Key messages
➢ The limited acceleration ahead of the election in March was followed by a moderation in TL credit growth thereafter.
This was caused by the monthly growth rate (2%) limitations introduced for consumer credits (general purpose loans & auto loans) and TL commercial credits (excluding investment agriculture & tradesman loans) and also by the CBRT’s rate hike in March by 500bps.
➢ FC lending most recently accelerated, mainly led by the SME lending of public banks. This was due to better spreads than in TL lending and the stability in the currency. Having in mind the improved short FX positon of the real sector ($84.7bn in Feb24 compared to $188.2bn in Dec17), we do not see any risk yet for the banking sector. Additionally, the CBRT recently (May 23rd) introduced a monthly growth limit of 2% to limit FC credits.
➢ Asset quality is solid with adequate provisioning. Although being low, NPL ratios of commercial segment is concentrated in certain sectors. On retail side, a limited pick-up in NPL ratios continues, mostly for general purpose loans and consumer credit cards.
➢ The credit risk indicator, the share of Stage 2 and NPLs in gross loans, declined further to 9.8% in 1Q24 for peer deposit banks, according to our calculations
Share of FC wholesale funding has increased, led by the short-term repo funding. Banks have enough FC liquid assets to cover their ST external debt, which has also been accompanied by solid roll-over ratios.
➢ Profitability of the sector is under pressure due to high funding costs, which continues to be offset by fees and commission income.
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