Turkish Banks: Sensitivity of capital ratios to currency and asset quality

We update our interactive spreadsheet to stress test capital positions with Q1
results: HSBC’s year-end USDTRY forecast of 24.00 (see TRY: Rich and
vulnerable, 5 April 2023) and uncertainties around sustainability of current macro
policies make assessing banks’ capital buffers worthwhile, we believe. Our interactive
spreadsheet, updated for 1Q 2023 financials (click to request), can be used to
calculate capital ratios under different assumptions.

Banks capital and provision buffers look enough to absorb significant currency
and asset quality shocks: According to our analysis, all private banks should
remain above 8.5% minimum CET-1 requirement until USDTRY reaches 29.00 and
NPL ratios increase 4.5pp on average thanks to existing capital buffers and reversal
of excess provisions. Note that we haven’t taken organic capital generation into
account, unlike in previous versions of this analysis. Currency depreciation beyond
our base case of USDTRY 24.00 would mean higher CPI linker revenues for banks
and rapid replenishment of capital buffers. On the other hand, we also haven’t taken
into account MtM losses banks would incur on securities portfolios and any potential
increase in securities maintenance requirements that could extended those losses
and weigh on profitability.



HSBC Global Research