Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Turkiye Is Bankasi AS (IST:ISCTR, Financial) celebrated its 100th anniversary, marking a century of stability and trust in the Turkish economy.
- The bank reported a strong return on equity of around 28% for the first half of 2024.
- Net fee income showed impressive growth, with a quarterly increase of 11% and an annual growth of 200%, offsetting declines in net interest income.
- The bank maintained a solid capital adequacy ratio of 15.5%, indicating strong capitalization to absorb potential economic adversities.
- Turkiye Is Bankasi AS issued a $500 million sustainable Eurobond and signed a $1 billion sustainability-linked syndicated loan, emphasizing its commitment to ESG initiatives.
Negative Points
- Net interest margin (NIM) faced significant pressure due to high funding costs and quantitative tightening measures.
- The bank's swap costs added additional pressure on net interest income, although a declining trend was observed towards the end of June.
- The Turkish economy's high inflation and tightening monetary policy pose challenges for the banking sector's performance.
- Asset quality concerns remain, particularly in the credit card segment, where some deterioration is expected.
- The bank anticipates a normalization in the cost of risk, revising its year-end guidance to 100 basis points, reflecting cautious expectations for asset quality.
Q & A Highlights
Q: What is the outlook for net interest margin (NIM) for the next year, and what policy rate is it based on?
A: Izlem Erdem, Deputy Chief Executive, explained that the unexpected 500 basis points rate hike in March put pressure on NIM in the first and second quarters. Assuming no additional tightening, recovery in NIM is expected to start in the third quarter and gain momentum in the fourth quarter. The scenario indicates around a 4% exit NIM level at the end of the year, with a full-year expectation of 2%. For 2025, it's too early to comment before observing trends in the last quarter, especially regarding inflation.
Q: Can you clarify the released free provisions of TRY3 billion and their impact on HR expenses?
A: Izlem Erdem clarified that the TRY3 billion free provisions are included in the other operating income and do not affect HR expenses. The provisions are under the other provisions line, separate from operating expenses.
Q: What is the expected trajectory for swap costs and volumes in the second half of the year?
A: Izlem Erdem noted that swap costs were a significant issue, but a declining trend in swap volumes and costs was observed at the end of June. The swap balance declined to around $3.5 billion and is now below $3 billion, indicating no further pressure from swap costs. The funding composition will continue to impact NIM in the coming quarters.
Q: Do you expect any visible deterioration in asset quality in 2025, particularly for the real sector and SMEs?
A: Izlem Erdem stated that while some increase in flows is expected, especially in credit cards, the NPL ratio remains manageable. The bank is not observing worsening in SME asset quality indicators and expects strong collections to support asset quality. A normalization of cost of risk around 100-125 basis points might be expected, but no major deterioration is anticipated unless unexpected events occur.
Q: What are your views on asset quality extending into 2025, and what could cause additional worsening?
A: Izlem Erdem mentioned that while some increase in flows might occur as the economy slows, it will likely be balanced with collections. A normalization of cost of risk is expected, but prudent policies will help manage risks. No major deterioration is expected unless significant geopolitical risks arise.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
