-Q4 is likely to be one of the weakest quarters of the last decade in real terms as revenues get squeezed on all fronts
-Earnings to slide c.25% QoQ on average. Two more trying quarters ahead before earnings recovery starts
-We fine-tune estimates and TPs. Reiterate Buy on Akbank and Garanti. Maintain Hold on Isbank and YKB
4Q20 will mark one of the worst quarters in the last decade
Earnings season will kick off on January 28 with Garanti results. We expect private banks’ earnings to fall c.25% QoQ as
1) rising funding costs bring margins down despite the upward repricing of CPI linkers;
2) fees stagnate due to meagre loan growth;
3) trading gains fall due to a stronger TRY;
4) opex is seasonally high. We expect PPI contractions to be alike, but different provisioning strategies should lead to a 60% earnings slide at YKB, but a 10% expansion at Akbank. Weak Q4 results were well flagged during recent budget presentations and are unlikely to be negative catalysts for shares, in our view.
Provision-wise, we see a more accurate depiction of Q4 trends at Garanti
Cheap loans granted to meet the asset ratio constraint take their toll on NIMs as funding costs spike. Adjusted for linker revenues, we expect PPI of Akbank, Garanti and YKB to fall c.30% QoQ, while that of Isbank slides c.35% due to a steeper decline in trading income. We anticipate YKB will load provisions to Q4, like it did last year, and have its earnings plunge, while Akbank does the opposite. Absence of last quarter’s free provisions should limit the earnings slide at Isbank. We see a more accurate depiction of Q4 trends in Garanti with no volatility in provision expenses.
We fine-tune our earnings and TPs to reflect Q4 trends
Tweaks in 4Q20 estimates have repercussions for following years as the base changes. We raise our FY21/22e earnings 5/2% on average and marginally adjust TPs. We reiterate our view that there are two more trying quarters ahead before earnings recover strongly . Garanti and Akbank remain our favoured names due to stronger FY21e earnings momentums and discounted valuations versus history and CEEMEA peers with similar return and capital profiles.
Source: HSBC Global Research