Loan Repricing And Controlled Deposit Costs To Improve Future Earnings

Key Takeaways

• Strategic loan repricing and controlled deposit costs are expanding loan deposit spreads, improving net interest margins and future earnings potential.
  
• A strong foreign currency portfolio and robust capital position support growth, providing stability and enhancing future revenue prospects.
  
• Tight monetary policy, macroeconomic dependency, and increasing non-performing loans threaten Yapi Kredi's revenue growth, earnings, and net margins.

Catalysts

Provides various banking products and services in Turkey and internationally.

• Yapi Kredi Bank's strategic focus on active loan repricing and controlled deposit costs has resulted in a widening of the loan deposit spread, leading to improved net interest margins. This ongoing strategy is likely to enhance future earnings and net interest margins further.
  
• With a strong customer base and a high proportion of demand deposits at 44%, Yapi Kredi Bank has positioned itself to benefit from future interest rate cuts, which can help optimize revenue from its deposit offerings in an evolving monetary environment, impacting future revenue.
  
• The bank's prudent approach, including maintaining the highest fee coverage over OpEx among peers and setting aside substantial provisions, provides a buffer that allows Yapi Kredi to maintain strong net margins, enhancing stability even in challenging economic climates.
  
• Yapi Kredi's diversified and strong foreign currency portfolio, with focused expansion in small-ticket lending to eligible companies, is poised to support its overall spread performance going forward, impacting future revenue positively.
  
• The bank's robust capital and liquidity position, evidenced by a high foreign currency liquidity coverage ratio and Tier 1 capital buffers, provides significant capacity to leverage for growth, thereby potentially enhancing future earnings stability.

Yapi ve Kredi Bankasi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Yapi ve Kredi Bankasi's revenue will grow by 52.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 35.5% today to 30.5% in 3 years time.
• Analysts expect earnings to reach TRY 127.1 billion (and earnings per share of TRY 15.49) by about December 2027, up from TRY 41.7 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 5.5x on those 2027 earnings, down from 6.2x today. This future PE is lower than the current PE for the TR Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 0.97% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 32.08%, as per the Simply Wall St company report.

Yapi ve Kredi Bankasi Future Earnings Per Share Growth

Risks

• The tight monetary policy and macroprudential measures in Turkey are postponing net interest margin (NIM) improvements, potentially affecting Yapi Kredi's revenue growth in the short term.
  
• Slower disinflation and uncertainties in inflation management could delay monetary easing and affect economic growth, thereby impacting the bank's earnings.
  
• The potential downside risks in Turkish lira loan growth guidance due to domestic economic challenges may result in reduced revenue streams.
  
• Dependency on macroeconomic factors like rate cuts and market conditions for future revenue and profit improvements poses an execution risk to achieving desired financial outcomes.
  
• Increasing Non-Performing Loan (NPL) inflows, particularly in unsecured consumer loans and credit cards, could increase credit costs, affecting the bank's net margins and profits.

Valuation

• The analysts have a consensus price target of TRY 36.86 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 TRY 44.0, and the most bearish reporting a price target of just TRY 28.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be TRY 416.5 billion, earnings will come to TRY 127.1 billion, and it would be trading on a PE ratio of 5.5x, assuming you use a discount rate of 32.1%.
• Given the current share price of TRY 30.86, the analyst's price target of TRY 36.86 is 16.3% 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.