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Halkbank: Historically the weakest results

  • Halkbank reported 1Q21 net income of TL59mn (+ 158% q/q and +151% y/y), compared to our estimate of TL98mn.
  • Halkbank shares trade at 0.2x 21E P/B, fairly reflecting the largest COE-ROE spread in our coverage universe.
  • The case against Halkbank in the US will continue in June

Halkbank reported 1Q21 net income of TL59mn (+ 158% q/q and +151% y/y), compared to our estimate of TL98mn and consensus estimate of TL59mn. Key highlights of 1Q21 results are 1) ROE of 0.6% is the lowest on record 2) Net interest turned to negative for the first time.

Halkbank shares trade at 0.2x 21E P/B, fairly reflecting the largest COE-ROE spread in our coverage universe. As a result, the shares are down 19% year-to-date vs. a 22% increase in BIST-Banks index. The case against Halkbank in the US will continue in June but even apart from a potential fine, Halkbank is the most thinly capitalised among peers and it will have less of a room for improvement in sequential profit growth going forward. We maintain our Underperform rating.  

TL loan book was only up 0.3% q/q vs. 2.8% for the sector. FC loans were down by 5.7% compared to +1% for the sector (in USD terms). However, on a y/y basis, Halkbank has grown its TL loan book by 41.1% y/y (vs. 34.4% for the sector), as the state banks stepped in for the loan demand throughout 2020, whereas private peers held back.  The share of deposits in liabilities mix increased to 68.1% from 67.2% in 4Q20. Halkabank’s TL deposits grew by 0.7% q/q, while FX deposits were down by 3.5%, in line with the developments in its loan book.

Swap adjusted quarterly NIM declined by 100bps q/q to -0.6% in 1Q21 (4.9% in 1Q20). Halkbank’s TL core spread was already -1% in 4Q20 and has worsened to -2.8%, as cost of TL deposits surged by 300bps q/q, while yield on loans only improved by 120bps.As a result, its blended spread declined to 1.7% from 2.2% in 4Q20 and 5.8% in 1Q20, resulting the TL99mn loss on net interest income. 

Major reversals helped CoR. NPL ratio eased by 30bps to 3.5% as net NPL additions declined to –TL1,090mn vs. TL730mn in 4Q20 on collections of TL2bn. Provision reversals reached an all-time high TL3.25bn which includes TL1bn on cash collections, TL1bn on restructured loans and TL1.3bn on release of excess provisions on IFRS 9 model revision. As a result, net total CoR eased to -71bps in 1Q21 from 74bps in 4Q20.  Stage 2 and Stage 3 coverage declined by 230bps and 130bps to 6.5% and 64.0%. Total coverage declined 50bps to 3.2%, the lowest figure among coverage banks, while ECL’s dented 97% of PPOP. Restructured loans’ weight in loans increased 20bps to 3.5%. Equally importantly, Stage 2 loans' weight in total loans rose another 70bps to 9.0% level.


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