Fitch:  Good news, bad news about Turkish banks

The operating environment for Turkish banks has improved in recent months, due to more orthodox macroeconomic policies driving a reduction in macroeconomic and financial stability risks  and increased investor confidence.

The Central Bank of the Republic of Turkiye (CBRT) has strengthened its foreign-exchange reserves position, dollarisation has reduced, and banks’ access to external financing has improved.

Banks have significantly reduced their foreign exchange (FX) swaps with the CBRT, which had been a significant portion oftheir foreign[1]currency (FC) liqidity assets, bolstering financial stability.

The surge in Turkish bank external debt issuance, totalling USD6.5 billion so far this year, underscores renewed international investor confidence.

In addition, the CBRT continues to unwind the macroprudential regulations, including abolishing the securities maintenance requirement and reducing roll-over  requirements for FX-protected  lira deposits. Nevertheless, challenges remain with regard to the durability of the policy mix and its effectiveness in reducing headline inflation.

Profitability pressures also persist due to regulatory loan growth caps and higher lira funding costs, although we expect it to remain reasonable, and for banking sector capitalisation and liquidity buffers to be adequate. Banks’ provisioning and profitability buffers should be sufficient to withstand the impact of monetary tightening on asset quality under our base case.

Profitability Declines, Margins Tighten

 

The operating profit/average-risk weighted assets (RWAs) ratio for the Turkish banks covered in this report averaged 3.4% in 1Q24 (4Q23: 4.6%). Garanti BBVA had the highest ratio (6.3%), while  Halkbank reported a loss of -1.9%.

Total trading income declined significantly across the board due to rising swap costs in the high interest rate environment, ranging from TRY4.9 billion at Garanti BBVA to Halkbank’s trading loss of TRY11.6 billion.

Net fees and commissions income also varied widely, quadrupling to TRY9.7 billion at QNB Finansbank, representing 54% of total revenue. The lowest, although still high, increases were at Fiba (68%) and ING (85%).

Net interest margins (NIMs) averaged 4.2% for the covered banks in 1Q24, down from 5.5% in the previous quarter, reflecting high funding costs and slower repricing of assets amid high lira interest rates and growth caps. State-owned banks – such as Ziraat (3.5%) and Vakif (3.0%) – generally reported lower NIMs than their private counterparts, reflecting lower growth.

Loan impairment charges (LICs) averaged 41% of the covered banks’ pre-impairment profit (4Q23: 31%). Denizbank reported reversals amounting to 38% of pre-impariment profit due to front[1]loaded provisioning in previous periods, while Odea had the highest LICs compared to pre-impairment profit, at 112%.

 

 

Excerpt from Fitch Turkish banks datawatch

 

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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.