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Garanti Bank revises Turkish lira lending downwards, sees higher bad loans

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Garanti Bank revises Turkish lira lending downwards, sees higher bad loans

Türkiye Garanti Bankası AŞ has revised its 2018 guidance for lending in Turkish lira downward and expects its bad loans to rise in the year amid weak economic conditions, the Turkish bank, said in a presentation.

The lender, which is almost 50% owned by Spain's Banco Bilbao Vizcaya Argentaria SA, also forecast a challenging outlook in 2019 because of the downturn in the Turkish economy.

In the Jan. 9 presentation to investors, the bank said it expected a low-single-digit rise in lira-dominated loans in 2018, down from a previous estimate of 14.0%. It also said its nonperforming loans ratio would be around 5.0% in 2018, up from its previous target of between 4.0% to 4.5%. The net cost of risk, which is the cost of managing risks and incurring losses, will be 250 basis points in 2018, up from a previously expected 150 basis points. Fee growth, on the other hand, will be better than forecast at 30%, instead of 20%.

The bank said it expected a challenging year in 2019 amid weak domestic demand in a difficult economic environment, but forecast a pick-up in 2020 as the lira's depreciation boosts exports. The Turkish lira slumped in 2018 over attempts by Recep Tayyip Erdogan, Turkey's president, to exert greater control over monetary policy and a move by Donald Trump, the U.S. president to double tariffs on steel and aluminum imports from Turkey.

BBVA executives said in a third-quarter earnings presentation that they expected lending to continue slowing in Turkey and provisions to increase. CFO Jaime Saenz de Tejada said nonperforming loans had risen almost 20% to €2.8 billion in the quarter, which would lead to higher provisions in the second half of 2018. Turkey is BBVA's third largest market, after Mexico and Spain.

Garanti said it expected its NPL ratio to be lower than 7.0% in 2019 and its return on average equity — a key measure of profitability — to be in the "low-teens" but maintained its medium-term ROAE target in the "high teens." It expects a 2018 ROAE of 17.0%, in line with its expectations.