Credit Suisse Cuts Turkish Banks From One Year at Overweight

Credit Suisse Group AG cut Turkish banks to neutral after keeping an overweight recommendation on the nation’s lenders for more than a year, it said in a report today.

“Turkish banks are vulnerable to potential risk factors that the market has been neglecting,” Ates Buldur, an Istanbul- based analyst at Credit Suisse Securities Ltd. a unit of Credit Suisse, said in the e-mailed report. Last year’s “net interest margin was the peak for Turkish banks and margins will contract eight basis points in 2013 and 17 basis points in 2014,” he said.

State-run Turkiye Halk Bankasi AS (HALKB) and Turkiye Vakiflar Bankasi TAO (VAKBN) were downgraded to neutral from outperform. Halkbank’s decision to be more aggressive in the credit card segment was not seen as being “value-creative.” Yapi ve Kredi Bankasi AS, a unit of UniCredit SpA, was the only large-cap bank in coverage with an outperform rating. Credit Suisse said it saw “opportunities” in medium-sized banks such as Turkiye Ekonomi Bankasi and Turkiye Sinai Kalkinma Bankasi AS. (TSKB) It maintained a neutral rating for Akbank TAS. (AKBNK)

Turkey’s main banking index dropped 1.6 percent by 1:37 p.m., compared with a 0.8 percent fall in the benchmark ISE National 100 Index. Akbank led losses among lenders, dropping 3.4 percent, the most since May 2012, to 9.9 liras.

The size of loan books and the ability to cut deposit costs will be among the key differentiating factors for lenders in 2013, Buldur said, estimating an 8 percent growth in earnings for this year. Global liquidity, along with expectations of another credit rating upgrade, will prove helpful, according to Credit Suisse.

Profit

The banks’ profit increased by 10 percent to 21.8 billion liras in 2012, according to data from the banking regulator. Loans grew 17 percent on an annual basis to 805.4 billion liras by Jan. 11, while deposits rose 13.5 percent to 821.8 billion liras. The weighted-average interest rate for lira-deposits was 8.36 percent today, according to the central bank.

Fitch Ratings raised Turkey to investment grade on Nov. 5. The country may get a second upgrade by another agency within six months, Goldman Sachs Group Inc. said today in an e-mailed report.

Credit Suisse drew attention to risk factors facing Turkish banks such as the new consumer protection law and the ongoing competition board case. “Owing to the strong macro and banking sector fundamentals, market participants have been neglecting these important factors,” Ates Buldur said.

The draft consumer law is expected to annul or reduce some of the bank fees, such as annual credit card and account maintenance charges. The law has not passed through parliament yet. Turkey’s Competition Board started an investigation into 12 Turkish banks, including major ones such as Akbank, Garanti and Turkiye Is Bankasi AS, the largest bank by assets, to find out if they colluded in setting loan and deposit rates. The final hearing is scheduled for Feb. 25 and a decision is expected within 15 days.

“We call for the end of the rally in Turkey bank stocks,” Credit Suisse said. “Russian and Hungarian banks, particularly Sberbank and OTP are our preferred plays in Eastern Europe, Middle East and Africa.”

To contact the reporter on this story: Sibel Akbay in Istanbul at sakbay@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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