Bank Will Benefit From Turkey's Economic Normalization, Positioning For Net Interest Margin Expansion

Key Takeaways

• Strong macroeconomic trends and strategic lending shifts position Yapi Kredi for improved net interest margins and revenue growth.
  
• High fee coverage of operating expenses and robust capital buffers enhance potential for future earnings and growth.
  
• Regulatory constraints and inflationary pressures may hinder Yapi ve Kredi Bankasi's revenue and net interest margins, affecting overall growth.

Catalysts

Provides commercial banking and financial products and services in Turkey and internationally.

• Yapi Kredi is set to benefit from Turkey's ongoing normalization process, including expected improvements in inflation and macroeconomic stability, which may lead to yield expansion and increase net interest margins.
  
• The bank has successfully widened its TL loan-to-deposit spread by 180 basis points quarter-on-quarter, positioning itself for future net interest margin growth due to effective pricing strategies.
  
• Yapi Kredi's robust customer acquisition and strong penetration have resulted in fee coverage of operating expenses at 96%, indicating potential for continued revenue growth.
  
• Ongoing increases in capital buffers and positive internal capital generation trends suggest the bank is well-positioned for future growth during the rate cut cycle, potentially boosting earnings.
  
• The bank's strategic focus on selective and lucrative lending strategies, including a shift towards retail loans, suggests a favorable impact on net interest margins and asset quality, supporting earnings growth.

Yapi ve Kredi Bankasi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Yapi ve Kredi Bankasi's revenue will grow by 60.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.5% today to 29.5% in 3 years time.
• Analysts expect earnings to reach TRY 137.5 billion (and earnings per share of TRY 18.58) by about March 2028, up from TRY 29.0 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 5.9x on those 2028 earnings, down from 8.6x today. This future PE is lower than the current PE for the TR Banks industry at 7.3x.
• 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 30.65%, as per the Simply Wall St company report.

Yapi ve Kredi Bankasi Future Earnings Per Share Growth

Risks

• The Central Bank's potential to introduce additional tightening measures to prevent inflation could limit domestic loan growth, thereby impacting revenue and net interest margins.
  
• Continued macro prudential measures and regulations are expected to pressure the banking sector, possibly restricting growth in revenue and affecting net margins.
  
• There are concerns about regulatory changes affecting merchant commissions, which could diminish fee income growth, impacting overall earnings.
  
• The expectations for continued rate cuts are tempered by the risk of such measures being slower or reversed if inflation does not decrease as predicted, likely affecting funding costs and net interest margins.
  
• The bank's cautious approach to loan growth, especially in foreign currency lending due to regulatory growth caps, suggests slower revenue growth compared to peers.

Valuation

• The analysts have a consensus price target of TRY43.387 for Yapi ve Kredi 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 TRY49.47, and the most bearish reporting a price target of just TRY28.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be TRY465.7 billion, earnings will come to TRY137.5 billion, and it would be trading on a PE ratio of 5.9x, assuming you use a discount rate of 30.6%.
• Given the current share price of TRY29.7, the analyst price target of TRY43.39 is 31.5% 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.