Turkish banks feel heat from bad loans

By Delphine Strauss

Published: February 15 2009 20:12 | Last updated: February 15 2009 20:12

A jump in bad loans hit Turkish banks’ profits in the last quarter of 2008 after a long period in which they had expanded branch networks and rapidly increased consumer credit and lending to small businesses.

Akbank, Turkey’s biggest lender by market value, reported fourth-quarter net income of TL212m ($128m) after the market close on Friday – below expectations and 39 per cent below the third quarter. Net income of TL1.78bn in 2008 was 15 per cent below the previous year.

At Garanti Bank, part-owned by General Electric, unconsolidated net profit fell 14 per cent quarter on quarter to TL350m. Year-end net profit was down 24 per cent from 2007 at TL1.75bn.

Analysts polled by Reuters expect Is Bank, Turkey’s second biggest by market value, to report a 7 per cent drop in full-year earnings.

Turkish banks have largely avoided the travails of their western counterparts and still have sound loan-to-deposit ratios and capital adequacy ratios at 13 per cent or above.

But Tevfik Bilgin, head of Turkey’s banking regulator, has warned that non-performing loans (NPLs) would rise from 2008’s average rate of 3.6 per cent as the economic contraction took its toll on businesses and consumers.

Garanti and Akbank said bad loans had jumped 46 per cent and 35 per cent, respectively, in the last quarter – although both are still beating the sector average – and their drop in profits was partly due to higher provisioning expenses. Shares in Garanti, the most actively traded stock on Istanbul’s exchange, rallied on Friday.

But Akbank’s shares fell sharply last week after it emerged some family shareholders planned to sell stakes in both the bank and its parent, Sabanci Holding, totalling more than $1bn even at depressed prices.

Nergis Kasabali, analyst at Ata Invest, said the news would weigh on Akbank’s share price unless a sale to institutional investors was announced soon.

Copyright The Financial Times Limited 2009