2Q19 Earnings Preview
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July 22, 2019 2Q19 Earnings Preview Flat spreads with no major asset quality problem TL mn 2Q19E 1Q19 2Q18 Chg. QoQ Chg. YoY Banks will begin announcing their 2Q19 earnings on July 25, spearheaded by Akbank. The deadline for the BRSA AKBNK 1,201 1413 1602 -15% -25% results is August 19. We estimate a total net profit of TL4.1bn for the banks HALKB 315 305 1113 3% -72% under our coverage in 2Q19, implying a 23% qoq and 39% yoy decline. ISCTR 934 1458 1528 -36% -39% The main highlights of 2Q19 are: i) flattish core lending spread qoq, ii) almost zero loan growth iii) drop in COR, despite a 30bps rise in NPL ratio VAKBN 400 651 1074 -39% -63% Akbank and Yapi Kredi have distinguished themselves YKBNK 1,020 1241 1227 -18% -17% from their peers on the back of relatively solid spreads supported by declining deposit costs. TSKB 191 185 166 3% 15% Main highlights of the quarter: FX-adjusted loan growth is almost zero in 2Q19, vs. 3.9% Total 4,060 5,254 6,710 -23% -39% in 1Q19, in which the decline in SME loans is partially compensated for by retail loan growth. Looking at the stock values, TL lending spreads are P/E (x) P/BV (x) ROE % almost stable, despite the rise in deposit rates. That said, the FX lending spread is also supportive due to the currency impact. 19-June- 2019E 2020E 2019E 2020E 2019E 2020E 19 The sector’s swap average volumes increased from USD37bn in 1Q19 to USD46bn in 2Q19, mainly due to the heavy swap usage of state banks. Along with almost AKBNK 6.6 4.8 0.8 0.7 13.0% 15.5% flat swap costs qoq, the trading line remained negative. The rise in swap rates is around 1-2pp qoq, which is also HALKB 4.9 3.3 0.3 0.2 5.5% 7.6% negative for the margins. CPI linkers were not supportive for 2Q19 as the banks ISCTR 4.7 3.4 0.5 0.5 11.6% 14.4% lowered their CPI estimates used for linker valuation. As a result, swap-adjusted NIM has contracted by just 10bps VAKBN 3.9 2.9 0.4 0.3 10.6% 12.8% qoq for our coverage. On the provisioning front, we expect to see a slight YKBNK 4.7 3.7 0.5 0.5 11.7% 13.1% decrease in COR due to lower flows and no major currency impact. The NPL ratio of the sector rose by TSKB 3.5 3.1 0.5 0.4 14.8% 14.3% 30bps qoq to 4.6% in 2Q19. On the fee income side, we expect a 35% rise yoy in Average 5.4 4.0 0.6 0.5 10.9% 13.2% 2Q19 due to higher repricing and a 15% rise in opex yoy in 2Q19, hence below inflation. Source: Garanti Securities Market impact: We expect a neutral market reaction to the 2Q19 results. Our model portfolio includes Akbank and Yapi * We do not provide any estimates and recommendations for Garanti Kredi with a slight overweight in banks. (26%, vs. 25% market Bank, since Garanti Securities is a wholly-owned subsidiary of Gar- anti Bank weight). Analyst: Recep Demir, CFA Sales Contact: +90 (212) 384 1132 +90 (212) 384 1155 [email protected] [email protected] Please see the last page of this report for important disclosures. July 22, 2019 Chg. Chg. TL mn 2Q19E 1Q19 2Q18 Chg. QoQ YoY 1H18 1H19E YoY QoQ increase decrease reason Ann. Date Stable loan growth with an improvement in LDR. The TL lending spread is flattish, along with 40bps improvement in FX Akbank 1,201 1413 1602 -15% -25% 3,312 2,613 -21% lending spread. Akbank has revised down 25 July its CPI linker valuation estimates to 12% from 14%, which has led to flattish swap adjusted NIM The NIM is up by 50bps qoq due to a low base and flat deposit costs. Yet, the trading line is not supportive due to a Halkbank 315 305 1113 3% -72% 1,903 620 -67% sharp increase in swap costs. The NPL 5-9 Aug ratio is up by 50bps due to the recognition of a big ticket energy loan /s as Stage III. We expect to see 30bps NIM contraction qoq due to rising deposit costs. While the Isbank 934 1458 1528 -36% -39% 3,335 2,391 -28% subsidiary contribution is significant for 5-9 Aug 2Q19, the rising opex and negative trading line dent the bottom-line. We expect to see 40bps swap-adjusted Vakifbank 400 651 1074 -39% -63% 2,125 1,051 -51% NIM contraction qoq due to a rising swap 5-9 Aug burden and deposit costs. The TL lending volume is up by 5% qoq, while the FX loan book is down by 5% in Yapi Kredi 1,020 1241 1227 -18% -17% 2,471 2,261 -9% the same period. The swap-adjusted NIM 01 Aug is flat qoq, despite a lower CPI estimation for linkers. The swap adjusted NIM is flat qoq and the lower provision qoq was the main reason TSKB 191 185 166 3% 15% 325 376 16% behind the qoq improvement in bottom- 02 Aug line. Total 4,060 5,254 6,710 -23% -39% 13,470 9,314 -31% Source: Garanti Securities 2 Please see the last page of this report for important disclosures. 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