Turkey’s Most Profitable Bank Beats Estimates on Dividend Income

In a quarter marred by an election and record lows for the lira, TSKB, the most profitable bank in Turkey, beat estimates to increase its profit by 10 percent.

That doesn’t necessarily signal good news for shareholders in Turkey’s other lenders, analysts are saying, because the factors driving TSKB’s profit of 115.5 million liras ($42 million) don’t apply to the sector as a whole: dividend income that was better than analysts expected, and income on its inflation-linked securities.

TSKB, or Turkiye Sinai Kalkinma Bankasi, is Turkey’s only private development bank, and the most profitable of its publicly traded lenders when measured by return on equity. The Istanbul-based company reported net income that rose 10 percent versus the same period a year earlier, beating all 10 estimates in a Bloomberg survey.

With Standard & Poor’s warning Wednesday of weaker earnings for Turkish banks as credit growth moderates in the $800 billion economy, TSKB is an outlier, according to Cagdas Dogan, a banking analyst at BGC Partners in Istanbul. Unlike its larger competitors, TSKB avoids consumer loans to focus on corporate lending, investment banking and project finance. That helped the company to report a non-performing loan ratio of 0.5 percent compared with an industry average of about 3 percent.

“It is way too unique, with totally different dynamics to other banks,” Dogan said by e-mail on Thursday “It is the most profitable listed name and likely to remain so.”

Dividend Income

Second-quarter income was buoyed by 20 million liras in dividend income from companies it invests in, and profits on its holdings of inflation-linked securities. TSKB’s dividend income is more than four times higher than in the same quarter last year, the bank said in a presentation, and came mainly from company Is Leasing.

Turkey’s largest lender, Turkiye Garanti Bankasi AS, is set to report earnings later on Thursday, along with Yapi & Kredi Bankasi AS and Turkiye Halk Bankasi AS, the largest listed state-run bank.

TSKB’s return on common equity as of the most recent quarter was 17.4 percent, compared with a median average of 13.5 percent for the 16 banks listed on the Istanbul exchange. The share price was unchanged at 1.71 liras at 10:20 a.m. in Istanbul on Thursday.

TSKB’s management cut its foreign currency-adjusted forecast for loan growth in 2015 from 15 percent to slightly less than that on an earnings call Wednesday, without specifying a figure. They also lowered their net interest margin forecast by 20 basis points to 3.8 percent.

TSKB is a private development bank, with a market capitalization of 3 billion liras. The shares have dropped 1.2 percent this year, compared with a 17 percent decline on the Turkish banking index.

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