TURKEY MONTHLY BANKING MONITOR OCTOBER November 11th
12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 GLOBAL DEVELOPMENTS EM bank lending conditions deteriorated again in 3Q16. Demand for loans decreased significantly, in line with increased risk and uncertainty IIF BANK LENDING SURVEY FOR EM- CREDIT STANDARDS Levels IIF BANK LENDING SURVEY FOR EM- OVERALL INDICES Levels 56 Easing Area 54 Easing Area 53 52 50 50 47 48 44 46 41 44 38 35 Tightening Area 42 40 Tightening Area EM EM Europe Latin America EM Asia Credit Standards Funding Conditions Demand for Loans Nonperforming Loans Source: IIF EM Bank Lending Survey 3Q 16; Garanti Research 2
13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 GLOBAL DEVELOPMENTS International funding conditions tightened again both in EM and Turkey, at a higher rate than 2Q16. Credit standards tightened more aggressively in 3Q16 IIF BANK LENDING SURVEY FOR EM- INTERNATIONAL FUNDING CONDITIONS Levels 68 63 58 53 48 43 38 33 28 Easing Area Tightening Area IIF BANK LENDING SURVEY FOR EM: CREDIT &FUNDING CONDITIONS Levels 58 56 54 52 50 48 46 44 42 40 Easing Area Tightening Area Turkey EM Latin America Credit Standards Funding Conditions Source: IIF EM Bank Lending Survey 3Q 16; CBT Bank Lending Survey 3Q 16; Garanti Research 3
Apr-14 Jul-14 Jan-15 Jul-15 Jul-16 Apr-14 Jul-14 Jan-15 Jul-15 Jul-16 TURKEY FINANCIAL MARKETS Turkish equities lagged behind the EM. Risk premium (CDS) of Turkey decreased slightly to 255 bps in October MSCI Indices Base 100 = Jan 2014 170 150 130 110 90 70 RISK PREMIUMS, 5 YEAR CDS INDICES Levels 390 340 290 240 190 50 140 MSCI EM XBANK Index MSCI Turkey EM TURKEY Source: Garanti Research, Bloomberg 4
Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Jan-15 Jul-15 Jul-16 Aug-15 Aug-15 Sep-15 Nov-15 Mar-16 May-16 Jul-16 Sep-16 MONETARY POLICY The CBT held its key interest rate constant in October, following the 7-month rate cuts with 250bps in total. In TL funding, CBT decreased its repo funding to 58% in October from 68% in September TURKEY: INTEREST RATE CORRIDOR % 14% 12% 8% 6% 4% 2% TURKEY: SHARES OF THE CBT TOTAL FUNDING 100% 90% 80% 70% 60% 50% 40% 30% 20% 0% 13% 58% 29% ON Lending ON Borrowing BIST Interbank Repo CBT One-Week Repo CBT Cost of Funding O/N Lending Rate Deposit Market Transactions Rate 1 Week Repo Rate Source: Garanti Research, Turkstat, CBT, BRSA and Bloomberg 5
Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Jun-14 Aug-14 Feb-15 Aug-15 CBT BALANCE SHEET FX reserves increased in October compared to September due to increase in banks FX deposits held at the CBT. Net reserves also increased to USD 33.2bn CBT RESERVES USD bn 140 60 GROSS RESERVES/ SHORT TERM EXTERNAL DEBT % 81% 120 100 80 60 40 20 0 50 40 30 20 10 0 79% 77% 75% 73% 71% 69% 67% 65% %71 FX Reserves Gold Net Reserves-rhs Source: Garanti Research, CBT 6
2008 2009 2010 2011 2012 2013 2014 2015-03 2015-06 2015-09 2015-12 2016-03 2016-06 2016-07 2016-08 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 May-15 Mar-16 REAL SECTOR Corporates FX short position* turned negative in July for the first time since June 14 with yoy depreciation in TL. In August, it stabilized somewhat at USD 5mn surplus CORPORATES OVERALL FX POSITION USD bn 0-50 -100-150 -200 CORPORATES NET SHORT TERM FX POSITION USD bn 15 10 5 0-5 -10-15 40% 30% 20% 0% - -20% -250 Corporate Net FX Position USDTRY YoY Source: CBT; Garanti Research *latest data available August 7
Jun-13 Oct-13 Feb-14 Jun-14 Feb-15 LOAN GROWTH YoY Credit growth continue to float just around 9%.With the end of October data, the 13 week trend rate jumped to thanks to gained momentum in in consumer credits FX ADJUSTED CREDIT GROWTH RATE % yoy and 13 week ann. rates 40% 35% 30% 25% 20% 15% 10 ann.% YoY growth rate of FX adjusted credits still below (below the Central Bank 15% comfort range) The trend rate (annualized yearly rate) moved up to from 6% last month 5% 0% 9.2 yoy% YoY 13 week annualized CBT Target Source: Garanti Research and CBT 8
Jan-15 Jul-15 Jul-16 Feb-15 Aug-15 LOAN GROWTH Deceleration in consumer credits seen especially since 2Q16 reversed its trend in October and shows a marked pick-up in all sub-segments COMM. AND CONSUMER LOANS GROWTH RATE 13 week ann. rates CONSUMER LOANS % 13 week ann. rates 28% 23% 18% 13% 8% 3% 13.7% 8.8% 25% 15% 5% -5% -15% 19% 11% 9.5% -4.3% -2% -25% Commercial Loans (FX adjusted) Consumer Loans Housing Others Automobile Personal Credit Cards Source: Garanti Research, BRSA, CBT 9
Oct-13 Feb-14 Jun-14 Feb-15 Feb-15 Aug-15 INTEREST RATES Compared to September, interest rates on consumer credits followed a downward trend in October. Deposit rates continue to fall at very low levels COMM. AND CONSUMER LOANS INTEREST RATES 4week mov.avg. 18% DEPOSIT INTEREST RATES 4week mov.avg. 11% 17% 16% 15% 14% 13% 16.7% 14.8% 14.7% 9% 9.8% 12% 11% 12% 8% 7% Auto Commercial Loans Housing Other Consumer Source: Garanti Research, BRSA, CBT 10
Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Mar-16 May-16 Jul-16 Sep-16 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 ASSET QUALITY & CREDIT RISK Albeit slightly, compared to 2Q16, NPL ratio in almost all sub-segments of the sector increased as of end of 3Q16. Increase has been the highest at GPL (35bps). YoY growth of gross NPL decelerated in 3Q following the restructuring process NPL RATIO OF THE BANKING SECTOR % NPL RATIO BY SELECTED SUB-SEGMENTS % 3.5% 3.4% 3.3% 3.2% 3.1% 3.0% 2.9% 2.8% 3.3% 23% 32% 27% 22% 17% 12% 07% 02% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% NPL YoY NPL growth Housing NPL GPL NPL SME NPL Auto NPL Total Credit Cards NPL NPL Commercial Source: Garanti Research, BRSA 11
ASSET QUALITY & CREDIT RISK Group 2 Loans (Loans under Close Watch) have increased in the last 2 years. The ratio increased by 117 bps from 2.8% in 4Q14 to almost 4% in 3Q16, highlighting some risks to asset quality GROUP 2 LOANS TO GROSS LOANS Tier 1 Banks* Sector avg. % 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% RESTRUCTURED PERFORMING LOANS TO GROSS LOANS Tier 1 Banks Sector avg. % 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 4Q'14 1Q'16 3Q'16 0.0% 4Q'14 1Q'16 3Q'16 Source: Garanti Research, Public Disclosure Platform KAP 12
Aug-14 Feb-15 Aug-15 LIQUIDITY Loan to Deposits ratio decelerated by almost 90bps compared to September, mainly due to holds tendency of being TL supporter. Liquidity Coverage Ratio of Tier 1 group is well above the minimum legal ratio LOAN/DEPOSIT RATIO (LTD) YoY LIQUIDITY COVERAGE RATIO (LCR)* % 165% 180% 155% 145% 135% 125% 140.7% 128.4% 160% 140% 120% 115% 105% 95% 109.3% 100% 80% 70% BRSA total limit 85% 75% 60% 40% 50% BRSA FC limit 2015 4Q 2016 1Q 2016 2Q 2016 3Q TRY FX Total Sector avg.total BRSA total limit Sector avg FC BRSA FC limit Source: Garanti Research, BRSA, CBT, CBT FS Report 1Q 16 * The average of last three months liquidity coverage ratio 13
Aug-15 Apr-14 Jul-14 Jan-15 Jul-15 Jul-16 DEPOSITS Compared to September, deposit growth rates accelerated in October. Contraction in FX deposits continues. Interest rates in USD deposits increased by 50bps in October compared to September, caused by holds TL tendency DEPOSIT GROWTH RATE YoY DEPOSIT INTEREST RATES IN TL& & $ 4week mov.avg 24% 23.2% 11% 19% 14% 9% 13% 11% 9% 7% 9.86% 7.8% 4% 5% -1% -6% -11% - 3% 1% 2.20% 1.11% TRY FX (in $) Total Total FX adj. TL EUR USD CBT avg.fund.rate Source: Garanti Research and CBT 14
Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Jan-15 Feb-15 Mar-15 May-15 Jul-15 Aug-15 Sep-15 Nov-15 Mar-16 May-16 Jul-16 Sep-16 PROFITABILITY Compared to previous month, net profit* declined by almost 40% (MoM) and 6% (YoY) in September due to increase in general provisions. NII increased by 4% (MoM) NET PROFIT 12 month cum., billion TL 38 36 34 32 30 28 26 24 NET INTEREST INCOME (NII) 12 month cum.,% 26% 24% 22% 20% 18% 16% 14% 22 12% Source: Garanti Research, BRSA *latest monthly data available September 15
Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 PROFITABILITY Interest expenses and non-interest income declined in September. Low growth rate in non-interest expenses is supportive for profitability INTEREST INCOME & INTEREST EXPENSES GROWTH 12 month cum., % 40% 30% 20% 00% - NON-INTEREST INCOME & NON-INTEREST EXP.GROWTH 12 month cum.,% 30% 25% 20% 15% 05% -20% 00% Interest Income Interest Expenses Non-interest income Non-interest expenses 16
Luxembourg Netherlands France Austria Spian US Ireland Denmark Sweden Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 May-16 Sep-16 SOLID BUFFERS Both Capital Adequacy Ratio (CAR) and Common Equity Tier 1 stayed stable due to no change in risk weighted assets CAPITAL ADEQUACY RATIO & CET 1 & TIER 1 RATIO DM CAR & TIER 1(Q2 16) 18% 16% 14% 12% 8% 6% 4% 12% local minimum CAR target 6% min.reg.tier1 16.03% 13.8% 13.7% 4.5% min.reg. CET1 25% 20% 15% 5% 0% CET 1* CAR Tier 1 Ratio* *Banks have to maintain additonal capital conservation buffer of +0.625% CET1 for 2016; phased-in to reach +2.5% CET1until 2019. Besides, banks that are determined as domestically systemic important (D-Sib) are required to add a certain additional amount of capital. This is max.+0.5%cet1 for 2016; phased-in to reach max.+2%cet1 until 2019. CAR Tier 1 Ratio Source: Garanti Research, BRSA Source: Garanti Research and IMF FSI 17