A strong recovery in Turkish banking earnings is expected this year, now that the rate-cutting cycle is well underway, Citi has said in a new report. In the first 11 months of 2024, Turkish banks’ combined profit rose by 9 percent from a year ago to 583 billion Turkish Liras, according to the latest data available from the Banking Regulation and Supervision Agency (BDDK). “We expect significant NIM [net interest margin] expansion this year driving an estimated 72 percent year-on-year growth in earnings this year and 30 percent next year for our coverage universe of Turkish banks, following an anticipated 28 percent aggregate decline in earnings in 2024,” Citi said. An asset-liability repricing gap analysis suggests that İşbank and Yapı Kredi are best positioned to benefit, short term, from lower rates, while Garanti appears least well positioned, according to Citi. “We move to a positive view on the sector and upgrade Akbank, İşbank, and Yapı Kredi to Buy/High Risk from Neutral/High Risk while we leave Garanti Neutral/High Risk rated. Our target prices move higher, mostly driven by a more optimistic view on continued macro policy normalization,” it said. Meanwhile, in a report published on Jan. 28, HSBC said that it expects aggregate non-bank profits to decline 25 percent year-on-year and 27 percent quarter-on-quarter in the fourth quarter of 2024. This is driven mainly by slowing domestic demand and a difficult pricing environment, which was already signaled by the third-quarter results for many sectors, it noted. “In addition, higher inflation compared to TRY depreciation (quarterly inflation was 6.3 percent vs USD/TRY change of 3.4 percent) and a weakening of the EUR/USD parity built further pressure for exporters without fixed margin contracts, in our view,” it said.

Citi expects ‘strong recovery’ in Turkish banking earnings

Citi forecasts a significant recovery in Turkish banking earnings in 2025, driven by ongoing rate-cutting measures. The report highlights that Turkish banks' combined profit rose by 9% year-on-year in the first eleven months of 2024, reaching 583 billion Turkish Liras. Citi anticipates a 72% year-on-year growth in earnings for its coverage universe in 2025 and a 30% growth in 2026. The analysis suggests İşbank and Yapı Kredi are poised to benefit from lower rates, while Garanti is least well-positioned. HSBC also predicts a decline in aggregate non-bank profits for the fourth quarter of 2024, citing slowing domestic demand and a challenging pricing environment.