Banking industry: FX protected deposit scheme boosts NII

45% monthly ROE on lower provisions and OPEX

Turkish banking sector’s April net income is up by 44% m/m to TL34.9bn (+643%y/y) on lower provisioning expenses and OPEX, corresponding to 45% monthly ROE (12M trailing: 24%). Although NII increased by 2% m/m to TL46.3bn (+213% y/y) on lower expenses, monthly NIM declined by 17bps to 6.1% (TL spread +28bps, FX spread -109bps, TL and FX security yields -153bp and -90bps) due to denominator impact. On the other hand, lower trading gain of TL1.1bn (-90% m/m) and lower other income of TL7.7bn (-19% m/m, +136% y/y) stand as limiting factors of monthly total income (-13% m/m, +256% y/y). Yet, lower provisioning expenses of TL13.6bn (-44% m/m, +3% y/y) and lower OPEX of TL13.8bn (-12% m/m, +48% y/y) supported bottom line. Parallel to lower provision expenses, total cost of risk decreased to 2.1% from 4.0%. Fee income increased by 95% y/y to TL9.0bn, while OPEX increased by 48% y/y to TL13.8bn.

CoR and FX rates as decisive factors for solid profitability

Considering high inflation trend, we expect security yields would continue to support margins in the coming months as well. Besides, loan to deposit spreads would support NII with loan repricing as well as lower funding costs compared to previous months. On this front, demand for TL deposits related to FX protected TL deposit scheme would be one of the main factors affecting sector’s growth potential. On the asset quality side, CoR and FX rates continue to remain as decisive factors for the sector’s profitability. Although we have observed decreasing trend in CoR recently, we expect upside risks on provisioning expenses due to global headwinds, FX rate volatility and removal of BRSA 180-day rule for NPL recognition. Yet, we underline that GARAN and YKBNK stand at a relatively strong position in the sector thanks to their ample provisioning buffers, strong capital positions and report superior ROEs. Besides, volatile FX rates pose risks to Banks’ capital ratios. All in all, we sustain our cautious view on the sector due to uncertainty in asset quality and possible volatility in macro front.

Capital ratios at comfortable levels

Sector’s both CAR and Tier-I ratio increased by 2bps and 19bps to 20.4% and 15.8%, respectively. However, possible FX rate volatilities stand as a limiting factor to sector’s capital ratios.



Y. F. Seurities Research