TURKISH_BANKS_BAROMETER：A_BALANCE_OF_RISING_L／D_SPREAD_AND_ASSET_QUALITY_DETERIORATION_IN_AUGUST-2012-10-11.ppt

,analyst,commercial banks turkey,abc global research,turkish banks barometer a balance of rising l/d spread and asset quality deterioration in august tamer sengun* hsbc yatrm menkul deerler a. + 90 212 376 4615 .tr harish paliwal* associate, bangalore view hsbc global research at *employed by a non-us affiliate of hsbc securities (usa) inc, and is not registered/qualified pursuant to finra regulations, loan-deposit spread expansion drives nim and revenues on y-o-y basis but asset-liability spread compression squeezes nim sequentially domestic private banks earnings recovers but state owned banks drag sequential earnings net income grows by 19% y-t-d at try15.2bn till august 12 expansion in loan deposit spread drives turkish banks net income growth on a y-o-y basis. according to the brsas latest banking sector aggregate data (released on 8 october 2012), the sectors net income more than doubled on a y-o-y basis to try1.78bn in august 2012 from try758mn in august 2011. on a y-t-d comparison (jan-aug 2012) net income rose by 19.4% y-o-y for the sector to try15.2bn while on a q-t-d comparison (jun- aug 2012) net income grew by 51% y-o-y. total banking revenues rose by 40% y-o-y to try5.8bn in august driven by an 82% increase in adjusted net interest income (nii).,was attributable to a 128bps decline in securities yield due to lower yields on cpi-linkers. adjusted nim rose by 1.65ppt y-o-y to 4.16% supported by a trading gain of try46mn in august 2012 compared with a loss of try338mn in august 2011. asset quality deterioration continued. gross npls increased by 3.8% m-o-m in august, versus 9.5% rise in the first seven months of the year. cor stood at 100bps in august, versus 70bps in july, despite a lower coverage ratio at 76.7% versus 77.2% in july. if the coverage ratio were to be maintained at 77.2% cor would have been 116bps. other banking income (mainly npl recoveries) down by 43% y-o-y and 32% m-o-m, while the specific provisions up by 103% y-o-y and 45% m-o-m. owing to a low base, domestic private banks y-t-d earnings growth turned to positive in august. since the beginning of the year, domestic private banks (dpb) y-t-d earnings showed a contraction on a y-o-y basis. however, owing to the base affect, august net income of dpbs was up by c300%, resulting in a growth of 10% y-o-y in jan- aug 2012 period. state owned banks earnings are up by 21% y-o-y for the same period. banking sector will likely show a y-o-y and q-o-q,issuer of report:,hsbc yatirim menkul degerler a.s.,nim propelled on a y-o-y basis by higher loan to,earnings growth in q3 2012. the announced banking,9 october 2012 disclaimer & disclosures this report must be read with the disclosures and the analyst certifications in the disclosure appendix, and with the disclaimer, which forms part of it,deposit spread but drop in asset-liability spread affects sequential growth. nim for the sector was up 124bp y-o- y but down 14bp m-o-m at 4.11% in august. the y-o-y expansion was mainly owing to a 1ppt expansion in loan- deposit spread leading to a 1.1ppt expansion in asset- liability spread. however, the drop in nim sequentially,sector data show that the revenue performance of the banking sector was strong and offset the negative impact of the asset quality deterioration. we believe the revenues will be much stronger in september and the banking sector will likely show a y-o-y and q-o-q earnings growth in q3 2012.,2,3,4,5,6,7,8,9,11,12,commercial banks turkey 9 october 2012 contents ratings and macro forecasts margin and growth (q2 2012) npl and provisions (q2 2012) return and capital (q2 2012) economic indicators net interest margin (nim) improvement in l/d spread continues, yet cpi-linkers put pressure asset quality signs of deterioration, npl ratio continues to rise, coverage continues to fall sector earnings sequential earnings growth weak summary aggregate sector income statement (trym) balance sheet developments latest sector volume data (02 october 2012) disclosure appendix disclaimer,10 13 15,abc 1,2,commercial banks turkey 9 october 2012 ratings and macro forecasts rating summary (try),abc,bank,price _eps _ _ tbvps _ _ pe _ _ p/bv _,_roe _,rating,ric,2012e,2013e,2012e,2013e,2012e,2013e,2012e,2013e,2012e,2013e,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,7.72 1.36 1.99 7.86 14.60 5.70 3.77 4.31,0.64 0.19 0.20 0.70 2.00 0.71 0.52 0.43,0.81 0.22 0.29 0.84 2.22 0.74 0.61 0.60,5.14 1.30 2.58 4.86 9.25 4.68 4.36 3.44,5.82 1.52 2.86 5.56 11.07 5.37 4.92 4.04,12.05 7.32 9.82 11.30 7.28 7.98 7.26 10.12,9.48 6.22 6.97 9.41 6.59 7.66 6.13 7.24,1.50 1.04 0.77 1.62 1.58 1.22 0.86 1.25,1.33 0.89 0.70 1.41 1.32 1.06 0.77 1.07,13.5% 15.4% 8.2% 15.4% 24.8% 16.5% 12.8% 13.9%,14.9% 15.5% 10.5% 16.0% 21.8% 14.8% 13.2% 15.9%,ow n(v) n(v) n n ow n n(v),7.72 1.36 1.99 7.86 14.60 5.70 3.77 4.31,source: company data, hsbc estimates, priced at close on 05 october 2012 macroeconomic outlook,lending growth rate for the turkish banking sector (y-o-y %),2011,2012e,2013e,mortgage,auto,general purpose,credit card,total retail non-retail tl loans,gdp growth (%) cpi, average (%),8.5 6.5,2.7 9.0,3.8 7.3,2007 2008 2009 2010 2011 2012e,39% 20% 15% 35% 23% 15%,-8% -11% -20% 28% 30% 9%,67% 32% 14% 42% 38% 21%,26% 25% 8% 19% 27% 29%,37% 23% 11% 33% 30% 21%,30% 19% 9% 33% 24% 24%,industrial production (%) exports (%) imports (%) consumer spending (%) current account (% gdp) budget balance (% gdp),9.2 6.5 10.6 7.7 -10.0 -1.4,2.8 13.6 0.0 0.0 -7.6 -2.2,5.5 10.8 9.4 3.0 -7.1 -1.5,source: brsa for historical data, hsbc estimates,source: hsbc estimates,3,commercial banks turkey 9 october 2012 margin and growth (q2 2012) net interest margin (%),loan growth (% y-o-y),abc,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,3.0% 4.5% 4.3% 3.4% 4.1% 3.3% 3.4% 3.5%,3.0% 4.8% 4.8% 3.0% 4.0% 3.0% 3.5% 3.4%,3.6% 5.0% 3.9% 4.4% 5.1% 3.5% 3.8% 3.9%,3.5% 4.5% 4.6% 3.8% 4.7% 3.5% 3.8% 3.7%,3.5% 4.7% 4.8% 3.9% 5.1% 3.8% 4.0% 4.2%,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,37% 27% 25% 34% 35% 35% 34% 35%,41% 24% 35% 35% 35% 46% 33% 42%,33% 16% 20% 29% 27% 43% 28% 29%,27% 20% 21% 18% 21% 32% 28% 24%,24% 27% 23% 17% 17% 28% 18% 15%,source: company data the banking sectors nim improved to 4.19% in q2 2012, up 4bps q-o-q. of the banks under our turkish coverage, all banks saw their nims expand sequentially with yapi kredi (up 55bps) and halk (up38bps) showing the highest expansion while akbank (up 9bps) and garanti (up7bps) showed the slowest expansion in nim. in q2 2012, sector net fee and commissions income was ctry3.97bn, up 9% and 7% y-o-y. of the banks under our coverage halkbank and albaraka posted the strongest growth in fee and commission income, up 48% and 45% y-o-y, respectively. vakif reported the largest y-o-y decline at 37% followed by a 4% decline reported by yapi kredi. please note that the banks apply different accounting methodologies regarding the accrual of cash loan related fees and commissions; isbank and halkbank apply a more earnings friendly approach. fee and commission income growth (% y-o-y),source: company data in q2 2012, the banking sector posted loan growth of 22% y-o-y and 5% q-o-q, while the banks under our coverage posted growth between 15% and 28% y-o-y. among the banks we cover, isbanks loan portfolio grew the most in y-o-y terms (28%), while the loan book of yapi kredi grew the least (at 15%). total banking revenues for q2 2012 increased to try18.6bn, up 3% q-o-q and 26% y-o-y. isbank (up 37% y-o-y) posted the strongest growth in total banking revenues, while garanti saw its total banking revenues grew only by 11% y-o-y. total revenue growth (% y-o-y),q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,26% -3% 5% 15% 33% 16% 38% 11%,22% 3% 9% 22% 59% 24% 50% 16%,21% 12% 0% -9% 46% 28% 9% 16%,9% 18% -2% -3% 2% 22% -24% -8%,3% 45% 11% -2% 48% 18% -37% -4%,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,-14% 11% -3% -5% 9% -11% 1% -9%,17% 16% 14% -2% 20% -4% 22% -4%,-9% 28% 3% 23% 48% 31% -4% 8%,-4% 22% 20% 0% 18% 10% 14% -6%,16% 26% 31% 11% 32% 37% 12% 13%,source: company data,source: company data,commercial banks turkey 9 october 2012 npl and provisions (q2 2012) npl ratio (%),gross npl growth (% y-o-y),abc,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,1.81% 2.93% 3.55% 1.94% 3.13% 2.79% 3.89% 2.93%,1.66% 2.92% 3.68% 1.82% 2.90% 2.47% 3.63% 3.02%,1.77% 2.32% 4.57% 1.80% 2.90% 2.12% 3.63% 3.15%,1.72% 2.31% 4.45% 1.89% 2.84% 2.12% 3.50% 3.19%,1.64% 2.15% 4.14% 1.82% 2.80% 1.94% 3.50% 3.29%,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,-13% 6% -11% -25% -3% -22% -8% -4%,-13% 14% 1% -25% -5% -23% -10% -3%,-1% -10% 38% -21% -5% -18% -5% 17%,5% -1% 42% 4% -2% -14% 0% 22%,12% -7% 43% 9% 5% -12% 5% 29%,source: company data the sectors npl ratio fell marginally in q2 2012, declining by 4bp q-o-q to 2.66% in june 2012. the npl ratio of the large banks under our coverage declined by 7bps q-o-q and was flat q-o-q when adjusted with write offs. the npl ratios (adjusted with write-offs) declined the most for isbank (-8bps) and halkbank (-5bps), while the adj. npl ratios expanded for garanti (+12bps) and yapi kredi (+10bps) cost of risk was at 0.86% in q2 2012, up 3bp q-o-q and 29bp y-o-y. loan- loss provisions in the sector were up 9% q-o-q and 85% y-o-y in q2 2012. in our coverage universe, albaraka had the lowest cost of risk in q2, at 0.32%, while bank asyas cost of risk was highest at 1.64%. loan provisioning/average loans (%),source: company data gross npl for the sector was try20.1bn in june 2012. among our coverage gross npls rose most for bank asya (up 43% y-o-y) and yapi kredi (up 29% y- o-y) while isbank (down 12%) and albaraka (down 7%) saw its npls contract the most in q2 2012. the sectors npl coverage ratio declined 5.5% y-o-y and remained relatively flat on a q-o-q basis at 78.8% in june 2012. isbank continues to have a 100% npl coverage, the highest in our coverage, whereas bank asya, with 55% (up 1% q-o-q), had the lowest npl coverage in q2 2012 in our coverage. npl coverage (%),q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,0.49% 1.15% 0.83% 0.25% 0.33% 0.52% 0.82% 0.81%,0.28% 0.37% 1.21% 0.33% 0.32% 0.67% 0.59% 0.23%,0.67% 1.27% 2.27% 0.71% 0.55% 0.93% 0.97% 0.87%,0.67% 0.83% 2.32% 0.47% 0.50% 0.74% 0.93% 0.77%,0.71% 0.32% 1.64% 1.01% 0.57% 0.86% 0.77% 0.78%,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,100% 89% 64% 82% 84% 100% 100% 76%,100% 89% 58% 82% 84% 100% 97% 71%,93% 92% 50% 82% 84% 100% 95% 62%,93% 92% 54% 81% 84% 100% 96% 66%,93% 92% 55% 81% 84% 100% 94% 67%,source: company data,source: company data,4,commercial banks turkey 9 october 2012 return and capital (q2 2012) return on average equity (%),return on average assets (%),abc,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,15% 13% 11% 23% 26% 18% 11% 16%,11% 17% 12% 11% 25% 7% 14% 14%,13% 21% 10% 18% 24% 19% 11% 17%,12% 15% 9% 19% 24% 15% 18% 17%,12% 23% 10% 15% 28% 20% 11% 11%,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,2.2% 1.4% 1.5% 2.8% 2.5% 2.3% 1.2% 1.9%,1.4% 1.7% 1.5% 1.3% 2.3% 0.9% 1.4% 1.6%,1.7% 2.0% 1.2% 2.1% 2.2% 2.1% 1.2% 1.8%,1.6% 1.5% 1.1% 2.3% 2.3% 1.7% 1.8% 1.9%,1.5% 1.8% 1.2% 1.9% 2.9% 2.3% 1.2% 1.3%,source: company data return on average equity (roae) for the sector went down by 2.4% q-o-q and 0.2% on a y-o-y basis at 14.0% in q2 2012. net income was down 11% q-o-q but was up 12% y-o-y in q2 2012. of the banks in our coverage universe, halkbank had the highest roae of 28% and bank asya the lowest at 10% in q2. as at end q2 2012, on bank-only financials, garantis tier-i ratio was the strongest at 15.3% (down 37bp q-o-q), while akbanks was 15% (down 54bp q-o-q). the ratio for yapi kredi was lowest at 11.0% (down 34bp q-o-q). tier one ratio (%),source: company data the sectors return on average assets (roaa) was down by 28bp q-o-q and 5bp y-o-y to 1.7% in q2 2012. halkbank (2.9%) followed by isbank (2.3%) had the highest roaa under coverage while asya and vakif (both 1.2%) had the lowest. the sectors capital adequacy ratio was 16.5% at the end of q2 2012, up 27bp q-o-q but down 64bp y-o-y. except garanti all banks under coverage had lower-than-sector-average capital adequacy ratios in q2 2012. capital adequacy ratio (%),q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,q2 2011,q3 2011,q4 2011,q1 2012,q2 2012,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,16.9% 13.4% 12.7% 15.8% 14.3% 14.2% 12.9% 11.5%,16.4% 13.0% 12.6% 14.8% 13.8% 13.0% 12.4% 11.0%,16.4% 11.9% 12.9% 15.0% 13.8% 13.0% 12.4% 11.2%,15.6% 11.7% 13.2% 15.7% 13.4% 12.4% 12.2% 11.3%,15.0% 11.9% 13.0% 15.3% 13.4% 12.6% 12.2% 11.0%,akbank albaraka bank asya garanti halkbank isbank vakifbank yapi kredi,17.8% 14.0% 13.2% 18.0% 15.0% 16.0% 14.0% 14.1%,17.2% 13.6% 13.1% 16.9% 14.5% 14.6% 13.4% 13.8%,17.0% 12.5% 13.3% 16.9% 14.3% 14.1% 13.4% 14.7%,16.5% 12.3% 13.6% 16.9% 14.2% 13.9% 13.4% 14.8%,16.0% 12.4% 13.5% 16.6% 14.7% 14.2% 13.4% 14.5%,source: company data,source: company data,5,q22005,q32005,q42005,q12006,q22006,q32006,q42006,q12007,q22007,q32007,q42007,q12008,q22008,q32008,q42008,q12009,q22009,q32009,q42009,q12010,q22010,q32010,q42010,q12011,q22011,q32011,q42011,q12012,q22012,jan-10,feb-10,mar-10,apr-10,may-10,jun-10,jul-10,aug-10,sep-10,oct-10,nov-10,dec-10,jan-11,feb-11,mar-11,apr-11,may-11,jun-11,jul-11,aug-11,sep-11,oct-11,nov-11,dec-11,jan-12,feb-12,mar-12,apr-12,may-12,jun-12,jul-12,aug-12,sep-12,oct-09,nov-09,dec-09,jan-10,feb-10,mar-10,apr-10,may-10,jun-10,jul-10,aug-10,sep-10,oct-10,nov-10,dec-10,jan-11,feb-11,mar-11,apr-11,may-11,jun-11,jul-11,aug-11,sep-11,oct-11,nov-11,dec-11,jan-12,feb-12,mar-12,apr-12,may-12,jun-12,2000,2001,2002,2003,2004,2005,2006,2007,2008,2009,2010,2011e,2012e,2013e,2014e,2015e,2016e,2017e,-2,commercial banks turkey 9 october 2012 economic indicators,abc, turkeys gdp grew by 2.9% y-o-y in q2 2012, versus a revised hsbc estimate of 2.7% for 2012. hsbcs gdp growth forecast for 2012 now stands at 2.7% y-o-y, and 3.8% for 2013 from 2.0% and 3.5% earlier. in 2011, gdp growth was asymmetric and unbalanced, driven by domestic demand and very little by foreign demand. in 2012, growth rebalanced, with domestic demand losing pace and net foreign demand driving headline gdp growth in september 2012, rose to 9.19%, up by 103bps m-m and rising from 6.15% in september 2011. inflation, after a decline for three consecutive months from may to july 2012, has been rising for the past two months. based on the main expenditure groups, the index for miscellaneous goods and services increased the most m-o-m by 2.26% in september. on the other hand, indices for clothing and footwear declined the most in september by 2.62%. in june 2012, the unemployment rate was 8.0%. this was lower by 0.2ppt on a m-o-m and 1.2ppt on a y-o-y basis. in august 2012, the trade deficit came in at usd5.86bn down usd8.23bn in august 2011.,turkey real gdp growth (y-o-y %) 15% 10% 5% 0% -5% -10% -15% source: turkish statistical institute unemployment rate (%) 15 12 9 6 3 0 source: turkish statistical institute,inflation growth (y-o-y %) 12% 10% 8% 6% 4% 2% 0% source: central bank republic of turkey current account deficit (% of gdp) 2 0 -4 -6 -8 -10 -12 source: international monetary fund,6,jun-08,aug-08,oct-08,dec-08,feb-09,apr-09,jun-09,aug-09,oct-09,dec-09,feb-10,apr-10,jun-10,aug-10,oct-10,dec-10,feb-11,apr-11,jun-11,aug-11,oct-11,dec-11,feb-12,apr-12,jun-12,aug-12,commercial banks turkey 9 october 2012 net interest margin (nim) improvement in l/d spread continues, yet cpi-linkers put pressure,abc, the banking sectors net interest margin (nim) came in at 4.11% in august 2012,nim of turkish banking sector,adjusted nim (for fx and trading gains) of the sector,down 14bp m-o-m but up 124bp y-o-y. the y-o-y increase was mostly owing to a lower asset-liability spread which declined by 12bps m-o-m.,4.6% 4.4% 4.2%,4.19%,4.18%,4.34%,4.25%,4.11%,4.5% 4.0%,4.13%,4.22%,4.36%,4.29%,4.16%, net interest income (nii) came in at,try4.2bn in august 2012, up c57% y-o-y but down 2% m-o-m.,4.0% 3.8%,3.5%,3.16%, the sectors adjusted nim stood at 4.16%, up 165bps y-o-y but down 13bps m-o-m in august 2012. this was mainly owing to a trading gain of try46mn in the month compared to a gain of try35mn in july 2012 and a loss of try338mn in august 2011. however the sequential decline in nim was mainly attributable to a 12bps,3.6% 3.4% 3.2% 3.0%,3.39%,3.0% 2.5% 2.0%,contraction in asset-liability spread.,3q 11,2q 12,jul-aug 12,jun-12,jul-12,aug-12,3q 11,2q 12,jul-aug 12,jun-12,jul-12,aug-12, consequently, the banking sectors adjusted,nii was try4.3bn in august 2012, up 82% y-o-y but down 2% m-o-m. in august 2012, the total loan-to-time- deposit spread increased by 31bps m-o-m,source: brsa monthly loan-to-time-deposit spread (try),source: brsa monthly try loan yields, try time deposit costs, benchmark bond and o/n borrowing rate,and 94bps y-o-y, to 3.5%. the try loan-to- time-deposit spread came in at 3.0% (up 40bp m-o-m and y-o-y) and the fx loan-to- time-deposit spread was recorded at 2.57% (up 38bp m-o-m and 83bp y-o-y).,3.1% 3.0% 2.9% 2.8% 2.7% 2.6%,2.57%,2.78%,2.81%,2.55%,2.61%,3.00%,25% 20% 15% 10% 5%,13.0% 10.0% 7.6% 5.8%,2.5% 2.4%