Turkish Banks’ Asset Quality Worsening, Morgan Stanley Says

The asset quality of Turkish banks is declining and higher funding costs will increase risks this year, Morgan Stanley said.

The book values of Akbank TAS (AKBNK), Turkiye Is Bankasi (ISATR) AS and Yapi & Kredi Bankasi AS are expected to fall because asset values will need to be marked down in the fourth quarter, Morgan Stanley analysts including Magdalena Stoklosa and Samuel Goodacre said in an e-mailed report today.

“We will see continued, gradual deterioration of asset quality in the fourth quarter” while credit extension in Turkey has entered a “lower growth environment,” the analysts said. Lower asset quality will “push net cost of risk higher in 2012,” according to the report.

Markdowns in the valuations of assets will lead to a two to four percent decline in book value at Akbank, Isbank and Yapi Kredi (YKBNK), while Turkiye Garanti Bankasi AS (GARAN)’s book value is expected to remain stable, the analysts said.

Garanti has the “most comfortable” capital position among Turkish banks and retains an “overweight” rating, the report said. Yapi & Kredi Bankasi AS, the bank owned by Koc Holding AS (KCHOL) and Italy’s UniCredit SpA (UCG), also retains its “overweight” on a possible re-rating after UniCredit’s rights issue, the report said.

Yapi Kredi’s earnings per share may rise 1.2 percent and Isbank’s 5.3 percent in the fourth quarter. Garanti’s may rise 56 percent and Akbank’s fall by 5.8 percent, the report said.

The Turkish banking index rose 0.9 percent at 10:34 a.m. in Istanbul trading. The measure has gained 8.7 percent this year following a 32 percent decline last year.

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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