Core Banking Operations Will Seize Fixed Rate Opportunities In 2025

Key Takeaways

• Strategic adjustments leading to steady net interest margin growth position VakifBank advantageously for future earnings in a favorable rate environment.
  
• Concerted efforts in cost management and expansion in lending suggest enhanced profitability and growth despite macroeconomic challenges.
  
• Heavy reliance on CPI-related revenue and SME lending exposes the bank to inflation and macroeconomic risks that could strain financial stability and profitability.

Catalysts

Provides corporate, commercial, SME, agricultural, and modern banking products and services in Turkey and internationally.

• VakifBank achieved significant core banking revenue growth, with a year-over-year increase of 87% compared to the sector average of 58%. This indicates strong revenue potential moving forward, driven by outperforming core banking operations.
  
• The bank's net interest margin (NIM) increased substantially, reaching over 5% in the quarter, due to strategic adjustments such as shifting to more favorable fixed-rate loans. This positions VakifBank to potentially boost its future earnings by capitalizing on the rate cut cycle expected in 2025.
  
• VakifBank plans for mid-teens Turkish lira lending growth and high single-digit hard currency lending growth in 2025, suggesting a focus on expanding its loan portfolio. This growth, particularly in the retail lending sector, is likely to enhance future revenue streams.
  
• The bank's cost-related KPIs indicate efficient operational management, with a cost-income ratio of 40% versus a sector average of 42%. This cost efficiency supports better net margins and profitability in future quarters.
  
• VakifBank's robust response and adaptation to macroeconomic challenges, such as setting aside TRY 15 billion in free provisioning, provide it with a buffer to manage potential earnings volatility and maintain a stable growth trajectory, thereby supporting future earnings.

Türkiye Vakiflar Bankasi Türk Anonim Ortakligi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Türkiye Vakiflar Bankasi Türk Anonim Ortakligi's revenue will grow by 21.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 33.1% today to 35.0% in 3 years time.
• Analysts expect earnings to reach TRY 110.4 billion (and earnings per share of TRY 10.92) by about August 2028, up from TRY 57.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.5x on those 2028 earnings, up from 5.0x today. This future PE is lower than the current PE for the TR Banks industry at 8.0x.
• 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.

Türkiye Vakiflar Bankasi Türk Anonim Ortakligi Future Earnings Per Share Growth

Risks

• The bank's net interest margin relies heavily on CPI-related revenue, which may pose a risk if inflation rates were to stabilize or decline, potentially impacting future net income.
  
• The anticipated increase in NPL (Non-Performing Loan) ratio from 1.8% to 2.5% poses a risk to asset quality, which could increase provisioning needs and impact net income.
  
• The reliance on SME segments for lending, particularly micro SMEs, could lead to higher NPL inflows due to their vulnerability to macroeconomic fluctuations, which could strain financial stability and revenue.
  
• Potential economic or regulatory limits on hard currency lending growth, as suggested by cautious lending forecasts, could restrict growth in earnings from international markets.
  
• The expectation for rising operational expenses above average inflation rates in 2025 could put pressure on net margins and overall profitability if revenue does not grow proportionately.

Valuation

• The analysts have a consensus price target of TRY31.388 for Türkiye Vakiflar Bankasi Türk Anonim Ortakligi 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 TRY39.66, and the most bearish reporting a price target of just TRY19.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY315.4 billion, earnings will come to TRY110.4 billion, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 31.9%.
• Given the current share price of TRY29.38, the analyst price target of TRY31.39 is 6.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.