Turkish Banks. Knocking on EU s door

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1 Turkish Banks Turkey / banking Recommendation Update, March 25 March 14, 25 Knocking on EU s door The Turkish banking sector is driven strongly by the EU convergence story. We believe it will be one of the highest beneficiaries on that front, especially taking into consideration the anticipated surge in banking penetration. While the unrecorded part of the economy is shrinking, the un-banked small to medium sized businesses have become the new targets of the sector. The stable economic environment along with lower interest rates has resulted in sector turning towards real banking. While it used to be a lending play to the Treasury, the banks are now competing on loans to corporates, but more importantly to consumers and SMEs. Among the large banks, Is and Garanti are ahead of competition, yet Akbank has come along way, dumping its securities portfolio in favor of loans. At 26E adj. P/BV of 1.32x Akbank is our top pick among the large banks. Finansbank has been more aggressive on loan growth within its peer group and the strategy paid off with an adj. ROAE of 31% in 24. We favor Finans among the midcaps offering 61% upside to our US$2.5bn target valuation. Ecem Nalbantgil You may find our research on our Bloomberg page; EKSP Priced as of March 14, 24 Turkey s EU aspirations and its promising economy have been magnets for international banks seeking a piece of this growth opportunity. We have already seen the HSBC, Unicredito, and BNP Paribas acquisitions, but more is yet to come. The sector s 26E adj. P/BV median at 1.34x looks amazingly attractive, especially at an adj 26E ROAE median of 19.75%. In the mean time, the sector is also open to consolidation through likely M&A deals in its own backyard. We have BUY ratings for all banks under our coverage. Our top picks are Akbank and Finansbank due to stronger upside potentials they offer. Turkish Banks MCAP US$mn Target MCAP US$mn Upside Recom. Adj ROAE 5 Adj ROAE 6 Adj P/BV 5 Akbank 8, , 41% BUY 18.5% 17.5% Denizbank 986 1,5 53% Not Rated % Disbank 975 1,3 34% BUY 18.2% 2.3% Finansbank 1,563 2,5 61% BUY 28.3% 25.7% Garanti Bank 5,172 6,3 22% BUY 24.7% 23.3% Is Bank 1,48 13,3 27% BUY 21.7% 24.1% TEB % BUY 13.1% 15.7% Yapi Kredi Bank 3,125 4, 29% BUY 6.4% 9.3% Adj P/BV 6 Sales Contacts: Soner Inanc ( ) soneri@ekspresinvest.com Can Oksun ( ) cano@ekspresinvest.com Ekspres Yatirim Menkul Degerler A.S. Buyukdere Cad. No: 16 Kat: Esentepe, Istanbul TURKEY This document has been produced by Ekspres Invest Research Department for purposes of information and cannot be construed as investment advice, or an offer to buy or sell any securities that may be mentioned in the body of the document. The information contained herein is subject to change without notice. Ekspres Invest, its parent or affiliated companies may have positions in and effect transactions in securities of companies mentioned and may also perform or seek to perform investment advisory services for those companies. You may find our research on Bloomberg page; EKSP

2 Turkish Banks: March 25 March 14, 25 Figure 1. Turkish Banks Multiples P/BV 5 P/BV 6 P/E 5 Akbank % 3.19% 17.91% 17.7% Garanti Bank % 2.22% 16.59% 17.4% Is Bank % 2.5% 12.74% 12.78% Yapi Kredi Bank % 1.3% 4.29% 6.15% Average - top % 2.23% 12.88% 13.35% Disbank % 2.9% 13.79% 15.77% Finansbank % 2.76% 22.5% 21.58% TEB % 1.27% 1.26% 12.21% Average - mid % 2.4% 15.37% 16.52% Average of % 2.15% 13.95% 14.71% Denizbank % 1.82% 18.36% 18.17% Average of % 2.11% 14.5% 15.14% P/E 6 ROAA 5 ROAA 6 ROAE 5 ROAE 6 Figure 2. Turkish Banks Adjusted Multiples Akbank Garanti Bank Is Bank Yapi Kredi Bank Average - top 4 Disbank Finansbank TEB Average - mid 3 Average of 7 Denizbank Average of 8 Adj P/BV 5* Adj P/BV 6* Adj P/E 5** Adj P/E 6** Adj ROAE 5** Adj ROAE 6** % 17.52% % 23.28% % 24.13% % 9.3% % 18.56% % 2.26% % 25.71% % 15.67% % 2.54% % 19.41% % 22.15% % 19.75% *P & BV adjusted for participations; ** P & earnings adjusted for dividend income from participations EkspresInvest Page 2

3 Turkish Banks: March 25 March 14, 25 Figure 3. Turkish Banks Valuations Akbank MCAP US$mn Target MCAP US$mn Upside Recom. 8,523 12,6 41% 25 Target adj P/BV Adj ROAE 5 26 Target adj P/BV Adj ROAE 6 BUY % % Disbank Denizbank Finansbank Garanti Bank Is Bank TEB Yapi Kredi Bank 975 1,33 34% 1,563 2,523 61% 5,172 6,313 22% 1,48 13,289 27% % 3,125 4,2 29% 986 1,55 53% BUY % % N.R % % BUY % % BUY % % BUY % % BUY % % BUY % % Average of 8 banks % % Average of Large 3* % % *Akbank, Garanti Bank, Is Bank Figure 4. Turkish Banks Valuations 2.5 Isbank Garanti Adj P/BV Yapi Kredi TEB Akbank Dis bank Deniz Finans.5 % 5.% 1% 15.% 2% 25.% 3% Adj ROAE 5 EkspresInvest Page 3

4 Akbank Maintained at BUY, target Mcap: US$12.bn, upside 41% 7. 25, , 1, 5, 1. akbnk 2/2 8/2 3/3 9/3 3/4 8/4 3/5 BRSA bank only US$mn 24A 25E 25E Value date: March 14, 25 Total Assets 26,54 3,961 35,285 Current SH Equity 4,647 5,811 6,557 Price (TL) 7.25 Free Equity 3,861 4,982 5,544 Price (USc) 5.68 Mcap (US$mn) 8,523 Net Interest Income 1,895 2,22 2,411 Free float 28% Net Fee & Commis. Inc FF. MCap 2,386 Net Income ,55 24YE Target P/E Price (TL)* 12.2 Adj P/BV Price (USc) 8. Adj ROAE 19.2% 18.5% 17.5% Mcap (US$mn) 12, 1m 3m 12m US$ upside 41% Relative Performance -6% -21% -4% AKBNK.IS AKBNK TI Avg. Daily vol. (US$mn) *Calculated from 25YE fwd. rate At 26 adjusted P/BV of 1.32x Akbank is a steal Akbank has long been criticized for being too conservative and becoming a laggard in real banking. However, especially over the past year, we have witnessed the bank shifting its sizeable marketable securities portfolio towards loans, with major focus on the lucrative SME and consumer segments. The bank closed 24 with 44% of assets invested in securities, showing 4pps decrease YoY. Looking at 25 and 26, we expect this level as 35% and 32%, respectively. The bank has already confirmed a parallel strategy, whereby TL securities which make up 37% of the TL side of the balance sheet should be decreased to 2-25%. In return, these assets will be channeled to loans, maintaining Akbank s place as a major player in this segment. Overall we expect its loan portfolio to grow by 57% in 25 and 22% in 26. The strategy shift is quite timely, whereby the bank will benefit from the high margin SME and consumer lending versus the anticipated squeeze in trading gains. Please also note that, in the immediate term, the bank should be one of the leading beneficiaries from the plunge in interest rates in 1Q5, still with the largest portfolio. One item we were not satisfied about Akbank was the lack of growth in deposits in 24 (TL side remained flat and FX side increased by only 7%). The bank forecasts to increase deposits by 3% in 25, but we find this very aggressive and expect a more modest 15% growth. The bank is currently enjoying the accelerated decline in interest rates, which are reflected to the deposit rates almost immediately, but with the fixed rate nature of consumer loans, the re-pricing of the asset size comes with a lag, therefore offering elevated spreads in the short to mid term, assuming the continuation of the trend In addition to the anticipated improvement in operations with a more dedicated approach to loans, Akbank s bottom line should be greatly affected from the decline in inflation with a decreasing monetary loss. We forecast a net income of US$937mn in 25 (+23% YoY) and US$1,55mn in 26 (+13% YoY), pointing to an adjusted ROAE of 18.5% and 17.5%, respectively. At 26E adjusted P/BV of 1.32, Akbank is an opportunity not to miss. Figure 1. Akbank Summary Financials (US$mn) Total Assets 21,111 26,54 3,961 35,285 Marketable Securities 11,92 12,621 11,951 12,528 Loans 6,242 9,656 15,148 18,548 Deposits 13,779 14,958 17,262 19,59 Borrowings 2,627 3,637 4,539 5,493 SH Equity 3,611 4,647 5,811 6,557 Interest Income 2,675 3,293 3,712 4,22 Interest Expense 1,434 1,398 1,493 1,89 Net Interest Income 1,241 1,895 2,22 2,411 Net Fee & Comm. Inc Net Trading Gains Operating Expenses Net Income ,55 EkspresInvest Page 4

5 Denizbank Not Rated, target Mcap: US$1.5bn, upside 53% , 22, , , , deniz , 1/4 1/4 11/4 12/4 12/4 1/5 2/5 3/5 Consolidated IAS US$mn 24A 25E 25E Value date: March 14, 25 Total Assets 6,14 7,54 8,855 Current SH Equity Price (TL) 3.98 Free Equity Price (USc) 3.12 Mcap (US$mn) 986 Net Interest Income Free float 25% Net Fee & Commis. Inc FF. MCap 246 Net Income YE Target P/E Price (TL)* 7.15 Adj P/BV Price (USc) 4.76 Adj ROAE 21.6% 2.4% 22.1% Mcap (US$mn) 1,5 1m 3m 12m US$ upside 53% Relative Performance 6% 41% n.a. DENIZ.IS DENIZ TI Avg. Daily vol. (US$mn) *Calculated from 25YE fwd. rate The bank s target is to double asset size by 28, a CAGR of 19% Denizbank beats our forecasts at 24YE with higher growth in assets reaching US$6bn (+27% YoY) and a bottom line of US$13mn (+9% YoY). A ROAE of 22% looks promising with the right strategies attained. As witnessed in most other banks, Deniz focus was on shifting the balance sheet structure more towards loans. In 24, marketable securities declined by 11pps to 22% of assets in favor of loans. In 25 and 26 we expect loans to grow to US$3.5bn (+47% YoY) and US$4.5bn (+27%), respectively. Within its loan portfolio, SMEs and consumer lending s share was 25%, which will be increased to 3% in 25 and then to 4% in 26. This should surely maintain NIM above 5%. Please note that the net margin on credit cards and retail & SMEs were 38% and 11% in 24 versus 5% for commercial and 2.5% for corporate loans. In 24, deposits of US$3,858mn point to 21% annual growth, beating most of its peers. The demand deposits are still making up 21% of the total as in 23, supplying cost free funding for Deniz. Please note that as of end of 24, the deposit interest expense recorded was 21% lower YoY at US$286mn, thanks to lower interest rates. Going forward, we forecast 25 and 26 deposits as US$4,856mn (+27 YoY) and US$5,733mn (+18% YoY). Investors should note that Denizbank is at a comfortable place with interest earning assets to interest bearing liabilities at 1.7x. This figure will improve as the bank divests its non core Zorlu Eneji shares (holding 41% stake) no later than 28. Additionally, at a cost income ratio of 57% in 24YE, the bank is at considerable advantage to other mid-cap banks. Please also note that in 25, fee & commission income is forecasted to cover 42% of operating expenses, finally catching up with the sector. Overall, a net income of US$131m (+28% YoY) in 25 points to an adjusted ROAE of 2.4%. We expect the bank to sustain ROAE above 2% level in the next five years, thanks to shifting its assets towards the lucrative loan market. Our target valuation for Denizbank is US$1,5mn, which offers 53% upside. The bank is trading at 26E adjusted P/BV of 1.2x, at significant discount to sector average of 1.34x. Figure 1. Denizbank Summary Financials (US$mn) Total Assets 4,25 6,14 7,54 8,855 Marketable Securities 1,437 1,524 1,92 2,169 Loans 1,361 2,389 3,59 4,47 Deposits 2,555 3,834 4,856 5,733 Borrowings ,144 1,487 SH Equity Interest Income Interest Expense Net Interest Income Net Fee & Comm. Inc Net Trading Gains Operating Expenses Net Income EkspresInvest Page 5

6 Disbank Upgraded to BUY, target Mcap: US$1.3bn, upside 34% 3.2 3, , , 1.2 1,.8 5,.4 disba 2/2 8/2 3/3 9/3 3/4 8/4 3/5 BRSA bank only US$mn 24A 25E 25E Value date: March 14, 25 Total Assets 5,329 6,274 7,169 Current SH Equity Price (TL) 3.42 Free Equity Price (USc) 2.68 Mcap (US$mn) 975 Net Interest Income Free float 33% Net Fee & Commis. Inc FF. MCap 322 Net Income YE Target P/E Price (TL)* 5.38 Adj P/BV Price (USc) 3.58 Adj ROAE 15.5% 18.2% 2.3% Mcap (US$mn) 1,3 1m 3m 12m US$ upside 34% Relative Performance 2% 36% 91% DISBA.IS DISBA TI Avg. Daily vol. (US$mn) *Calculated from 25YE fwd. rate Driven by the sales story In 24, Dogan Group has openly declared that the finance sector is not perceived as their core area of business. It would, therefore, not be surprising to see Disbank s ownership transferred to another party in the near term. Taking into consideration the escalating international interest in Turkish banks, one can anticipate the buyer to be a global player. While trying to predict the interested parties, what we really have to do is answer the question: how much would one pay for Disbank? Our model suggests a fair value of US$1.3bn, which implies an adjusted target 26E P/BV of 1.5x. Following the increased likelihood of Disbank s sale, the stock outperformed the ISE by 87% between the November-January period, where consequently we downgraded the stock to HOLD from BUY. Since then Disbank was a market performer. However, with better than expected 24 results, which led us to assign a higher target value in terms of greater future prospects, and the higher probability of sales to a new owner, we now upgrade Disbank to BUY with a target of US$1.3bn, offering 27% upside. The stock currently trades at 26E adjusted P/BV of 1.6x, which seems as a large discount to the bank s management for any deal to be cut. In 24 Disbank s loans increased by 32% to US$2,256mn. Loans now make up 42% of assets and the target is to increase this to 5% in the mid-term. We should also point out that consumer loans doubled to 2% of total loans. Credit card loans make up 73% of consumer loans, surging from 44% at 23YE. For 25, we forecast a 41% increase in loans yet expect deposit growth to be rather disappointing at 12%. The bank was at a disadvantage with deposit costs of 11.92% in 24 versus 9.76% for Finans and 8.1% for Deniz. Trying to attract further deposits would surely push its cost base higher. Nevertheless, we have seen the bank increasing its borrowing by 78% from US$7mn in 23 to US$1,247mn in 24. Going forward, we will keep an eye on a possible short position in Disbank, if they choose funding through borrowing but willing to lend in TL. Overall, however, the increase in loans pays off with better margins; adjusted ROAE increasing from 15.5% in 24 to 18.2% in 25. Going forward, it would make great sense to go down the path with a more committed shareholder willing to invest for growth. Figure 1. Disbank Summary Financials (US$mn) Total Assets 3,743 5,329 6,274 7,169 Marketable Securities 1,2 1,527 1,711 1,89 Loans 1,441 2,256 3,18 3,993 Deposits 1,982 2,613 2,938 3,24 Borrowings 79 1,264 1,74 2,21 SH Equity Interest Income Interest Expense Net Interest Income Net Fee & Comm. Inc Net Trading Gains Operating Expenses Net Income EkspresInvest Page 6

7 Finansbank Upgraded to BUY, target Mcap: US$2.5bn, upside 61% 25, , ,.9.6 5,.3 finbn 2/2 8/2 3/3 9/3 3/4 8/4 3/5 BRSA bank only US$mn 24A 25E 25E Value date: March 14, 25 Total Assets 6,44 7,861 9,147 Current SH Equity ,178 Price (TL) 3.38 Free Equity Price (USc) 2.65 Mcap (US$mn) 1,563 Net Interest Income Free float 39% Net Fee & Commis. Inc FF. MCap 61 Net Income YE Target P/E Price (TL)* 6.42 Adj P/BV Price (USc) 4.28 Adj ROAE 3.7% 28.3% 25.7% Mcap (US$mn) 2,5 1m 3m 12m US$ upside 61% Relative Performance 23% 4% 14% FINBN.IS FINBN TI Avg. Daily vol. (US$mn) *Calculated from 25YE fwd. rate The bank with the highest ROE and the highest upside potential Finansbank was the most profitable bank in 24 among its peers with a ROAE of 21.5%. The major reason for this was the bank s balance sheet structure where the share of marketable securities were at only 15% versus 29% in 23YE. Realizing the turnaround story of the country, the bank shifted its assets towards loans with trading gains no more being the major source of the sector. More importantly, the bank set itself a role within the lucrative SME and credit card segment. For 25, Finans has budgeted to increase its loans by 5% YoY, where our forecast lies at 42%. Its target is to decrease corporate loans share from 6% to 5% while increasing SMEs and credit cards share to both 2%, up approximately by 4-5pps. In other words, the bank foresees a 25% increase on the corporate and retail loan books but expects to double the rest. Although we anticipate the bank to almost attain its goals on the loan side, we do not agree with it for a 5% surge in deposits and forecast a 2% increase. It is therefore not surprising to see Finans becoming aggressive on the international lending side. Recently, it has obtained a US$5mn securitization with seven years maturity. However, taking into consideration the TL loan demand, the bank is mostly choosing to swap its FX assets with TL with international banks, where it paid 13% interest on its latest US$271mn swap. Finansbank s international operations make up approximately one third of the balance sheet. Until recently, we were valuing these participations with a 25% haircut to their book values. However, taking into consideration the high ROE multiples achieved in 24 (18% for Holland, 3% for Moscow, 23% for Romania, 4% for Suisse: 15% blended), we now value each of these banks at 1.25x BV. Nevertheless, the contribution to our target for Finansbank from these banks is now US$378mn. In 25, Finans expects these banks balance sheet growth to remain flat, therefore the share of the higher return domestic operations growing. We value Finansbank at US$2.5bn offering 54% upside, the highest among the Ekspres banking universe. This target suggests an adjusted 26E P/BV of 2.2x, a multiple lower than Is and Garanti s but higher than Ak s. Yet taking into consideration a ROAE 8pps higher than the latter s, we believe such a premium is justifiable. Figure 1. Finansbank Summary Financials (US$mn) Total Assets 4,14 6,44 7,861 9,14 Marketable Securities 1,346 1,69 1,226 1,38 Loans 1,885 3,874 5,499 6,468 Deposits 2,619 3,822 4,596 5,195 Borrowings 686 1,68 1,543 1,884 SH Equity ,178 Interest Income ,21 1,166 Interest Expense Net Interest Income Net Fee & Comm. Inc Net Trading Gains 45 (9) Operating Expenses Net Income EkspresInvest Page 7

8 Garanti Bank Upgraded to BUY, target Mcap: US$6.3bn, upside 22% 5. 25, , 2.5 1, ,.5 garan 2/2 8/2 2/3 8/3 2/4 8/4 1/5 BRSA bank only US$mn 24A 25E 25E Value date: March 14, 25 Total Assets 19,62 22,546 25,272 Current SH Equity 2,365 2,856 3,234 Price (TL) 5.5 Free Equity ,557 Price (USc) 4.31 Mcap (US$mn) 5,172 Net Interest Income 961 1,76 1,213 Free float 41% Net Fee & Commis. Inc FF. MCap 2,121 Net Income YE Target P/E Price (TL)* 7.9 Adj P/BV Price (USc) 5.26 Adj ROAE 31.8% 24.7% 23.3% Mcap (US$mn) 6,3 1m 3m 12m US$ upside 22% Relative Performance 1% 22% 16% GARAN.IS GARAN TI Avg. Daily vol. (US$mn) *Calculated from 25YE fwd. rate Right place, right strategies but limited upside We like Garanti for the right strategies attained. The bank has been an aggressive player on the credit card side, thereby grasping 12-13pps market share over the past 4 years and now jockeying for a leading position right after YKB. Additionally, we will be seeing Garanti as more aggressive on the consumer and SME segments in 25 with their share in the loan book increasing by almost 6pps to 19.3%. The bank forecasts over 3% growth in its loan book this year. The higher presence on the SME and consumer side naturally brings along deposit growth for the bank. On the TL side, the management has budgeted an 18% increase and a 13% for the FX side. More importantly, the share of demand deposits was at 28.8% in 24 (the highest in the sector) and is now expected to touch 29.5% in 25. This provides a cost free funding for Garanti and lowers its funding cost considerably. Overall, taking into consideration the bank s established presence on the loan side, especially the higher margin consumer and SME segments, and the increasing demand deposits, Garanti Bank s adjusted ROAE was the highest among peers at 31.8% in 24. Garanti Bank is criticized, and for valid reasons, for its non-core assets. We value its total participation portfolio at US$876mn where we forecast the non-core part as US$449mn. Tansas is at the top of the list for divesting. For 25, we now factor in US$15mn participation sale followed by US$1mn in 26. On the non-core fixed assets, we anticipate US$15mn sales in 25. Overall, in addition to the high profitability of the bank, the growth in interest earning assets through non-core asset disposal will surely be reflected on the bank s results. However, the bank is currently trading at 1.91x 26E adjusted P/BV, at a premium to the sector average of 1.34x, which is justifiable given the forecasted 3-5pps higher ROAE in comparison to peers. Our target for Garanti at US$6.3bn points to 22%, therefore deserving a BUY recommendation. Yet, with higher upsides anticipated for Ak and Finans, Garanti does not make it to our top pick list. We also would advice investors to closely follow the bank for any international interest, as Garanti is still perceived as one of the most likely banks to find a global partner. Figure 1. Garanti Bank Summary Financials (US$mn) Total Assets 16,33 19,62 22,546 25,727 Marketable Securities 7,31 7,318 7,58 7,399 Loans 4,86 7,696 1,577 13,29 Deposits 1,46 13,211 15,43 16,73 Borrowings 2,9 2,675 3,249 3,78 SH Equity 1,755 2,365 2,856 3,234 Interest Income 1,54 2,275 2,463 2,824 Interest Expense 1,464 1,314 1,386 1,611 Net Interest Income ,76 1,213 Net Fee & Comm. Inc Net Trading Gains Operating Expenses Net Income EkspresInvest Page 8

9 Is Bank Upgraded to BUY, target Mcap: US$13.3bn, upside 27% 8. 25, , 4. 1, 5, 1. isctr 2/2 8/2 2/3 8/3 2/4 8/4 1/5 BRSA bank only US$mn 24A 25E 25E Value date: March 14, 25 Total Assets 28,741 34,85 38,79 Current SH Equity 5,71 6,784 7,324 Price (TL) 8.15 Free Equity 672 1,722 2,333 Price (USc) 6.39 Mcap (US$mn) 1,48 Net Interest Income 1,562 1,838 2,27 Free float 33% Net Fee & Commis. Inc FF. MCap 3,458 Net Income YE Target P/E Price (TL)* Adj P/BV Price (USc) 8.1 Adj ROAE 2.3% 21.7% 24.1% Mcap (US$mn) 13,3 1m 3m 12m US$ upside 27% Relative Performance -1% 3% 11% ISCTR.IS ISCTR TI Avg. Daily vol. (US$mn) *Calculated from 25YE fwd. rate With provisions eliminated, the bottom line should surge by 68% in 25 Is Bank s vast network pays off with stable growth in both loans and deposits. The bank ended 24 with 17% TL deposit and 22% FX deposit growths. This year, we forecast total deposits to attain an annual 16% increase. Following Garanti, Is ranks second for the high level of demand deposits at 26% in 24 and an estimated level of 27.5% in 25. While this will lower costs, the bank has already seen the benefit of declining interest rates. In the first two months of 25, its interest on TL deposits is already down by 2pps. We are also impressed by the level of growth in loans. In 25, its loan to asset ratio is expected to be enhanced by 8pps to 4% and then surpass 45% by 27. Nevertheless, starting this year, the share of loans is higher than securities in assets. Overall, compared to loans of US$9.3bn in 24, we expect US$13.9bn in 25. The share of SMEs and retail loans in total is anticipated to strengthen to 67% this year versus 65% in 24. The bank is also keen on credit card growth; the target is to reach 18% market share in three years, gaining 5pps. The bank has come a long way with its NPLs and provisions over the last two years. Although NPL ratio at 8.3% was much higher than the sector average of 5.7% in 24, the management now estimates 5% for 25. Please also note that approximately US$25mn provisions were as recorded fixed asset impairment in 24, which will totally be eliminated this year. On the whole, we expect provisions to be approximately US$3mn lower in 25, boosting profitability. This year, we expect Is Bank s adjusted NIM to slightly decline from 9.4% to 7.9%, still 1pp higher than the average. Its adjusted ROAE is expected to grow to 21.7% (+1.4pps). Yet one has to take into consideration that Is Bank s adjusted ROAE before provisions was 61% in 24 and it is forecasted as 42% for this year, a level unmatched. Overall, although we like the fundamentals in Is, at 2.4x 26E adjusted P/BV, we do not include it in our top pick list, but still rate it a BUY. Figure 1. Is Bank Summary Financials (US$mn) Total Assets 22,241 28,741 34,85 38,79 Marketable Securities 9,537 11,282 11,486 12,199 Loans 6,143 9,292 13,862 16,56 Deposits 14,116 19,263 21,262 23,646 Borrowings 1,965 2,92 4,156 5,59 SH Equity 4,14 5,71 6,784 7,324 Interest Income 2,624 3,353 3,699 4,188 Interest Expense 1,84 1,791 1,861 1,98 Net Interest Income 784 1,562 1,838 2,27 Net Fee & Comm. Inc Net Trading Gains Operating Expenses 1,46 1,132 1,222 1,35 Net Income EkspresInvest Page 9

10 TEB Maintained at BUY, target Mcap: US$6mn, upside 55% 8. 25, , 4. 1, 5, 1. tebnk 2/2 8/2 2/3 8/3 2/4 8/4 1/5 BRSA bank only US$mn 24A 25E 25E Value date: March 14, 25 Total Assets 2,661 3,174 3,649 Current SH Equity Price (TL) 8.5 Free Equity Price (USc) 6.66 Mcap (US$mn) 385 Net Interest Income Free float 2% Net Fee & Commis. Inc FF. MCap 77 Net Income YE Target P/E Price (TL)* Adj P/BV Price (USc) 1.35 Adj ROAE 12.2% 13.1% 15.7% Mcap (US$mn) 6 1m 3m 12m US$ upside 55% Relative Performance -1% -1% 42% TEBNK.IS TEBNK TI Avg. Daily vol. (US$mn) *Calculated from 25YE fwd. rate Stronger with BNP Paribas We expect TEB, a rather conservative bank, to greatly benefit from a partner like BNP Paribas to grasp a strong growth. The bank will obtain much cheaper funds with longer term maturity, which would then put TEB ahead in competition. In this way, the bank will be a lender for longer term projects as well as the yet to be formed mortgage market. TEB has already been perceived as one of the most prestigious banks in Turkey, yet with rather a small size. Nevertheless, with a partner like BNP, TEB may surely find its spot at the top. Additionally, the bank has not been very active on the consumer loan side (6.5% of its total loan book), which should then be another growth area, following the likely partnership with BNP. We also believe that, its position as a dedicated player in private banking will further be emphasized. Although 25 should be a transition year for TEB, we still expect it to record 34% increase in loans and 15% in deposits. Over the five year period, however, we anticipate a 16% surge in assets, along with 23% in loans and 15% in deposits. The growth in consumer loans should improve margins for the bank. The adjusted ROAE of 12% in 24 should enhance to 17% in 28. BNP Paribas valued TEB at 2.x its BV. The stock, however, is currently trading at 1.47x its 24 adjusted P/BV. Our valuation for TEB is US$6mn, which suggests 55% upside potential. Please note that over the past 12 month period, TEB outperformed the ISE by 42% due to the BNP Paribas deal. Following such impressive performance, we expect the stock to catch its breath in the short run, however, it will remain to be a value play for investors searching for long term ideas. Figure 1. TEB Summary Financials (US$mn) Total Assets 2,4 2,661 3,174 3,649 Marketable Securities Loans 83 1,175 1,578 1,915 Deposits 1,425 1,695 1,948 2,196 Borrowings SH Equity Interest Income Interest Expense Net Interest Income Net Fee & Comm. Inc Net Trading Gains Operating Expenses Net Income EkspresInvest Page 1

11 Yapi Kredi Bank Maintained at BUY, target Mcap: US$4.bn, upside 29% , 5. 26, 24, , , 16, 14, , 1, 1.5 8, 6, 1. 4,.5 ykbnk 2, 2/2 8/2 2/3 8/3 2/4 8/4 1/5 BRSA bank only US$mn 24A 25E 25E Value date: March 14, 25 Total Assets 18,375 21,36 22,252 Current SH Equity 3,462 3,63 3,634 Price (TL) 5.3 Free Equity Price (USc) 4.15 Mcap (US$mn) 3,125 Net Interest Income Free float 42% Net Fee & Commis. Inc FF. MCap 1,312 Net Income YE Target P/E n.m Price (TL)* 8.2 Adj P/BV Price (USc) 5.34 Adj ROAE n.m. 6.4% 9.3% Mcap (US$mn) 4,2 1m 3m 12m US$ upside 29% Relative Performance -4% 2% 23% YKBNK.IS YKBNK TI Avg. Daily vol. (US$mn) *Calculated from 25YE fwd. rate We should be close to the final curtain on the bank s sale Cukurova and Koc Group are currently negotiating for the former to sell Yapi Kredi Bank to the latter. Please recall that according to the initial announcements, the parties valued the bank at US$2.7bn based on the 24/1H results (note that the Turkcell stake was worth US$79mn then but is worth US$1,33mn now). If the parties sign the agreement, we believe that YKB will be with a very credible owner, enhancing its growth prospects. Having left behind the shareholder troubles and with huge cash inflows expected into the bank thanks to CG delivering its debt and also buying the Turkcell shares, we maintain our BUY recommendation with a target of US$4bn suggesting 29% upside. We have certain assumptions in our model for the bank. First of all, we forecast GG to deliver all sales proceeds back to the bank to pay back its debt. Yet, we believe the parties will agree on a haircut of US$2mn on the total US$2bn loan. Additionally, we expect CG to find funds to buy the 13.1% stake in Turkcell from the bank in 26. The non-core assets, including Digital Platform and Superonline will be sold to CG or to third parties at BV. Therefore, in addition to the US$1.8bn CG loan obtained, the bank will be injected US$1.45bn through Turkcell sale and US$47mn from the other two technology companies. Moreover, the state company Fiskobirlik s US$425mn debt to the bank will be swapped with T-bills. All these add up to US$3.7bn funds for YKB. We also estimate the bank to sell US$5mn of non-core fixed assets between the period. The bank recorded a loss in 24 due to mainly provisions set aside for value losses in fixed assets. Going forward, however, with a partner like Koc we expect YKB to record an adjusted ROAE of 6.4% in 25 and then 9.3% in 26. The bank is currently trading at.92x its 26E adjusted P/BV. Our target of US$4bn for the bank points this multiple to be 1.31x. Figure 1. Yapi Kredi Bank Summary Financials (US$mn) Total Assets 14,987 18,375 21,36 22,252 Marketable Securities 4,61 5,165 6,218 6,266 Loans 5,589 7,372 9,62 1,3 Deposits 9,722 1,767 12,34 13,92 Borrowings ,255 SH Equity 2,521 3,462 3,63 3,634 Interest Income 1,789 2,144 2,297 2,344 Interest Expense 1,838 1,593 1,42 1,489 Net Interest Income Net Fee & Comm. Inc Net Trading Gains Operating Expenses Net Income EkspresInvest Page 11

12 Buyukdere Cad. No: 16 Kat: Esentepe, Istanbul TURKEY Research Department Haldun Alperat Head of Research Guldem Atabay Elicin Chief Economist Ozlem Bayraktar Korcan Economist Ebru Bayar Goktan Assistant Director Ecem Nalbantgil Assistant Director Sinan Goksen Assistant Director Tamer Sengun Analyst Adil Giyici Analyst Equity Strategy Macroeconomy, Politics Macroeconomy, Politics Automotive, Conglomerates, Consumer Durables, Beverage, Steel Banks, Telecoms Conglomerates, Energy, Petroleum and Derivatives, Media, Retail Cement, Glass, Insurance, Tires, REIT, Sports Quantitative analysis, Tractors, Health services, Heating Appliances, Diversified Institutional Sales & Trading Department Mehmet Akkent Managing Director, Institutional Sales and Trading Trading Baris Gokahmetoglu Trading Director, Institutional Sales and Trading Emre Sanli Trading Director, Institutional Sales and Trading Sales Soner Inanc Sales Director, Institutional Sales and Trading Can Oksun Sales Director, Institutional Sales and Trading Settlements Pinar Sevsevil Settlements Corporate Finance Department Bahar Sayiner Acting Director, Corporate Finance Demir Demirbag Associate, Corporate Finance Ekspres Yatirim Menkul Degerler A.S. Buyukdere Cad. No: 16 Kat: Esentepe, Istanbul TURKEY This document has been produced by Ekspres Invest Research Department for purposes of information and cannot be construed as investment advice, or an offer to buy or sell any securities that may be mentioned in the body of the document. The information contained herein is subject to change without notice. Ekspres Invest, its parent or affiliated companies may have positions in and effect transactions in securities of companies mentioned and may also perform or seek to perform investment advisory services for those companies.