Recent pullback provides an attractive entry point: We expect Akbank’s NIM to enter an upcycle after multiple quarters of contraction as funding costs have started to come off. We calculate that a gradual easing in inflation and the policy rate could lead to robust earnings growth of 45% HoH in 2H24 and 88%/58% YoY in FY25/26e, unmatched anywhere else in our EEMEA banks coverage outside Türkiye. Akbank shares’ recent pullback provides an attractive entry point to this narrative. The stock is trading at 2025e 1.15x P/B (USD based), which is enticing as the next two years’ average ROTE of 38% is way above the COE of 26.5%. We revise our earnings, nudge up our TP and upgrade to Buy given the strong earnings impulse and attractive valuation.
NIM cycle turns positive: Rising funding costs amid CBRT’s tightening pushed Akbank’s NIM down to 1.85% as of 2Q24, the lowest level in the last 10 years. The good news is that Q2 should mark the trough. TRY deposit costs have eased 2pp QoQ so far in Q3. Moreover, the yield on Akbank’s outstanding TRY loans is at least 20pp below that of originations, ie, implying significant headroom for upwards repricing for next few quarters. Thus, we expect exit NIM for 2024 at around 4%. Come 2025, we expect a 20pp cut in the policy rate, creating significant NIM tailwinds amid a favourable repricing gap. Those tailwinds should linger into 2026, thereby growing earnings 58% on top of 88% in 2025e.
Adjusting earnings post 2Q24 results: We cut FY24/25/26e earnings by 9%/18%/9% to reflect: 1) Q2 results revealed increased usage of TRY repos, which are costly and raise our blended funding cost marginally; 2) lower market volatility than previous periods led to a drop in trading income; 3) 1H24 trends led to an uptick in our opex forecasts. Mind that we have a few caveats around these forecasts: 1) Akbank’s solid track record in treasury operations could lead to stronger bond trading gains as interest rates come down; 2) Q2 showed a sequential market share gain of 1pp in the high yield SME segment, which we find encouraging from an asset yield point of view. Continuation of this trend would be an upside risk to our NII forecasts. Lastly, cooling of the economy during the disinflation period may cause upside risks to our FY25e CoR on 150bp. Every 50bp breach of this forecast would mean a 4% cut to our earnings forecasts for next year.
Upgrade to Buy; new TRY72 TP (vs TRY70): We roll our model forward to Q3, which offsets the downward adjustments to our earnings forecasts and still leaves room for a small TP increase. We see sequential earnings growth, CBRT data on deposit cost evolution and monthly inflation prints as potential catalysts.
HSBC Global Research