According to weekly data, total loans rose by 19.6% (YoY) at the end of April, and 20.2% at the first week of May. On a
Banking Sector Monthly Report April 2013
Economic Research and Strategic Planning
1
Executive Summary
Total assets year-on-year growth rate surged up to the ten-month-high of 16.2% in March while it is estimated to be 15.4% at the end of April. Total loans rose by 20.2% (YoY) in the first week of May according to weekly data. On a year-on-year
basis, growth rate of consumer loans and credit cards increased from 21.8% in March to 22.7% in the first week of May while growth rate of commercial loans increased from 17.8% to 18.9%. Foreign capital inflows having played a major role in bond markets dragging the 6.3% rate in March to 5% in April resulted in securities portfolio growth rate decline to -6.2% (YoY) in April from -5.1% in March due to slight profit realizations. On the liabilities side, as of April, deposits rose by 14.6% while non-deposit funding items growth is 7.6% (YoY) and total shareholders’ equity jumped by 20.5% (YoY) on the back of ongoing significant increase in net income albeit at a slower pace according to our estimations. On a year-on-year basis, growth rate of year-to-date net income declined from 25.3% in February to 16.3% as of March and is expected to increase to 18% in April. In the rest of the year, we expect RRR and ROC adjustments to manage liquidity of foreign currency and local currency banking activities in a way that financial stability will be maintained.
We raised our 2013 loan growth forecast and expect it to be close to long-term average 20% while we keep our 4.6% GDP growth as well as 6.9% CAD to GDP ratio estimations. Rationale behind our revision is the dovish rhetoric adopted lately by CBT and the Government regarding loan growth, benign outlook in current account deficit due to the slump in commodity
prices. Meanwhile, we believe that the recent government credit incentives for SMEs and exporters will support the commercial loan growth and contribute to balanced growth composition. To achieve a more balanced growth (i.e. a moderate current account deficit and balanced domestic and foreign demand), we think the Government and BRSA may introduce macro-prudential measures to change loan growth composition towards a more SME loans heavy one.
We think the rate cuts in the upper bound of the interest rate corridor in the last two CBT meetings have run their course on loan rates as rates declined by approximately 100 bps. Given the recent 50 bps cut delivered in May’13 meeting and
considering the loan and deposit market dynamics, we expect loan rates to decline by a further 50 bps unless competition stipulates otherwise. 2
Executive Summary (cont.)
We still keep our estimation of 3.2% NPL ratio for the 2013 year end on the back of the slowdown in the economy due to soft landing in 2012 and lower than expected growth for the Q1 2013 which may lead to a further corporate NPL increase for the rest of the year. However, starting from 2014, NPL’s may further increase due to the increase in retail loans which have higher NPL ratios on average historically. The growth rate of securities portfolio already decreased from -5.1% to -6.5% (YoY) in the first week May on the back of decreasing yields. Considering that we had revised our 2013 average bond yield estimation down by 75 bps, we revised our YE2013 security portfolio growth estimation from -4.5% to -5.5% as banks would prefer to grant more loans than securities when security yields decline. We expect the share of securities issued as well as the wholesale funding to grow rapidly as the deposit growth is short of loans growth, capital inflows remain strong and Treasury is decreasing its rollover ratio. Nevertheless, deposit growth is required to limit the exposure to international funding markets and we estimate 15% deposit growth at YE2013 with fluctuations in the year due to base effects Given the CBT’s recent rate cut by 50 bps in May’13 and loose liquidity conditions coupled with the recent rating upgrade by Moody’s, we expect deposit rates to decline by 35-40 bps. Due to improved inflation and risk outlook we expect deposit rates to decrease in the short term and then stabilize in 2H2013.
Profitability of Turkish Banks have improved mainly due to rising NIM trend so far. Having estimated 10 bps decline for NIM at the end of the year, we expect ROA and ROE to diminish slightly as a result of decrease in NIM as well as increase in the cost of risk.
CAR and Tier 1 ratios decreased slightly on the back of loan growth mainly in Q1 2013, even though the profitability increased in the same period. We also expect CAR decrease slightly during the rest of 2013 as growth rate of net income will fall short of the growth rate of risk assets due to increasing NPLs and loans.
Note: April 2013 Banking Sector figures that have not been announced by BRSA as of the date of this report are Odeabank estimates
3
Turkish Banking Overview, April 2013, Key Performance Indicators Banking (TL Million) Ca s h a nd Res erves * Securi ties Loa ns Retai l Loa ns Corpora te Loa ns Non Perfomi ng Loa ns Fi xed As s ets * Total As s ets * Depos i ts Forei gn Currency Depos i ts Other Fundi ng Sources Loa n to Depos i t Ra tio Equi ty* Net Income*
April/12
70,600 283,605 710,344 233,310 477,034 19,962 9,836 1,255,592 701,715 240,362 308,697 101.2% 154,610 7,678
December/12
114,939 269,994 794,756 265,911 528,845 23,408 10,495 1,370,736 771,884 251,634 298,491 103.0% 181,988 23,570
March/13
127,847 270,680 833,546 279,461 554,085 25,566 10,545 1,427,652 789,448 258,729 338,429 105.6% 186,140 6,953
April/13
122,570 266,127 849,784 284,516 551,956 25,870 10,862 1,449,868 804,271 259,416 332,233 105.7% 186,291 9,356
Year on Year Growth
51,970 (17,478) 139,441 51,206 74,922 5,908 1,026 194,276 102,556 19,054 23,536 0 31,681 1,678
89.4% -6.2% 19.6% 21.9% 15.7% 29.6% 10.5% 15.4% 14.6% 7.9% 7.6% 4.4% 20.5% 18.0%
Month on Month Growth
(5,277) (4,553) 16,238 5,055 (2,129) 304 317 22,215 14,823 687 (6,196) 0 151 2,403
-4.1% -1.7% 1.9% 1.8% -0.4% 1.2% 3.0% 1.6% 1.9% 0.3% -1.8% 0.1% 0.1% 34.6%
Year to Date Growth
7,631 (3,867) 55,028 18,605 23,111 2,462 367 79,132 32,387 7,782 33,743 0 4,304 N/A
6.6% -1.4% 6.9% 7.0% 4.4% 10.5% 3.5% 5.8% 4.2% 3.1% 11.3% 2.6% 2.4% N/A
Source: BRSA and Odeabank Research (*) Estimated Figures for April 2013
Year-on-year growth rate of Turkish banking sector’s total assets hit ten-month-high of 16.2% in March while estimated April end growth rate is 15.4%. Current trend is supporting our view that growth rate will be stabilized in the rest of the year. According to weekly data, total loans rose by 19.6% (YoY) at the end of April, and 20.2% at the first week of May. On a year-on-year basis, growth rate of consumer loans and consumer credit cards increased from 21.8% in March to 22.5% in April and 22.8% in the first week of May. As assets are reshuffled towards consumer and commercial loans for profit maximization, current growth trend is in line with our expectations previously expressed and also significantly above its long-term seasonal average. Non-performing loans keep on increasing on the back of economic slowdown. In the first week of May, the gross NPL increased by 32.1% (YoY) highest rate since the first quarter of 2010. Securities portfolio growth rate decreased to -6.2% (YoY) in April from -5.1% in March as security portfolio managers preferred to realize gains in the aftermath of the recent bond rally. Widening gap between loan yields when compared to securities yields is also in play as money market and government bond rates decrease at higher pace than loan rates. On the liabilities side, deposits rose by 14.6%, while non-deposit funding items grew by 7.6% (YoY) and total shareholders’ equity jumped by 20.5% (YoY) on the back of significant increase in net income. Growth rate of YTD net income fell from 25.3% (YoY) in March to 16.3% (YoY) in April and also it is expected to slightly increase to in next months until mid of the third quarter on the back of recent rate cuts. In the rest of the year, we expect further ROC adjustments and BRSA measures for financial stability purposes that may favor commercial loans over consumer loans. Therefore, net interest margin will hit its peak probably through the 3rd quarter of the year while downside risks are more pronounced for 2014.
4
Loans: Change of Composition and Growth 14%
Total loans (Annual difference)/GDP
12%
Current account deficit/GDP (rhs)
10%
12% 8%
10% 8%
6%
3.5%
3.0%
General purpose&credit cards (Annual difference)/GDP Current account deficit/GDP (rhs)
2.5%
12% 10% 8%
2.0% 6% 1.5%
6%
4%
4% 2% 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3
0%
Source: BRSA, CBT and Odeabank Research
4%
1.0%
2%
0.5%
2%
0%
0.0%
0% 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3
16%
Source: BRSA, CBT and Odeabank Research
Total loan growth rate is still above CBT’s loan growth threshold level of 15% that was set to keep current account deficit (CAD) in a reasonable range. However, the first quarter data which features a lower than expected growth coupled with the deteriorated global growth outlook and better CAD figure on the back of falling commodity prices, as we estimated in our 6*6*6 report, may lead to loosening of the target. IMF revised its 2013 global growth estimate down from 3.5% to 3.3% which is still slightly above 2012’s 3.2% growth, due to ongoing uncertainties regarding Eurozone economy and sharp fiscal contraction in the United States. Similarly, IMF lowered its 2013 Turkish GDP growth forecast from 3.5% to 3.4%. As a matter of fact, CBT and other authorities have been signaling flexibility in the loan growth target level in the last inflation report and during economists meetings as the inflation and CAD are still under control although loan growth is hovering around 20%. The latest 50 bps rate cut by CBT to support the economic growth while increasing ROC and RRR to sustain financial stability confirms our expectation. Furthermore, we think potential BRSA action may shift the weights in composition of loan growth from retail loans to corporate/SME loans. Nevertheless probability of such BRSA action diminished as GDP
growth indicators point to a slower than expected GDP growth We raised our 2013 loan growth forecast and expect it to be close to long-term average 20% while we keep our 4.6% GDP growth as well as 6.9% CAD to GDP ratio estimations. Rationale behind revision is the dovish rhetoric adopted lately by CBT and the Government regarding loan growth, benign outlook in current account deficit due to the slump in commodity prices and hence weaker possibility of BRSA intervention to curb consumer loans.
5
Loans: Growth 35%
40%
Percantage Point Contribution To Loan Growth
Growth Rate of Loan Types
35%
30%
Credit Cards
25%
20% 15%
5%
2.5%
Credit Cards
Consumer Loans
5.2% 201304
201303
201302
201301
201212
201211
201210
201209
201208
201207
0%
201012
201304
201303
201302
201301
201212
201211
201210
201209
201208
201207
201206
201205
201204
201203
201202
201201
201112
5%
2.9%
201206
10%
10%
201205
Corporate & SME Loans
201204
Consumer Loans
15%
9%
Commercial Installment Loans
201203
20%
Corporate & SME Loans
201202
Commercial Installment Loans
201201
25%
201112
30%
Source: BRSA Database and Odeabank Research
Banks continue to lean towards the consumer loans and commercial installment loans as a result of decreasing interest margins of corporate loans. Banks preference to grant more retail and commercial installment loans manifest itself in form of high contribution of these loans to total loan growth. In fact more than half of the loan growth originated from these type of loans. As we discussed in our previous reports, we expect corporate loan share to decline in overall loans. Corporates are constituting the biggest share of the borrowers in the Turkish loan market and historically Turkish banks had the pricing power. However, with the recent credit rating upgrades and favorable macroeconomic conditions in Turkey coupled with favorable global liquidity conditions, financially sound corporations have more options for their funding requirements with access to international funding sources and capital markets via corporate debt issuances. This puts further pressure on corporate loan rates which urges banks to focus more on SME’s, commercial installment and retail loans for maximizing profit. The recent initiative by the Government to decrease the funding cost of SMEs via Halkbank loans is a strong signal that authorities are supporting the growth of SME loans to boost economic growth which is in line with the global trend. Taking a look at the EU countries, we can recognize that governments are searching for more accommodative policies for SMEs, e.g. UK tweaked funding for lending scheme in April to further support banks that increase net SME lending. Given the global economic outlook and Turkish GDP growth concerns, SME funding requirements may be further eased with accommodative policies.
6
Loans: Interest Rates 16%
Commercial Loan Rates Loan to Effective Funding Rate Spread
14%
CBT Lending Rate Effective Funding Rate Inflation
12%
10%
8%
6%
4%
2%
Apr-13
May-13
Mar-13
Jan-13
Feb-13
Dec-12
Oct-12
Nov-12
Sep-12
Jul-12
Aug-12
Jun-12
Apr-12
May-12
Mar-12
Jan-12
Feb-12
Dec-11
Oct-11
Nov-11
Sep-11
Jul-11
Aug-11
Jun-11
Apr-11
May-11
Mar-11
Jan-11
Feb-11
Dec-10
Oct-10
Nov-10
Sep-10
Jul-10
Aug-10
Jun-10
May-10
0%
Source: CBT and Odeabank Research
Loan rates decreased by 40 bps on average in April after 100 bps rate cut in March due to the fact that effective funding rates were also eased on the back of benign inflation trend and favorable global liquidity conditions during the same period. Effective funding rate has been in a decreasing trend after the 50 bps rate cut in mid April. From February to March effective funding rate was stable as CBT intended to tighten liquidity for curbing loan growth. CBT highlighted effects of declining commodity prices on inflation, deteriorated global growth outlook, excess global liquidity after BOJ decision and higher interest rates in Turkey when compared to EM peers as reasons for rate cuts. All of these reasons are still applicable and the 50bps cut in May’13, which came higher than our expectation, will be reflected to effective funding rate in form of further slumps.
7
Loans: Interest Rates (cont.) CBT’s intention to keep TRY liquidity tight enough for curbing loan growth seems to be replaced by growth concerns. Therefore we expect action from BRSA or other authorities favoring SME type loan growth as SME loans typically help to maintain sustainable growth with more investment and employment opportunities. We think the rate cuts in the upper bound of the interest rate corridor in the last two CBT meetings had run their course on loan rates as rates declined by approximately 100 bps. Given the recent 50 bps cut delivered in May’13 meeting, we expect loan rates to decline by 50 bps further unless competition stipulates otherwise. As we expect the rate cuts come to an end in June-July CBT meetings, we expect the loan rates to stabilize in 2H2013 which is in line with our revised inflation outlook and also on the back of recent changes in CBT monetary policy stance.
8
Non Performing Loans
NPL picked up to 3.03% level in the week of May 3, with the effect of increase in the corporate NPLs. This might be stemming from the slowdown in the economy due to soft landing in 2012 and lower than expected growth for the Q1 2013. We may see further corporate NPL increase for the rest of the year as economic activity remains under pressure.
Consumer loans and cards NPL also increased where cards NPLs hit the highest level in the last three years.
We still keep our estimation of 3.2% NPL ratio for the 2013 year end. We expect the corporate NPL’s continue to pick up for the rest of the year while the remaining NPLs of other loan types will increase with milder slopes. However, NPL’s may further increase towards year end to 2014 due to the lagged effect of increase in retail loans which have higher NPL ratios on average historically. 20
Non Performing Commercial Installment Loans and Cards Non Performing Consumer Loans
16
Non Performing Consumer Cards
5%
Non Performing Corporate Loans
12
6%
4%
Billions TL
NPL ratio (rhs)
3%
8
2%
4
1%
Source: BRSA database, Odeabank Research
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
Sep-12
Jun-12
Dec-11
Mar-12
Sep-11
Jun-11
Mar-11
Dec-10
Jun-10
Sep-10
Mar-10
Dec-09
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
0%
Dec-07
-
9
Securities 50%
LCY Securties Growth (YoY)
40%
LCY Loan Growth(YoY)
30% 20% 10% 0%
7%
200712 200803 200806 200809 200812 200903 200906 200909 200912 201003 201006 201009 201012 201103 201106 201109 201112 201203 201206 201209 201212 201303
-10%
Benchmark bond rate-Effective funding rate 6%
Loan-Deposit rate
5% 4%
3% 2% 1%
0% -1%
During the March Treasury auction, declining demand to LCY bonds due to unfavorable global conditions and worries about CAD as well as inflation pushed the benchmark rate up to 6.3%. While foreign demand diminished, the Turkish Banks increased their LCY securities holdings in order to capitalize high yields. The BoJ decision which eased the global rate pressure and increased the risk appetite in the markets, as well as CBT’s rate cut decisions coupled with favorable inflation outlook caused benchmark rate decline to 5% levels with renascent foreign investor demand. Turkish banks, benefited from this profit opportunity and sold some of their LCY security holdings to realize the gains from the recent rally and increased LCY loan portfolios in order to benefit higher margin in the loan market. The growth rate of securities portfolio already decreased from -5.1% to -6.2% in March’13 on the back of profit realizations and narrowing profit from carry trades. Considering that we had revised our 2013 average bond yield estimation downward by 75 bps, we revised our YE2013 security portfolio growth estimation from -4.5% to -5.5% as banks will prefer to grant more loans than securities when security yields decline. We expect the LCY securities growth rates to stabilize around current levels with potential slight upside due to large profit margin between the granting a loan rather than buying security with available cost of funding. Although , we think that there are downside risks to inflation (our YE estimation is 6.1%), easing global rate pressure after BoJ decision and Turkey’s upgrade expectations led to a lower than expected security yields and risk premiums for the rest of the year. Hence, we have revised our average 2013 benchmark bond rate estimation from 6.3% to 5.55% in our CBT II. Inflation Report data response.
Source: CBT and Odeabank Research
10
Deposits & Funding Base: Growth and Estimates 100% Money Market Borrowing
30%
Repo Payables
Securities Issued
Bank Borrowing
60%
12%
20%
10%
15%
50%
8%
10%
40% 30%
Deposits
5%
6%
0%
4%
20%
-5%
10%
-10%
2% Q42013
Q32013
Q22013
201303
201302
201301
201212
201211
201210
201209
201208
Source: Country Central Banks, BRSA database, Odeabank Research
201303
201207
201212
201206
201209
201205
201112
201204
201012
0% 201203
-15% 201202
0% 200912
14%
25%
201201
80%
16%
CBT&MM Borrowing and Repo Deposits (rhs)
35%
201112
90% 70%
40%
Other
On the liabilities side, although deposit y-o-y growth is highest since 2011 year end, annualized year to date growth rate was 9.1% at the end of March’13. According to weekly data, deposit growth picked up in April’13 to 12.1% annualized year to date growth. Following CBT’s 100 bps rate cut in March, it become clearer that further rate cuts were on CBT’s agenda depositors increased deposit holdings. However, deposit growth is still lagging behind loan growth. Low savings rate coupled with low level of real return on deposits leads to low deposit growth and to a surge in the loan-todeposit ratio.
Banks also increased their wholesale funding with the help of excess global liquidity in March. Money market rates decreased significantly after last CBT rate cut as the economic outlook also supports the declining trend in interest rates, availing more funding opportunities.
Security issuance and subordinated loan growth rates are above 100% due to base effects. As a matter of fact, since the beginning of 2013 the balance of securities issued has increased by 6.2 billion TL. The securities that have been issued until today are cheaper, and have longer maturity compared to deposits. If the low interest rate environment is to continue as CBT envisages, banks are expected to turn more to capital markets to benefit from low rates, therefore, we expect further securities issuances until YE2013.
We expect the share of securities issued as well as the wholesale funding to grow rapidly as the deposit growth is short of loans growth, capital inflows remains strong and Treasury is decreasing its rollover ratio. Nevertheless, deposit growth is required to limit the exposure to international funding markets and we estimate 15% deposit growth at YE2013 with fluctuations in the year due to base effects
11
Deposits Rates Loan & Deposit Interest Rates (4-week-avg.)
Deposit Mortgage loans Commercial loans Consumer loans
21 19 17 15 13 11 9 7
Apr-13
Dec-12
Aug-12
Apr-12
Dec-11
Aug-11
Apr-11
Dec-10
Aug-10
Apr-10
Dec-09
Aug-09
Apr-09
5
Source: CBT, Odeabank Research
Deposit rates had decreased in the third week of March’13 and stayed flat with slight increases from there on under the impact of tightened liquidity until mid–April. In the aftermath of the commodity sell off, deteriorated global growth outlook, reduced inflationary pressures and narrowing current account deficit, CBT cut upper bound of the interest rate corridor by 50 bps in April and further cut by 50 bps in May while keeping liquidity conditions loose. Deposit rates declined by 25 bps in the period from April meeting till the date of our report. Loan rates had decreased more than deposit rates yearto-date. Furthermore, recent 50 bps rate cut by CBT may drive down the deposit rates further, however we believe that the fall in deposit rates will be short of decline in loan rates due to competition in the loan market. Average deposits tenor for the all Turkish banking deposit market is extending on the back of reserve and tax adjustments as well as convenient withdrawing opportunities favoring long term deposits. The preference of customers is shifting to long term as they are seeking for higher yields in a declining interest rate environment where long term deposits offer term premium paid for the lower liquidity. As the customer preference changes from short to mid/long term deposits, average deposit rate may have upside risks as well just because of longer average deposit durations hence term premiums paid on deposits as yield curve steepens on the back of global rate pressures that may be observed towards 2014.
12
Deposits Rates (cont.) 5%
Real bond rate 4%
Real deposit rate 3%
2%
1%
0%
-1%
-2%
Strong global growth expectations are postponed to next year as well due to Eurozone growth concerns on the back of South Cypriot bailout. Recent US data also provides mixed signals regarding recovery. Consequently, global recovery that may lead to global rate pressures in emerging markets will only be more evident in 2014 this in turn means higher risk premiums for EMs with current account deficits seems less probable until 2014. Moreover, Turkey’s recent upgrades from Fitch and S&P followed by Moody’s capped risk premiums hence put pressure on deposit rates as well. Given the CBT’s recent rate cut by 50 bps in May’13 and loose liquidity conditions coupled with the recent rating upgrade by Moody’ as well as the reasons discussed in previous slide, we expect deposit rates to decline by only 35-40 bps. Due to improved inflation and risk outlook we expect deposit rates to decrease in the short term and stabilize there on through the 2H2013 until global rate pressures force to pay higher real returns in government bond markets.
13
Net Interest Margin and Drivers of Profitability
Net income of the sector increased because of increasing NIM as well as surging capital market gains and foreign exchange transactions profitability. Moreover, cost of deposits, repo and money market rates decreased significantly after recent rate cuts, providing
favorable funding conditions and higher margins to banks. All of these developments resulted in the highest net income since 2010.
As discussed in our previous report, CBT lowered effective funding rate to record lows while decreasing upper limit of interest rate corridor gradually and hence accommodated the NIM expansion due to maturity mismatch in the Turkish Banking sector. CBT’s successive rate cut cycles in last three meetings also supported the ongoing NIM expansion while favorable impact of mismatched maturities on NIM is decreasing as the end of rate cut cycles become more pronounced. We expect prevailing downward trend for interest rates to be replaced with a more stable one in 2H2013, which will put pressure on net interest margin due to adverse impact of
maturity mismatch in an upward or stable interest rate cycle following a downward interest rate cycle. Therefore, we expect NIM to shrink by 10 bps by the end of 2013.
Loan to Deposit Spread Commercial Loan Rates CBT Lending Rate Average Depo Rates Effective Funding Rate NIM
16.00% 14.00% 12.00%
16.00% 14.00% 12.00%
Source: CBT database, Odeabank Research
May-13
Apr-13
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
0.00% Mar-11
0.00% Feb-11
2.00% Jan-11
2.00% Dec-10
4.00%
Nov-10
4.00%
Oct-10
6.00%
Sep-10
6.00%
Aug-10
8.00%
Jul-10
8.00%
Jun-10
10.00%
May-10
10.00%
14
Net Interest Margin, ROA, ROE, Cost of Risk
Bond index headed down in April’13 while bank equity index headed up due to decreasing market rates. Turkish banking sector outlook is not so promising in the long run as downside pressure on loan rates continue due to increased competition and recent accommodative monetary policies while funding costs are decreasing at slower pace than loan rates. In the short-run, NIM will increase due to the falling funding costs on back of recent rate cuts going forward, however, when the global rate pressures come into play due to US recovery, the low yield assets will have to be funded at relatively higher funding costs hence posing downside risk to NIM growth.
Our expectation regarding the rise in cost of risk in 2013 has been confirmed by the Q1 2013 realizations and the recent pick-up in the NPLs. According to our estimates NPLs will rise throughout the year and the NPL ratio will hit to 3.2% which in turn will increase the provision costs for the banks. We expect cost of risk increase up to 1.3% at the end of 2013. In this respect, ROA and ROE may be subject to further downside pressures compared to NIM.
The trend of MSCI indices among various emerging markets reveal that Turkish banking sector performs well when compared to peers as we envisaged for the first half of 2013 due to credit rating upgrades and CBT’s rate cuts. However, the biggest downside risk regarding the index is the global rate pressure scenario, which might cause a sell off in the index if happened to be towards the year end.
We expect ROA and ROE to diminish in second half of the year slightly as a result of slight decrease in NIM as well as increase in the cost of risk. Therefore, the rate of decrease in ROA and ROE will be higher when compared to 10 bps estimated decrease in NIM.
CAR and Tier 1 ratios decreased slightly on the back of loan growth in the Q1 2013, even though the profitability increased in the same period. We expect CAR to decrease slightly as growth rate of net income is expected to fall short of the growth rate of risk assets due to increasing NPLs and high loan growth as well as downside risks on NIM. ROE NIM (rhs) ROA (rhs)
25%
7%
6%
20% 5% 15%
4% 3%
10%
2% 5% 1%
201312
201309
201306
201304
201303
201302
201301
201212
201209
201206
201112
201012
200912
200812
0% 200712
0%
Source: CBT database, Odeabank Research
15
Banking Performance Index
Banking performance index that we have introduced shows a little deterioration after the significant rise in the first two months of 2013 due to slight deterioration in NPLs and capital adequacy of the sector but it is still above the last 3 year average. We expect the ongoing trend to continue in the rest of the year as capital adequacy ratio, NPLs, cost of risk, and NIM are estimated to decline towards YE 2013. Hence, we expect the index stabilize just below the 2009-2012 average but above
2012 levels by the end of 2013.
BANKING SECTOR PERFORMANCE INDEX (Year-end 2005=100)
125 120 115
Average 2009-2012
110 105 100
Mar-13
Sep-12
Dec-12
Jun-12
Mar-12
Dec-11
Sep-11
Jun-11
Mar-11
Dec-10
Sep-10
Jun-10
Dec-09
Mar-10
Sep-09
Jun-09
Mar-09
Dec-08
Sep-08
Jun-08
Mar-08
95
Dec-07
Source: BRSA database, Odeabank Research
16
Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Q4 13 E
10%
5%
10%
5%
Asset Growth (YoY)
30%
0%
35%
Deposit Growth (YoY)
30%
20%
15%
Realization
0% Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Q4 13 E
35%
45%
40%
25% 30%
20% 25%
15% 20%
100%
25%
60%
40%
-20% Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Q4 13 E
Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Q4 13 E
Turkish Banking Sector Forecasts Loan Growth (YoY)
35%
Realization
15% Realization
Forecast
10% 5%
Forecast
0%
NPL Growth (YoY)
80% Realization
Forecast
Forecast
20%
0%
Source: BRSA and Odeabank Research
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Turkish Banking Sector Forecasts
Apr-13
Odeabank Forecasts 2013YE
Loan Growth (Y-o-Y)
19.6%
20.0%
NPL Ratio
3.0%
3.2%
Security Portfolio Growth (Y-o-Y)
-6.1%
-5.5%
Asset Growth (Y-o-Y)
15.4%
15.5%
Deposit Growth (Y-o-Y)
14.6%
15.2%
NIM
4.9%
4.8%
Source: BRSA and Odeabank Research
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Turkish Banking Sector Key Ratios
Total Loan Growth Total Deposit Growth Loan to Deposit Ratio Loans/Asset Deposit/Asset SH Equity/Asset Deposits/Liabilities NPL Ratio ROA (rhs) ROE Loans Yield AFS Yield HTM Securities Yield Interest Earning Asset Yield Deposits Funding Cost Banks Funding Cost Money Market Borrowing Funding Cost Securities Funding Cost Repo Funding Cost Leasing Funding Cost Interest Bearing Liabilities Funding Cost NIM (rhs) Cost of Risk Cost to Income Other OPEX to Avg. Assets Net Fee&Commissions to Op Inc. Total Rev/Total Exp Interest Rev/Interest Exp Non-Interest Income/ Non-Interest Expense
200512 57.4% 31.6% 62.2% 38.4% 61.8% 13.4% 71.4% 4.8% 1.7% 12.1% 16.3% 13.8% 14.7% 14.8% 9.4% 5.5% 8.8% 18.1% 11.3% 15.3% 9.0% 6.4% 1.8% 47.5% 4.1% 21.8% 118.7% 189.7% 60.6%
200612 40.0% 22.3% 71.2% 43.8% 61.6% 11.9% 69.9% 3.8% 2.5% 20.1% 14.9% 13.9% 15.6% 14.3% 9.9% 6.9% 15.0% N/A 12.3% 13.3% 9.5% 5.4% 1.1% 43.4% 3.3% 21.7% 123.4% 180.9% 75.1%
200712 30.4% 16.0% 80.0% 49.1% 61.4% 13.0% 70.6% 3.5% 2.8% 21.7% 15.7% 14.8% 15.8% 15.0% 10.7% 7.9% 17.4% N/A 14.4% 14.4% 10.4% 5.5% 1.2% 44.1% 3.3% 21.1% 120.9% 184.5% 61.3%
200812 28.6% 27.4% 80.8% 50.2% 62.1% 11.8% 70.4% 3.7% 2.0% 16.8% 15.4% 15.2% 15.9% 14.7% 10.9% 6.8% 10.2% N/A 13.2% 15.8% 10.4% 5.3% 1.6% 46.5% 3.2% 22.0% 116.8% 184.2% 60.2%
200912 6.9% 13.2% 76.3% 47.1% 61.7% 13.3% 71.2% 5.3% 2.6% 20.3% 14.1% 11.5% 13.2% 12.5% 7.4% 4.8% 2.1% 10.6% 7.8% 18.0% 7.1% 6.1% 2.7% 38.5% 2.9% 19.1% 127.3% 236.1% 65.3%
201012 33.9% 19.9% 85.2% 52.2% 61.3% 13.4% 70.8% 3.7% 2.5% 18.1% 10.5% 9.2% 10.2% 9.6% 5.7% 3.6% 3.2% 5.8% 5.9% 20.3% 5.4% 4.8% 1.2% 49.4% 2.8% 21.9% 123.6% 192.9% 70.2%
201112 29.9% 12.7% 98.2% 56.1% 57.1% 11.9% 64.8% 2.7% 1.7% 14.3% 9.5% 8.8% 10.3% 8.7% 5.7% 3.3% 4.5% 7.2% 5.4% 11.1% 5.3% 3.9% 0.7% 49.9% 2.7% 23.1% 116.4% 178.1% 60.7%
201206 18.8% 9.0% 102.6% 57.9% 56.4% 12.5% 64.5% 2.7% 1.7% 14.2% 10.3% 9.6% 11.0% 9.5% 6.2% 3.4% 4.3% 8.1% 6.4% 9.8% 5.8% 4.2% 0.8% 44.3% 2.6% 20.2% 119.3% 188.9% 59.2%
201209 201212 201301 201302 201303 14.3% 16.4% 18.1% 19.2% 19.2% 7.9% 11.0% 13.6% 13.6% 13.4% 102.4% 103.0% 103.3% 103.7% 105.6% 57.7% 58.0% 58.4% 58.4% 58.4% 56.4% 56.3% 56.6% 56.3% 55.3% 12.9% 13.3% 13.5% 13.3% 13.0% 64.7% 64.9% 65.4% 64.9% 63.6% 2.9% 2.9% 2.9% 3.0% 3.0% 1.8% 1.8% 1.9% 1.9% 1.8% 14.5% 14.5% 14.6% 14.5% 14.3% 10.6% 10.7% 10.7% 10.6% 10.5% 9.5% 9.2% 9.0% 8.9% 9.0% 11.1% 10.9% 10.5% 10.3% 10.5% 9.8% 9.9% 9.8% 9.8% 9.7% 6.2% 6.1% 5.9% 5.8% 5.6% 3.3% 3.2% 3.2% 3.1% 3.0% 3.6% 4.9% 4.2% 4.3% 4.2% 8.3% 8.1% 7.9% 7.8% 7.6% 6.5% 6.0% 5.7% 5.4% 5.0% 9.9% 12.3% 12.2% 12.3% 12.3% 5.8% 5.6% 5.5% 5.3% 5.2% 4.5% 4.7% 4.8% 4.8% 4.9% 0.9% 1.1% 1.1% 1.1% 1.2% 42.6% 42.0% 44.4% 44.4% 44.2% 2.6% 2.7% 2.7% 2.7% 2.7% 19.7% 19.2% 21.1% 21.0% 20.8% 119.7% 120.2% 121.1% 121.3% 121.2% 192.1% 198.1% 193.4% 196.6% 201.4% 56.4% 55.6% 63.7% 63.5% 61.8%
Source: BRSA and Odeabank Research
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Ferhat Yükseltürk, Strategic Planning Manager
[email protected]
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