TURKEY MONTHLY BANKING MONITOR NOVEMBER DECEMBER 7TH
Global Developments Financial stress for EM rose in November, due to US elections and increase in the probability of a Fed rate hike in December BBVA RESEARCH FINANCIAL STRESS MAP USA Europe CDS S overeign Equity (volatility) CDS Banks Credit (corporates ) Interest Rates Exchange Rates Ted S pread Financial Tension Index CDS S overeign Equity (volatility) CDS Banks Credit (corporates Interest Rates Exchange Rates Ted S pread Financial Tension Index 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Financial Stress (FT) in Developed Markets remained contained thanks to low volatility in equity markets FT in Latam, especially in Mexico, increased due to uncertainty on Trump policies G2 US A Financial Tension index Europe Financial Tension Index 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 EM Europe Latam EM Asia EM Europe Financial Tension Index Czech Rep P oland Hungary Russia Turkey EM Latam Financial Tension Index Mexico B razil Chile Colombia P erú EM Asia Financial Tension Index China India Indonesia Malaysia Philippines No Data Very Low Tension (<1 sd) Low Tension (-1.0 to -0.5 sd) Neutral Tension (-0.5 to 0.5) High Tension (0.5 to 1 sd) Very High Tension (>1 sd) Source: BBVA Research 2
Global Developments Global credit picked up slightly in 2Q 16. The total outstanding amount rose from $3.2 trillion to $3.3 trillion. However, on YoY basis it contracted by 8% CROSS-BORDER BANK LENDING TO EM USD trillions 4,5 4 3,5 3 2,5 2 1,5 1 TOTAL CREDIT TO THE NON-FINANCIAL SECTOR*- %of GDP 200 180 160 140 120 100 80 0,5 60 Sep-02 Dec-03 Mar-05 Jun-06 Sep-07 Dec-08 Mar-10 Jun-11 Sep-12 Dec-13 Mar-15 Jun-16 Mar-03 Apr-04 May-05 Jun-06 Jul-07 Aug-08 Sep-09 Oct-10 Nov-11 Dec-12 Jan-14 Mar-16 EM Turkey Source: BIS (latest data); Garanti Research *Non-financial sector terminology of the BIS includes real sector + households+non-profit org.) 3
Turkey Financial Markets Turkish equities lagged behind the EM in November. Risk premium (CDS) of Turkey increased to 290 bps 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 May-14 Aug-14 Nov-14 May-14 Aug-14 Nov-14 MSCI EM XBANK Index MSCI Turkey EM TURKEY Source: Garanti Research, Bloomberg 4
Monetary Policy Trying to contain the depreciation in TL, the CBT hiked the upper bound of its interest rate corridor (25bps to 8.5%) and the policy rate (50bps to 8.0%) and kept the O/N lending rate constant at 7.25% in November TURKEY: INTEREST RATE CORRIDOR % TURKEY: SHARES OF THE CBT TOTAL FUNDING 12% 11% 100% 90% 80% 25% 70% 9% 8% 60% 50% 40% 50% 7% 6% Jan-15 Mar-15 Jul-15 Sep-15 ON Lending ON Borrowing BIST Interbank Repo Mar-16 Jul-16 Sep-16 CBT One-Week Repo CBT Cost of Funding 30% 20% 25% 0% Sep-15 Oct-15 Dec-15 Apr-16 Jun-16 Sep-16 Oct-16 O/N Lending Rate 1 Week Repo Rate Deposit Market Transactions Rate Source: Garanti Research, Turkstat, CBT, BRSA and Bloomberg 5
Central Bank Reserves FX reserves increased in November compared to October due to export credits. Net reserves also increased to USD 33.5bn CBT RESERVES USD bn 140 120 60 50 GROSS RESERVES Short term External Debt to be paid in one year (%) 81% 79% 100 80 60 40 20 40 30 20 10 77% 75% 73% 71% 69% 67% %71.3 0 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 FX Reserves Gold Net Reserves-rhs Oct-16 0 65% May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 Jul-15 Sep-15 Mar-16 Jul-16 Sep-16 Source: Garanti Research, CBT 6
Loan Growth YoY Credit growth continues to float between 9-. The 13 week trend rate declined to 8.2% mainly due to sharp falls observed during September FX ADJUSTED CREDIT GROWTH RATE % yoy and 13 week ann. rates 40% 35% 30% 25% 20% 15% 5% 9.5% 8.2% YoY growth rate of FX adjusted credits still below (and below the Central Bank 15% comfort range) The trend rate (annualized yearly rate) fell to 8.2% from 9.3% last month 0% Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Jun-16 YoY 13 week annualized CBT Target Source: Garanti Research, BRSA, CBT 7
Loan Growth The fall in commercial credits is driving the total credit growth deceleration. Consumer credits maintain their momentum and continue to move upwards both in YoY and 13 week trend terms COMM. AND CONSUMER LOANS GROWTH RATE 13 week ann. rates CONSUMER LOANS % 13 week ann. rates 28% 25% 24.4% 23% 15% 14% 18% 13% 18.7% 5% -5% 5.5% 3% 8% 3% -2% Jan-15 Mar-15 Jul-15 Sep-15 Mar-16 Jul-16 Sep-16 5.3% -15% -25% Nov-14 Commercial Loans (FX adjusted) Consumer Loans Housing Others Automobile Personal Credit Cards Source: Garanti Research, BRSA, CBT 8
Corporate sector debt Total indebtedness of the real sector stays at 71%. Roll-over ratios for banks declined to 170% due to high levels of loan repayments DEBT TO GDP LEVELS OF PRIVATE SECTOR LT EXTERNAL DEBT ROLL-OVER RATIO OF BANKS & REAL SECTOR % 105% 400% 85% 65% 71% 350% 300% 250% 45% 200% 170% 25% 05% 21% 150% 100% 50% 124% -15% 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 0% Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Apr-16 Sep-16 Real Sector Debt/GDP Household Debt/GDP Banks Real Sector Source: CBT; Garanti Research *latest data available Sept 16 9
Corporate Sector FX indebtness Corporates FX short position* turned again negative in September (latest data) whereas TL continued to depreciate sharply in November CORPORATES OVERALL FX POSITION USD bn CORPORATES NET SHORT TERM FX POSITION USD mn 0 15 40% -50.000-100.000-150.000 10 5 0-5 30% 20% 0% -200.000-10 - -250.000 2008 2009 2010 2011 2012 2013 2014 2015-03 2015-06 2015-09 2015-12 2016-03 2016-06 2016-07 2016-08 2016-09 -15 Nov-09 Jan-11 Mar-12 May-13 Corporate Net FX Position Jul-14 Sep-15 USDTRY YoY -20% Source: CBT; Garanti Research *latest data available September 10
Interest Rates Interest rates on consumer credits continued to follow a downward trend in November as well. Deposit rates continue to fall, too COMM. AND CONSUMER LOANS INTEREST RATES 4week mov.avg. 18% DEPOSIT INTEREST RATES 4week mov.avg. 11% 17% 16% 15% 14% 13% 16.1% 14% 13.7% 9% 9.65% 12% 11% 11.7% 8% Nov-14 Auto Commercial Loans Housing Other Consumer 7% Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Source: Garanti Research, BRSA, CBT 11
Asset Quality & Credit Risk NPL ratio increased in most of the segments. Total NPL ratio of the whole sector increased to 3.35% NPL RATIO OF THE BANKING SECTOR % NPL RATIO BY SELECTED SUB-SEGMENTS % 3,5% 9% 3,4% 3,3% 3,2% 3,1% 3,0% 3.35% 24% 32% 27% 22% 17% 12% 8% 7% 6% 5% 4% 3% 2% 2,9% 2,8% Jun-14 Aug-14 Oct-14 Dec-14 NPL Apr-15 Jun-15 Oct-15 Dec-15 Apr-16 YoY NPL Growth (rhs) Jun-16 Oct-16 07% 02% 1% 0% Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Housing NPL GPL NPL SME NPL Jan-15 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 Auto NPL Total Credit Cards NPL NPL Commercial Source: Garanti Research, BRSA (latest monthly data) 12
Consumer Financing Companies NPL ratio of commercial installment loans in consumer financing companies reached 4.5% with an accelerating YoY growth rate NPL OF CONSUMER CREDIT BY FINANCING COMP. % 3% 2% 1% May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 2.3% 50% 72% 62% 52% 42% 32% 22% 12% 02% NPL OF COMM. INSTALLMENT LOANS BY FINANCING COMP. % 5% 4% 3% 2% 1% May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 4.5% 64% 77% 67% 57% 47% 37% 27% 17% 7% NPL Consumer Credits YoY Growth NPL-consumer Yoy growth NPL-Commerical Installment Loans NPL-comm.installment (rhs) Source: Garanti Research, CBT, BRSA (latest monthly data) 13
Deposits Compared to October, there has been some shift from TL deposits to FX deposits in November where TL depreciated by 11% on a monthly basis DEPOSIT GROWTH RATE YoY DEPOSIT INTEREST RATES IN TL& & $ 4week mov.avg 24% 19% 14% 9% 4% -1% -6% 21% 15.7% 12.5% -7.6% 12% 8% 6% 4% 2% -11% 0% Jul-15 Sep-15 Mar-16 Jul-16 Sep-16 May-14 Aug-14 Nov-14 TRY FX (in $) Total Total FX adj. TL EUR USD CBT avg.funding rate Source: Garanti Research, BRSA, CBT 14
Profitability Net profit increased by 35% (MoM) in November due to decline in general provisions 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 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 12% Mar-15 Apr-15 Jun-15 Jul-15 Sep-15 Oct-15 Dec-15 Mar-16 Apr-16 Jun-16 Jul-16 Sep-16 Oct-16 Source: Garanti Research, BRSA latest monthly data 15
Profitability Interest income and expenses showed no marked change whereas non-interest income continues its downward trend since 2H 16 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% Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 Interest Revenues Interest Expenses Non-interest revenues Non-Interest Expenses Source: Garanti Research, BRSA latest monthly data 16
Solid Buffers Both Capital Adequacy Ratio (CAR) and Common Equity Tier 1 declined by almost 10bps (MoM) due to slight increase in risk weighted assets CAPITAL ADEQUACY RATIO & CET 1 & TIER 1 RATIO 18% 16% 14% 12% 8% 6% 12% local minimum CAR target 6% min.reg.tier 1 16% 13.7% 13.6% 4.5% min.reg. CET1 DM CAR & TIER Q2 16 25% 20% 15% 4% Feb-14 Jun-14 Oct-14 Jun-15 Oct-15 Jun-16 Oct-16 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. Luxembourg Netherlands France CAR Austria Spian US Ireland Tier 1 Ratio Denmark Sweden Source: Garanti Research, BRSA Source: Garanti Research and IMF FSI 17
Regulations The BRSA has lowered the general provisioning requirement for SME and commercial loans. Accordingly, the general provisioning requirement has been lowered to 0.5% from 1% for commercial loans and to 0% from 0.5% for SME loans. Additionally, the 2% general provisioning ratio for Group 2 loans could be 1% for Group 2 SME & commercial loans The calculation method of maximum interest rates for credit card borrowings has been changed. Accordingly, the monthly maximum interest rates that banks can charge on Turkish lira and FX credit card borrowing have been decreased. To be effective from 1 January 2017, for the credit card borrowings, the monthly maximum contractual interest rate will be 1.84% for the Turkish lira and 1.47% for FX transactions, whereas the monthly maximum overdue interest rate will be 2.34% for the Turkish lira and 1.97% for FX transactions Implementation of limits for FX collateral deposits placed with the CBT will be restarted as of 11 November 2016. Banks limits will be applied as four times the limits allocated before 17 July 2016. Banks that are above these limits will not be able to extend their existing deposits and place new deposits until they reach their limits Source: Garanti Research, BRSA, CBT 18
Regulations The method of the remuneration of the TL required reserves held at the CBT is changed. Starting from 1 January 2017, the remuneration rate for each quarterly period will be taken 400bps less than the one week repo auction rate of the CBRT. Beginning from 1 January 2017, remuneration of the TL required reserves will be paid on the first business day following the end of months March, June, September and December. The first remuneration will be paid on 3 April 2017 according to the new method Reserve option coefficients have been changed to provide additional FX liquidity to the financial system. Accordingly, the coefficient for the first tranch of the FX facility of Reserve Option Mechanism has been kept unchanged, the second tranch has been decreased by 0.1 point, the other tranches have been decreased by 0.2 points. Should the reserve option utilization rates remain unchanged, approximately USD700 million of liquidity will be provided to the financial system with these changes FX reserve requirement ratios have been decreased by 50bps for all maturity brackets. With this revision, approximately USD 1.5 billion of liquidity will be provided to the financial system Regarding the export and FX earning rediscount credits, which will be due by 31/12/2016, it has been decided that i) The maximum maturity can be extended till 31/03/ 2017, ii) in case of payment on maturity without utilizing the maturity extension option, credit repayments can be made in TL and the CBT buying exchange rates prevailing on the maturity date will be used in these transactions Source: Garanti Research, CBT 19
TURKEY MONTHLY BANKING MONITOR NOVEMBER DECEMBER 7TH Garanti BBVA Research Deniz Ergun denizerg@garanti.com.tr