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).

Foreign Investors’ Behaviors in Turkey

Tracking the foreign investors’ behaviors is the perfect guidance when it comes to investing in Turkish assets. This is also explaining the asset prices hit the top where non residents’ holding of assets makes a boom, in contrary, the market dips where non-residents turn out to be bears.

Non-Residents Holding of Turkish Assets

According to the Central Bank of Turkey data, the amount of cash flows into Turkish markets hit six-month at the end of week ending 25 Sep 2013. We also saw JP Morgan upgrading Turkey to overweight at that week.

Shortly after, Turkey is listed among the most fragile economies of the world as BIITS, supported by the worse than expected inflation data. However, we had another investment analysis report by JP Morgan, advising its customers to buy Turkish equities.

It is hard to get a clear picture of where the market is heading into these days, but in my point of view Turkey is not a blanket buy anymore, even if some non-residents expect a rally.