Turkish Banks: Out of Deep Waters?

Despite the recent decline in the stock market, key fundamentals still build a supportive case for Turkish banks. Fiscal year growth is likely to exceed expectations, margins are to recover through in last quarter of this year and in 2014, as well as, despite the macro slowdown and currency weakness, asset quality is holding up.

However, there are some key risks to be watched for, the may turn into potential curbs on Turkish banks’ earnings. New regulations over fees and commissions are posing major threats to banks’ earnings. But, up to this point in time, news-flow in relation to the new regulations seems already priced in the market

Turkish Banks vs MSCI EM Financials

Loans Deposit Spread

Among CEEMEA Banks, Halkbank is one of the top picks according to the general views of the analysts, with its high yielding asset mix, TRY funding base and cost efficiencies and expected to improve its revenues which already beat the market concensus in 3Q13.

Another generally accepted view is that, now is the time to buy emerging market equities. The recent sell-of in emerging market caused a sharp fall in equities, but also created buying opportunities. Despite the recent rise in Turkey industrial production index, Turkish PMI is not strong enough for being optimistic to get the country of out the doghouse (see this article about BIITS). Nevertheless, in the near futures, it seems highly possible to profit with a particularly stock-based investment strategy in Turkish market.

Remember What Happened in 2001?

With the outbreak of huge financial turmoil of Turkey in 2001, we saw Turkish lira dramatically depreciates against other currencies in nine consecutive days. Even though some dissimilarities exist between today and 2001, the recent moves in Turkish Lira as same as they were 12 years ago.

Turkish lira weakens ninth day against Dollar, and this is the longest losing streak since 2001. The more terrifying thing is that, even though the Central Bank Turkey reduces the amount of one-week repos, cuts one-month repo funding by one billion liras, leads the cost of funding to increase and verbally intervenes with its statements mentioning no way for easing, the lira keeps on tumbling.


My words should not be considered as a call out for a crisis, but still, following the horrible inflation announcement, analysts simply forecast a less than expected growth and a higher than expected inflation. In other words, this has a potential to turn into a stagflation, according to Introduction to Macroeconomics books.

Things are likely to get ugly.