Turkish Banks Face A Year Of Consolidation After Strong 2020

We summarise our guidance for 2021 provided by four leading private banks at the beginning of this year below:

  • TL loan growth of 15-20% in 2021, down from 20%+ in the prior year;
  • Flat to falling levels of FX loans, in keeping with 2020 dynamic;
  • NIM reduction, by 20-100bp YoY;
  • Fees and commission income growth in the teens, after a decline in 2020;
  • NPL’s to stay in the sub 6-7% range;
  • Cost of risk in the sub-200-250bp range, below 2020 levels;
  • Opex growth in the teens;
  • Sufficient capital buffers.

We also note that these outlooks were predicated on Turkish economic growth in the range of 3.5% to 5.0% in 2021 and inflation declining to 10-11% by the end of this year, and on a reduction in funding costs for the banks relative to the start of this year.

Of note, this year for the Turkish banks has been a resumption of modest dividend distributions by the top private banks, with the consent of the regulator (corresponding to up to 10% of the 2020 net profits). Conversely, publicly-listed state banks refrained from following suit. We feel that the move is a reflection of the top private banks’ comfort with the solvency ratios, combined with the broadly constructive outlook for the current year.

In conclusion, we expect top Turkish private and state banks to have a satisfactory year in 2021 while not nearly matching the growth rates seen during the prior year and with risks crystallizing for some of the non-performance loans by the end of this year (while also being fairly well provisioned for this eventuality).

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