Turkey
Highlights
- Growth in lending activity and customer funds
- Lower year-on-year impact from hyperinflation
- Turkish lira spread improves in the last quarter
- Year-on-year growth in attributable profit
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 | 2024 | ∆ % | ∆ % (2) | 2023 (1) |
| Net interest income | 1,492 | (20.2) | (10.4) | 1,869 |
| Net fees and commissions | 2,111 | 111.5 | 135.1 | 998 |
| Net trading income | 1,145 | 22.1 | 34.5 | 937 |
| Other operating income and expenses | (535) | (35.1) | (44.8) | (824) |
| Gross income | 4,212 | 41.3 | 72.4 | 2,981 |
| Operating expenses | (2,111) | 50.6 | 67.8 | (1,402) |
| Personnel expenses | (1,232) | 58.9 | 78.0 | (775) |
| Other administrative expenses | (663) | 39.0 | 55.6 | (477) |
| Depreciation | (216) | 44.3 | 55.0 | (150) |
| Operating income | 2,101 | 33.1 | 77.2 | 1,579 |
| Impairment on financial assets not measured at fair value through profit or loss | (526) | n.s. | n.s. | (118) |
| Provisions or reversal of provisions and other results | 165 | n.s. | n.s. | (137) |
| Profit (loss) before tax | 1,741 | 31.5 | 83.3 | 1,324 |
| Income tax | (1,014) | 44.4 | 68.6 | (702) |
| Profit (loss) for the period | 727 | 16.9 | 108.6 | 622 |
| Non-controlling interests | (116) | 22.6 | 108.9 | (95) |
| Net attributable profit (loss) | 611 | 15.9 | 108.6 | 527 |
Balance sheets | 31-12-24 | ∆ % | ∆ % (2) | 31-12-23 |
| Cash, cash balances at central banks and other demand deposits | 8,828 | (9.0) | 2.4 | 9,700 |
| Financial assets designated at fair value | 4,503 | 22.0 | 37.2 | 3,692 |
| Of which: Loans and advances | 2 | (3.8) | 8.2 | 2 |
| Financial assets at amortized cost | 64,893 | 25.9 | 41.6 | 51,543 |
| Of which: Loans and advances to customers | 48,299 | 29.1 | 45.2 | 37,416 |
| Tangible assets | 2,064 | 37.9 | 49.6 | 1,496 |
| Other assets | 2,494 | 31.4 | 47.0 | 1,899 |
| Total assets/liabilities and equity | 82,782 | 21.2 | 36.2 | 68,329 |
| Financial liabilities held for trading and designated at fair value through profit or loss | 1,943 | 3.5 | 16.4 | 1,878 |
| Deposits from central banks and credit institutions | 4,267 | 85.1 | 108.2 | 2,306 |
| Deposits from customers | 58,095 | 14.7 | 29.0 | 50,651 |
| Debt certificates | 4,517 | 65.1 | 85.7 | 2,737 |
| Other liabilities | 5,714 | 32.3 | 46.8 | 4,319 |
| Regulatory capital allocated | 8,245 | 28.1 | 44.0 | 6,438 |
Relevant business indicators | 31-12-24 | ∆ % | ∆ % (2) | 31-12-23 |
| Performing loans and advances to customers under management ⁽³⁾ | 48,242 | 29.2 | 45.4 | 37,339 |
| Non-performing loans | 2,016 | 2.6 | 15.4 | 1,965 |
| Customer deposits under management ⁽³⁾ | 57,443 | 16.5 | 31.0 | 49,321 |
| Off-balance sheet funds ⁽⁴⁾ | 18,076 | 132.7 | 161.8 | 7,768 |
| Risk-weighted assets | 64,821 | 18.9 | 33.6 | 54,506 |
| Efficiency ratio (%) | 50.1 | 47.0 | ||
| NPL ratio (%) | 3.1 | 3.8 | ||
| NPL coverage ratio (%) | 96 | 97 | ||
| Cost of risk (%) | 1.27 | 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 election in May 2023, there have been increasing signs of normalization of economic policy in general and monetary policy in particular, pointing to a gradual correction of the current macroeconomic shocks. In this regard, benchmark interest rates have been raised from 8.5% at the beginning of 2023 to 50% in September 2024 and other countercyclical measures have been announced, supporting a slowdown in domestic demand, relative exchange rate stability and a moderation of annual inflation to 44.4% in December. In response to these developments, most recently, in December 2024, the central bank cut interest rates by 250 basis points to 47.5%. As inflation continues to moderate, as expected by BBVA Research, which forecasts a further slowdown to around 26% by the end of 2025, interest rates could be cut further, to around 31% by the end of this year. This reduction in inflation and interest rates is likely to be supported by relatively limited economic growth of around 3.2% in 2024 (unchanged from the previous forecast) and 2.5% in 2025 (20 basis points below the previous forecast). Despite the uncertainty, a less favorable global environment and some fiscal consolidation will help growth to remain below levels considered potential this year.
As for the Turkish banking system, the impact of inflation continues to prevail. The total volume of credit in the system increased by 36.6% year-on-year at the end of November 2024, at similar levels to the previous months. The stock of credit continued to be driven by consumer credit and credit card portfolios (46% year-on-year) and by credit to companies (+34.6% year-on-year). Total deposits maintained the strength of the last few months and grew 29.8% year-on-year at the end of November 2024. Turkish lira deposits continued to grow strongly in the same month (+42.3%) while US dollar deposits grew more slowly (+11.3%). Dollarization decreased to 34.6% in November 2024 from 40.3% a year earlier. The NPL ratio of the system remains well under control and stood at 1.96% in November 2024. With respect to the capital indicators, they remain at more than comfortable levels as of 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 December 31, 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.
Activity15
The most relevant aspects related to the area’s activity in 2024 were:
- Lending activity (performing loans under management) increased by 45.4% in 2024, mainly due to the performance in Turkish lira loans (+50.6%, above the inflation rate for the period, which stood at 44,4%) where the performance of credit cards and, to a lesser extent, consumer loans (including car loans) stands out. For its part, foreign currency loans (in U.S. dollars) increased by 15.5%, boosted by the increase in activity with customers focused on foreign trade (with natural hedging of exchange rate risk).
- Customer deposits (70.2% of the area's total liabilities as of December 31, 2024) remained the main source of funding for the balance sheet and increased by 31.0% favored by evolution the positive performance of Turkish lira time deposits (+39.9%), which represent a 82.3% of total customer deposits in local currency. Balances deposited in foreign currency (in U.S. dollars) remain below the closing level of 2023 (-5.0%), with transfers from foreign currency time deposits to Turkish lira time deposits. Thus, as of December 31, 2024, Turkish lira deposits accounted for 66.8% of total customer deposits in the area. For its part, off-balance sheet funds show an outstanding growth of 161.8%.
The most relevant aspects related to the area’s activity in the fourth quarter of 2024 were:
- Lending activity (performing loans under management) increased by 9.1%, mainly driven by the growth in Turkish lira loans (+11.5%, below the quarterly inflation rate, which stood at 6.3%) and, to a lesser extent, by the growth of foreign currency loans (+1.1%). Within Turkish lira loans, the same products as in the annual evolution stand out, these are the evolution of credit cards and consumer loans, which grew at rates of +17.1% and +13.8%, respectively.
- In terms of asset quality, the NPL ratio decreased by 51 basis points compared to the figure as of the end of September 2024 to 3.1%, mainly as a result of higher recoveries and higher volume of sales and write-offs, closing 69 basis points below the December 2023 close. Consequently, the NPL coverage ratio recorded an increase of 931 basis points in the quarter to 96% as of December 30, 2024.
- Customer deposits increased by 4.0%, with growth in Turkish lira deposits (+7.7%), and a decrease in deposits in USD (-3.4%). Additionally, off-balance sheet funds registered a growth of 23.0% in the quarter.
Results
Turkey generated a net attributable profit of €611m during 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 December 2024 at current exchange rate is affected by the depreciation of the Turkish lira in the last year (-11.1%). To isolate this effect, the highlights of the results for 2024 at constant exchange rates are summarized below:
- Net interest income decreased year-on-year, mainly by the worsening of 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, followed by the asset management, insurances and guarantees.
- NTI showed an excellent evolution thanks to higher results from foreign exchange operations.
- The other operating income and expenses line had a balance of €-535m, 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 at the end of 2024 than in 2023, highlighting the third quarter of 2023 with a significant negative adjustment due to the higher quarterly inflation rate recorded at that time. This line also includes the results of the subsidiaries of Garanti BBVA, whose contribution was increased compared to 2023 and the higher contribution to the DGF.
- 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 December 31, 2024 was placed at 1.27%, a more standard level after an abnormally low level in 2023.
- The provisions and other results line closed December 2024 with a release of €165m, linked to remarkable recoveries in wholesale clients, as well as the revaluations on real estate assets.
In the fourth quarter of 2024, the net attributable profit of Turkey stood at €177m, compared to €82m in the previous quarter, boosted by the start of the recovery of the spread in the Turkish lira. This improvement was due to the reduction in the cost of deposits in local currency, driven by the trend of dedollarization and the beginning of the cycle of interest rate cuts in the country towards the end of the year.
15 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.