Improving margins to boost core PPI in 2H21e and …
We reiterate our view that margin recovery is set to commence in Q3 as upwards
repricing of loans outpaces liabilities. Private banks’ NIMs could improve 20bps in H2
and 60bps next year leading to 21% CAGR in PPI between FY20/22e and bring the
banks’ ROE to c16%. This would be the highest level of profitability they’ve achieved
in the last decade and their 21e 0.4x PB, close to the trough of their valuation range,
is shy from reflecting that.
We raise our FY21e earnings 12% on lower CoR assumptions after seeing the benign 1H21 numbers. Yet, we only fine-tune our FY22/23e earnings as we slightly delay the improvement in deposit costs. We adjust our TPs marginally and retain Buy ratings on all four private banks: Akbank, Garanti, Isbank and YKB. Garanti is our preferred pick due to its stronger profitability.
… leave room for banks to normalise their provision expenses
Private banks’ CoR came in at c100bps (including free provisions) in 1H21 and supported their bottom-line against margin pressures. As margins recover and asset quality forbearance expires in H2, we expect provision expenses to normalise and CoR to reach c120bps for the full year. As such, we expect earnings to grow only 11% HoH
in H2. The positive impact of the margin recovery will be more visible in FY22e, in our view, as funding costs start to improve. We expect earnings to grow 23% in FY22e.
State banks are still in a tough spot
State banks had deep margin erosions in 1H21 and had to release a considerable
amount of provisions to prevent bottom-line losses, which we think they’ll have to replenish later. On the back of lower NIM forecasts, we cut our FY22/23e earnings
forecasts 34/12% on average. We adjust our TPs for lower earnings forecasts; reiterate Reduce on Halkbank on low profitability and limited capital buffers. We maintain a Hold rating on Vakifbank.
Source: HSBC Global Research