Erste Group Research
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Erste Group Research
Flash note | Banking | Turkey03 February 2012
BuyTarget Price: TRY 8.60 / Close as of 02/02/2012 TRY 6.70
Vibrant margin improvement
Bottom line strengthened.
In its 4Q11 financials, Garanti Bank reported a netprofit of TRY 791mn net earnings, thus in line with our TRY 760mn forecast andTRY 782mn consensus estimates. The 4Q11 bottom line marks a 64% q/q jump;and implies 18% quarterly RoE. The 4Q11 net income carried the YE bottom lineto TRY 3,071mn, which is 2% lower than 2010. The bank closed 2011 with 18%trailing RoE, which is expected to be the second highest figure in the market. Theresults indicate sound performance, especially on the margin side and easing LDR.Accordingly, we maintain our
call for the bank.
Strongest quarterly NII in 2011.
After a 4% q/q contraction in 3Q11, Garanti’s
NII jumped by 49% q/q; mainly driven by improvement in CPI linker yields, from9.6% to 30% in the quarter, which resulted in a 133bps positive NIM impact. This,coupled with improving loan deposit spreads (with 46bps upward repricing in loanrates), enabled
to expand by 140bps to 4.4% in 4Q11. Whenadjusted for the volatility of CPI linkers, the margin remains flattish q/q.
Seasonal factors in fees and OPEX.
Commission based income dropped by 7%q/q materializing at TRY 480mn
the lowest quarterly figure of 2011, mainly dueto seasonality factors and the timing of account maintaining fees. Total fees cover63% of operating expenses, still high among its peers, despite the q/q drop in fees.Meantime, there is a 35% q/q jump in OPEX, which is related to seasonalityfactors.
Limited, but selective growth in lending.
In the quarter, there is 3% q/q growth intotal lending, which carried annual growth to 30%. Quarterly growth was mainlydriven by auto and GPLs, which showed 7% and 4% respective growth rates.
The bank’s deposit base expanded by 5% q/q; which eased the
loans to deposit ratio to 99% from 101% a quarter earlier. It should be highlightedthat the bank reduced its exposure to repo transaction in 4Q11 as a result of the costincrease, repo transactions dived by 30% q/q where its share in total fundingslipped to 7.5% from 10% in 3Q11; this
supported the bank’s NIM in the quarter.
NPL inflows resulted in a higher cost of risk.
Garanti booked TRY 35mn netNPL additions in 4Q11 where there is a TRY 100mn inflow related to a fewcommercial companies. However, collections remained strong in the quarter, with a28% rate. The bank closed 2011 on a 1.8% NPL ratio, which remained flattish q/q,but improved from 2.9% in 2010. However, due to NPL inflows, t
provisioning expenses jumped by 39% q/q; and led the cost of risk to increase to93bps from 86bps in 3Q11. When we adjust the TRY 91mn provisioning expenserecorded as a result of the commercial files, CoR remains flattish.