2Q earnings outlook: Banks to fare better than non-banks
As 2Q confession season kicks off, PA Intelligence publishes forecasts from top Turkish investment banks
2Q19 saw Turkey’s risk premium improve and local bond rates rally
However, the lira continued to lose ground against the dollar, selling off 4%. In the second quarter, the two-year benchmark bond rallied 285bp and five-year CDS improved by 42bp with the carry trade environment once again turning favourable. Overall, we think banks should fare slightly better than non-banks: we estimate banks’ net income grew 20% y-y versus 14% for non-banks.
We forecast net earnings of the banks to drop 19% q-q but rise 20% y-y
Banks’ top-lines appear resilient as we expect core revenues to rise 7% q-q on widening core spreads. Yet, higher swap costs, seasonally weak collections and lack of meaningful provisioning reversals will likely weigh on the bottom-line q-q. We see state banks outperforming the private banks in terms of TRY spread. We believe TRY L/D spreads are set to inch up by an average 50bp q-q for the state banks (a reflection of easing funding costs), while that of private banks should drop 7bp q-q.
We expect operating expenses to slip from the high base of last year, and likely contract 18% y-y. We expect loan loss provisions to fall on lack of loan growth, tamed new NPL inflows and limited currency depreciation. We expect net total cost of risk of our coverage universe to level out at 205bp.
Among the top-tier banks in our coverage universe, we expect GARAN to post highest operating revenue growth followed by VAKBN, while we foresee YKBNK posting the highest y-y rise in net earnings.
In 2Q19, we expect non-financials OTKAR, PGSUS and TKFEN and consumer names BIZIM, ARCLK and ULKER to top the list from an EBITDA growth perspective, whereas TTRAK, KRDMD and AKCNS are set to post the worst EBITDA erosion in our coverage.
Excerpt from TEB Invest market research