Big lenders: Important changes and promising signs of growth

The top five Turkish lenders in account for nearly 60% of the assets in the banking sector. The state has ownership stakes in three of Turkey’s top 10 banks; and the second-largest bank, Ziraat, is 100% state-owned. While domestic players account for eight of the 10 biggest lenders in the country, four of these are at least partially owned by foreign banks. Financial performance in 2011 was characterised in general by falling profits at the larger banks, while smaller institutions saw improvements. Assets for nearly all of the lenders were up significantly in 2011. İŞ BANKASI: İş bank was the largest lender in Turkey as of December 2011, with assets amounting to TL161.7bn (€68.7bn), a 23% increase over year-end 2010. The institution’s employee pension fund owns 40% of the bank, while the Republican People’s Party is the second-largest shareholder with a 28.1% stake. The remainder of the bank’s shares are publicly traded on the MKB Borsa Istanbul ( MKB). Net profits fell from nearly TL3bn (€1.3bn) in 2010 to TL2.7bn (€1.1bn) in 2011. However, lending jumped sharply, rising by 43% and ending 2011 at TL91.6bn (€38.9bn). However, net income margins (excluding central bank reserves) declined from 4.56% to 3.85%, contributing to a fall in profits. Like many Turkish banks in 2011, İş’s loans as a percent of assets jumped (rising from 49% to 57%), while securities fell from 34% to 26%. As of December 31, 2011, corporate and commercial lending accounted for roughly 50% of its loan book, followed by retail loans (including credit cards) at 28% and small and medium-sized enterprises (SMEs) at 22%. Analysts at BNP Paribas and Citigroup noted in in-house analytic reports that one downside risk for the country’s largest lender was its relatively high reliance on repo funding. If the central bank were to raise funding rates as it did in late 2011 and early 2012, this could negatively impact on İş throughout the year. ZİRAAT BANKASI: Established in 1888, Ziraat is the second-largest bank in Turkey as measured by assets and 100% state-owned. In December 2011, its total assets stood at TL161bn (€68.4bn), a 6% increase over year-end 2010. Net profits for 2011 amounted to TL2.1bn (€892.5m), compared to TL3.7bn (€1.5bn) for the prior year. As of September 2011 (the latest data available), its loans were valued at TL70.2bn (€29.8bn), roughly 43% of total assets and representing a 22% increase over year-end 2010. According to Cross Asset Research, a division of French bank Société Générale, the bank ranked number one in retail loans as of the third quarter of 2011, capturing about 14% of the market. Its position was smaller in the corporate/SME loan segment, where it held a 9% share.

As its name suggests, Ziraat has historically focused on the agricultural sector, and it is still a major player in that area. As of the end of 2010, the agricultural sector accounted for about 30% of its loan book. The bank has a wide geographical presence, with 1434 branches across Turkey and 78 offices in 17 other countries. As the company noted in its 2010 annual report, some 71% of its loans are channelled to its customers in Anatolia, which makes it markedly different from its more urban competitors, which tend to focus their lending activities in the Marmara region and other major metropolitan areas. GARANTİ BANKASI: The two largest shareholders of Garanti, founded in 1946, are the Doğus Group (24%) and Spanish bank BBVA (25%). The latter acquired its ownership in the company in November 2010, buying out General Electric, an American conglomerate, in a $5.8bn deal. As part of this transaction, BBVA gained the option to purchase an additional 1% of the company and acquire a majority of board seats after five years’ time. The remainder of the bank’s shares are publicly traded. As of December 31, 2011, total assets amounted to TL146.6bn (€62.3bn), a slight decline from the year-end figure for 2010. Loans grew by 30% in 2011, from TL64.5bn (€27.4bn) to TL83.5bn (€35.5bn). Profitable lending products drove this growth, with general-purpose loans up by 45% and credit cards up by 23% over the prior year. However, net profits for 2011 stood at about TL3.1bn (€1.3bn), a 2% decline from 2010.

Garanti is well-capitalised, with a capital adequacy ratio (CAR) of 16.9% as of the end of 2011. According to UniCredit equity research, the bank’s strong capitalisation is a competitive advantage that will allow the company to grow in the future, particularly in areas that are more risky, such as high-yield unsecured consumer loans. In a January 2012 report, Cross Asset Research noted that Garanti is highly efficient and is optimised for generating fee income and cross-selling. Finally, according to a report from Citibank, one of the bank’s strengths is its ability to attract deposits, which was particularly important during the fourth quarter of 2011, when the cost of funds from the central bank increased sharply.

AKBANK: Founded in Adana in 1948, Akbank is the fourth-largest bank in terms of assets. Akbank is 49% owned by Sabancı Holding, with Citigroup holding a 20% stake in the company. The remaining 31% of shares are free-floating. In 2011 the bank posted profits of TL2.5bn (€1.1bn), a decline of 16% from the previous year’s performance. Total assets over the year grew by 17%, reaching TL140bn (€59.5bn). Loan growth was about on par with the sector as a whole, increasing by 30% to reach more than TL88bn (€37.4bn). SMEs, which accounted for about 27% of loans at year-end 2011, experienced the highest rate of growth, at 34%. Consumer loans grew but at a slower pace, increasing by 18.7%.

According to a Moody’s Investors Services credit evaluation for Akbank, the bank ‘s strengths include a robust retail banking business, solid corporate and SME franchises, good risk-management practices and a comfortable liquidity profile. Akbank is among the country’s best-capitalised banks, with a CAR of 16.8% as of December 2011. Moreover, the effect of Basel II is expected to be minimal – that is to say that risk weighting for foreign-currency Turkish government securities will rise, but this will be offset by lower risk rates of other assets, including mortgages. YAPI KREDİ: The bank’s principal shareholder is Koç Financial Services, arranged via a 50:50 joint venture between UniCredit and Koç Group, with an 81.8% stake. Minority shareholders account for the remaining 18.2%. Yapı Kredi’s shares are traded on the MKB as well as the London Stock Exchange. As of December 2011, its assets stood at TL117.5bn (€49.9bn), making it the fifth-largest lender in Turkey. The bank’s net profits in 2011 amounted to TL2.3bn (€977.5m), up 2% over the prior year. Loans grew by 28% in 2011, with a focus on lira-denominated retail loans including high-margin general purpose (63% year-on-year growth) and SME loans (50% year-on-year).

Yapı Kredi is focused on retail banking activities, which it defines as card payments, SME lending and individual banking. Retail banking products include consumer and SME loans, investment accounts and insurance products. At the end of 2011, about half of its loans and 63% of its deposits came from the retail segment. The bank has a particularly strong presence in the credit card market, accounting for 18.3% of volume in this segment. According to sector analysts, challenges for the bank include its relatively weak liquidity profile, with its loan-to-deposit ratio standing above 100% and a CAR of 14.7%. Implementation of Basel II is expected to have a negative impact of 150-170 basis points on its capital ratio.

HALKBANK: After Ziraat, Halkbank is the second-largest state-controlled bank, although 25% of its shares have traded on the MKB since its initial public offering (IPO) in 2007. At year-end 2011, its total assets stood at TL91bn (€38.7bn), an increase of 25% over the prior year. Outstanding loans grew by 30% in 2011, amounting to TL74bn (€31.5bn) as of December 31, 2011. The bank also did well in terms of profitability, closing the year with net income of TL2bn (€850m), a 1.7% increase over the prior year.

Halkbank has a historical focus on SMEs, which accounted for about 36% of its loan book in 2011. It also has a reputation for a relatively conservative lending approach, according to Cross Asset Research. For example, it typically will not accept a loan-to-value ratio of more than 50% for mortgages, while the Banking Regulation and Supervision Agency ( BDDK) allows this figure to be as high as 75%. In line with its conservative stance, it has a low loan-to-deposit ratio compared to its peers, standing at 84.9% by 2011 year-end. This should help fund growth in the future, as will continued access to global capital markets. In early 2012, Süleyman Aslan, general manager of Halkbank, publicly stated that the bank’s management believed that it would be able to obtain funds amounting to $2bn in 2012 through bilateral agreements and the issuance of Eurobonds, noting that the bank enjoys a “position of high creditworthiness” across the global borrowing market.

VAKIFBANK: A collective of several Ottoman-era foundations ( vakıf), represented by the General Directorate of Foundations, controls almost 60% of VakıfBank. Another 16% is owned by the bank’s pension fund, to which all employees must contribute. Remaining shares trade on the MKB, following the bank’s IPO in 2005. As of December 31, 2011, Vakı fBank’s assets totalled TL89.2bn (€37.9bn), a 20.6% increase over the prior year. Net profits amounted to TL1.2bn (€510m), up year-on-year by 6%.

Outstanding loans at the end of 2011 reached TL72.9bn (€31bn). Retail loans are an increasingly important part of the business, growing by 41.5% in 2011 to reach TL21.1bn (€9bn). This segment included 37.4% growth in general-purpose consumer loans and a 47.6% increase in residential mortgage lending. VakıfBank stated that its strategic plan is to focus on retail lending and increase its market share in this area. Loans to SMEs doubled in 2011, in part thanks to Kobidost, a project aimed at helping small business owners finance various needs, initiated in that year. According to Cross Asset Research, Vakı fBank was an attractive stock pick as of January 2012, noting that the bank is focused on increasing its fee-to-total income ratio, which remains low at 13.5%. FİNANSBANK: The country’s eighth-largest lender, Finansbank, was founded in 1987 by Turkish banker Hüsnü Özyeğin. In 2006, a total of 77.2% of the bank’s shares were sold to the National Bank of Greece (NBG). Today, the balance of shares is held by the International Finance Corporation (5%), NBGI Holdings (7.9%) and NBG Finance (9.68%), plus other unidentified minority shareholders (0. 19%). Despite the economic troubles in Greece, in November 2011 NBG announced that it had no intention of selling a controlling position in the Turkish unit beyond a planned sale of a 20% stake in the bank.

In September 2011 (the latest data available) the bank’s assets amounted to TL47.4bn (€20.1bn), an increase of 24% over 2010 year-end. Loans, which account for 67% of the bank’s assets, grew by 23% in the first three quarters of 2011. In the same period, customer deposits increased by 24%. Meanwhile, net income from fees and commissions surged by 27% year-on-year. The bank has a strong position in the credit card segment, where it holds a 15.2% market share according to a presentation by the bank. DENİZBANK: Founded in 1938 as a state-owned bank to finance the Turkish maritime sector, DenizBank was acquired by Zorlu Holding in 1997 from the Privatisation Administration. The lender was subsequently sold to European financial group Dexia in October 2006, and at present operates as part of the Dexia Group, although a small portion of its shares (less than 1%) are publicly traded. The bank has been up for sale since late 2011, but its financially troubled owner has had difficulties finding a buyer. As of March 2012, Qatar National Bank (QNB) was the only serious bidder that remained, but the CEO of UniCredit, partial owner of Yapı Kredi, told reporters in March that his institution might consider purchasing DenizBank if the QNB deal fell through. At the end of the third quarter 2011, the bank’s assets amounted to TL45.7bn (€20.2bn), a 35% rise over year-end 2010. Net loans increased during this period, from TL23.8bn (€10.1bn) to TL31.5bn (€13.4bn). Net profits for the first three quarters of 2011 stood at TL912m (€387.6m), already above the 2010 full-year result of TL616m (€261.8m).

TEB: Founded in 1927 as Kocaeli Halk Bankası, the bank was acquired by the Çolakoğlu Group in 1982 and renamed Türk Ekonomi Bankası (TEB). In 2005 French bank BNP Paribas purchased a 50% stake in TEB Mali Yatırımlar, principal shareholder of TEB, acquiring a 42.1% indirect stake in the lender. In 2010 TEB announced it was acquiring the local unit of Europe-based Fortis Bank, with operations to be carried out under TEB’s name. The deal was finalised in early 2011. As of year-end 2011, 4.5% of TEB’s shares were traded on the MKB, where the bank has been listed since its IPO in 2000. TEB’s total assets were TL38.1bn (€16.2bn) in December 2011, and earned TL206.7m (€87.8m) in net profits that year.