Policy Rate Easing And Digital Initiatives Will Support Resilience Amid Economic Challenges

Key Takeaways

• Expected CPI loan growth due to exemptions could significantly boost Garanti BBVA's revenue in credit cards and SMEs segments.
  
• Digital transformation and payment systems leadership are anticipated to sustain above-CPI fee growth, enhancing overall revenue.
  
• Economic slowdown, high inflation, increased risk costs, regulatory uncertainties, and potential loan quality issues could pressure Turkiye Garanti Bankasi's revenue and financial stability.

Catalysts

Provides various banking products and services in Turkey.

• Garanti BBVA anticipates above-average CPI loan growth in 2025, partly due to exemptions from growth caps in specific segments like credit cards and SMEs, which could drive a significant revenue increase.
  
• The expectation of margin expansion of around 3% by year-end 2025 due to the policy rate easing and deposit repricing dynamics could positively impact net interest income.
  
• The ongoing digital transformation and leadership in payment systems are expected to sustain fee growth above CPI, enhancing overall revenue.
  
• Lower policy rates and structural advantages in deposit funding suggest resilience in net interest margins and improved earnings potential.
  
• Strategic adjustments in asset management, including increased loan durations and improved funding cost, are likely to support margin resilience, positively influencing net margins.

Turkiye Garanti Bankasi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Turkiye Garanti Bankasi's revenue will grow by 36.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 45.7% today to 37.6% in 3 years time.
• Analysts expect earnings to reach TRY 198.8 billion (and earnings per share of TRY 45.45) by about January 2028, up from TRY 95.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.6x on those 2028 earnings, up from 5.9x today. This future PE is greater than the current PE for the GB Banks industry at 6.6x.
• Analysts expect the number of shares outstanding to grow by 1.36% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 32.2%, as per the Simply Wall St company report.

Turkiye Garanti Bankasi Future Earnings Per Share Growth

Risks

• The expected GDP growth in Turkey is projected to decrease from 3.2% in 2024 to 2.5% in 2025, which could lead to slower economic activity and potential impacts on the bank's revenue as loan demand might decline.
  
• Inflation rates, although expected to decrease, are still projected to be high, with 2025 inflation forecasted at 26.5%. High inflation can erode purchasing power and may affect net margins if costs persistently outpace revenue growth.
  
• There is a projected increase in the net cost of risk to between 2% and 2.5% in 2025, compared to lower levels in previous years. This rise in risk costs could negatively impact earnings if it reflects worsening loan quality or higher default rates.
  
• Regulatory uncertainties and potential new regulations, such as taxes on deposits or further changes to reserve requirements, could affect cost structures or revenue streams, impacting margins and profitability.
  
• Despite high reserve coverage, the potential for increased stage 2 loans and non-performing loans due to economic or regulatory factors might require additional provisions, putting pressure on net income and overall financial stability.

Valuation

• The analysts have a consensus price target of TRY169.12 for Turkiye Garanti Bankasi based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of TRY194.93, and the most bearish reporting a price target of just TRY132.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY528.3 billion, earnings will come to TRY198.8 billion, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 32.2%.
  
• Given the current share price of TRY134.8, the analyst's price target of TRY169.12 is 20.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.