Fixed Income Analysis /
Turkey

TSKB: Q1 results highlights

  • Consolidated net income of TRY152mn was down yoy. The annualised ROE was 12% on our calculations (Q1 19: 16%)

  • Net fee income more than doubled yoy, reflecting strong performance in the investment banking and advisory business

  • Liquidity coverage ratios improved – the FC LCR is now well over 100%

Tolu Alamutu
Tolu Alamutu

Credit Research Analyst, Banks

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Tellimer Research
22 May 2020
Published byTellimer Research

A small miss: TSKB also reported Q1 20 results. Bank-only net income was just slightly below the Bloomberg consensus forecast. Consolidated net income of TRY152mn was down yoy, as improved non-interest income and good cost control were not enough to offset the impact of lower net interest income and higher provisions. The annualised ROE was 12% on our calculations (Q1 19: 16%). 

Fee income more than doubled yoy: Net interest income of TRY450mn was 9% lower than a year ago as there was a significant drop in income from money market placements. Interest expenses also fell but, unlike deposit-taking banks, the duration of liabilities at this bank exceeds that of assets, so the effect of lower rates on interest expenses lags the effect on interest income. Net fee and commission income more than doubled yoy – to TRY36mn from TRY16mn, reflecting strong performance in the investment banking and advisory business. Further, the trading loss narrowed to TRY11mn and TSKB booked other income of TRY24mn. Solid non-interest income meant that total operating revenue rose 10% yoy to almost TRY500mn.

Personnel costs up versus Q1 19: Operating expenses of TRY77mn were 2% lower than a year ago, as there were no "other" allowance expenses booked in Q1 20. Personnel costs and general administrative expenses both increased yoy. The cost/income ratio was 15.5% on our calculations, down from 17.4% a year ago.

No major NPL inflows expected: There was a 6% rise in total non-performing loans in the quarter. However, strong loan growth meant that the NPL ratio improved. This ratio was 3.3%, c10bps better than at end-19. The stage 2 loans ratio also improved. TSKB booked expected credit losses of TRY224mn, up from TRY151mn a year ago as provisions were "front loaded", according to management. Having said that, TSKB does not expect major NPL inflows this year, and has not made any change to previous guidance of an NPL ratio below 3.5%. 

LCRs have improved: The overall and FC LCRs were 324% (end-19: 126%) and 184% (end-19: 84%), respectively. TSKB issued a eurobond earlier this year, and redeemed a US$350mn security in April. The lender still has over US$700mn in undrawn funding from DFIs. This exceeds the amounts coming due this year (less than US$600mn).

Capital ratios boosted by forbearance measures: Forbearance added 70-80bps to the issuer’s total capital ratio. The as-reported Tier 1 and total capital ratios were 11.6% and 17.1%, respectively. The equity/assets ratio was 10.8%, down from 12.3% at end-19, partly reflecting the impact of TRY weakness on total asset growth.

No changes to guidance yet: TSKB has not yet made any changes to guidance for this year, which includes FX-adjusted loan growth of 3-5%, a net interest margin of 4% and fee income growth of over 50%. The lender also guides to cost growth of less than 20% and an ROE of over 16%. The net cost of risk is seen remaining under 100bps and TSKB does not expect the NPL ratio to exceed 3.5%, as mentioned earlier. The end-20 CAR is seen above 18%.