Turkish Banks: Q4 21 results – What to expect?

Q4 2021 earnings season will start next week. We expect 39% earnings growth qoq and 194% earnings growth yoy for our coverage. We are 4% above consensus in aggregate terms with the highest positive difference at Isbank, followed by Garanti and Vakifbank. Q4 earnings
often have immaterial impact on share prices as banks tend to exercise kitchen sinking and the market focus turns to the following year. We think Q4 2021 will not be an exception.

We expect important highlights of Q4 21 results to be (in aggregate terms):

Acceleration in TL loan growth and further contraction in FX loans in hard currency terms.

Slowdown in TL deposit growth and slightly higher FX deposits in hard currency terms.

Meaningful NIM expansion across the board, driven by i) core spread expansion with improving loan yields and lower deposit costs, ii) CPI linker support, and iii) decrease in repo funding costs.

Strong net trading & FX income, driven by the surge in transactions during FX volatility as well as some of the banks’ hedges for TL depreciation’s impact on provisions.

Higher opex and flattish fee income qoq.

Higher provisions qoq as the BRSA’s asset quality related forbearances ended (affecting state banks to a larger extent) and banks tend to exercise kitchen sinking in Q4s. In addition, TL depreciation related surge in provisioning.

Higher subsidiary contribution qoq, driven mainly by Isbank. We think the focus will be on 2022 guidance to be released during conference calls.

Private banks have postponed their guidance/budget releases scheduled for early January to Q4 21 results conference calls as a result of the volatility in the markets. We think the predictability continues to be low, particularly on macro variables, and bank budgets are likely to be revised a number of times this year. However, bank managements’ expectations could still have an impact on share price performances in the short-term, in our view.

The current monetary policy stance provides a very profitable, but unsustainable market environment for Turkish banks. We expect Turkish banks’ earnings to increase further in Q1 22. Core spread and CPI linkers providing significant earnings support at the same
time is likely to be reversed at some point with the delivery of the much needed policy correction
(sizeable rate hikes), but the timing of that correction is highly unpredictable and does not appear soon, according to the comments from the economy administration.


Credit Suisse