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30 August 2013
Focus
We review the performance of the major Turkish banks in the context of broader EM credit weakness, driven by a reversal in capital inflows and deteriorated external financing conditions. We aim to re-assess the banking sector's resilience to increased liquidity and market risk pressures in view of the significant foreign borrowings and exposures to local currency government debt. Based on our peer group analysis, we identify potential credit drivers for Turkish banks as a sector and for particular names, including Akbank, Garanti, Isbank, Halkbank, YapiKredi, Vakifbank and Finansbank. Although Turkish bank bonds have underperformed as a sector (without extraordinary imbalances or anomalies in individual credit spreads), we currently see no fundamental catalysts for a positive re-pricing. In the longer-term, we cannot rule out negative rating actions (such as putting banks on review for downgrade) driven by a sustained pressure on capital adequacy ratios or changes in the sovereign rating outlook. However, downgrades to sub-investment grade are unlikely, given the banks generally high loss absorption capacity.
Prices cited in the body of this report are as of 28.08.13 (except where indicated otherwise). Please refer to the Disclosures section of this report for other important disclosures, including the analyst certification. Additional disclosures regarding the subject company(ies) discussed in this report can be found at http://research.vtbcapital.com/ServicePages/Disclosures.aspx.
Table of contents
Executive Summary......................................................................................................................3 Market context ......................................................................................................................... 4 Balance sheet exposures ......................................................................................................... 5 Asset quality............................................................................................................................. 6 Liquidity .................................................................................................................................... 7 Interest margins ....................................................................................................................... 8 Capital adequacy / Regulatory environment ............................................................................ 9 Peer comparison (1/3)............................................................................................................ 10 Spread performance .............................................................................................................. 13 Relative value ........................................................................................................................ 14 Akbank (Baa2/--/BBB) ............................................................................................................ 15 Garanti Bank (Baa2/BB+/BBB) .............................................................................................. 18 Isbank (Baa2/BB+/BBB) ......................................................................................................... 21 Halkbank (Baa2/--/BBB-)........................................................................................................ 24 Yapi Kredi Bank (Baa2/BB+/BBB).......................................................................................... 27 Vakifbank (Baa2/BB+/BBB-) .................................................................................................. 30 Finansbank (Ba2/--/BBB-) ...................................................................................................... 33 Disclosures .................................................................................................................................36
30 August 2013
Executive Summary
Turkish banks credit: risk and resilience
The gradual deterioration in liquidity ratios has followed rapid lending expansion and acceleration of capital inflows on the back of improvement in Turkish risk perception. In our view, Turkish banks current financing structure implies a moderate refinancing risk, given that the sector more than doubled foreign borrowings since 2009. Dependence on external funding is not critical as it has been balanced by expanding deposits. At the same time, increased reliance on short-term wholesale funding makes the banks balance sheets structurally sensitive to re-pricing/rollover risk. We estimate the share of foreign bank funding in the banks total liabilities as an early indicator of potential risk. Furthermore, we estimate the impact of mark-to-market revaluations of the banks bond portfolios. Turkish banks government bond holdings support liquidity in a volatile interest rate environment, although increased use of repo financing implies a higher level of asset encumbrance. This might exacerbate pressure on the banks CARs through capital charges on 'restricted' available-for-sale portfolios, in our view. We calculate conservative NPL and coverage ratios (including the loans classified as close-monitoring into the risk group II under BRSA reporting standards) as the key asset quality metrics. Although we note Turkish banks' resilient capital buffers and strong asset quality, we see no catalysts for a positive re-pricing in the short-term. If anything, negative factors are more readily available in the current market environment, and we believe that rating agencies might react to any signs of a deterioration.
30 August 2013
Market context
We focus on recent developments in Turkish banks credit profiles in the context of downward pressure on Turkish assets due to a reversal of capital inflows and heightened political uncertainty. Since May 2013, the Turkish lira has lost 10% of its value against the USD/EUR basket. Government bond yields have surged, triggering the widening of credit spreads, particularly in local currency paper. The banking sector is exposed to moderate rollover risk as its short-term borrowings have more than doubled since 2009. The growth in foreign debt has been counterbalanced by the expanding deposit base and the enhanced policy funding options. The Central Bank of Turkey (CBRT) has adopted a refinancing mechanism through a combination of short-term repos and lending windows. By varying the volumes of liquidity provided to the market and absorbed by the CBRT, interest rates are being maintained within the policy rates corridor. Given the pressure on EM currencies and debt, we believe the CBRT might be forced to bring interest rates back to the upper bound of the corridor to defend the lira. Further interest rate direction is uncertain, as the CBRT might opt for another round of controlled volatility, with potentially negative consequences for the corporate sector and, indirectly, banks. In an unlikely scenario in which Turkish banks cannot roll over their external debt, the CBRT might step in by injecting liquidity to banks from its FX reserves. However, banks would be forced to sell domestic assets in this case, implying further pressure on the lira and lira-denominated bonds.
O/N market rate CBRT O/N borrowing rate CBRT average funding rate
Mar-13
Apr-13 TURKEY23
May-13
Jun-13
Jul-13
2Y
5Y
10Y
TURKEY30
30 August 2013
30 August 2013
Asset quality
The sectors key strength is its strong asset quality, supported by the exceptionally robust performance of the Turkish economy over the past few years. Whether the non-performing loans have already bottomed out as the economy is past the bullish phase of the economic cycle is less certain now. But the current indicators such as the share of NPLs below 3% of total loans or coverage ratio above 75% on a specific provisioning basis positively characterise the credit standing of the Turkish banking sector as a whole. Single-industry and single-borrower risk concentrations are relatively low (compared with peer EM banks). The sectors key exposures are in manufacturing, trade and services, with the increased share of retail lending and SMEs. Based on the available data, we have not identified any excessive related-party concentrations at major banks, even though some of them are controlled by family-owned multi-industry holdings. In retail lending, consumer loans, credit cards and other unsecured personal finance products have been the key growth driver. NPLs have dropped to the historical lows on the back of accelerated growth, although the increased cost of risk and restructured loans in the segment might indicate a potential trend reversal. On a positive note, banks have almost ceased origination of FX-denominated consumer loans, while effective interest rates on other high-risk products are subject to explicit regulatory caps since 2006. We also note increased credit bureau coverage from 43% of adult population in 2009 to 63% in 2012, following the development of the centralised Credit Bureau of Turkey (KKB) based on the membership by all major banks.
Individuals 33%
Real estate Wholesale and brokerage, rent retail trade and advisory Hotels and 12% Transportation restaurants 3% Financial and (tourism) intermediation communication 2% 4% 4%
Personal finance
Housing NPLs / Housing loans Vehicle NPLs / Vehicle loans Personal finance NPLs / Personal finance loans Credit card NPLs / Credit cards
30 August 2013
Liquidity
The gradual reduction in balance sheet liquidity (adjusted liquid assets as a share of total assets) has followed the banks more aggressive lending expansion, particularly in consumer and SME lending, and acceleration of capital inflows on the back of improvement in Turkish risk perception. Free liquid assets decreased largely due to the encumbrance of the banks bond portfolio in regard to repo facilities. In April 2013, the CBRT estimated the share of collateral-free government securities, which could be used by banks in the case of a liquidity shortfall at 16%, and we believe that the ratio has not increased since then. The other important liquidity factor is the CBRTs reserve requirement policy, allowing banks to hold required Turkish lira reserves in gold and foreign currencies. The total liquidity requirement ratio (used as a regulatory limit in accordance with the regulation on banks liquidity adequacy) has been declining, but remains above the minimum 100%. Debt issuance by Turkish banks also grew significantly in 2012, following the sovereign rating upgrades, albeit from a low base. Total foreign liabilities, including syndicated loans, are increasingly important as a funding source. The banks average external debt rollover ratio has been hovering around 1x given the significant amount of short-term borrowings. Still, deposits remain the core funding source for Turkish banks. In 2012, deposit withdrawals without incurring a loss of interest were conditionally allowed by the regulator, aiming to increase the average maturity generally short-term even if viewed as largely sticky or core by the hosting banks.
2011
2012
1Q13
2Q13
Short-term
30 August 2013
Interest margins
Margin contraction has been the markets main concern given the tightened liquidity conditions and a rise in the cost of funding. However, the sectors interest margins proved resilient. In fact, due to the short average duration of both loans and deposits, any sharp change in funding rates has been offset by a respective move in lending rates, and vice versa. In 2012, the sectors average net interest margin stood at 4.1%. The CBRT has been determining the maximum contractual interest rates on credit cards on a quarterly basis since 2006, and on overdraft accounts since 2013. In fact, these two products are most profitable for Turkish banks, with extraordinarily high effective rates of around 60%, compared to 8.5-10% for housing and auto loans or 12.5-13% for personal installment loans (before extra fees and commissions). Fees and commissions might also be subject to regulatory intervention, including explicit caps on credit card fees. Apart from direct pricing regulation for selected loan products, there have been cases of a legal involvement in interest rates policies: in 2012, Turkeys Competition Board launched an investigation of the 12 major banks related to alleged collusion in determining interest rates on retail loan products. The competition watchdog imposed fines up to 1.5% of total revenues (the largest fine was TRY 213mn, imposed on Garanti); however, these actions have not had any significant impact on the banks profitability.
4.0 0.0
Oct-09 Oct-10 Oct-11 Jan-09 Apr-09 Jul-09 Jan-10 Apr-10 Jul-10 Jan-12 Apr-12 Jul-12 4Q11 1Q12 2Q12 Oct-12 3Q12 Jan-11 Apr-11 Jul-11 Jan-13 Apr-13 Jul-13
Personal
Vehicle
Housing
Commercial
Up to 6 months
Up to 1 year
Total
30 August 2013
Total regulatory capital, TRYbn RWA, TRYbn Capital adequacy ratio, % (RHS)
Source: BRSA, VTB Capital Research
30 August 2013
70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 10.0% 15.0%
FINBN
AKBNK ISCTR
GARAN
HALKBK
1.10
1.15
1.20
1.25
25.0%
30.0%
20.0%
25.0%
30.0%
We use 1H13 BRSA consolidated financials, with two exceptions, VAKBN and FINBN, for which 1H13 consolidated reports were not available on this reports publication date. 1Q13 numbers were used for these two banks. We believe this does not affect materially the quality of the peer comparison. We conservatively adjust loan-to-deposit ratios for bank deposits reported as part of total deposits under BRSA disclosure standards. In terms of LTD ratios, all banks in our peer group have a conservative level of dependence on nondeposit funding sources. Capital adequacy calculated in line with Basel II requirements is relatively high for all the banks under review, indicating their sufficient loss absorption capacity.
We calculate liquid assets as the sum of cash and cash equivalents, money market placements and government bonds, adjusted for the accounts pledged, used as collateral under repo transactions or otherwise restricted. The ratio of liquid assets to total assets has been falling for major Turkish banks over the past few years, mostly due to the increased use of bond portfolios as collateral under repo funding. The overall asset encumbrance is not critical and implies increased levels of interest rate exposure rather than liquidity shortfall. HALKBK has the highest balance sheet liquidity in the peer group (and the lowest level of repo financing). AKBNKs funding policy is currently more aggressive, given the share of repo financing near 18% of the banks total liabilities.
AKBNK also has the largest exposure to government bonds (25% of total assets), while the other banks have lightened up on their portfolios. It is important to note, however, that Turkish banks bond portfolios usually comprise a significant share of CPI linkers and floating rate bonds, partially mitigating market risk exposure. AKBNK is no exception: on a non-consolidated basis, the share of CPI linkers was 35% of AKBNKs total securities at end-1H13. Government bonds are typically reported as part of available-for-sale securities, implying that the bulk of MtM revaluation gains and losses are charged directly on capital. In 2Q13 this caused a deterioration in the banks capital positions, yet without a dramatic effect on capital adequacy ratios.
30 August 2013
10
YKBNK AKBNK
GARAN
ISCTR
HALKBK VAKBN
10.0%
20.0%
30.0%
40.0%
50.0%
We estimate the share of foreign bank funding in the banks total liabilities as an early indicator of potential rollover risk. Foreign bank funding formally does not contribute to extension of the average duration of the banks liabilities: average maturity of bank loans (except securitization credits and loans from IFIs) is just about 1 year. However, Turkish banks generally do have a track record of successful refinancing of bilateral and syndicated bank debt, even in an environment of closed international debt markets. AKBNK, GARAN and HALKBK are almost equally equally exposed to refinancing risk, given the ratio of foreign bank loans to total liabilities in the 16-18% range. VAKBN and FINBN are less dependent on foreign bank loans. The Turkish banks average external debt rollover ratio is about 100%.
Bond issuance accelerated in 2012 on the back of increased risk appetite in global debt markets and following the Turkish sovereign rating upgrades. The total amount of FX-denominated bank debt increased from USD 4.3bn at YE11 to USD 13.5bn at YE12. The share of debt borrowings (predominantly local currency bonds) in the banks total funding is still relatively low. Eurobonds represent an important source of longterm funding (the average maturity of foreign bonds issued by Turkish banks now exceeds five years). Given the sharp widening in credit spreads in JuneAugust 2013, we believe that it would be a challenge for Turkish banks to print new dollardenominated debt in 2H13 at acceptable price levels. Combined with CBRT tightening, this might re-prioritise deposit funding as a key source, implying short-term pressure on the bank liquidity and interest margins.
A relatively high level of balance sheet dollarisation is typical for Turkish banks. At the same time, banks do not take unhedged currency risk exposures beyond the regulatory limits. In fact, banks FXdenominated loans are symmetrically funded by FX deposits. GARAN has the highest (but overall balanced) current shares of both FX loans and FX deposits. FINBN runs a significant currency risk mismatch as its almost entirely TRY-denominated loan book is to a significant extent funded via swapping FX funding into TRY.
30 August 2013
11
3.0%
Cost of risk (annualised)
80.0% 75.0% 70.0% 65.0% 60.0% 55.0% 50.0% 45.0% 40.0% 2.5%
ISCTR
2.5%
AKBNK
FINBN
GARAN
3.0%
6.0%
9.0%
12.0%
15.0%
5.0%
6.0%
7.0%
8.0%
5.0%
7.5%
10.0%
12.5%
We estimate the impact of mark-to-market revaluations of the bond portfolios (classified into the AFS category) on the banks equity in 1H13. VAKBN and FINBN are excluded as their consolidated 1H13 results were not available. AKBNK reported the biggest change in a MtM revaluation reserve: a TRY 2.6bn MtM valuation difference or about 10% of regulatory capital. The banks TCAR lost 160bp in 2Q13, largely due to the revaluation effect. AKBNK also reported the largest share of net trading gains in operating profit, reflecting its above-peer market risk exposure. For other banks, the impact of the revaluation reserve on regulatory capital was in the 4-6% range (100-180bp in terms of TCAR). On a nonconsolidated basis, this applies also to VAKBN (MtM revaluation at 5.6% of the banks total equity).
Turkish banks profitability metrics have remained solid. Operating performance might come under pressure toward the end of the year, but it continues to be supported by strong efficiency and manageable risk charges. Unsurprisingly, banks with a higher cost of risk (FINBN, VAKBN) tend to report higher interest margins, reflecting their focus on higher-risk/highermargin lending products. We note above-peer margin/risk efficiency of HALKBK, driven by its largely TRY-denominated, SME-focused loan book. FINBNs policy not to sell impaired loans partly explains its higher cost of risk and NPL ratios. At the same time, loan impairments and respective risk charges might increase further in 2013 following the banks retail expansion and a natural seasoning of the portfolio.
We calculate the sum of general and specific provisions vs. total impaired loans (including the loans classified as close-monitoring under BRSA reporting standards). On this basis, FINBN shows the highest level of problem loans, while its coverage ratio is in line with peers. ISCTR has reported the strongest asset quality metrics: its NPL ratio was 1.9% and its closemonitoring loans was 3.7% of total loans. ISCTR has an above-peer total coverage ratio but a relatively low specific coverage as it had to create higher general provisions against its consumer loans from 3Q11, although NPLs and recoveries did not change materially. On a specific-only basis, all banks under review reported coverage ratios above 75%.
30 August 2013
12
Spread performance
Turkish bank credit in the Eurobond market has been repriced wider in the context of a broader pressure on Turkish and EM assets, but apart from technicals without a coherent logic driving the relative movement of individual bond prices. Bond spreads have widened at least by 100bp over the past three months. ISCTR18 and VAKBN18 both issued in April 2013, i.e. into an aggressive demand and immediately before the market started to soften sold off most heavily, losing more than 10pp in price and adding 215bp and 170bp in spreads, respectively. Subordinated LT2 issues such as VAKBN22 and ISCTR22 have outperformed, but largely due to their relatively low liquidity. As a result, sub-senior ratios dropped to 1.1x for most issuers. This is not entirely groundless, given the structural characteristics of the Turkish LT2 debt, but leaves no room for any upside vs. senior paper. Bank spreads to Turkish sovereign paper also widened from a very tight 60-80bp in February to 150-170bp in August. Although it is difficult to identify fundamental drivers behind the spread dynamics of individual names, we note the relative weakness of YKBNK across the curve and the resilience of FINBN, the highest-yielding name in the sector. We note especially sharp and non-discriminatory spread widening in liquid long-duration, paper including GARAN22 and AKBNK22 all trading wider than 450bp over mid-swaps now. Yields in the segment are 200-250bp higher than at initial offerings in 2012 and 1Q13.
Apr-13 AKBNK 22
May-13
Jun-13
Jul-13 YKBNK 20
HALKBK 20
30 August 2013
13
Relative value
Turkish bank bonds have strongly underperformed as a sector without many imbalances or anomalies in relative spreads. The only exception has been the relatively resilient subordinated debt. We believe that the mid-duration segment (senior 2017s) has the strongest price recovery potential within a broader market recovery. The best way to express a constructive view on the sector would be through YKBNK 15s or 17s, in our view. At the same time, we see no positive triggers for such a repricing in the short-term. If anything, negative factors are easier to identify in the current environment, and we believe that rating agencies might react to any signs of further deterioration. In our view, downgrades back to sub-investment grade are unlikely, but in the medium term we cannot rule out negative actions (such as putting banks on negative credit watch), driven by the continued pressure on the banks capital adequacy ratios, the potentially negative impact of FX volatility on the corporate sector and/or a generally weaker economic environment. Whether the increased downgrade risk is already priced is uncertain, given that credit spreads have followed sovereign curve dynamics.
Ykbnk22 T2 Isctr22 T2
Vakbn22 T2
ALFARU
Yield, %
Turkey
Isctr16
Excrtu16
SBERRU RUSSIA
Ykbnk15 Akbnk15
4 5 Duration, years
10
30 August 2013
14
Akbank (Baa2/--/BBB)
Shareholding structure: Sabanci Holding, affiliated institutions and individuals (48.8%), Citigroup (9.9%), free float (41.3%). Sabanci Holding is one of the largest family-owned multi-business groups in Turkey, with total consolidated turnover of USD15bn. Akbank is the groups largest entity. Key balance sheet exposures: Largely deposit-funded, but increasingly reliant on the repo market due to the significant investment in Turkish government bonds (25% of total assets). About 80% of total securities were blocked as collateral or restricted under repo agreements at the end of 1H12, implying a limited liquidity buffer (money market borrowings are already close to 20% of the banks funding base; the share of liquid assets adjusted for the pledged securities is less than 15% of total assets). A significant share of foreign bank loans, potentially exacerbating risk mismatches, but hedged through derivatives (within the regulatory limit), without any significant gaps or refinancing pressures.
10.0% 5.0% 0.0% 2009 2010 2011 2012 1Q13 1H13 Total CAR, % Core capital / Adj RWA, % Adjusted loan-to-deposit ratio, times [RHS]
Source: Akbanks BRSA consolidated financials, VTB Capital Research
2010 118.8 59.0 64.0 38.6 33.5 17.9 0.92x 41.3% 32.9% 32.8% 2.2% 2.2% 4.3% 1.0% 18.6% 19.9%
2011 138.7 75.5 70.5 43.2 45.9 18.1 1.07x 30.2% 26.7% 37.7% 1.7% 1.7% 3.6% 1.0% 14.1% 18.6%
2012 162.5 93.4 79.9 47.2 53.1 22.5 1.17x 26.9% 19.1% 37.6% 1.2% 3.2% 4.1% 1.3% 14.8% 17.9%
1Q13 163.1 97.6 79.8 48.7 54.9 22.3 1.22x 23.3% 18.2% 38.7% 1.3% 2.2% 4.6% 1.9% 15.6% 17.3%
Capital adequacy: Strong Basel II TCAR of 15.7% and Tier I ratio of 15.3% indicate high quality core capital (no hybrid instruments). Significant pressure on capital adequacy comes from an available-for-sale securities revaluation charge in 2Q13 (TCAR 160bp lower; negative change in market value reserve exceeded 10% of regulatory capital at end-1H13).
101.0 46.4 56.9 35.9 27.5 14.4 0.82x 44.7% 34.2% 31.1% 3.8% 5.8% 5.3% 2.3% 21.1% 21.0%
30 August 2013
15
Credit risk: Strong asset quality: NPLs below the market average (1.2% vs. 2.7%); annualised cost of risk below 2% (about 70bp on a quarterly basis). Coverage ratio above 2x (including general provisions), with sufficient 50% coverage of total NPLs and watchlist loans. No significant reported single-name/single-industry concentrations in lending (including to the banks related risk group). Rapid loan growth largely driven by unsecured consumer loans and mortgages (21% and 25% YTD, respectively) as well as SMEs, implying a decrease in FX-denominated loans (from 44% in 2009 to 32% in 1H13) and reversal in the banks balance sheet currency position.
NPLs / Total loans, % NPLs and watchlist loans / Total loans, % Total provisions / Total NPLs and watchlist loans, % [RHS]
Source: Akbanks BRSA consolidated financials, VTB Capital Research
Liquidity risk: Balanced funding profile with lending growth largely financed by the banks broad deposit base; but lower flexibility in managing short-term liquidity as a result of the moderation in loan-to-deposit ratio and increased use of repo financing. Gradual decrease in the share of unencumbered liquid assets (about 80% of liquid fixed income securities restricted or blocked as collateral under repo transactions). The share of repo-based funding in the banks total liabilities reached its historical high of 17% at the end of 1H13. Increased dependence on repo and foreign bank funding is partially offset by the low use of debt financing (debt securities were only 5% of total liabilities at the end of 1H13).
30 August 2013
16
YE10 9.0 -4.6 4.4 1.6 -0.2 0.1 0.9 6.8 -0.5 -2.5 3.8 -0.8 3.0
YE11 9.5 -5.3 4.2 1.9 -0.3 -0.1 0.7 6.4 -0.7 -2.5 3.2 -0.7 2.5
YE12 11.6 -6.3 5.4 2.1 -0.3 0.4 0.4 8.0 -1.1 -3.0 3.9 -0.9 3.0
1Q13 2.9 -1.3 1.6 0.6 -0.1 0.3 0.1 2.6 -0.4 -1.0 1.2 -0.3 0.9
2Q13 2.8 -1.2 1.6 0.7 -0.1 0.4 0.1 2.7 -0.6 -0.8 1.3 -0.3 1.0
1H13 5.7 -2.5 3.2 1.3 -0.1 0.7 0.2 5.2 -1.0 -1.8 2.4 -0.6 1.8
9.5 -4.8 4.7 1.5 -0.2 0.1 0.5 6.7 -1.1 -2.3 3.3 -0.6 2.7
2010 4.3% 11.9% 3.8% 8.4% 7.1% 2.6% 5.5% 4.7% 1.2% 2.8% 36.7% 23.2% 1.2% 0.4% 18.6%
2011 3.6% 13.0% 4.7% 9.5% 8.8% 3.8% 6.5% 4.2% 0.9% 2.9% 39.4% 29.9% -1.8% -0.6% 14.1%
2012 4.1% 12.8% 4.9% 10.0% 6.5% 2.4% 4.7% 6.2% 2.5% 5.2% 37.3% 26.4% 5.1% 1.8% 14.8%
1Q13 4.6% 12.0% 4.9% 9.5% 5.6% 2.0% 4.0% 6.4% 3.0% 5.5% 37.9% 24.2% 12.0% 1.4% 15.6%
1H13 4.4% 11.1% 4.8% 9.1% 5.2% 2.2% 3.8% 5.9% 2.7% 5.3% 34.4% 24.6% 13.1% 3.2% 16.6%
5.3% 14.6% 3.9% 9.9% 8.2% 1.9% 5.5% 6.4% 2.0% 4.4% 33.9% 22.9% 1.7% 0.8% 21.1%
30 August 2013
17
0.20 0.00
2010 135.0 72.0 76.3 49.7 34.4 16.7 0.94x 26.6% 21.5% 28.6% 3.1% 1.7% 4.6% -1.1% 22.3% 18.1%
2011 161.9 92.3 90.1 50.7 42.8 17.9 1.02x 19.8% 16.0% 29.4% 2.1% 1.0% 4.0% 1.1% 19.4% 15.8%
2012 177.7 102.2 92.2 57.5 51.5 21.7 1.11x 19.7% 15.9% 32.6% 2.6% 2.5% 4.4% 1.4% 17.0% 16.9%
1Q13 183.5 107.1 99.2 59.4 50.2 22.6 1.08x 19.7% 18.1% 30.7% 2.7% 2.5% 5.2% 2.2% 21.4% 16.8%
1H13 195.2 117.7 105.5 61.4 54.8 21.9 1.12x 17.3% 16.0% 31.3% 2.3% 2.5% 5.0% 1.9% 19.8% 15.2%
Capital adequacy: Solid Basel II TCAR of 15.2% and Tier I ratio of 14.3% (the end of 1H13), based on sufficient internal capital generation no significant subordinated debt. Limited impact of mark-to-market losses on capital in 1H13 (MtM revaluation reserve less than 6% of regulatory capital and the resulting impact on capital adequacy
114.5 55.3 66.0 38.4 29.0 13.7 0.84x 29.5% 28.0% 28.2% 4.1% 1.1% 5.7% 3.2% 26.5% 19.2%
30 August 2013
18
Credit risk: Lending growth accelerated in 2Q13, driven by retail products and project finance loans in energy and utilities. Loan portfolio well-diversified by industry and single-name exposures. Strong asset quality, as indicated by the banks low NPLs (2.3% of total loans at the end of 1H13 or 2.8% after adjustment for NPL sales and write-offs), with only slightly higher levels in credit cards (3.7%). Specific reserve coverage ratio close to an adequate 80% (about 50% for the total amount of NPLs and unimpaired watch loans). General provisions increased in 2Q13 due to increased loan origination and FX rebalancing.
Liquidity risk: Strong, well-diversified deposit base as the banks key funding source. Opportunistic market borrowings help to increase the average duration of funding. Wholesale funding was about 30% of total liabilities at the end of 1H13. Market funding is dominated by syndicated and bilateral bank loans, as a cheaper funding option, usually implying a high rollover rate. Moderate use of repo financing (7% of total liabilities at end-1H13), mostly through the short-term CBRT facility, but without excessive reliance on the instrument (collateral utilisation rate of about 60% at the end of 1H13).
30 August 2013
19
2010 10.2 5.0 5.2 2.2 -0.3 0.4 0.9 8.4 0.7 -3.4 4.3 -0.9 3.4
2011 11.4 -6.1 5.3 2.5 -0.4 0.4 1.2 8.9 -0.9 -3.7 4.3 -0.9 3.3
2012 13.8 -7.4 6.4 2.6 -0.5 0.6 0.7 9.8 -1.4 -4.1 4.3 -0.9 3.4
1Q13 3.5 -1.5 2.0 0.8 -0.7 0.2 0.3 3.1 -0.6 -1.0 1.5 -0.4 1.2
2Q13 3.4 -1.5 1.9 0.8 0.5 0.2 0.2 2.9 -0.5 -1.2 1.3 -0.3 1.0
1H13 6.9 -3.0 3.9 1.5 -0.2 0.4 0.5 6.1 -1.0 -2.2 2.9 -0.7 2.2
11.1 -5.7 5.4 2.2 -0.3 0.9 0.4 8.6 -1.7 -3.0 3.9 -0.8 3.1
30 August 2013
20
Isbank (Baa2/BB+/BBB)
Shareholding structure: Isbank Pension Fund (39.7%), Ataturk shares through the Republican Peoples Party or CHP (28.1%), free float (32.2%). CHP holds voting rights but dividends on its stake are paid to other non-profit entities, the Turkish Language Institute and Turkish Historical Society. Key balance sheet exposures: Solid TRY funding base historically underpinned by the banks broad network (second-largest in Turkey and No.1 among privately-owned banks). The companys share of borrowings has increased, however, reflecting the ongoing change in the banks funding priorities. The banks sovereign bond portfolio shrank in the past three years from 30% to 18% of total assets, following the increase in lending and loan-to-deposit ratio increased from 0.8x to 1.2x. Historically high (and numerous) equity participations negatively affect the banks capital position: about 20 participations left, with the largest remaining holdings in financials and services, as well as manufacturing (Sisecam) and telecoms (Avea).
Subordinated debt 1%
Other 11%
2010 148.3 71.5 85.7 55.5 30.2 19.0 0.83x 31.4% 30.4% 22.9% 3.4% 1.2% 4.6% 1.9% 18.8% 17.6%
2011 182.6 101.1 96.5 60.8 47.4 20.3 1.05x 24.5% 20.1% 29.0% 2.1% 1.0% 3.9% 1.7% 12.2% 14.1%
2012 199.4 116.9 102.8 63.7 45.8 24.9 1.14x 21.0% 20.8% 26.0% 1.8% 1.7% 4.3% 1.2% 16.4% 16.3%
1Q13 205.2 121.5 101.9 64.0 52.1 25.2 1.19x 19.7% 19.1% 28.6% 1.9% 1.9% 4.8% 1.8% 17.7% 16.1%
1H13 219.4 136.6 110.5 67.7 57.7 24.5 1.24x 18.1% 15.5% 29.3% 1.8% 1.9% 4.6% 1.8% 15.3% 14.7%
Capital adequacy: Below-peer but still adequate capitalisation: TCAR at 14.8% (-140bp in 1H13, consumed largely by the market revaluation reserve against AFS securities) and 12.1% Tier I ratio at end-2Q13. 15% share of supplementary capital due to subordinated debt, including USD 1bn 10-year LT2 Eurobond issued in 2012.
126.1 55.6 70.1 52.4 30.2 15.3 0.79x 31.8% 32.4% 26.6% 5.1% 2.3% 5.8% 4.3% 20.2% 18.1%
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Credit risk: Low NPLs at 1.8% of total loans, with a specific coverage ratio of about 75%. Higher NPLs (3.9% at end-1H13) were reported in credit card lending, but without any significant impact on the banks cost of risk. Loans classified into close monitoring categories increased slightly in 1H13, but still far from the peak levels of 2008-2009. Relatively low risk concentrations by sectors and borrowers, with the loan book split almost equally between commercial and retail/SME lending.
Liquidity risk: Liquidity is supported by the core deposit base; any significant maturity mismatches are covered by short-term repo as well as opportunistic borrowings on the debt market. The share of repo and wholesale funding in the banks total liabilities has not changed materially since 2009: total borrowings (including repo) stood at 29%, while foreign bank loans funded only 11.5% of total liabilities at the end of 1H13. Debt securities issued increased from nearly zero in 2010 to 4% of total liabilities.
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2010 10.9 -5.4 5.4 1.5 -1.4 0.0 0.3 4.0 10.8 -1.2 -5.7 3.9 -0.7 3.2
2011 12.1 -6.7 5.4 1.8 0.7 0.2 0.4 4.1 11.2 -1.5 -6.6 3.1 -0.7 2.4
2012 14.7 -7.8 6.8 2.1 0.8 0.2 0.9 4.6 13.7 -1.3 -7.8 4.7 -1.0 3.7
1Q13 3.6 -1.6 2.0 0.6 -0.2 0.1 0.2 1.2 3.8 -0.5 -2.0 1.3 -0.2 1.1
2Q13 3.6 -1.6 2.0 0.6 -0.2 0.1 0.2 1.1 3.8 -0.6 -2.1 1.0 -0.2 0.8
1H13 7.2 -3.2 3.9 1.2 -0.4 0.2 0.4 2.3 7.6 -1.1 -4.1 2.4 -0.5 1.9
11.4 -5.6 5.7 1.5 -0.5 0.2 0.6 3.5 10.9 -2.4 -5.2 3.4 -0.6 2.8
2009 5.8% 16.4% 3.4% 11.4% 7.7% 2.2% 5.7% 8.8% 1.2% 5.7% 47.7% 13.4% 5.1% 3.6% 20.2%
2010 4.6% 12.9% 3.7% 9.2% 7.1% 2.3% 5.6% 5.8% 1.4% 3.6% 52.6% 14.0% 2.7% 1.5% 18.8%
2011 3.9% 14.0% 4.5% 9.8% 8.5% 3.4% 6.8% 5.5% 1.1% 3.0% 59.1% 16.0% 4.0% 2.2% 12.2%
2012 4.3% 12.5% 4.6% 9.9% 6.4% 2.3% 4.9% 6.1% 2.3% 5.0% 56.7% 15.2% 6.3% 3.5% 16.4%
1Q13 4.8% 12.2% 4.7% 9.4% 5.5% 1.9% 4.1% 6.8% 2.8% 5.4% 51.2% 15.0% 5.5% 0.8% 17.7%
1H13 4.6% 11.0% 4.6% 8.8% 5.1% 1.8% 4.0% 5.9% 2.7% 4.8% 54.0% 16.0% 4.8% 1.5% 15.3%
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Halkbank (Baa2/--/BBB-)
Shareholding structure: the state through the Privatisation Administration (51.1%), free float (48.9%). A 25% stake was privatised in 2007 and further 23.9% floated through an SPO in November 2012. Full privatisation is unlikely in the medium term. Key balance sheet exposures: Conservative funding structure, with a loan-todeposit ratio just above 1x and retail deposits forming more than one-half of total deposits. Loan book dominated by short-term, TRYdenominated loans; core franchise in retail and SMEs (supported by interest rate subsidies). Asset quality has been improving supported by loan growth. Decreased share of securities portfolio (about 18% of total assets at end-1H13), dominated by floatingrate notes (61%) and CPI linkers (31%). More than one-half of total securities (mostly CPI-linked) booked as HTM. Borrowings largely consisted of bank deposits and repo with the CBRT, but overall, the bank has a lower dependence on wholesale funding than most of its peers.
Other 7%
2010 71.6 45.8 51.3 28.6 10.3 7.4 0.89x 27.8% 28.2% 15.7% 3.8% 1.9% 5.3% 1.2% 28.0% 15.5%
2011 90.7 57.7 59.2 34.5 19.4 8.6 0.97x 25.5% 26.5% 23.2% 2.9% 1.1% 4.8% 1.3% 25.4% 13.9%
2012 107.4 67.5 72.4 38.3 18.3 11.5 0.93x 21.4% 32.4% 18.7% 2.9% 2.9% 5.3% 1.4% 26.3% 15.3%
1Q13 110.8 70.8 71.7 37.2 22.1 12.4 0.99x 20.8% 30.5% 22.1% 2.9% 2.8% 5.5% 1.1% 24.8% 15.3%
1H13 116.3 75.6 73.1 37.9 26.3 12.1 1.03x 18.1% 28.7% 24.8% 2.8% 2.7% 5.4% 1.2% 23.8% 14.1%
Capital adequacy: Adequately capitalized, with a TCAR of 14.7% and a Tier I ratio at 13.3% (end-1H13), supported by the banks high retained profits. No subordinated debt issued so far.
59.4 33.8 42.0 24.5 9.7 5.8 0.81x 35.3% 28.9% 17.7% 4.9% 4.5% 6.2% 2.1% 33.4% 15.8%
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Credit risk: NPLs at a low 2.7%, with coverage close to 100%, including discretionary provisions; higher level of NPLs (about 4.5%) in credit cards did not affect asset quality metrics. Focus on presumably high-risk/high-margin SME business actually implies low single-name concentrations, as well as implicitly strong asset quality due to the use of collective collateral schemes and interest rate subsidies. As a state-controlled bank, Halkbank holds the exclusive right to issue subsidised loans to SMEs and directed fund loans (the state budget covers around 50% of the interest payments, but the bank bears the credit risk). Performing loans classified as watchlisted and subject to close monitoring stood at 2.7% at the end of 1H13 in line with the banks peers.
Liquidity risk: Strong, diversified deposit base fully covering the banks current funding needs. Additional support through Turkish regulations requiring certain types of state-owned companies to keep deposits with state-owned banks. Strengthening access to capital markets, mostly via rolling syndicated loans and long-term loans from international financial institutions, as well as specialised funding provided by the state for the purposes of back-to-back lending.
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2010 6.4 -3.2 3.2 0.6 -0.1 0.0 0.1 0.6 4.5 -0.5 -1.7 2.4 -0.5 1.8
2011 7.3 -3.8 3.5 0.8 -0.1 0.0 0.2 0.8 5.3 -0.7 -1.9 2.6 -0.6 2.0
2012 9.1 -4.5 4.6 1.0 -0.2 0.0 0.6 0.7 6.7 -0.9 -2.4 3.4 -0.8 2.6
1Q13 2.3 -1.0 1.3 0.3 -0.1 0.0 0.2 0.2 1.9 -0.2 -0.8 1.0 -0.2 0.7
2Q13 2.2 -0.9 1.2 0.3 -0.4 0.0 0.1 0.3 1.9 -0.2 -0.8 0.8 -0.1 0.7
1H13 4.5 -2.0 2.5 0.5 -0.5 0.0 0.3 0.5 3.8 -0.4 -1.6 1.8 -0.4 1.4
6.8 -3.7 3.1 0.5 -0.1 0.0 0.0 0.4 4.0 -0.6 -1.3 2.1 -0.4 1.7
2010 5.3% 11.7% 3.0% 9.7% 8.3% 2.5% 5.9% 3.4% 0.5% 3.9% 37.1% 13.8% 3.0% 1.8% 28.0%
2011 4.8% 12.5% 3.8% 10.5% 9.4% 3.8% 7.1% 3.0% 0.1% 3.3% 36.9% 15.7% 4.0% 2.5% 25.4%
2012 5.3% 12.5% 4.1% 10.7% 7.7% 2.9% 5.2% 4.8% 1.2% 5.5% 35.8% 15.1% 8.3% 4.8% 26.3%
1Q13 5.5% 11.9% 4.2% 10.2% 6.9% 2.4% 4.5% 5.0% 1.7% 5.7% 39.9% 13.7% 9.6% 1.5% 24.8%
1H13 5.4% 11.0% 5.1% 9.4% 6.4% 2.3% 4.2% 4.6% 2.8% 5.2% 41.3% 14.3% 8.4% 2.6% 23.8%
6.2% 11.7% 3.0% 11.8% 8.3% 2.5% 6.1% 3.4% 0.5% 5.7% 32.5% 13.4% 0.5% 0.3% 33.4%
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2010 91.3 56.2 53.4 25.7 16.9 10.7 1.05x 19.1% 24.0% 20.6% 3.4% 2.8% 5.3% 2.4% 23.3% 15.4%
2011 116.1 71.5 64.6 31.7 26.4 12.6 1.11x 16.3% 21.0% 25.2% 3.0% 2.0% 4.3% 1.3% 19.6% 14.9%
2012 129.9 80.4 69.7 35.5 26.2 16.0 1.15x 15.2% 24.0% 22.7% 3.2% 3.2% 4.8% 1.8% 14.6% 15.2%
1Q13 133.5 83.4 71.7 35.3 28.9 16.1 1.16x 13.6% 24.8% 24.3% 3.4% 2.9% 4.9% 1.8% 13.5% 14.7%
1H13 141.2 90.1 76.4 34.6 30.9 16.3 1.18x 12.8% 21.2% 24.4% 3.5% 2.9% 4.8% 1.7% 15.4% 14.8%
Capital adequacy: Capital adequacy slightly below peer average (TCAR at 14.8% and Tier I ratio at 10.5%) but sufficient given the banks current risk profile. Positive effect on capital position from an agreed sale of YK Sigorta insurance business to Allianz: a capital gain of about TRY 1.2bn is to be booked in 3Q13, with a positive CAR impact of some 90bp on a consolidated basis. The USD 1bn LT2 subordinated Eurobond issued in 2012 is an alternative re-capitalisation source.
69.5 41.5 42.1 24.0 10.7 8.6 0.99x 21.6% 29.8% 17.0% 6.3% 3.0% 6.7% 4.0% 20.1% 16.5%
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Credit risk: Loan growth has been primarily driven by commercial installment loans and retail (mortgage and general purpose loans) in 1H13. The banks loan book is well-diversified, without any material sector concentrations; related party (intragroup) lending at about 6.6% of total capital (vs. 20% regulatory limit). FX loans stood at 32% of total loans, almost entirely driven by commercial and corporate lending. The banks asset quality metrics in line with sector averages. Cost of risk is normalising down from 2011, given the seasoning of the loan portfolio after the period of accelerated growth (+25% in 2011).
Liquidity risk: Robust deposit base supporting asset expansion in previous years and sufficient to maintain an adequate short-term liquidity. No significant dependence on repo and other money market borrowings (the share of repo in total liabilities below 6%, below-peer encumbrance of the bond portfolio). Adequate wholesale funding structure, with 12% share of foreign bank loans in total liabilities and debt borrowings below 5%. A track record of support provided by Unicredit Group (in the form of guaranteed debt).
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2010 6.4 -2.8 3.6 2.1 -0.3 0.0 1.4 6.6 -1.2 -2.7 2.8 -0.5 2.3
2011 7.8 -4.1 3.7 2.4 -0.4 -0.1 1.1 6.6 -0.9 -2.9 2.9 -0.6 2.3
2012 10.1 -5.2 4.9 2.3 -0.5 0.0 0.6 7.4 -1.4 -3.3 2.7 -0.6 2.1
1Q13 2.5 -1.2 1.3 0.6 -0.1 -0.1 0.1 1.8 -0.4 -0.8 0.7 -0.1 0.5
2Q13 2.4 -1.1 1.4 0.6 -0.1 0.2 0.1 2.2 -0.4 1.0 0.9 -0.2 0.7
1H13 4.9 -2.2 2.7 1.2 -0.2 0.1 0.2 4.0 -0.7 0.2 1.6 -0.3 1.2
7.4 -3.5 3.9 1.9 -0.3 0.4 0.2 6.1 -1.6 -2.5 1.9 -0.4 1.6
YE10 5.3% 12.9% 4.4% 9.0% 8.7% 2.8% 5.2% 4.2% 1.6% 3.8% 40.5% 31.2% -0.5% -0.3% 23.3%
YE11 4.3% 13.7% 4.9% 10.1% 10.9% 4.7% 6.5% 2.8% 0.2% 3.6% 43.9% 35.7% -2.1% -1.1% 19.6%
YE12 4.8% 12.5% 5.2% 10.4% 8.3% 3.0% 4.8% 4.1% 2.2% 5.7% 44.4% 31.7% 0.5% 0.2% 14.6%
1Q13 4.9% 12.4% 5.1% 9.8% 7.3% 2.5% 4.2% 5.2% 2.6% 5.6% 44.0% 30.7% -4.8% -0.5% 13.5%
1H13 4.8% 12.5% 5.6% 9.1% 6.9% 2.6% 3.9% 5.6% 3.0% 5.2% 42.1% 29.4% 2.9% 0.7% 15.4%
6.7% 17.9% 5.0% 10.9% 9.3% 2.3% 5.3% 8.7% 2.7% 5.6% 41.4% 31.5% 6.1% 4.3% 20.1%
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Vakifbank (Baa2/BB+/BBB-)
Shareholding structure: charitable foundations represented by the General Directorate of Foundations (58.5%), VakifBank Pension Fund (16.1%), free float (25.2%). The GDF is a governmental entity reporting directly to the prime minister. Key balance sheet exposures: Below-peer asset quality (NPLs at 4.2% of total loans), partially due to the lack of writing off legacy impaired assets, including fully-provisioned loans. Largely deposit-funded, based on good access to state-owned entities and the payroll accounts of public-sector employees, but with the share of wholesale financing (IFIs, syndicated bank loans, local currency bonds and repo) gradually increasing over the past few years. Liquidity ratios slightly deteriorated due to the banks above-market growth in retail and SME lending in 2011-2012. This has also resulted in a significant decrease in the government bonds portfolio, which is currently dominated by FRNs and CPI-linkers.
2010 74.5 46.9 46.1 16.6 16.9 8.6 1.02x 23.8% 20.9% 24.7% 5.0% 3.3% 4.5% -2.3% 14.0% 13.9%
2011 91.4 60.3 58.4 20.6 18.9 9.6 1.03x 20.6% 22.7% 22.5% 3.7% 2.3% 4.1% -1.8% 15.0% 13.2%
2012 105.5 71.8 64.3 25.0 23.2 11.8 1.12x 17.2% 20.9% 24.1% 3.9% 4.6% 5.0% -2.2% 13.3% 15.6%
1Q13 107.5 73.7 63.1 25.5 26.4 12.1 1.17x 16.9% 18.3% 26.9% 4.2% 3.7% 6.1% -3.0% 18.9% 15.4%
Capital adequacy: The bank is sufficiently capitalized, with 15.4% TCAR and Tier I ratio above 11%. The negative effect on TCAR from MtM valuation adjustment in 1H13 was about 30bp. We expect slower lending growth in 2013 to prevent deterioration of the banks capital ratios, while its exposure to market risk (through available-for-sale securities) is relatively low.
65.2 36.7 43.0 13.2 12.9 7.6 0.85x 28.0% 26.4% 21.6% 6.2% 7.6% 5.8% 2.9% 19.2% 15.2%
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Credit risk: NPL ratio has been higher than that of peers due to a specific policy allowing the non write off of nonperforming loans. Most of these legacy NPLs are fully provisioned, as indicated by the banks relatively high coverage ratios. Asset quality issues might resurface from seasoning portfolios implying potential pressure on capital. Loan impairment charges picked up in 2012, at 2.2% of average total loans; however, it largely depends on the growth of new loan origination. No excess risk concentrations in the loan portfolio, given the share of the 20 largest exposures below 20% of total loans. Relatively low share of FX-denominated loans (about 24% of total loans) implying moderate sensitivity to FX-driven deterioration in borrowers financial performance.
Liquidity risk: Interest rate pricing mismatches, typically for Turkish banks, is balanced with the stability of the core deposit base. The banks dependence on wholesale funding sources has increased, but remains insignificant (just above 12% of total liabilities on a bank-only basis). Foreign borrowings largely represent loan facilities from international financial institutions aimed at supporting SMEs and blue-chip project finance in the energy sector. Strong deposit growth (+13% in 1H13) backed by the banks core accounts, including payroll-based retail deposits, as public-sector entities usually need to hold part of their deposits with state-owned banks.
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2010 6.0 -3.2 2.9 0.6 -0.1 0.0 0.3 1.1 4.8 -1.0 -2.4 1.4 -0.3 1.1
2011 6.7 -3.7 3.0 0.7 -0.2 0.0 0.1 1.5 5.1 -0.9 -2.5 1.7 -0.3 1.4
2012 8.9 -4.7 4.3 0.7 -0.3 0.0 0.3 1.3 6.3 -1.5 -3.0 1.8 -0.4 1.4
1Q13 2.4 -1.0 1.4 0.2 -0.1 0.0 0.1 0.4 2.0 -0.5 -0.8 0.7 -0.1 0.6
6.6 -3.4 3.2 0.6 -0.2 0.0 0.2 0.8 4.6 1.0 2.1 1.5 -0.3 1.3
2010 4.5% 14.2% 4.2% 9.5% 8.1% 2.7% 5.9% 6.1% 1.5% 3.6% 49.6% 11.7% 6.7% 3.7% 14.0%
2011 4.1% 14.9% 5.0% 10.4% 9.6% 4.2% 7.3% 5.3% 0.8% 3.1% 48.9% 14.6% 1.0% 0.5% 15.0%
2012 5.0% 15.4% 5.5% 10.8% 8.8% 3.2% 5.4% 6.6% 2.3% 5.4% 48.0% 10.8% 5.4% 2.9% 13.3%
1Q13 6.1% 14.4% 5.2% 10.3% 6.6% 2.4% 4.7% 7.9% 2.8% 5.6% 40.0% 11.4% 4.2% 0.7% 18.9%
5.8% 15.6% 4.9% 11.3% 8.7% 2.7% 6.3% 6.9% 2.2% 5.0% -44.8% 13.9% 4.6% 2.8% 19.2%
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Finansbank (Ba2/--/BBB-)
Shareholding structure: National Bank of Greece (77.2%), NBG Finance (Dollar) plc (9.7%), NBGI Holdings BV (7.9%), IFC (5%), other (0.2%). NBGs consolidated stake is 94.8% since 2006. IFC has the right to appoint one out of 12 board members. Key balance sheet exposures: Risk profile affected by ownership risk given market concerns regarding potential contagion from Greece. In fact, Finansbank has not been affected by NBGs issues in the home market: it does not depend on NBG for funding (except subordinated loans), nor it takes any material Greece-related exposures on the asset side. The bank has been aggressively expanding in highmargin/unsecured retail lending. This expansion has not been fully supported by a deposit growth, as indicated by the loan-to-deposit ratio above 1.2x, implying above-peer reliance on market funding sources. A significant FX mismatch between loans and funding (covered largely via swapping FX funds into TRY on a short-term basis) might indicate high sensitivity to market risk.
Money market repo payables Foreign bank 3% funding 9% Debt securities issued 8%
2010 37.7 26.4 23.1 14.0 6.7 5.4 1.14x 18.3% 25.5% 19.8% 6.7% 3.3% 7.8% -1.2% 20.2% 17.3%
2011 45.9 31.7 28.7 19.8 6.7 5.9 1.10x 14.2% 21.3% 16.1% 5.8% 4.0% 6.2% -1.1% 15.9% 17.6%
2012 53.3 38.6 31.7 19.1 10.5 7.4 1.22x 12.7% 23.1% 21.8% 6.5% 4.4% 6.8% -2.8% 16.8% 19.2%
1Q13 53.1 40.0 32.3 19.7 9.9 7.6 1.24x 11.6% 21.4% 20.6% 6.8% 4.6% 7.5% -2.0% 14.9% 19.1%
Capital adequacy: The banks TCAR stood at 19.1% significantly above its peers at the end of 1Q13 and resilient to a potential increase in risk weights and general provisions on credit card installment loans. NBG has a track record of providing capital support to Finansbank via subordinated loans that might be converted into Tier I equity.
28.9 18.9 18.4 11.9 4.5 3.9 1.03x 17.7% 33.5% 17.0% 7.7% 6.5% 9.0% -4.5% 14.6% 18.9%
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Liquidity risk: Given the largely short-term deposit base, the bank has strengthened its maturity profile through borrowings in debt markets, including Eurobonds, short-term local bonds and syndicated loans. Low concentration of the banks loan portfolio (more than 60% of total loans are short-term) naturally backs its current liquidity needs without any significant reliance on money market or repo financing.
Credit risk: The share of FX loans is unusually low: more than 90% of total loans are TRY-denominated. The banks loan portfolio is dominated by consumer loans (43%), retail mortgages (17%) and SMEs (14% of total loans), with credit approvals largely based on scoring models. Sustainably high margins offset the currently moderate cost of risk, providing a sufficient loss absorption buffer against a moderate increase in risk charges.
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2010 3.9 -1.6 2.4 0.8 -0.1 0.0 -0.3 0.2 2.9 -0.3 -1.5 1.2 -0.2 0.9
2011 4.6 -2.3 2.3 1.0 -0.2 0.0 -0.2 0.2 3.2 -0.3 -1.7 1.2 -0.3 0.9
2012 5.7 -2.7 3.0 1.3 -0.2 0.0 -0.3 0.5 4.3 -1.0 -1.9 1.4 -0.3 1.1
1Q13 1.4 -0.6 0.9 0.3 0.0 0.0 -0.1 0.1 1.1 -0.2 -0.5 0.4 -0.1 0.3
4.0 -1.7 2.3 0.7 -0.1 0.0 -0.4 0.1 2.7 -0.8 -1.3 0.6 -0.1 0.5
2010 7.8% 17.2% 4.2% 11.1% 8.9% 2.9% 6.0% 8.3% 1.3% 5.1% 50.4% 26.7% -8.9% -4.8% 20.2%
2011 6.2% 18.5% 5.4% 12.1% 11.6% 5.1% 7.5% 6.9% 0.4% 4.7% 52.8% 32.6% -6.6% -3.6% 15.9%
2012 6.8% 19.7% 5.2% 12.1% 8.3% 3.3% 5.3% 11.4% 1.9% 6.8% 44.5% 30.2% -8.1% -4.7% 16.8%
1Q13 7.5% 19.0% 5.0% 11.4% 7.4% 2.8% 4.5% 11.6% 2.1% 6.9% 48.8% 27.3% -5.0% -0.7% 14.9%
9.0% 20.6% 6.0% 13.5% 9.5% 2.7% 5.9% 11.1% 3.3% 7.5% 45.8% 26.7% -13.3% -9.3% 14.6%
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Disclosures
Important Disclosures
The information and opinions contained within VTB Capital Research are prepared by CJSC VTB Capital. As used in this disclosure section, "VTB Capital" includes CJSC VTB Capital, VTB Capital Plc and their affiliates as necessary. VTB Capital and/or any of its worldwide affiliates which operates outside of the USA (collectively, the VTB Group) do and seek to do business with companies covered in their research reports. Thus, investors should be aware that the VTB Group may have a conflict of interest that could affect the objectivity of this research report.Investors should consider this research report as only a single factor in making their investment decision. Where an issuer referred to in this report is not included in the disclosure table, the issuer is either considered not to be covered by VTB Capital Research, or the reference is considered to be incidental and therefore the issuer is not a subject company within this report.
Analysts Certification
The research analysts whose names appear on research reports prepared by VTB Capital certify that: i) all of the views expressed in the research report accurately reflect their personal views about the subject security or issuer, and ii) no part of the research analysts compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analysts in research reports that are prepared by VTB Capital. The research analysts whose names appears on research reports prepared by VTB Capital received compensation that is based upon various factors including VTB Capitals total revenues, a portion of which are generated by VTB Capitals investment banking activities.
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Investment Ratings
VTB Capital uses a three-tier recommendation system for stocks under coverage: Buy, Hold, or Sell. BUY: 12-month target price exceeds the market price by 20% or more (as of the publishing date) HOLD: 12-month target price is no less than the market price but does not exceed it by more than 20% (as of the publishing date) SELL: 12-month target price is below the market price (as of the publishing date) RESTRICTED: In certain circumstances, VTB Capital is not able to communicate issuer ratings due to internal policy and/or law and regulations. UNDER REVIEW: In the event that significant information about an issuer is due to be announced or is expected to become public in the foreseeable future, an analyst might place the relevant issuer Under Review. This means that the analyst is reviewing, but not currently altering, the previously published rating while waiting for the impending information. VTB Capitals distribution of stock ratings (and rating for banking clients) is as follows:
Price Targets
VTB Capital Research employs a Discounted Cash Flow (DCF) model as its principal valuation framework for estimating the fair and target prices of stocks. The central metric is fair current Enterprise Value (EV), which is obtained on the basis of Free Cash Flow to Firm (FCFF) discounted at a constant company-specific Weighted Average Cost of Capital (WACC).
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