VTB Sees Top of Turkish Banks’ Rally With Sell Call on Lenders

Turkish banks’ strong start to the year won’t last past the first quarter, according to VTB Capital ZAO, which has a sell recommendation on all of the local lenders it covers.

Expectations of a domestic interest rate cut, more quantitative easing from the European Central Bank and lower oil prices have fueled positive sentiment toward Turkish financial companies. Their stocks have advanced 3.9 percent this month, in contrast with a 1.1 percent drop in the MSCI EM Banks Index tracking emerging market peers.

While a cut in Turkish interest rates has already been priced into bank stocks traded in Istanbul, investors have so far overlooked deteriorating asset quality at some lenders, according to Akin Tuzun, VTB’s Moscow-based banking analyst. That, along with the possibility that a recovery in Russia will provide increased competition for investment, suggests the outpeformance of financial stocks in Istanbul may fizzle out.

“We believe that the market is too bullish on 2015-16 earnings growth,” Tuzun said yesterday in an e-mailed report. While the first quarter of 2015 shows a benign outlook, “we are more worried about the remainder of the year,” he said.

VTB recommends selling Turkiye Is Bankasi, Turkiye Vakiflar Bankasi, Turkiye Halk Bankasi AS, Akbank TAS, Garanti Bankasi and Yapi ve Kredi Bankasi AS. It is most positive on the first two lenders in the list, the report shows.

“2015 could well see Turkey’s benefit from excessive global liquidity and a low interest rate environment begin to unwind,” Tuzun said.

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