Macroeconomic Instability And Regulatory Tightening Will Erode Margins

Key Takeaways

• Prolonged economic instability and regulatory uncertainty threaten profitability by raising costs, compressing margins, and eroding the real value of the bank's assets.
  
• High exposure to unsecured lending and increasing digital competition heighten risks to earnings, loan quality, and the stability of key funding sources.
  
• Strong digital innovation, solid capital buffers, and resilient lending strategy position Garanti BBVA for sustained profitability and stability despite macroeconomic volatility.

Catalysts

Provides various banking products and services in Turkey.

• Persistent macroeconomic instability in Turkey, including sustained high inflation, currency volatility and a worsening current account deficit due to increasing gold imports and deteriorating core trade, threatens to erode the real value of assets, drive up funding costs and compress net interest margins over the coming years.
  
• Despite recent robust loan and deposit growth, increased reliance on domestic lending and high exposure to unsecured consumer and SME loans amplifies vulnerability to rising non-performing loan ratios if economic conditions deteriorate, directly pressuring provisioning costs and reducing net earnings.
  
• Accelerating digital disruption from global fintech and big tech companies risks disintermediating traditional banking services, which could shrink Garanti BBVA's fee income pool and customer base despite their current technological investments, limiting revenue growth.
  
• Ongoing regulatory changes and tightening by Turkish authorities, including stricter capital and liquidity requirements combined with unpredictable government intervention, threaten to increase compliance costs and suppress loan growth, placing further downward pressure on future profitability.
  
• Chronic inflationary pressures and continued lira weakness may drive depositors toward hard currency or non-bank financial providers, undermining Garanti BBVA's low-cost funding advantage and ultimately eroding both margins and return on equity over the long term.

Turkiye Garanti Bankasi Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Turkiye Garanti Bankasi compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Turkiye Garanti Bankasi's revenue will grow by 21.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 36.6% today to 40.7% in 3 years time.
• The bearish analysts expect earnings to reach TRY 199.6 billion (and earnings per share of TRY 40.05) by about August 2028, up from TRY 100.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.3x on those 2028 earnings, down from 6.2x today. This future PE is lower than the current PE for the GB Banks industry at 8.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 31.91%, as per the Simply Wall St company report.

Turkiye Garanti Bankasi Future Earnings Per Share Growth

Risks

• Robust demographic and economic growth in Turkey, together with Garanti BBVA's expanding customer base and market share gains in lending and deposits, suggest strong secular demand for banking services, likely supporting the bank's long-term revenue growth and fee income.
  
• The bank's continued investment in digital platforms, innovation in mobile banking, and increasing digital customer penetration (reaching 17 million users) are enabling improved efficiency and lower cost-to-serve, which can enhance net margins and support future earnings growth.
  
• Garanti BBVA's sustainable capital strength, highlighted by a sector-leading CET1 ratio of 13 percent and substantial excess capital of TRY 105 billion, provides a buffer against macro and regulatory shocks, supporting long-term solvency and helping maintain stable shareholder returns.
  
• Strategic lending-driven asset allocation, high share of relatively less interest-rate sensitive consumer loans, and strong market share gains in credit cards and deposits (especially retail) position the bank for resilient net interest income even in a volatile macro environment, benefiting both margins and revenue.
  
• Ongoing fee growth from payment systems, lending activities, and digital channels combined with best-in-class efficiency ratios among private peers underpin the bank's ability to generate sustainable profits and potentially support earnings and return on equity over the long term.

Valuation

• The assumed bearish price target for Turkiye Garanti Bankasi is TRY109.99, which represents two standard deviations below the consensus price target of TRY162.25. This valuation is based on what can be assumed as the expectations of Turkiye Garanti Bankasi's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of TRY208.9, and the most bearish reporting a price target of just TRY105.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be TRY489.9 billion, earnings will come to TRY199.6 billion, and it would be trading on a PE ratio of 5.3x, assuming you use a discount rate of 31.9%.
• Given the current share price of TRY146.5, the bearish analyst price target of TRY109.99 is 33.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.