Please refer to important disclaimer at the end of the report.

HALKBANK (HALKB TI/HALKB.IS)

Equity Research

25 Feb 2016

Banks

Outperform

Increase in Group II NPLs…

Halkbank’s 4Q15 NI came in at TL648mn as indicated by the tax financials (+48% q/q and

+47 y/y) ABOVE expectations (Ata Invest 4Q15: TL548mn and consensus TL605mn).

The main deviation between actual results and our estimates was driven from the lower

provision expenses as Halkbank reversed TL40mn free provision this quarter. As of 1Q16

the bank has TL123.5mn free provision remaining.

Halkbank’s 4Q15 NI came in at TL648mn (+48% q/q and +47% y/y) bringing full year EPS

growth to +5% y/y.

Quarterly boost in NI was mainly supported (1) Lower trading losses at TL91mn compared

to 3Q15 TL143mn, thanks to lower swap cost, (2) higher fee income (+14% q/q and 17% y/y),

(3) 20bps NIM increase q/q thanks to TL292mn CPI linker income vs. TL72mn in 3Q15 and (4)

higher other income thanks to NPL collections.

On the asset quality side we saw a rising trend in NPL, especially on Group II loans. Total

group II loans increased by 38% q/q (nearly TL1bn) whereas as structure part was increased

by 20% q/q. Group II loans now stands at 2.7% of the total loan book vs. 2.0% in 3Q15. NPL

ratio deteriorated by 10bps to 3.1% vs. 3.0% in 3Q15. We believe 4Q15’s sharp increase in

group II loans can cause NPL ratio to deterioration to be more visible in the 2H16. The loan

book remained flattish however increased by 25.2% y/y. Please recall that we expect 16% loan

growth for the bank in 2016, which is in line with the budgeted guidance.

On the capital front, both CAR and Tier-1 improved by 80bps to 13.8% and 13.1%. On the

opex side, quarterly total cost increased by 1% q/q brining full year cost growth to 17%. Please

recall that, we expect cost growth to decline to 12% y/y. Following 5% 2015 NI increase we

expect 20% EPS growth in 2016E and 13.7% ROE.

Please recall that in 2016 the bank expect 16% loan growth (Ata 16%), 17% deposit growth

(Ata 15%), 12% NII growth (Ata Invest 11.5%), 17% net fee growth (Ata 17%), 15% opex growth

(Ata 13%), ROE 13% (Ata 13.7%) and ROA 1.3% (Ata 1.4%), NIM flat (Ata flat NIM) and 30bps

increase in NPL (Ata in line with guidance 30bps increase).

We maintain our “Outperform” rating for Halkbank with a 12M TP of TL13.39, 41% upside

potential (inc. dividend).

Derya Guzel

dguzel@atainvest.com

+90 (212) 310 62 89

Exhibit 1 - HALKB bank-only income statement summary (TL mn)

P&L summary 4Q15E Deviation 4Q15A 4Q14 y/y D 3Q15 q/q D

Net interest income 1,602 -7% 1,481 1,414 5% 1,378 7%

Fees and commissions 306 1% 308 303 2% 271 14%

Trading gains (Trading + FX) -61 49% -91 15 N/M -143 -37%

Opex -893 1% -904 -793 14% -895 1%

Total provisions -289 -69% -88 -476 -81% -121 -27%

Other income 119 -22% 93 99 -6% 63 48%

Net income 548 18% 648 442 47% 438 48%

Source: Company data, Ata Inv est Estimates

2

4Q15 Earnings Update

Halkbank

Exhibit 1 - Halkbank bank-only income statement summary (TL mn)

4Q15E Deviation 4Q15A 4Q14 y/y D 3Q15 q/q D 2014 2015 y/y D

Net interest income 1,602 -7% 1,481 1,414 5% 1,378 7% 5,112 5,663 11%

Fees and commissions 306 1% 308 303 2% 271 14% 1,023 1,194 17%

Trading gains (Trading + FX) -61 49% -91 15 N/M -143 -37% 56 -262 N/M

Bank revenues 1,847 -8% 1,698 1,732 -2% 1,506 13% 6,190 6,595 7%

Operating expense total -893 1% -904 -793 14% -895 1% -2,987 -3,489 17%

Operating income 953 -17% 794 939 -15% 611 30% 3,203 3,107 -3%

Associates 0 N/M 0 8 N/M 0 -100% 154 189 23%

Cash flow 953 -17% 794 947 -16% 611 30% 3,357 3,295 -2%

Total provisions -289 -69% -88 -476 -81% -121 -27% -1,161 -1,302 12%

Other income 119 -22% 93 99 -6% 63 48% 531 862 62%

EBT 783 2% 799 570 40% 553 44% 2,727 2,856 5%

Taxes -236 -36% -151 -128 18% -115 31% -521 -540 4%

Net income 548 18% 648 442 47% 438 48% 2,206 2,315 5%

Source: Company data, Ata Invest Estimates

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