Turkish banking industry on foreign investors’ radar

ISTANBUL

After Goldman Sachs increases its earning per share (EPS) estimates for the Turkish banks in its coverage earlier this month, this time Bank of America (BofA) lifted its EPS for Turkish lenders.

“We continue to have a positive view on Turkish private banks,” BofA said in a report released on Feb. 19.

BofA increased its 2024-26 EPS by an average of 14 percent, as it expects a muted first quarter profitability to be more than compensated for by a fast recovery in the second half of this year, particularly in the final quarter of 2024.

BofA sees 2024 as a transition year ahead of a promising 2025 when it expects ROEs [return on equity] to increase, CPI and -potentially the cost of equity (CoE) - to come down and book value growth to most likely outpace annual profits (upside risk).

“We acknowledge that this may not be imminent. However, the trend seems clear, and the markets look ahead. Buy Akbank, Garanti, İşbank and Yapı. We reiterate our ‘underperform’ ratings on state banks Halk and Vakıf.”

It increased its price target for Akbank from 53.5 Turkish Liras to 66 liras, for Garanti from 78 liras to 99 liras, for Yapı Kredi from 28.5 liras to 36 liras and for İşbank from 34.5 liras to 42 liras.

Turkish banks have long been a ‘trading universe’ with focus largely on the next quarter’s outlook, BofA said, adding that however, this time around it sees the investment case as being structural normalization and improved real returns in 2025 and thereafter.

“We see the ‘transitionary’ 2024 as an opportunity to own private banks where ROEs should settle with the CoE.”

Amid Türkiye’s credit default risk (CDS) and foreign investors’ growing interest Turkish shares, Borsa Istanbul’s main index climbed to an all-time high, driven by the bank index.

The combined net income of Turkish banks increased from 432 billion Turkish Liras in 2022 to 603.6 billion liras in 2022 with the net profit amounting to 68.2 billion liras in December alone.

Investors have been keen to refresh their views on Turkish banks after several years of disengagement, analysts at BofA said in a report released in January.

“The intensity of recent interactions reminds us of the pre-2013 period – years of heavy positioning, single-digit rates, and anticipation of an investment grade,” the bank said of that time.

The common view is banks would offer the best exposure to Türkiye’s ‘normalization’ theme, BofA argued in the January report.

Goldman Sachs last week also increased its EPS for the Turkish lenders Akbank, Garanti, Yapı Kredi and Vakıf in its coverage, on the back of higher revenue estimates (mainly from improving non-interest income) and higher loan growth on average, which is partly offset by higher opex expectations on average.