Turkey
Highlights
- Lower year-on-year impact from hyperinflation
- Year-on-year growth in net attributable profit
- Normalization of the cost of risk
BUSINESS ACTIVITY (1)
(VARIATION AT CONSTANT EXCHANGE RATE COMPARED TO 31-12-23)
(1) Excluding repos.
NET INTEREST INCOME / AVERAGE TOTAL ASSETS
(PERCENTAGE AT CONSTANT EXCHANGE RATE)
OPERATING INCOME
(MILLIONS OF EUROS AT CURRENT EXCHANGE RATE)
NET ATTRIBUTABLE PROFIT (LOSS)
(MILLIONS OF EUROS AT CURRENT EXCHANGE RATE)
| FINANCIAL STATEMENTS AND RELEVANT BUSINESS INDICATORS (MILLIONS OF EUROS AND PERCENTAGE) | ||||
|---|---|---|---|---|
| Income statement | Jan.-Sep.24 | ∆ % | ∆ % (2) | Jan.-Sep.23 (1) |
| Net interest income | 925 | (41.5) | (26.2) | 1,581 |
| Net fees and commissions | 1,404 | 122.9 | 181.9 | 630 |
| Net trading income | 836 | 4.8 | 31.3 | 798 |
| Other operating income and expenses | (328) | (53.1) | (66.4) | (699) |
| Gross income | 2,838 | 22.8 | 100.7 | 2,310 |
| Operating expenses | (1,380) | 31.7 | 64.2 | (1,048) |
| Personnel expenses | (813) | 38.1 | 74.5 | (589) |
| Other administrative expenses | (419) | 20.7 | 51.5 | (347) |
| Depreciation | (148) | 32.2 | 51.2 | (112) |
| Operating income | 1,458 | 15.4 | 154.0 | 1,263 |
| Impairment on financial assets not measured at fair value through profit or loss | (333) | 295.0 | n.s. | (84) |
| Provisions or reversal of provisions and other results | 98 | n.s. | n.s. | (91) |
| Profit (loss) before tax | 1,223 | 12.5 | 183.6 | 1,087 |
| Income tax | (709) | 7.8 | 47.7 | (657) |
| Profit (loss) for the period | 515 | 19.7 | n.s. | 430 |
| Non-controlling interests | (81) | 26.6 | n.s. | (64) |
| Net attributable profit (loss) | 433 | 18.5 | n.s. | 366 |
Balance sheets | 30-09-24 | ∆ % | ∆ % (2) | 31-12-23 |
| Cash, cash balances at central banks and other demand deposits | 8,374 | (13.7) | 1.2 | 9,700 |
| Financial assets designated at fair value | 3,835 | 3.9 | 21.7 | 3,692 |
| Of which: Loans and advances | 3 | 47.5 | 72.9 | 2 |
| Financial assets at amortized cost | 60,087 | 16.6 | 36.6 | 51,543 |
| Of which: Loans and advances to customers | 42,693 | 14.1 | 33.7 | 37,416 |
| Tangible assets | 1,824 | 21.9 | 35.9 | 1,496 |
| Other assets | 2,358 | 24.2 | 44.5 | 1,899 |
| Total assets/liabilities and equity | 76,478 | 11.9 | 31.0 | 68,329 |
| Financial liabilities held for trading and designated at fair value through profit or loss | 1,807 | (3.8) | 12.7 | 1,878 |
| Deposits from central banks and credit institutions | 3,354 | 45.5 | 70.5 | 2,306 |
| Deposits from customers | 55,588 | 9.7 | 28.6 | 50,651 |
| Debt certificates | 3,441 | 25.7 | 47.3 | 2,737 |
| Other liabilities | 4,319 | — | 15.0 | 4,319 |
| Regulatory capital allocated | 7,969 | 23.8 | 44.9 | 6,438 |
Relevant business indicators | 30-09-24 | ∆ % | ∆ % (2) | 31-12-23 |
| Performing loans and advances to customers under management (3) | 42,448 | 13.7 | 33.2 | 37,339 |
| Non-performing loans | 2,134 | 8.6 | 27.2 | 1,965 |
| Customer deposits under management (3) | 53,035 | 7.5 | 26.0 | 49,321 |
| Off-balance sheet funds (4) | 14,106 | 81.6 | 112.8 | 7,768 |
| Risk-weighted assets | 61,394 | 12.6 | 31.8 | 54,506 |
| Efficiency ratio (%) | 48.6 | 47.0 | ||
| NPL ratio (%) | 3.6 | 3.8 | ||
| NPL coverage ratio (%) | 87 | 97 | ||
| Cost of risk (%) | 1.12 | 0.25 | ||
(1) Revised balances. For more information, please refer to the “Business Areas” section.
(2) At constant exchange rate.
(3) Excluding repos.
(4) Includes mutual funds and pension funds.
Macro and industry trends
Since the general elections held in May 2023, there are increasing signs of normalization in economic policy, in general, and monetary policy in particular, which point to a gradual reversal of the current macroeconomic distortions. Thus, benchmark interest rates have increased from 8.5% at the beginning of 2023 to 50% in September 2024, and other countercyclical measures have been announced,leading to a slowdown in domestic demand, a relatively stable exchange rate and a moderation in annual inflation up to 49.4% in September. Economic growth will slowdown according to BBVA Research to 3.2% in 2024 and 2.7% in 2025 (30 and 80 basis points below previous forecasts, respectively). Despite the still high uncertainty, it is most likely that the expected moderation of growth and the more restrictive tone of economic policies will favor a further reduction in inflation, to around 43% by the end of 2024, and 25% by the end of 2025, which would eventually allow a reduction in monetary policy interest rates.
As for the Turkish banking system, the effect of inflation remains strong. Total lending in the system increased 39.2% on a year-onyear basis as of August 2024, at similar levels to the previous months. The credit stock continues to be driven by the increase of consumer finance and credit cards (+50.0% year-on-year) an by credit companies (+37.7% year-on-year). Total deposits maintain their strength from the previous months and increased at the end of August by 36.4% on a year-on-year basis. The growth of Turkish lira deposits remains strong in the same month (+47.9%), while U.S. dollar deposits grew more slowly (+20.4%), The dollarization decreased to 36.9% in August 2024 versus 41.8% a year before. The system's NPL ratio remains under control and was 1.84% in August 2024. Capital indicators remained at more than comfortable levels on the same date.
Unless expressly stated otherwise, all comments below on rates of changes for both activity and results, will be presented at constant exchange rates. These rates, together with changes at current exchange rates, can be observed in the attached tables of the financial statements and relevant business indicators. For the conversion of these figures, the end of period exchange rate as of September 30, 2024 is used, reflecting the considerable depreciation by the Turkish lira in the last twelve months. Likewise, the Balance sheet, the Risk-Weighted Asset (RWA) and the equity are affected.
Activity14
The most relevant aspects related to the area’s activity in the first nine months of 2024 were:
- Lending activity (performing loans under management) increased by 33.2% between January and September 2024, mainly due to the performance in Turkish lira loans (+35.0%, practically in line with the inflation rate for the period) where the performance of credit cards and, to a lesser extent, consumer loans (including car loans) stands out. Foreign currency loans (in U.S. dollars) increased by 14.2%, boosted by the increase in activity with customers focused on foreign trade (with natural hedging of exchange rate risk).
- Customer deposits (72.7% of the area's total liabilities as of September 30, 2024) remained the main source of funding for the balance sheet and increased by 26.0% favored by evolution the positive performance of Turkish lira time deposits (+29.4%), which represent a 82.0% of total customer deposits in local currency. Balances deposited in foreign currency (in U.S. dollars) remain below the closing level of 2023 (-1.7%), with transfers from foreign currency time deposits to Turkish lira time deposits observed under a foreign exchange protection scheme. Thus, as of September 30, 2024, Turkish lira deposits accounted for 65.1% of total customer deposits in the area. For its part, off-balance sheet funds show an outstanding growth of 112.8%.
The most relevant aspects related to the area’s activity in the third quarter of 2024 were:
- Lending activity (performing loans under management) increased by 9.8%, mainly driven by the growth in Turkish lira loans (+8.3%, below the quarterly inflation rate) and, to a lesser extent, by the growth of foreign currency loans (+7.2%). Within loans in Turkish liras, the evolution of credit cards (+14.7%) and of consumer loans (+11.2% including car loans) are notable.
- In terms of asset quality, the NPL ratio increased 28 basis points compared to the figure as of the end of June 2024 to 3.6%, mainly as a result of higher net entries in the retail portfolios, although it remains 17 basis points below the December 2023 close. Consequently, the NPL coverage ratio recorded a decrease of 773 basis points in the quarter to 87% as of September 30, 2024.
- Customer deposits increased by 10.1%, with growth in both Turkish lira deposits (+6.0%), and in deposits in USD (+5.2%). Additionally, off-balance sheet funds grew by 26.0% in the quarter.
Results
Turkey generated a net attributable profit of €433m during the first nine months of 2024, which compares favorably with the result in the same period of the previous year.
As mentioned above, the year-on-year comparison of the accumulated income statement at the end of September 2024 at current exchange rate is affected by the strong depreciation of the Turkish lira in the last year (-24.1%). Excluding this effect, the highlights of the results for the year at constant exchange rate are summarized below:
- Net interest income decreased year-on-year, mainly by the decline in the Turkish lira spread and greater wholesale funding costs, partially offset by the growth in lending activity and, the remuneration of certain reserves in Turkish lira from the central bank since February 2024.
- Net fees and commissions increased significantly, favored by the performance in payment systems fees, brokerage activity, guarantees, insurance and asset management.
- NTI showed an excellent evolution thanks to higher results from foreign exchange operations.
- The other operating income and expenses line had a balance of €-328m, which compares favorably with the previous year. This line incorporates, among others, the loss in the value of the net monetary position due to the country's inflation rate, together with its partial offset by the income derived from inflation-linked bonds (CPI linkers). The net impact of both effects was less negative than in the first period of the previous year, highlighting the third quarter of 2023 with a significant negative adjustment due to the higher quarterly inflation rate recorded at that time. It is also worth highlighting the improved performance of the results of Garanti BBVA´s subsidiaries, also included in this line.
- Operating expenses increased, mainly due to the growth in personnel expenses, linked to the growth in the workforce in 2023 and a salary review in the context of high inflation. On the other hand, general expenses also increased, mainly due to the higher technology and advertising expenditures.
- Regarding the impairment on financial assets, it increased due to higher requirements in retail portfolios. Thus, the cumulative cost of risk as of September 30, 2024 increased to 1.12%, a more standard level after an abnormally low level in 2023.
- The provisions and other results line closed September 2024 with a release of €98m, linked to remarkable recoveries in wholesale clients, as well as the revaluations on real estate assets.
In the third quarter of 2024, the net attributable profit of Turkey stood at €82m, which compares with €207 million in the previous quarter mainly as a result of higher provisions for impairment of financial assets, associated with higher requirements for retail portfolios in a high interest rate scenario.
14 The variation rates of loans in Turkish lira and loans in foreign currency (U.S. dollars) are calculated based on local activity data and refer only refer to Garanti Bank and therefore exclude the subsidiaries of Garanti BBVA, mainly in Romania and Netherlands.