Tag: Commercial Banks

Turkish Banks: Differentiating Rapidly

At a time when some argue that Turkey is on a path to being more state-sponsored economy owing to the Treasury guaranteeing large scale projects, the performance comparison of public and private banks gains importance. Thus, we aim to compare both groups in terms of lending growth, funding capacity, capital adequacy, and liquidity position in order provide some insights.

Loan Growth

Public v Private Banks - Loan Growth

Public commercial banks have been outperforming the private peers in lending growth since May 2013 when the so-called taper tantrum hit emerging markets as well as Turkish assets. The gap between lending growth rates has seemed to remain steady. However, there are clear signs of lending recession as the volume growth has slackened systemwide.

Loans-to-Deposits Ratio

Public v Private Banks - LoansToDeposits

Remember that TRY loans-to-deposits ratio for private banks currently stands at a record high of 140%. Despite their strong FX deposit base, private banks apparently feel more constrained to finance their assets when compared to public banks. With a lower l/d spread public banks enjoy their strong local currency deposit base which is primarily compromised of retirement and civil servant salaries.

Capital Position

Public v Private Banks - CET1 Ratios

Having been way stronger than private banks regarding the capital adequacy for a long time, public banks posted a lower figure for the first time in March. This demonstrates public banks are on the ball when the market is in the doldrums.

Liquidity Position

Public v Private Banks - LiquidityRequirements

It is easy to relate this to l/d spreads given above, but, public banks interesting have been weak set of results for liquidity requirements as they have been under the threshold of 100% which all the banks in Turkey must comply. Public banks can’t be given a pat on the back for their maturity management.

To sum up, Turkish government might play hardball to support the economy through state-run banks as it already has the capacity due to its perfect debt metrics. The differentiation explained between private and public banks would be prognosticating.

You can view the charts and the official data here (PDF).

Prospects of A Liquidity Shortfall

In a country where average maturity of deposits is very short, liquidity risk management for financial instructions is of paramount importance. Most particularly, in Turkey, a country seeking high growth where the consumption is the engine of the economy, the liquidity balance become even more important.

In a previous post we expostulated the deterioration in liquidity adequacy ratios in Turkish banks and warned that banks would be crippled by a liquidity crunch. With the loans to deposit ratio over 100%, it was obvious that banks in Turkey would have some challenges to meet the liquidity requirements adopted by Turkey’s Banking Regulation and Supervision Agency (BRSA). Strictly speaking, Turkish banks have done well in having the necessary assets on hand to ride out short-term liquidity disruptions. But as seen in the liquidity adequacy ratio data released by the BRSA, the trend is simply not pretty.

The first chart above shows Liquidity Adequacy Ratios in Turkey’s banking spectrum overall as the latter only focuses on commercial banks (in other words excludes investment and development banks). The ratios clearly have moved towards the threshold of 100% since the global financial crisis and it is worth to note that the BRSA fines banks when they post a figure below the threshold in two successive weeks.

LCR for Turkish Banks

LCR for Commercial Banks

Things just get stranger and stranger when it comes to analyze liquidity ratios of state-owned commercial bank trio – Halkbank (BIST:HALKB), Vakifbank (BIST:VAKBN), and Ziraat Bankasi. Remember that they used to outperform all other banks in Turkey in terms of liquidity adequacy in 2011.

LCR for State Owned Banks

Apparently at least one of the banks mentioned right above the chart has failed to meet the liquidity requirements. As preparatory to answer the question of which bank(s) has done so, I’d like to show how loans and deposits grew in the meantime.

Loans to Deposit for State Owned Commercial Banks

L/D spread for Halkbank, Ziraat and Vakif were 103%, 96%, and 120%, respectively. Furthermore, for full 2014 fiscal year the average one-month liquidity adequacy ratios for Halkbank and Ziraat were 116% and 112%. Interestingly, no clear information about the liquidity ratios was given in Vakif’s annual reports, however, it was 103% according to my calculation. Most probably Vakif has been posting below-than-requested liquidity ratios for the asset and liabilities with a duration of one-month in 2015.

In broad strokes, despite the fact that current liquidity levels are sobering, Turkish banks with some exceptions are not to face liquidity shortfall in the near term. Nevertheless banks may have to manage their liquidity levels more proactively with the Basel III rules phased in.