Isbank reported TL2,196mn net income in 4Q18 indicating a ROE of 18.1%, bringing cumulative NI to TL6,769mn with a yearly increase of 27.5% in 2018. Our estimate of TL1,478mn and market expectation of TL1,502mn were both lower than the reported NI mainly due to TL350mn free provision reversal as well as provision releases due to adjustment made on macro parameters of IFRS9 model. While provision expenses were much lower than our expectations, this was partly offset by weaker NII as interest income from CPI-linked securities are accrued on 12m expected CPI of 16.5% versus yearly actual print of 20.3%.
Significant improvement across L/D metrics
Loan book decreased 10.3% q/q on TL loan’s contraction of 5.3% and FX loans posting 4.7% decline in real terms. The strategy of the bank appeared to grow with deposits and bring L/D ratios down in the absence of lending activity. TL deposits grew by 12.7% and TL L/D was accordingly down to 129% from 153% in 3Q18. FX L/D also improved to 87% from 95% on 5.0% q/q real growth in FX deposits.
Sharp contraction in NIM
CPI linker contribution was rather limited (+TL381mn q/q, ~40bps impact on NIM) compared to other large cap private banks, coupled with ~350bps TL spread contraction -highest among peers- drove swap-adjusted NIM down 123bps q/q. Fee income maintained its momentum by growing 15% q/q and 39% y/y, supporting cumulative fee growth to stay > 30% in 2018. Swap adjusted NIM reportedly ended 2018 at 3.7% and the bank has a guidance of 3.3%-3.5% range for 2019, indicating somewhat contraction.
Net CoR dramatically dropped
NPL ratio increased by 75bps q/q to 4.2%, below that of private peers whereas Net CoR was significantly down from 400bps in 3Q18 to 99bps. Due to the shrinkage in loan book and changes in macroeconomic parameters that are reflected into the IFRS9 model, general provisions recorded TL499mn reversal from TL1,729mn increase in 3Q18. Coverage ratios for stage I and stage II loans slid to 0.83% and 9.5% respectively while coverage ratio for stage III increased by 120bps q/q to 58.7%, bringing total loan coverage to 4.2% from 3.8% in 3Q18. Share of stage II loans in total was 12.0%, up from 10.0% in the previous quarter. The bank guides for < 6.0% NPL, ~13.5% stage II loan share in total loans and a net CoR of < 150bps in 2019.
Cumulative Opex growth at 8.7%
Opex was 9.6% down q/q and cumulative opex growth remained at only 8.7%. Given delayed impact of higher currency and inflation, management reiterated opex growth expectation of 20% y/y for 2019.
Consolidated Tier-1 ratio at 12.3%
Consolidated CAR and Tier I ratios reportedly realized at 15.3% and 12.3% respectively.
Marketperform rating maintained
Despite 32% upside we foresee for the stock, we maintain our Marketperform rating due to uncertainties regarding the bank’s shareholding structure.
Umut Kovancı / Research – Assistant Director, OYAK Securities