Halkbank Reduces Profit Guidance on $490 Million Bad Loan

Turkiye Halk Bankasi AS, Turkey’s biggest publicly traded state bank, cut its 2014 profit forecast as it said a loan valued at 1.08 billion liras ($490 million) was non-performing.

The bank forecasts a 15 percent contraction in profit this year, compared with previous guidance for there to be little change, Elvan Oztabak, head of investor relations, said on the lender’s earnings call late yesterday. The bank reported profit of 601 million liras for the third quarter, narrowly beating analysts’ estimates.

Halkbank used 132 million liras of its free provisions to cover 20 percent of a loan made to electricity grid operator Osmangazi Elektrik Dagitim AS, according to a report by Deutsche Bank AG today. Halkbank said on the earnings call that it expects to set aside more provisions, increasing the ratio to 50 percent next quarter. Bank executives didn’t respond to requests for comment made to the investor relations department today.

“A big portion of the burden, which is a result of this provisioning process, could be met by existing buffers in this quarter,” said Hakan Aygun, an analyst at Ak Investment in Istanbul. “However, in the fourth quarter and in 2015 it will have a negative impact on Halkbank’s former earnings guidance.”

Slower Growth

Halkbank’s non-performing loan ratio rose by more than 1 percentage point to 3.7 percent in the third quarter, compared with an industry average of 2.9 percent.

Slowing Turkish economic growth may add to pressure on bank loan books. The government revised its year-end growth forecast to 3.3 percent from 4 percent this month. Murat Mergin, head of strategic planning for Turkiye Garanti Bankasi AS, Turkey’s largest publicly traded lender, said on his bank’s earnings call on Oct. 27 that Turkey would see an increase in non-performing debt “across the board” as growth slows.

Halkbank formally announced plans to establish an Islamic bank in a public filing after the market closed yesterday. Bank management was waiting for some amendments to regulations before proceeding with their Islamic banking plans, Mehmet Hakan Atilla, head of international banking, said on yesterday’s call.

Turkey’s Saving Deposit Insurance Fund, or TMSF, could sell the licenses of defunct lenders Adabank and Turk Ticaret Bankasi to state banks, following the approval of legislation submitted to the Parliament in draft form, Sabah newspaper reported yesterday. The licenses could be sold to allow state banks to enter Islamic finance, Sabah said.

‘Depressive Effect’

While state banks’ entry into Islamic banking won’t have a material impact for a few years, “gradually it may make up to a 5 percent to 10 percent contribution to the results of Halkbank,” said Ak Investment’s Aygun. The effect of the competition on existing Islamic banks could be “depressive,” he said.

Halkbank advanced 0.7 percent to 14.75 liras by 3:05 p.m. in Istanbul, extending their increase to 21 percent this year. The shares are still more than 6 percent below their level on Dec. 16. That’s the day before former Halkbank Chief Executive Officer Suleyman Aslan was arrested and jailed in a corruption probe involving alleged bribery for facilitating trade with Iran.

Aslan was removed from Halkbank’s board in March. A prosecutor dropped the case against him and 52 other suspects earlier this month.

Oztabak, the head of investor relations, said that the sale of stakes in two Halkbank insurance units would probably start next month, and be completed in the second quarter of 2015.

Before it's here, it's on the Bloomberg Terminal.