Assigning Buy recommendations to GARAN bonds: We are assigning Buy recommendations to Garanti BBVA’s (GARAN) US$-denominated senior and subordinated bonds. We note that the GARAN bonds have already performed well. However, as at Akbank, we expect this bank’s solid fundamentals to continue to support valuations.
Garanti BBVA faces some of the same risks as other large Turkish banks: Significant escalation in tensions between the US and Turkey remains a risk. The US administration has not imposed sanctions on Turkey following partial delivery of military equipment from Russia, but there are concerns this may still happen. Significant TRY weakness and asset quality deterioration are also risks. A recent Bloomberg report that the CEO of the bank may depart may cause some concern. However, we do not think this report should detract from the bank’s stellar performance, which we expect to be maintained.
Another quarter, another beat: Q2 bank-only net income at Garanti BBVA exceeded the Bloomberg consensus forecast. Consolidated net income of TRY1.9bn was c10% higher than in the previous quarter, and Garanti BBVA generated an annualised ROE of 15.3%. Given the very significant challenges faced by all Turkish lenders in the period, we see this performance as impressive. Management expects the bank’s cost of risk and NPL ratio to rise in H2 19, but has not made any changes to previous guidance. We see fundamentals at Garanti as best-in-class and expect this lender’s performance to continue to compare well with peers.