GEM financials - Finansbank with a little bit of Yapi Kredi
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This is a short story of Finansbank and its founder. The story is mostly based on facts and our experience with these two banks as an analyst over the years.
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GEM Financials - Turkish banks: Two elephants in a small room
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The December quarter results came in marginally better than consensus. The sources of positive surprise to earnings include higher-than-expected yields on CPI-linkers, NPL reversals and somewhat better-than expected F&CI. However, full year results have demonstrated yet again that Turkish banks continue to struggle to grow earnings with profits falling two years in a row.
Akbank, Garanti and TSKB top the equity valuation tables with price to book multiples above 1x. (2015). The remaining banks are trading at least 20% below book. Halkbank's current valuation implies excessively high cost of equity, which is out of sync with its peers.
Read MoreGEM Financials - Turkish banks earnings conundrum or ripe for a rebound?
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Turkish banks' earnings growth has declined steadily since 2005. From as high as 40-50% pa between 2003-05, the EPS growth first fell towards mid-teens by 2010, then slowed to low single digits from 2010 and finally turned negative in 2014/2015. We identify three reasons for the deceleration in pace of earnings growth. The no.1 reason is the decline in the level of inflation hurting core business margins. The second reason is the lower annual volatility in CPI itself, which has had an adverse impact on trading incomes. The third reason is tighter regulation over credit.
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