Akbank Threatens to Topple Garanti as ‘Proxy for Turkey’ Stock

  • Akbank’s 19 percent gain in 2016 triples Garanti’s advance
  • Total market cap of Turkish banks down more than 50% since ’12

Akbank’s surge on the Turkish stock market this year has made it the nation’s largest bank by market capitalization, dethroning foreign-investor favorite Turkiye Garanti Bankasi AS.

Akbank TAS’s 19 percent increase through Monday is about double the 9.5 percent advance on the main Borsa Istanbul 100 index and more than triple the 6.3 percent gain for Garanti. That puts it at the top of the Turkish banking index’s value ranking for the first time since March 2012.

Behind the reversal of roles is a perception that Akbank is weathering a downturn better than peers, according to analysts including VTB Capital’s Akin Tuzun. The bank’s non-performing loan ratio improved slightly to 2 percent as of March 31, compared with a deterioration in the industry as a whole, where non-performing loans now make up 3.3 percent of the total. At Garanti the figure is 2.7 percent.

“Akbank is starting to take over Garanti’s ‘proxy for Turkey’ status,” said Tuzun, referring to foreign investors who typically bought shares in Garanti to gain exposure to the Turkish market. “Better cost control and guidance, and increasing liquidity of its shares helped.”

Akbank has some way to go before it achieves that status, however. Its foreign ownership ratio was 62 percent as of May 27, compared with 74 percent at Garanti, according to data from the central securities depository of Turkey.

Investor Outflows

Political convulsions in Turkey including the ouster of Prime Minister Ahmet Davutoglu, who stepped down after losing a power struggle with President Recep Tayyip Erdogan, sent investors fleeing Turkish stocks in the first three weeks of May, which is on course to be the worst month for foreign investor outflows since November.

Garanti fell 12 percent this month, the second-biggest decline on the Borsa Istanbul Banks Index after state-run Turkiye Halk Bankasi AS. The government-owned lender was hit by revived concerns over its former chief executive’s alleged involvement in a bribery scheme that’s now being probed in a U.S. investigation of Iranian sanctions evasion.

Lira Tumbles

Akbank’s market cap was 31.8 billion liras, or $10.84 billion, as of the close on Monday, compared with Garanti’s $10.77 billion. Total market cap for the 16 lenders on the Turkish banking index has declined by more than 50 percent in dollar terms since the end of 2012, to $49 billion from $107 billion. The Turkish lira declined about 40 percent in the same period.

Akbank’s cost-to-income ratio was 36 percent in its last filing at the end of the first quarter, compared with 52.9 percent at Garanti, suggesting stronger cost control by Akbank.

“Investors are rewarding Akbank’s right moves at a time when asset qualities are deteriorating,” Cagdas Dogan, a banking analyst at Istanbul-based BGC Partners, said by phone on Monday. “From managing costs to strengthening its deposit franchise, these moves have put Akbank in a spot to deliver profitability better than the rest of the sector.”

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