Turkish Banks: Has the Rubicon Been Crossed?

Stagflation at the Gates? Worst Not Over for Turkish Assets

Yapi Ve Kredi Bankasi: Inexpensive but Consumer Exposures May Be the Next Shoe to Drop

MENA & Turkey Financials

Ercan Uysal

Thematic (Sector/Industry)

Turkey Financials / Thematic (Sector/Industry)

<h2><strong>Orderly or disorderly deleveraging?  </strong></h2>
<p>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.</p>

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