ATA INVEST- TR BANKS- 1Q15 Earnings Preview

Ata Finance Group

«Turkish Banks 2015 First Quarter Earnings Preview»

15 April 2015

Derya Guzel

[email protected]

+90 (212) 310 62 89

mailto:[email protected]

Ata Finance Group

Turkish Banks – Coverage banks 1Q15 trends

2

• The banks' earnings reporting season will start with Akbank on Friday, 24th April 2015 and followed by Halkbank ( 27th

April), Garanti (28th April), TSKB (28th April ) and Yapi Kredi (8th May). The deadline to submit bank only financials is 11

May 2015.

• We estimate our coverage banks to post 4% y/y increase and 9% q/q decline in NI on an aggregate basis. On a quarterly

basis, while higher trading gains, higher other income and seasonal dividend income from subsidiaries were supportive,

lower NII (due to lower CPI income and compression in loan to deposit spreads) and higher provisions (due to higher

general provisions due to FX depreciation, regulatory effect and loan growth) should weigh on bottom lines.

• Among our coverage banks, on a quarterly basis, we expect Halkbank to post 16% q/q NI increase driven by lower

provisions (due to the high base in 4Q14 due to extra provision for one off NPL) followed by Isbank with 13% q/q

increase thanks to the TL207mn provision reversal and the lowest NIM contraction among the peers. On the other hand,

Vakifbank should post the steepest q/q NI decline mainly due to the one off gain from the Visa-Mastercard sale which

was booked in 4Q14. As a small cap pick, TSKB with TL92mn NI (13% q/q increase) should also stand out from the

crowd. We expect c.45bps NIM contraction for our coverage banks on q/q basis, Isbank with 30bps (thanks to CPI

calculation methodology), Akbank with 35bps (thanks to good NIM management) and TSKB with 30bps (thanks to stable

loan spreads) should stand out when compared on margin evolution.

• On an aggregate basis, we expect 1% q/q decline in the fee and commission income but 11% y/y increase. Quarterly

slower fee generation can be attributed to: lower volume growth, regulatory effect and lack of seasonal a/c maintenance

fees (Akbank, Yapi Kredi and Isbank collects them in 2Q-4Q) in some cases and deceleration in credit card loans.

• On the opex side, on an aggregate basis, while we expect cost to remain flat q/q, on a y/y basis we foresee 18% increase

in cost. Depreciation of TL, seasonal bonus payments and increased trend in fee rebates (linked with consumer

protection committee) should cause cost to increase on a yearly basis.

• Although margins are trending below what the banks were guiding, we don’t expect to see bank managements to revise

their full year budget guidance's as whole during 1Q15 earnings calls. Supported by higher income on CPI linked bonds,

we foresee improvement in NIM in 2Q15.

Ata Finance Group

Turkish Banks- 1Q15 estimates in context

3

1Q15 Estimates

2015 Full-year Estimates

TLmn Net income

Banks 1Q15E 1Q14 y/y D 4Q14 q/q D 1Q15E 1Q14 y/y D 4Q14 q/q D 1Q15E 1Q14 y/y D 4Q14 q/q D

AKBNK 692 651 6% 894.3 -23% 1,700 1,672 2% 1,821 -7% 519 510 2% 579 -10%

GARAN 676 760 -11% 777.6 -13% 1,860 1,601 16% 2,159 -14% 710 730 -3% 688 3%

HALKB 513 530 -3% 441.7 16% 1,315 1,162 13% 1,414 -7% 310 222 40% 303 2%

ISCTR 926 815 14% 819.5 13% 1,900 1,772 7% 1,995 -5% 525 463 13% 501 5%

TSKB 92 94 -2% 81.3 13% 128 140 -9% 133 -3% 3 2 37% 4 -24%

VAKBN 451 374 21% 682.8 -34% 1,280 1,059 21% 1,346 -5% 195 145 34% 191 2%

YKBNK 502 475 3% 525.1 -4% 1,400 1,258 11% 1,558 -10% 575 480 20% 596 -4%

Coverage total 3,852 3,700 4% 4,222 -9% 9,583 8,663 11% 10,426 -8% 2,837 2,552 11% 2,861 -0.8%

Source: Company data, Ata Invest Estimates

NII Net fees

TLmn

Banks 2014 2015E y/y D 2014 2015E y/y D 2014 2015E y/y D

AKBNK 3,160 3,591 14% 6,921 7,974 15% 2,359 2,604 10%

GARAN 3,200 3,678 15% 7,443 8,499 14% 2,949 3,053 4%

HALKB 2,206 2,597 18% 5,112 6,125 20% 1,023 1,120 10%

ISCTR 3,382 3,810 13% 7,454 8,579 15% 2,004 2,127 6%

TSKB 369 425 15% 546 647 18% 11 12 7%

VAKBN 1,753 1,883 7% 4,651 5,541 19% 709 782 10%

YKBNK 1,845 2,061 12% 5,606 6,913 23% 2,201 2,318 5%

Coverage total 15,916 18,045 13.4% 37,733 44,279 17.3% 11,255 12,017 6.8%


Net income Net Interest Income Net fees

Ata Finance Group

Turkish Banks- 1Q15E coverage aggregate earnings growth

4

Income statement summary 1Q15E 1Q14 y/y D 4Q14 q/q D 2014 2015E y/y D

Net interest income 9,583 8,663 11% 10,426 -8% 37,733 44,279 17%

Fees and commissions 2,837 2,552 11% 2,861 -1% 11,255 12,017 7%

Trading gains (Trading + FX) 135 -313 -143% 83 63% 249 393 58%

Bank revenues 12,555 10,903 15% 13,370 -6% 48,746 56,230 15%

Operating expense total -6,565 -5,558 18% -6,556 0% -24,263 -27,463 13%

Operating income 5,990 5,344 12% 6,814 -12% 24,483 28,767 17%

Associates 411 578 -29% 9 N/M 1,043 1,128 8%

Cash flow 6,401 5,922 8% 6,823 -6% 25,526 29,895 17%

Total provisions -2,815 -2,494 13% -2,570 10% -9,938 -10,989 11%

Other income 1,319 1,231 7% 1,109 19% 4,615 4,187 -9%

EBT 4,905 4,660 5% 5,362 -9% 20,204 23,096 14%

Taxes -1,053 -948 11% -1,140 -8% -4,288 -5,051 18%

Net income 3,852 3,712 4% 4,222 -9% 15,916 18,045 13%


Ata Finance Group

Turkish Banks- valuation in context

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Ticker AKBNK GARAN HALKB ISCTR VAKBN YKBNK TSKB

Current share price 7.77 8.48 13.10 5.80 4.40 4.08 2.07

12M Target price 9.70 9.90 18.00 7.90 6.28 5.05 2.58

Upside (%) 25.5 14.9 38.5 36.7 44.6 24.9 28.2

Rating OP MP OP OP OP MP OP

Key Data (TLm)

Market cap 30,920 36,162 16,250 26,010 10,850 17,562 3,015

Market cap US$m 11,908 13,927 6,258 10,017 4,179 6,763 1,161

Assets 195,190 203,622 143,767 219,599 138,539 158,276 13,903

Loans 118,050 123,111 92,187 139,321 91,800 105,672 9,666

Deposits 107,920 110,538 93,892 125,257 84,206 93,687 N/M

EPS (TL)

2013 0.74 0.72 2.20 0.70 0.63 0.46 0.22

2014 0.79 0.76 1.76 0.75 0.70 0.42 0.25

2015E 0.90 0.88 2.08 0.85 0.75 0.47 0.28

2016E 1.02 0.99 2.43 0.96 0.89 0.55 0.33

BVPS (TL)

2013 5.33 5.38 11.32 5.24 5.05 3.98 1.26

2014 6.28 6.19 13.23 6.51 5.91 4.40 1.53

2015E 7.09 6.87 14.89 7.15 6.66 4.87 1.75

2016E 8.00 7.66 16.84 7.87 7.55 5.43 2.02

P/E (x)

2013 10.56 11.85 5.95 8.25 6.94 8.85 9.52

2014 9.84 11.13 7.42 7.72 6.27 9.61 8.41

2015E 8.65 9.68 6.31 6.85 5.84 8.60 7.31

2016E 7.62 8.60 5.38 6.03 4.93 7.36 6.23

P/BV (x)

2013 1.46 1.58 1.16 1.11 0.87 1.02 1.65

2014 1.24 1.37 0.99 0.89 0.74 0.93 1.36

2015E 1.10 1.23 0.88 0.81 0.66 0.84 1.18

2016E 0.97 1.11 0.78 0.74 0.58 0.75 1.03

Key ratios (4Q'14) %

LDR 111.1 114.1 98.1 116.7 114.0 116.1 111.1

NPL 1.8 2.3 3.5 1.5 3.7 3.4 0.2

Loans as % assets 61.3 61.2 65.5 65.6 66.1 67.3 69.9

CAR 15.2 15.2 13.6 16.0 14.0 15.0 18.0

Quarterly ROE 14.6 12.2 11.0 11.7 19.2 11.2 14.7

Quarterly ROA 1.60 1.53 1.48 1.40 1.20 1.20 2.14

Source: Ata Invest Estimates

Ata Finance Group

Akbank (AKBNK TI, Outperform, TP TL9.70)

6

• We expect Akbank to post TL692mn NI for the quarter, indicating

23% q/q decline and 6% y/y increase. Quarterly decline in NI is

likely to be mainly due to seasonally lower fees, higher opex and

higher provisions. Higher trading gains and higher other income

should be supportive.

• We expect both loan growth (Akbank flat q/q vs sector 6%) and

deposit growth (Akbank 4% vs sector 6%) during the quarter to lag

the sector average, mainly to defend the margins and selective

growth. Mainly due lower CPI income, (TL431mn in 4Q14 vs.

TL200mn in 1Q15E) we foresee Akbank’s NIM to decline by 35bps

q/q.

• Akbank collects a/c maintenance fees in 2Q-4Qs. Mainly due to the

seasonality as and regulatory effect, we expect Akbank’s fee &

commission income to decline by 10% q/q. Fee income growth of

2% y/y currently stands behind Akbank’s annual budget guidance

of 5-7% and our 10% estimate. We expect to see some

improvement in fee collection with the pick-up in volumes in 2H15.

• We estimate opex to increase by 10% q/q and 26% y/y. Sharp

increase in cost is caused by higher fee rebates and TL25mn one

off cost guided by the bank as well as FX deprecation.

• We expect the bank to book TL29mn dividend income from its

subsidiaries.

• Due to both FX volatility and regulatory effect, we expect general

provisions to increase, which will push the total provisions upwards

both q/q and y/y basis.

• On a q/q basis, we expect NPL ratio to remain flat and collections

levels to be close to 4Q14. Please recall that Akbank sold TL249mn

NPL during the quarter and realised a gain of TL40mn from NPL

sale which will be booked under other income line.

AKBNK

Income statement summary 1Q15E 1Q14 y/y D 4Q14 q/q D

Net interest income 1,700 1,672 2% 1,821 -7%

Fees and commissions 519 510 2% 579 -10%

Trading gains (Trading + FX) 90 -234 N/M 38 139%

Bank revenues 2,309 1,948 19% 2,437 -5%

Operating expense total -1,086 -863 26% -987 10%

Operating income 1,223 1,085 13% 1,450 -16%

Associates 29 27 6% 0 N/M

Cash flow 1,252 1,112 13% 1,450 -14%

Total provisions -550 -485 13% -434 27%

Other income 185 197 -6% 125 48%

EBT 887 824 8% 1,141 -22%

Taxes -195 -172 13% -246 -21%

Net income 692 651 6% 894 -23%


Ata Finance Group

Garanti (GARAN TI, Marketperform, TP TL9.90)

7

• We expect Garanti to book TL676mn NI in 1Q15, indicating a

13% q/q and 11% y/y decline. Quarterly bottom-line decline was

mainly due to the lower NII, while lower trading loss and higher

other income were supportive.

• Driven by higher yielding GPL and mortgage lending, we expect

Garanti’s loan growth (8% q/q vs sector 6%) to realise above the

sector. Driven by FX deposit base, total deposit growth of 8% q/q

should also outpace the sector average 6%.

• Mainly due to lower income on CPI linkers (TL420mn 4Q14 vs

TL220mn 1Q15E) and deceleration in loan to deposit spread, we

expect Garanti’s NIM to decline by c.60bps q/q.

• On the trading side, negative effect of swap cost somehow

eased as the bank was active in bond trading, hence we expect

1Q15’s trading loss to be smaller than that of 4Q14.

• We expect total fees to increase by 3% q/q but increase by 3%

y/y. Decline of 3% y/y is in line with the Garanti’s budgeted

guidance while quarterly fee increase is supported by seasonal

a/c maintenance fees and loan growth.

• On the opex side, we expect cost to increase 2% q/q and 16%

y/y, on the back of acceleration in fee rebates + FX depreciation.

• On the other income side, we expect collections to be stronger

than expected and NPL sale gain of TL14.5mn. Total other

income line should be higher both on y/y and q/q basis.

GARAN



Fees and commissions 710 730 -3% 688 3%

Trading gains (Trading + FX) -35 56 -163% -138 -75%

Bank revenues 2,535 2,387 6% 2,708 -6%

Operating expense total -1,280 -1,102 16% -1,258 2%

Operating income 1,255 1,285 -2% 1,450 -13%

Associates 0 0 N/M 0 N/M

Cash flow 1,255 1,285 -2% 1,450 -13%


Other income 170 130 30% 76 123%

EBT 890 1,004 -11% 1,024 -13%

Taxes -214 -243 -12% -246 -13%

Net income 676 760 -11% 778 -13%


Ata Finance Group

Halkbank (HALKB TI, Outperform, TP TL18.00)

8

• We estimate TL513mn NI for 1Q15, which indicates 16% q/q

increase and 3% decrease y/y. Quarterly increase is mainly

driven by lower provisions, as the bank booked TL200mn

provision for the big ticket NPL during previous quarter.

• We expect Halkbank to post 6% q/q loan growth, which in line

with the sector however on the funding side 3.5% deposit growth

lag behind the sector’s 6% growth. Both loan and deposit growth

should be driven by FX segment.

• Mainly due to the compression in loan to deposit spreads and

lower income CPI linkers, (TL240mn in 4Q14 vs TL120mn in

1Q15) we expect NIM to decline by 50bps q/q.

• On the asset quality side, we expect NPL ratio to improve on q/q

basis. While collections are close to 4Q14 levels, gross NPL

inflow should show signs of improvements.

• On the fee side, we expect to see above budget (10%) y/y

growth and also some improvement on q/q basis. Strong fee

growth should be the results of increased fees as Halkbank is

trying to bring the fees to its peer average levels and also

charging fees for uncovered areas.

• As it is becoming a sector wide issue, fee rebates also caused

Halkbank’s opex to increase 3% q/q and 19% y/y.

• For the last couple of years Halkbnak has been booking the

dividend income received from subsidiaries in 1Q and 2Q,

however this year management advised that all the dividend

income will be booked in 2Q15, we believe this is mainly to

smooth out the effect of TL350mn provision which is due to be

booked in 2Q.

HALKB



Fees and commissions 310 222 40% 303 2%

Trading gains (Trading + FX) 15 -80 -119% 15 -1%

Bank revenues 1,640 1,304 26% 1,732 -5%

Operating expense total -820 -689 19% -793 3%

Operating income 820 614 33% 939 -13%

Associates 0 99 -100% 8 N/M

Cash flow 820 714 15% 947 -13%

Total provisions -300 -194 55% -476 -37%

Other income 129 124 4% 99 30%

EBT 649 644 1% 570 14%

Taxes -136 -113 20% -128 6%

Net income 513 530 -3% 442 16%


Ata Finance Group

Isbank (ISCTR TI, Outperform, TP TL7.90)

9

• We estimate TL926mn net income for the quarter (up 13% q/q

and up 14% y/y). We expect net income to be supported by

higher other income (reversal of TL207mn one-off tax provision),

seasonal dividend income and lower opex (due to couple of one-

offs in 4Q14) while lower trading gains and higher provisions

(due to loan growth, FX depreciation and regulatory effect)

should counterbalance.

• We expect Isbank to post slightly above sector loan growth

(Isbank 7% vs sector 6%) driven by FX loans. On TL side,

lending growth was driven by GPLs. On the funding side, we

expect TL deposits to stay flat however driven by FX deposits,

we expect overall deposit growth (Isbank 8% vs sector 6%) to be

above the loan growth hence improving LDR during the quarter.

• While loan to deposit spread should decelerate compared to

4Q14, thanks to the different calculation methodology, income

on CPI linkers should remain stable q/q (TL 227mn in 4Q14)

hence NIM decline q/q basis in Isbank c.30bps should be lower

than the peers.

• On asset quality, we foresee slight deterioration (10bps q/q) in

NPL ratio due to slower collections. This increase is in line with

budgeted guidance of 20-30bps increase. Isbank also advised

that, there was a small NPL sale during the quarter. Coverage

ratio should remain unchanged q/q.

• As indicated by Isbank’s KAP announcement, the bank is due to

book TL207mn provisional reversal related to tax fine during the

quarter under other income line.

• Although we expect bank to book some part of its annual

dividend income in 1Q15 (TL165mn), we expect bigger part of

the dividend income to booked in 2Q15.

ISCTR




Trading gains (Trading + FX) 50 86 -42% 133 -62%

Bank revenues 2,475 2,321 7% 2,629 -6%

Operating expense total -1,400 -1,272 10% -1,567 -11%

Operating income 1,075 1,049 2% 1,062 1%


Cash flow 1,240 1,252 -1% 1,062 17%

Total provisions -450 -553 -19% -191 135%

Other income 367 341 8% 146 151%

EBT 1,157 1,041 11% 1,017 14%

Taxes -231 -225 3% -198 17%

Net income 926 815 14% 819 13%


Ata Finance Group

Vakifbank (VAKBN TI, Outperform, TP TL6.28)

10

• We estimate Vakifbank to post TL451mn net income during

the quarter (down 34% q/q and up 21% y/y). Quarterly decline

in NI is mainly due to the lower other income (as the bank

booked TL290mn one-off from Visa-Mastercard sale) while

TL70mn dividend income and higher trading gains should

smooth out the bottom line decline.

• Driven by FX lending, GPLs & mortgages we foresee

Vakifbank to post above sector loan growth (Vakifbank 7.5%

vs sector 6%). On the funding side, driven by FX deposit base

total deposit growth at 7.5% should also outpace sector’s 6%

growth. Hence LDR should remain flat on q/q basis.

• Mainly owing to the compression in loan to deposit spreads as

well as lower income on CPI linkers, we foresee c.50bps q/q

NIM decline.

• We foresee Vakifbank’s total fee and commission income to

increase by 2% q/q and 34% y/y mainly driven by lending

growth.

• Due to increase in fee rebates and FX deprecation, we expect

3% q/q and 19% y/y increase in opex.

• Although collections were slower than 4Q14, thanks to the

loan growth and reasonable NPL inflow, we expect to see

10bps improvement in NPL ratio but some decline in

coverage ratio.

• Mainly due to the TL290mn one-off gain from Visa-Mastercard

sale booked in 4Q14, we expect other income to decline by

53% q/q. However, on the back of stable collections pace, we

foresee other income line to increase by 12% y/y.

VAKBN




Trading gains (Trading + FX) 45 72 -38% 37 20%

Bank revenues 1,520 1,277 19% 1,575 -3%

Operating expense total -844 -734 15% -821 3%

Operating income 676 543 25% 754 -10%


Cash flow 746 608 23% 754 -1%

Total provisions -425 -376 13% -449 -5%

Other income 250 224 12% 535 -53%

EBT 571 456 25% 840 -32%

Taxes -120 -82 46% -157 -24%

Net income 451 374 21% 683 -34%


Ata Finance Group

Yapi Kredi (YKBNK TI, Marketperform, TP TL5.05)

11

• We expect Yapi Kredi to book TL502mn NI during the

quarter, down by 4% q/q but up by 3% y/y. On a quarterly

basis, while higher other income to be supportive, lower NII,

higher trading loss and lower fees should weigh on the

profitability.

• Mainly due to lower spreads and lower income on CPI

linkers, we expect NIM to decline by 50bps on q/q basis.

• We foresee Yapi Kredi’s loan growth to come slightly above

the sector; however deposit growth to outpace the sector’s

growth (mainly on FX deposits) hence LDR should improve

q/q basis.

• Mainly due to slower collection and continued NPL inflow

from unsecured lending side, we expect NPL ratio to increase

10bps while coverage ratio to decline q/q basis.

• We expect Yapi Kredi to book TL135mn dividend income

during the quarter.

• We foresee opex to decline by 1% q/q. However, mainly due

to the continuing investment cycle and higher fee rebates, we

estimate cost to increase by 27% y/y basis.

• We estimate Yapi Kredi’s total fees to decline by 4% q/q

basis due to lack of a/c maintenance fees (the bank collects

them 2Q-4Qs). However, we expect higher loan growth to

support fees to post 20% y/y increase.

• Yapi Kredi is due to publish its 1Q15 results on 8 May 2015.

YKBNK




Trading gains (Trading + FX) -35 -213 -84% -4 688%

Bank revenues 1,940 1,525 27% 2,149 -10%

Operating expense total -1,110 -875 27% -1,104 1%

Operating income 830 650 28% 1,045 -21%


Cash flow 965 824 17% 1,045 -8%


Other income 195 185 6% 127 54%

EBT 635 575 11% 669 -5%

Taxes -133 -88 52% -143 -7%

Net income* 502 487 3% 525 -4%


Ata Finance Group

TSKB (TSKB TI, Outperform, TP TL2.58)

12

• We estimate TL92mn NI (up by 13% q/q and down by 3%

y/y). Quarterly NI should be supported by higher trading gains

and dividend income while higher provisions and higher other

income (due to the release of free provision) should

counterbalance.

• While we expect stable loan-funding spreads, we foresee

income on CPI linkers to decline, (TL30mn in 4Q14 vs

TL17mn in 1Q15E) implying 30bps decline in NIM q/q.

• In line with the trend in the sector, we expect to see some

worsening in TSKB’s NPL ratio during the quarter hence

higher provision level. To smooth out the provision effect, we

expect TSKB to reverse some free provision that it has set

aside (as of 4Q14 the bank has total TL83mn free provision).

• We expect TSKB's NPL ratio to go up by 10bps to 0.25%.

This is in line with the TSKB budget NPL ratio guidance of

0.3% for 2015.

• The bank will be publishing its 1Q15 financials on 27 April

2015, there will not be an earnings call as TSKB holds

earnings calls only on semiannual basis.

TSKB


Net interest income 128 140 -9% 133 -3%


Trading gains (Trading + FX) 5 -1 N/M 3 99%

Bank revenues 136 142 -4% 139 -2%

Operating expense total -25 -23 7% -25 -1%

Operating income 111 118 -6% 114 -2%


Cash flow 123 127 -3% 115 7%

Total provisions -30 -40 -26% -14 119%

Other income 23 31 -25% 1 N/M

EBT 116 117 -1% 102 13%

Taxes -24 -24 0% -21 13%

Net income 92 94 -2% 81 13%


Ata Finance Group 13

TURKEY Emirhan Cad. No: 109 Atakule 34349 Istanbul – TURKEY Tel-PBX: 90-212-310-6200 www.atainvest.com

Sales Title Tel E-mail

Elif Erdem Director 90-212-310-6262 [email protected]

Mert Ozener Sales 90-212-310-6267 [email protected]

Research Title Tel E-mail

Cemal Demirtas Head of Research 90-212-310-6428 [email protected]

DUBAI

http://www.atainvest.com/

Ata Finance Group

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ATA INVEST- TR BANKS- 1Q15 Earnings Preview

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