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Akbank, Garanti and Isbank in 2020: From rebalancing to recovery

    Tolu Alamutu
    Tolu Alamutu

    Credit Research Analyst, Banks

    Tellimer Research
    9 January 2020
    Published byTellimer Research

    Three Turkish lenders have published their expectations for 2020. 2019 was widely seen as a year of ‘rebalancing’. If we are to summarise disclosures from Isbank, Garanti and Akbank in a word, it would be ‘recovery’. Margins are expected to expand, cost discipline is to continue, asset quality metrics are seen improving, capital ratios are to remain solid and ROEs are forecast to be higher than in 2019.

    Overall, these comments were probably expected, and are largely in line with what we heard from the banks during the Q3 19 results season. Some may argue that valuations largely discount these expected improvements. As highlighted in our recent report, we think there are pockets of value in subordinated bonds. Below, we detail our key takeaways from each bank’s presentation and provide a table with the banks’ guidance for 2020. 


    • Akbank expects GDP growth of 4% with domestic demand increasing and investment appetite recovering later in the year. The lender also expects gradual inflation to continue to trend downwards, and sees the Central Bank of the Republic of Turkey (CBRT) cutting rates in line with this. The budget deficit/GDP ratio is seen remaining under 3% and Turkey’s current account deficit is forecast to be ‘limited’ though (TRY-driven) loan growth is expected to accelerate. 
    • On digitisation, Akbank currently serves 4.2 million more customers than it did in 2014, with 220 fewer branches. As a result, efficiency metrics such as loans and deposits per branch and revenues per branch have improved, and remain much better than sector averages. Technology is seen driving Akbank’s quest to increase wallet share in corporate and investment banking, improve efficiency and offer tailor-made products in commercial banking, improve the client experience and customised pricing in retail banking and create a state-of-the-art mobile investment experience in wealth management. 
    • Akbank expects a higher leverage ratio this year as the bank redeploys capital to lending, specifically in TRY. The bank will seek to raise additional demand deposits and broaden its deposit base. The US$500mn senior eurobond due later this month is to be redeemed and Akbank plans to reduce wholesale borrowing further, but will ‘opportunistically’ monitor the capital markets. Securities holdings in LC and FC are expected to be NIM-accretive. As at other banks, while the diverse fee income base and cross-selling may help boost fees, Akbank expects fee income growth to moderate due to regulatory changes and the high 2019 base. This year’s cost rise is to be driven by higher depreciation and marketing expenses, as well as a rise in the Savings Deposit Insurance Fund (SDIF) premium. Despite this, Akbank expects its cost/income ratio to remain best-in-class, reflecting its digitisation efforts and superior revenue generation. Turning to asset quality, the cost of credit is seen falling, as is the non-performing ratio. 

     Garanti BBVA 

    • GDP growth expected to rebound to 4.0% this year from 0.8% forecast for 2019 and 2.6% in 2018. In addition, inflation is seen falling to 8.5%, further rate cuts are expected – the CBRT funding rate is seen declining to 9.0% by the end of this year. Garanti also expects a current account balance of -1.0%, budget balance of -3.0% and unemployment rate of 12%. Unsurprisingly, Garanti sees the two key risks as geopolitical tensions and a slowdown in global growth due to Brexit and/or trade wars. 
    • TRY loan growth will be driven by business banking and consumer loans. In FC, higher export loan volumes will be partially offset by redemptions. Margins are seen improving driven by stronger LC loan growth and falling deposit costs. Fee and commission income growth is expected to moderate, after last year’s very strong performance, due to the cap on merchant fees (which the bank had mentioned before) and the high base effect. On funding, Garanti intends to lower its dependence on external borrowing, and will consider alternative funding sources opportunistically. On costs, Garanti expects changes in insured deposit amounts and increased IT investments to lead to low-teens opex growth. Turning to asset quality, NPL inflows are seen declining and Garanti expects higher collections this year. However, the lender does not expect asset quality metrics to normalise until 2021.


    • Isbank expects GDP growth of 4.0%, inflation of 9.8% and a current account balance of -1.4% this year. The issuer also forecasts system-level TRY loan and deposit growth of 15% and 16% respectively. 
    • As at Akbank, Isbank sees increased use of technology as a way to improve efficiency and profitability and respond to customers’ needs. Isbank had over 8 million digital banking customers in November 2019 and non-branch channels accounted for almost 26% of fee income, a c60% increase on 2018. 
    • Isbank has four strategic priorities for this year: selective growth with risks and returns balanced, a strong focus on asset quality, sustaining a solid capital base and enhancing the customer experience and cost efficiency. On funding, management will take a ‘cost-sensitive approach’ to wholesale funding. Further, Isbank will seek to grow low-cost, diverse deposits. Fee income growth is to be driven by diverse business lines, enhancing the digital offering and by expanding the issuing and acquiring base. On asset quality, Isbank expects the Stage 3 loans coverage ratio to improve and does not foresee a significant change in the share of Stage 2 loans.


    Table 1: 2020 expectations 
    LC loan growth
    FC loan growth (USD)Low-single digitShrinkageFlattish
    LC deposit growth  15-16%
    FC deposit growth (USD)  (-) 3-4%
    Loans/deposit ratio Flattish, below 100%~95%
    Leverage> 8x  
    ROA  -1.6-1.8%
    Net interest margin (swap adjusted)≥ 4.0%70-80bp expansion3.8-4.0%
    Net fee & commission income growthHigh-single digitHigh-single digit~10%
    Opex growthMid-teensLow-teens~17%
    Cost/income ratio≤ 34% 40-41%
    Non-performing loans ratio< 6%~6.5%< 7%
    Net total cost of credit~200bp~200bp< 150bp
    Tier 1 ratio  > 12%
    CAR  > 15%
    Source: Bank presentations