Turkish Banks: Sensitivity of capital ratios to currency and asset quality

We update our interactive spreadsheet to stress test capital positions with Q1 results: HSBC’s year-end USDTRY forecast of 24.00 (see TRY: Rich and vulnerable, 5 April 2023) and uncertainties around sustainability of current macro policies make assessing banks’ capital buffers worthwhile, we believe. Our interactive spreadsheet, updated for 1Q 2023 financials (click to request), can be used to calculate capital ratios under different assumptions. Banks capital and provision buffers look enough to absorb significant currency and asset quality shocks: According to our analysis, all private banks should remain above 8.5% minimum CET-1 requirement until USDTRY reaches 29.00 and NPL ratios increase 4.5pp on average thanks to existing capital buffers and reversal of excess provisions. Note that we haven’t taken organic capital generation into account, unlike in previous versions of this analysis. Currency depreciation beyond our base case of USDTRY 24.00 would mean higher CPI linker revenues for banks and rapid replenishment of capital buffers. On the other hand, we also haven’t taken into account MtM losses banks would incur on securities portfolios and any potential increase in securities maintenance requirements that could extended those losses and weigh on profitability.     HSBC Global Research