A better bottom line: Odeabank reported net income of TRY32mn for Q1 20. This was lower than in Q4 19, but much better than in the first quarter of 2019, when net income was just TRY4mn. Revenues fell but so did costs and provisions. The annualised ROE was 3.9% (Q1 19: 0.5%) on our calculations – clearly not an impressive figure, although the key takeaway will likely be that this lender remained profitable. Challenges clearly remain, given TRY weakness, continued pressure at Bank Audi (which still owns 76% of Odeabank) and, of course, the as-yet-unknown full impact of the Covid-19 pandemic.
Improved net interest income, but revenues still down: Operating revenue fell to TRY267mn from TRY360mn a year earlier. Net interest income improved yoy and qoq driven by a significant decline in interest expenses on deposits. This more than offset lower yields on loans. Net fee and commission income, was down cTRY6mn yoy at TRY24mn, and other income fell to TRY9mn from TRY13mn, but what really led to the decline in operating revenue was a trading-related loss of TRY25mn. This loss reflects lower derivative income and an FX loss.
Personnel costs higher than in Q1 19: Personnel and "other" operating expenses both increased yoy, but the bank recorded no "other" provisions (which we include in costs) in Q1 20. This meant that total expenses fell to TRY181mn from TRY239mn. The cost/income ratio was 68% (Q1 19: 66.5%).
Write-offs led to qoq NPL ratio improvement: The lender booked expected credit losses of about TRY45mn in Q1 20, down from TRY115mn a year ago. As mentioned earlier, this contributed to the yoy improvement in the bottom line. The NPL ratio of 11.4% was much higher than at end-March 2019 but this ratio improved by 2.4ppt in the quarter, partly reflecting write-offs of TRY499mn. The coverage ratio was 76% (end-19: 80%).
LCRs remain high: The loans/deposit ratio was 82%, down from 87% at end-19 as loans fell 8% in the quarter while deposit balances were only 2% lower. Reported FC-denominated loans and deposits increased in Q1, due to TRY weakness. The FC LDR was 69% (end-19: 67%). There was a 19% decline in LC-denominated loans, which meant that the LC LDR improved to 108% from 122% at the end of last year. Odeabank reported cash and equivalents of almost TRY6.7bn, down from TRY8.3bn at end-19 but still accounting for more than one-fifth of total assets. The overall LCR was 372% (end-19: 405%) and the FC LCR was 318% (end-19: 407%). While both ratios have declined, we note these ratios are still much higher than the regulator requires. Further, ODEABK still has just one eurobond outstanding, and this security does not mature until 2027.
Capital ratios down, even with forbearance: The Tier 1 and total capital ratios were 12% and 19.5%, respectively. Both ratios were lower than at end-19 (T1: 14.1% and CAR: 21.7%). CAR would have been 18.3% without regulatory forbearance measures. The equity/assets ratio was 10%, only 10bps lower than at the end of last year.