates, on P/BV in excess of local bond yields Turkish private banks trade at a discount global peers.
 
 

 
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                               Yasal Uyarı
 
 Burada yer alan yatırım bilgi, yorum ve tavsiyeler yatırım danışmanlığı kapsamında değildir.Yatırım danışmanlığı hizmeti ; aracı kurumlar, portföy yönetim şirketleri, mevduat kabul etmeyen bankalar ile müşteri arasında imzalanacak yatırım danışmanlığı sözleşmesi çerçevesinde sunulmaktadır.Burada yer alan yorum ve tavsiyeler, yorum ve tavsiyede bulunanların kişisel görüşlerine dayanmaktadır.Bu görüşler mali durumunuz ile risk ve getiri tercihlerinize uygun olmayabılır.Bu nedenle, sadece burada yer alan bilgilere dayanılarak yatırım kararı verilmesi beklentilerinize uygun sonuçlar doğurmayabilir.