Turkish lenders ride momentum to lead shareholder returns among European banks

Turkish lenders held three of the top five spots in a ranking of the best-performing European bank stocks in 2023, marking a continuation of share price growth against a backdrop of accelerating inflation and monetary policy reversal in the country.

Akbank TAS achieved total shareholder returns of 106.2% for the year, S&P Global Market Intelligence data shows. Türkiye Is Bankasi AS, or İşbank, sat just behind at 96.8%, while Yapi ve Kredi Bankasi AŞ also enjoyed returns of more than 80%.

A weak lira and accelerating inflation have made Turkish assets more attractive to both local and foreign investors, while a shift by the government to a more orthodox monetary policy drove stocks up. The policy reversal, coupled with the relaxing of several central bank regulations, is expected to boost the country's financial sector.

Turkish bank stocks surged further in November amid an endorsement from Bank of America, with analysts forecasting Turkish banks' return on equity to surpass 30%.

QNB Finansbank AS, the Turkish subsidiary of Qatar National Bank (QPSC), delivered a return of 437.9%, the highest among the sample of major European banks. Yet just 0.1% of QNB Finansbank's shares are publicly traded, making it more vulnerable to extreme volatility.

Poland's Alior Bank SA, Bank Polska Kasa Opieki SA and PKO Bank Polski SA were also among the best performers, posting returns of 122.8%, 84.7% and 66.1%, respectively, in a year of strong profitability.

Bank stocks rallied in October after Poland's general election, which culminated in the EU-friendly Donald Tusk taking office for a third time. The change of government, which put an end to eight years of nationalist rule, is expected to improve the outlook for the country's lenders as it could unfreeze €111 billion in EU funds, reduce political interference and tilt the central bank's monetary policy.

Polish bank stocks struggled in 2022 due to the government's mortgage repayment deferral scheme, which increased costs for lenders. The recovery in 2023 came despite an EU Court of Justice ruling in June on Swiss franc-denominated mortgages that meant Polish banks would have to take higher legal risk provisions, and that could ultimately cost the country's lenders 100 billion zlotys.

Italy's UniCredit SpA, the largest lender in the top 15, posted total returns of 94.8%. The bank forecasts a net profit of at least €7.25 billion in 2023, of which at least €6.5 billion will be paid out as dividends and share buybacks. CEO Andrea Orcel said he was confident that UniCredit would "at least" match those goals in 2024 during the bank's last quarterly earnings call.

At the other end of the spectrum, UK lender NatWest Group PLC posted a negative 12.1% total return. The bank was embroiled in the accounts closure scandal at its Coutts & Co. subsidiary and ultimately booked weak third-quarter earnings that missed analyst expectations.

Hungary's MBH Bank Nyrt. came in with the weakest returns at negative 33.8%. MBH, the product of a three-way tie-up between MKB Bank, Takarekbank and Budapest Bank, ordered by Prime Minister Viktor Orbán in 2020 to create a Hungarian-owned "megabank," only completed the merger in April, becoming the country's second-largest lender behind OTP.

Italy's FinecoBank Banca Fineco SpA recorded a 12.5% negative return, while Bank of Ireland Group PLC logged a negative return of 5.5%.

Switzerland's Cembra Money Bank AG, Luzerner Kantonalbank AG, Basellandschaftliche Kantonalbank and Valiant Holding AG all posted negative returns as the country's banking system came into sharp focus amid UBS' takeover of Credit Suisse.

On an aggregate basis, European banks fared better than both their US and Asian peers. The S&P Europe BMI Banks index rose 31.8% for the year, compared to a 12.3% rise in the equivalent Asia banks index and 11.0% in the S&P 500 Bank index.