Erste Group Research Flash note | Banking | Turkey 03 February 2012

Garanti Bank – Buy
Target Price: TRY 8.60 / Close as of 02/02/2012 TRY 6.70

Analyst: Sevda Sarp,
+90(212)3712537 sevda.sarp@erstegroup.com

Vibrant margin improvement
Bottom line strengthened. In its 4Q11 financials, Garanti Bank reported a net profit of TRY 791mn net earnings, thus in line with our TRY 760mn forecast and TRY 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 line to 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. The results indicate sound performance, especially on the margin side and easing LDR. Accordingly, we maintain our “Buy” 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, from 9.6% 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 loan rates), enabled Garanti’s NIM to expand by 140bps to 4.4% in 4Q11. When adjusted 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 due to seasonality factors and the timing of account maintaining fees. Total fees cover 63% 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 seasonality factors. Limited, but selective growth in lending. In the quarter, there is 3% q/q growth in total lending, which carried annual growth to 30%. Quarterly growth was mainly driven by auto and GPLs, which showed 7% and 4% respective growth rates. Repo funding diluted. 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 highlighted that the bank reduced its exposure to repo transaction in 4Q11 as a result of the cost increase, repo transactions dived by 30% q/q where its share in total funding slipped 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 net NPL additions in 4Q11 where there is a TRY 100mn inflow related to a few commercial companies. However, collections remained strong in the quarter, with a 28% 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, the bank’s provisioning expenses jumped by 39% q/q; and led the cost of risk to increase to 93bps from 86bps in 3Q11. When we adjust the TRY 91mn provisioning expense recorded as a result of the commercial files, CoR remains flattish.

Erste Group Research – Flash note
All prices are those current at the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors.

Page 1

Erste Group Research Flash note | Banking | Turkey 03 February 2012

BRSA Bank-Only Financials
Incom e Statem ent TRYmn I. Net Interest Incom e II. Net Fee Income III. Provisions IV. OPEX V. Net Operating Incom e (I+II-III-IV) VI. Net Trading Gain/Loss VII. Other Income VIII. Dividend Income IX. Pre-Tax Income X. Net Profit Balance Sheet TRYmn Loans Security Portfolio Assets Deposits Equity 4Q10 1,280 530 116 929 766 15 111 0 892 698 3Q11 1,044 517 161 761 639 -67 59 1 632 482 4Q11 1,556 480 224 1,027 786 74 148 0 1,008 791 q/q 49% -7% 39% 35% 23% n.a. 153% -71% 59% 63.9% y/y 22% -9% 93% 11% 3% 375% 33% 418% 13% 13% 2010 4,755 1,816 584 3,041 2,945 364 638 5 3,952 3,145 2011 4,689 2,008 822 3,206 2,668 332 903 6 3,908 3,071 y/y -1% 11% 41% 5% -9% -9% 41% 5% -1% -2%

Dec 10 Sep 11 Dec 11 64,827 81,133 83,813 39,210 37,872 35,243 123,963 148,644 146,642 72,658 80,469 84,543 16,475 17,247 17,577

q/q 3.3% -6.9% -1.3% 5.1% 1.9%

y/y 29.3% -10.1% 18.3% 16.4% 6.7%

Key Financial Ratios Spread NIM NPL Ratio NPL Provisioning Ratio Cost-of-Risk Ratio RoE Loans-to-Deposits Loans-to-Deposits (Lira Side) Source: Company Data, Erste Group Research

Quarterly Trend 4Q10 3Q11 4Q11 3.1% 1.7% 3.0% 4.5% 3.0% 4.4% 2.9% 1.8% 1.8% 81.9% 82.0% 81.7% 0.3% 0.3% 0.7% 17.4% 11.3% 18.1% 89.2% 100.8% 99.1% 79.8% 177.0% 113.3%

12-Month Trend 2010 9M11 2011 3.0% 2.2% 2.2% 4.4% 3.5% 3.6% 2.9% 1.8% 1.8% 81.9% 82.0% 81.7% 0.7% 0.3% 0.4% 21.0% 18.1% 18.2% 89.2% 100.8% 99.1% 79.8% 177.0% 113.3%

This research report was prepared by Erste Group Bank AG (”Erste Group”) or its affiliate named herein. The individual(s) involved in the preparation of the report were at the relevant time employed in Erste Group or any of its affiliates. The report was prepared for Erste Group clients. The information herein has been obtained from, and any opinions herein are based upon, sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions, forecasts and estimates herein reflect our judgment on the date of this report and are subject to change without notice. The report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Erste Group or its affiliates or the principals or employees of Erste Group or its affiliates may from time to time provide investment banking or consulting services to or serve as a director of a company being reported on herein. Further information on the securities referred to herein may be obtained from Erste Group upon request. Past performance is not necessarily indicative for future results and transactions in securities, options or futures can be considered risky. Not all transactions are suitable for every investor. Investors should consult their advisor, to make sure that the planned investment fits into their needs and preferences and that the involved risks are fully understood. This document may not be reproduced, distributed or published without the prior consent of Erste Group. Erste Group Bank AG confirms that it has approved any investment advertisements contained in this material. Erste Group Bank AG is regulated by the Financial Market Authority (FMA) Otto-Wagner-Platz 5,1090 Vienna, and for the conduct of investment business in the UK by the Financial Services Authority (FSA) and for the conduct of investment activities in Croatia by the Croatian Financial Services Supervisory Agency (CFSSA).. Notice to Turkish Investors: As required by the Capital Markets Board of Turkey, investment information, comments and recommendations stated here, are not within the scope of investment advisory activity. Investment advisory service is provided in accordance with a contract of engagement on investment advisory concluded between brokerage houses, portfolio management companies, non-deposit banks and clients. Comments and recommendations stated here rely on the individual opinions of the ones providing these comments and recommendations. These opinions may not fit to your financial status, risk and return preferences. For this reason, to make an investment decision by relying solely to this information stated here may not bring about outcomes that fit your expectations. Please refer to www.erstegroup.com for the current list of specific disclosures and the breakdown of Erste Group’s investment recommendations.

Erste Group Research – Flash note

Page 2

Sign up to vote on this title
UsefulNot useful