Tacking to Profit


Turkish banks were able to take good advantage of the low interest rate environment inspired by the QE program, as margins expanded and deposit costs fell. Accelerated lending growth under […]

Turkish banks were able to take good advantage of the low interest rate environment inspired by the QE program, as margins expanded and deposit costs fell. Accelerated lending growth under the more affordable rate environment also bolstered their balance sheets, while bond portfolios benefitted from mark-to-market gains. As well, the unorthodox monetary policy of the Central Bank of Turkey (CBT) allowed the banks to substitute their mandatory Turkish lira (TRY)-denominated liabilities with foreign exchange and gold. While all this freed up TRY liquidity to offer out as loans to the domestic economy, the higher rate environment and depreciation of the Turkish lira since May 2013 of some 4.7% against the US dollar (USD) and Euro (EUR) in weighted-basket terms will make for a tougher operating environment going ahead.

Foreign interest in Turkey’s banking scene has remained high, with two new entrants in 2H2012. In late 2012, the BRSA issued the first new banking license since the 2001 banking crisis to Odeabank, a subsidiary of Lebanon’s Audi Saradar Group. Odeabank is looking to take advantage of Turkey’s regional economic position, and is targeting an initial 26 branches across the country and a market share of 2% to 3% in the coming years. The bank is looking to penetrate the retail scene, and will be developing products to complement its branch network. As the CEO of Odeabank, Hüseyin Özkaya, told TBY, “We have to do in months what other banks have achieved in years.”

Russia’s Sberbank swooped up a 99.85% stake in Denizbank from the French-Belgian Dexia Group for $3.87 billion in October 2012. The Russian bank is likely to keep the Denizbank name in Turkey due to its high level of market awareness. In a related deal, Citibank transferred its credit card business to Denizbank over 2013, thus bolstering its retail level penetration.

In a sign of the times, the Greek majority owner of Finansbank, the National Bank of Greece (NBG), indicated in July 2013 that it would be looking to sell up to a 40% minority stake in its Turkish unit. The bank has not indicated whether it would be a block sale or through normal trading on the Borsa Istanbul, though NBG will likely wait for a more upbeat time on the markets before any sale.


İşbank remains the largest bank by assets over 2012, reporting TL175.44 billion, up 9% over the year. It also maintains its leadership in terms of TRY and Forex deposits and loans, demand deposits, and consumer loans, all supported by a huge branch network. Consolidated net profits over the year rose by 50% to TL3.41 billion. The bank reported a net interest income (NII) of TL5.93 billion for 2012, up 30%, and had a NIM of 3.82%, up from the 3.72% recorded in 2011. In terms of non-performing loans (NPLs), it reported 1.9% for 2012. As for the long-term plans of management, its CEO, Adnan Bali, told TBY, “İşbank will continue to enhance its market share parallel to profitability, efficiency, and risk-focused strategies.”

Turkey’s second largest bank by assets, Garanti Bank, is well known to global investors, and is active in all segments of the industry. It closed 2012 with TL160.19 billion in assets, up 9% over the year, while its consolidated net profits were relatively flat in annual terms at TL3.33 billion. Garanti had a NII of TL5.93 billion, up 30%, while its NIM was at 3.88%, slightly above the 3.55% recorded in 2011. NPL levels jumped 50 basis points (bps) to 2.3% over 2012, a level it is likely to defend over 2013. Garanti’s balance sheet is adequately positioned in the face of a rising interest rate environment. The bank has a highly experienced management team, known for its ability to react early to market shifts.

Coming in at third in terms of assets is Akbank. For FY2012 it reported total assets of TL155.85 billion, up 17% over the year, while its consolidated net profits came in at a healthy TL3.01 billion, up 15% over the period. The bank has long been a mainstay of the corporate sector, though is now making strong inroads into the retail and SME segments. Akbank reported a NII of TL5.2 billion over 2012, up some 30%, while NIM levels strengthened by 38 bps to 3.70%, a level that may weaken over 2013. Its NPL was a low 1.3%, reflecting the strength of its loan book, which grew by 25% over the year to TL87.66 billion. Akbank announced a 2013-15 operating plan, which is composed of an increased focus on profitable growth, prudent management, executional excellence, and superior infrastructure.

Yapı Kredi Bank had a quieter year in 2012, working hard to improve its asset quality as NPL levels rose 30 bps to 3.3%. It reported total assets of TL122.18 billion, up some 13% in year-on-year terms, while NII saw a 36% boost to TL4.50 billion. The NIM made a good response, rising to 4.20% from 3.63% in 2011. Higher provisioning expenses weighed on consolidated net profits, which fell 9% to TL2.09 billion. The bank received a shot in the arm in March 2013 following the sale of its insurance arm, Yapı Kredi Sigorta, to Allianz for ‚¬684 million. The sale is expected to improve its capital adequacy ratio (CAR) from 16.3% to 17.1%, though the bank’s balance sheet may face headwinds as cost of funding rises.

Halkbank is the first of Turkey’s partially state-owned banks in the “big six.” The bank grew its total assets by 19% over 2013, reaching TL108.28 billion, and is the first of the partially state-owned banks in Turkey’s top tier. Its fundamentals remain strong, with Halkbank reporting a CAR of 15.9% in 1Q2013, and it has the lowest loan-to-deposit ratio in the local banking sector, at 86% in the same period. Over 2012, NII was at TL4.48 billion, up 29% in year-on-year terms, while the NIM strengthened by 37 bps to 4.67%. Net consolidated profits grew some 30% over the same period to TL2.64 billion, while the NPL ratio stayed steady at 2.9%. The bank is looking to better target itself at the SME sector in order to provide support for national economic growth. “The share of SME loans in total loans remains limited; it is around 25%,” Süleyman Aslan, CEO of Halkbank, told TBY. “Considering that around 65% of total sales in the economy are made by SMEs, I believe they deserve a larger share.” The bank is also looking to boost its share of the credit card market, in which it has been underrepresented. Should interest rates rise over 2H2013, Halkbank is probably the best positioned bank in Turkey to weather the storm.

Vakıfbank is the last of Turkey’s “big six, ” reporting assets of TL104.58 billion in 2012, up 17% over the year. The bank has sought to boost its profitability in recent times by pursuing high-risk and high-return areas, though this may come back to haunt the management in an environment of higher wholesale funding costs. The bank reported a consolidated net profit of TL1.42 billion in 2012, up 9%, while its NII saw a 41% boost to TL4.09 billion. Its NIM rose by 74 bps over 2012 to 4.37%, while the NPL ratio rose by 30 bps to 3.9%. On the positive side, Vakıfbank improved its CAR from 13.4% to 16.1% over 2012, while its loan book rose 19% to TL68.13 billion.


Turkey’s Islamic banking industry, known as participation banks in local parlance, saw a revival in activity over 1Q2013. According to the Participation Banks Association of Turkey (TKKB), the four main participation banks— Al Baraka, Bank Asya, Kuveyt Türk, and Türkiye Finans—managed to raise TL53.1 billion in funds over the quarter, up 8% in year-on-year terms, and managed to increase their market share of the overall banking sector to 6%. The largest two in terms of their balance sheets are Bank Asya and Al Baraka. Bank Asya saw its total assets grow some 24% over 2012 to TL21.39 billion, with the loan book representing 74.92% of the total. The bank brought down its NPL rate from 4.6% to 3.9% over 2012. Al Baraka, partially owned by the Al Baraka Group in the GCC, reported total assets of TL12.33 billion for 2012, though had a much keener NPL ratio of 2.4%

Participation banks have often been stronger in lending to the commercial and SME sector, while the retail segment of the banking market still needs to be addressed. As V. Derya Gürerk, CEO of Türkiye Finans said, his bank “has a 1.5% market share in the commercial sector, and we would like build on this as well as maintain our strong market share in the SME sector.” However, his bank is also looking at releasing new credit card-style products to better address the retail segment.

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