HSBC on Turkish Banks: Structural recovery intact, near-term noise rising
Bank
Core profitability continues to improve amid some headwinds: Disinflation and monetary easing continue to support banks’ top lines; we expect PPI margins to improve 90bp in 2H25 on NII tailwinds. However, several speed bumps are weighing on the pace of earnings recovery:
1) one-off DTA reversals in 4Q25 following accounting changes;
2) faster-than-expected downward repricing of loans; and
3) persistent cost pressures. We still expect aggregate FY26 earnings growth – at 73% (80% previously), the strongest in CEEMEA – though widening dispersion across banks and recent share price gains call for more selective positioning.
4Q25 NII expansion offset by costs and tax effects: We forecast aggregate NII (adj. for CPI linkers) to expand 34% QoQ in 4Q25, led by Isbank. However, this is unlikely to turn into broad-based earnings growth due to seasonally higher opex, weaker trading income and DTA reversals. We expect Akbank/Isbank earnings to grow by 30%/15% QoQ and Garanti/YKB earnings to contract 16%/48%. Turning selective after recent performance: We cut our FY26/27 earnings forecasts by 12%/8% on average, reflecting lower NIMs, higher opex and CoR
assumptions, which leaves us 19% and 14% below FY26 consensus for Garanti and Yapi, while remaining broadly in line for Akbank and Isbank. Despite the 25% USD- based rally over the past three months, Turkish banks still trade at an average FY26e 1.1x P/B, a 12% discount to EM banks (from 25% in October 25). Yet, with average FY26e/27e ROE of 30% barely above our 29% COE, scope for multiple expansion appears to have narrowed.
Cut earnings forecasts, adjust TPs; downgrade Garanti and Yapi to Hold: We reiterate our Buy ratings on Akbank, supported by a strong PPI recovery, and Isbank, given its high gearing to falling rates and wide valuation discount. We downgrade Garanti to Hold on weaker FY26e earnings momentum and a premium valuation, and YKB to Hold given weak 4Q25 earnings dynamics and limited scope for rerating, given its ROE broadly in line with COE, a tight CET-1 position and the absence of dividends.
HSBC Global Research
