HSBC Revises Outlook on Turkish Banks

Global financial giant HSBC has released its latest report evaluating Turkey’s banking sector, highlighting a downward revision in earnings expectations while reaffirming confidence in major banks despite shifting monetary policy dynamics.

According to HSBC analysts, Turkish banks are trading at a significant discount—about 65%—compared to their emerging market peers, as their price-to-earnings (P/E) ratios have declined compared to nine months ago. This discount, HSBC argues, offers an attractive risk-reward profile for investors. Analysts also pointed out that such low valuation levels were previously seen during periods of depleted foreign exchange reserves, suggesting potential gains for medium-to-long-term investors.

No Rate Cut Before June 2025

HSBC noted that following the unexpected interest rate hikes after Turkey's political developments on March 19, 2025, expectations for a near-term rate cut have faded. The bank now predicts no rate reductions until at least June 2025.

Nevertheless, HSBC stated that this shift in policy is unlikely to significantly harm bank earnings. Factors such as rising loan rates and increased fee and commission revenues are expected to cushion potential impacts.

Earnings Forecasts Adjusted Downward

Reflecting these changes, HSBC revised its earnings forecasts for Turkish banks downward by 9% for 2025 and 12% for 2026. Still, Turkey stands out in the CEEMEA (Central and Eastern Europe, Middle East, and Africa) region, with an impressive projected two-year compound annual growth rate (CAGR) of 67% in banking sector earnings.

Stock Recommendations

HSBC reiterated its positive stance on key Turkish banks:

• Akbank & Garanti BBVA: Maintained "Buy" ratings, citing strong balance sheets, robust earnings momentum, and high return on equity—offering a defensive investment profile.

• İş Bankası: Upgraded to "Buy", due to undervalued stock and strong upside potential.

• Yapı Kredi: Maintained at "Hold" due to limited discount on valuation and relatively low return on capital.