The Trend Is Your Friend – stay long Turkish banks
We expect 2020 to be similar to 2010 where following strong performance in 2009 the banks continued to post positive performance in the subsequent year
Strong start to 2020, will it last? —
With the XBANK Turkish bank index approaching 10-year highs, technical analysts are likely getting nervous. Yet valuations are at or below 10-year average levels. Macro data has been supportive, e.g. better growth, quick rebalancing of the current account deficit, and falling inflation allowing sharp rate cuts, and loan growth is picking up. But macro volatility can return. Non-performing loans remain at elevated levels, but banks have provisioned heavily. Signals are, as always, mixed.
This time it is different, stay long
While Turkish bank performance is usually quite cyclical with a year of good performance followed by a year of poor performance, this year is likely to be different given the very sharp de-rating in 2018 and expectations of very strong earnings growth in 2020. We expect 2020 to be similar to 2010 where following strong performance in 2009 the banks continued to post positive performance in the subsequent year.
Upgrading, Garanti Top Pick —
With the exception of Isbank and Yapi Kredi we upgrade our earnings forecasts this and next year, driven primarily by margin expansion from the sharp decline in TL deposit cost. Moreover, a rolling forward of the basis of our valuation and the use of a lower cost of equity following the sharp decline in Turkish benchmark bond yields lead us to increase our target prices for all stocks under coverage. We reiterate our Buy rating on Garanti, Yapi Kredi (no longer High Risk), and Vakifbank (High Risk) and upgrade Akbank and Isbank to Buy from Neutral. We retain our Sell/High Risk rating on Halkbank despite the improving operating outlook given concerns over any potential US fine on the bank. Garanti remains our Top Pick in among Turkish banks.
Excerpt only, by Citi Research
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