MENA & Turkey Financials

Ercan Uysal

Thematic (Sector/Industry)

<h2>Orderly or disorderly deleveraging?  </h2>
If history is any guide, the aftermath of a private debt boom often results in slower consumption and GDP growth, or outright financial crisis. As the window is rapidly closing to avoid the latter, a multi-year deleveraging in the Turkish economy seems inevitable to us, after having registered the second largest non-financial private sector debt-to-GDP build-up in 2009-2017 in the EM universe after China. The recent sharp deceleration in credit growth against peak corporate leverage and an increasingly volatile macro backdrop portend that the Turkish banks will have to grapple with mounting asset quality problems in the next few years. At 0.48x 12MF P/BV, the BIST Banks are currently trading at a hefty 50% discount to MSCI EM Banks, largely reflecting the underlying investor concerns about worsening macroeconomic outlook and its potential adverse impact on the banking sector, in our view. Despite seemingly attractive valuations, we believe if a comprehensive bank resolution framework is not put in place in the coming months, more pain might be on the cards for investors.

Orderly or disorderly deleveraging?  
If history is any guide, the aftermath of a private debt boom often results in slower consumption and GDP growth, or outright financial crisis. As the window is rapidly closing to avoid the latter, a multi-year deleveraging in the Turkish economy seems inevitable to us, after having registered the second largest non-financial private sector debt-to-GDP build-up in 2009-2017 in the EM universe after China. The recent sharp deceleration in credit growth against peak corporate leverage and an increasingly volatile macro backdrop portend that the Turkish banks will have to grapple with mounting asset quality problems in the next few years. At 0.48x 12MF P/BV, the BIST Banks are currently trading at a hefty 50% discount to MSCI EM Banks, largely reflecting the underlying investor concerns about worsening macroeconomic outlook and its potential adverse impact on the banking sector, in our view. Despite seemingly attractive valuations, we believe if a comprehensive bank resolution framework is not put in place in the coming months, more pain might be on the cards for investors.

Turkish Banks: A Painful Deleveraging Ahead

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* President Erdogan is Likely to Win, and Capital Controls Likely Will Follow;  and * All Signs Point to TRL Weakness on Par With Argentina.  <h2>Investment Summary</h2>Ahead of this weekend’s elections (June 24th) in Turkey, President Erdogan rescinded his recent narrative that the Central Bank of Turkey will regain independence. Instead, he indicated that “You will see how we deal with interest rates and other things once you give me the authority".  President Erdogan has removed any doubt that  this…

* President Erdogan is Likely to Win, and Capital Controls Likely Will Follow;  and * All Signs Point to TRL Weakness on Par With Argentina.  Investment SummaryAhead of this weekend’s elections (June 24th) in Turkey, President Erdogan rescinded his recent narrative that the Central Bank of Turkey will regain independence. Instead, he indicated that “You will see how we deal with interest rates and other things once you give me the authority".  President Erdogan has removed any doubt that  this…

* Stronger USD on the back of higher interest rates, and higher USD-denominated oil prices are the perfect storm for the Turkish economy and TRL. * Even in a best case scenario of a soft landing and a Chinese rescue package, significant EPS downgrades are likely with 2018 GDP warnings, the pro-cyclicality of IFRS9 which will increase loan provisioning by 100 bps, and imminent loan growth deceleration on the back of higher local rates. * Economic data is weak: Current account deficit of 6.5%…

* Stronger USD on the back of higher interest rates, and higher USD-denominated oil prices are the perfect storm for the Turkish economy and TRL. * Even in a best case scenario of a soft landing and a Chinese rescue package, significant EPS downgrades are likely with 2018 GDP warnings, the pro-cyclicality of IFRS9 which will increase loan provisioning by 100 bps, and imminent loan growth deceleration on the back of higher local rates. * Economic data is weak: Current account deficit of 6.5%…

Turkey

Turkiye Halk Bankasi AS provides various types of banking services.  The Bank specializes in lending to small to medium sized firms and tradesmen.

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Turkiye Halk Bankasi As (HALKB TI)

Turkish Banks: A Painful Deleveraging Ahead

Orderly or disorderly deleveraging? If history is any guide, the aftermath of a private debt boom often results in slower consumption and GDP...

Ercan Uysal

Cold Turkey

* President Erdogan is Likely to Win, and Capital Controls Likely Will Follow; and * All Signs Point to TRL Weakness on Par With...

Thomas J. Monaco

Turkey Shoot

* Stronger USD on the back of higher interest rates, and higher USD-denominated oil prices are the perfect storm for the Turkish economy and...

Thomas J. Monaco

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