The Turkish bank Q1 results season is in full swing. Last week, Alternatifbank, Albaraka Turk, Kuveyt Turk, Odeabank and Sekerbank all reported results. Most large banks have also published figures. So far, all the large lenders which have reported (Isbank, Garanti, Yapi Kredi, Akbank, Vakifbank, Halkbank) have disclosed above-consensus results, expect Halkbank. At that lender, bank-only net income of TRY305mn compared to the Bloomberg consensus forecast of TRY383mn. The net result was boosted by a tax credit related to repatriation of capital from operations outside Turkey, for the second time. Importantly, Halkbank stated that there is more than enough liquidity available to repay its maturing eurobonds. In addition, performance is expected to improve, and the bank has been actively hiking rates in corporate lending and elsewhere. There was no update on the bank’s relationship with US authorities on the results conference call.
Understandably, the current focus is on the re-run of the Istanbul elections scheduled to be held in June, and on Turkey's plans to take delivery of Russian military equipment. On 13 May, the High Election Board rejected an appeal from the CHP and others to cancel all 2018 and 2019 elections. Further, President Erdogan's Communications Director denied reports that the order for Russian military equipment had been cancelled. Two other news items have contributed to TRY weakness this week – reports of an increase in USD demand from corporates and a separate news article stating that TRY40bn in legal reserves may be transferred from the CBRT to the Government. We discussed our thoughts on TRY weakness and the Istanbul elections in our recent report.
Turning back to performance in Q1, we've focused on the smaller lenders in this commentary. There are summaries for Alternatifbank, Albaraka Turk, Kuveyt Turk, Odeabank and Sekerbank below, with further details within the report. Also see Table 1 for key figures for these lenders.
Albaraka Turk (ALBRK)
Net income of TRY27mn was down from TRY98mn a year ago, and the annualised ROE was less than 4%. This result was much-improved qoq though – ALBRK reported a loss in Q4 18.
Results for the first quarter were much better than in Q4 18. Net income of TRY52mn was up from TRY39mn a year ago and just TRY2.5mn in the final quarter of 2018. The annualised ROE was 11.2%.
Kuveyt Turk (KFINKK)
Kuveyt Turk generated an annualised ROE of 18.3% in Q1 – an extremely strong result, in the context of ongoing challenges in Turkey’s banking sector. Net income of TRY254mn was 25% higher than a year ago, as net interest and non-interest income both increased.
Overall, Q1 seems to have been a challenging quarter for this bank, though the net result did improve significantly qoq. With just one bond outstanding and with the LDR still below 100%, market funding concerns appear limited at this issuer.
The net loss of almost TRY95mn compares to net income of TRY28mn a year ago. Lower net interest income and much higher provisions contributed to the weaker bottom line result.