Turkey’s State Banks Seen Outpacing Private Peers on Profit

Earnings growth at Turkey’s state-owned banks is poised to outpace that of their private-sector peers after heeding the government’s call to extend more credit.

State lenders are on the frontline of the government’s battle to stabilize its currency and capital markets and finance its budget deficit. Authorities have leaned on banks to provide loans to support the economy and avoid cash injections that could worsen the fiscal outlook due to the coronavirus pandemic.

Banks kick off second-quarter results from Tuesday.

State-owned Turkiye Vakiflar Bankasi TAO may report an almost fourfold surge in net income for the three months through June, while profit at Turkiye Halk Bankasi AS could jump threefold from a year earlier, according to the median estimate of six analysts surveyed by Bloomberg.

Their private-sector peers Akbank TAS, Turkiye Garanti Bankasi AS, Yapi Kredi Bankasi and Turkiye Is Bankasi AS are expected to post profit changes ranging from a decline of 17% to an increase of 58%, the estimates show.

“Net non-performing loan formations should be effectively zero in the second quarter, supported by ample loan availability and payment postponements as part of Covid-19 measures,” said Cagdas Dogan, a banking analyst at BGC Partners in Istanbul.

Depending on how the economy performs, bad debts could move back into focus by the end of the year, he said. This could cause a further deterioration in the balance sheets of state-owned lenders and require the government again pump fresh capital into the companies, Dogan said.

Credit Boom

State-owned Ziraat Bankasi, which is unlisted, Halkbank and Vakifbank got a 21 billion liras ($3.1 billion) capital injection from Turkey’s sovereign wealth fund in May. The lenders have been growing their books at about 42% this year, compared with an overall annual industry expansion of 31%, according to the banking regulator.

Signs are emerging, however, that the credit boom might be nearing its end. Over the weekend, state banks increased their monthly rate on housing loans for second-hand properties to 0.79% from 0.74%, according to their websites. They also removed some car-makers from their cheap-loan campaigns after companies raised their prices.

While the ratio of non-performing loans stood at 4.5% at the end of May, this could deteriorate to 6.7% by the fourth quarter and peak at 8.7% in 2021, Goldman Sachs Group Inc. analysts including Deniz Gasimli said in a report dated July 21.

A buying opportunity is emerging even though Turkish banks face macro-economic risks such as negative real interest rates, a balance of payments gap, and an ongoing decline in sovereign reserves, they said.

The banks are trading near five-year lows on their forward price-to-book ratios, while their shares have underperformed regional peers, the analysts said. Lenders in Turkey, China and India are the only ones among emerging markets expected to show profit growth this year.

Turkey’s State Banks Seen Outpacing Private Peers on Profit

Goldman’s Gasimli has buy recommendations on Akbank and Garanti, a sell on Halkbank and neutral ratings on Isbank, Vakif and Yapi Kredi.

©2020 Bloomberg L.P.

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