• Return on Equity (ROE): Approximately 28% for the first half.

• Net Interest Income: Under pressure due to high funding costs and loan growth caps.

• Net Fee Income: Quarterly increase of 11%, annual growth of 200%.

• Operating Expenses (OpEx): Annual increase limited to around 53%.

• Loan Growth: TL lending growth of 6.7% in the second quarter; FX lending increased by 15%.

• Deposit Growth: TL deposits grew by 22.5% quarterly; FX deposits declined by 10%.

• Net Interest Margin (NIM): Expected recovery in the third quarter, with a full-year NIM around 2%.

• NPL Ratio: Declined to 1.8% in the second quarter.

• Capital Adequacy Ratio: 15.5% without BRSA's forbearance measures; Common Equity Tier 1 at 12.8%.

• Sustainable Funding: Share stood at around 66% by the end of the first half.

• Warning! GuruFocus has detected 7 Warning Signs with IST:ISCTR.

Release Date: August 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Turkiye Is Bankasi AS (IST:ISCTR) celebrated its 100th anniversary, marking a century of stability and trust in the Turkish economy.

• The bank reported a strong return on equity of around 28% for the first half of 2024.

• Net fee income showed impressive growth, with a quarterly increase of 11% and an annual growth of 200%, offsetting declines in net interest income.

• The bank maintained a solid capital adequacy ratio of 15.5%, indicating strong capitalization to absorb potential economic adversities.

• Turkiye Is Bankasi AS issued a $500 million sustainable Eurobond and signed a $1 billion sustainability-linked syndicated loan, emphasizing its commitment to ESG initiatives.

Negative Points

• Net interest margin (NIM) faced significant pressure due to high funding costs and quantitative tightening measures.

• The bank's swap costs added additional pressure on net interest income, although a declining trend was observed towards the end of June.

• The Turkish economy's high inflation and tightening monetary policy pose challenges for the banking sector's performance.

• Asset quality concerns remain, particularly in the credit card segment, where some deterioration is expected.

• The bank anticipates a normalization in the cost of risk, revising its year-end guidance to 100 basis points, reflecting cautious expectations for asset quality.

Q & A Highlights

Q: What is the outlook for net interest margin (NIM) for the next year, and what policy rate is it based on? A: Izlem Erdem, Deputy Chief Executive, explained that the unexpected 500 basis points rate hike in March put pressure on NIM in the first and second quarters. Assuming no additional tightening, recovery in NIM is expected to start in the third quarter and gain momentum in the fourth quarter. The scenario indicates around a 4% exit NIM level at the end of the year, with a full-year expectation of 2%. For 2025, it's too early to comment before observing trends in the last quarter, especially regarding inflation.