• Net Income: TRY7.2 billion for Q2 2024; TRY19.2 billion for H1 2024.
• Return on Average Equity (ROAE): 21.2% for H1 2024, up from 9% in H1 2023.
• Core Banking Revenue: TRY57.5 billion for H1 2024, up 229% year-over-year.
• Net Interest Margin: 3.03% for Q2 2024; swap-adjusted margin at 1.25%.
• Loan Growth: 6.2% QoQ; Turkish lira loans up 2.8% QoQ.
• NPL Ratio: Increased from 1.3% to 1.4% from Q1 to Q2 2024.
• Total NPL Cash Coverage Ratio: 77% as of June 2024.
• Turkish Lira Deposit Growth: 19% for Q2 2024.
• Total Capital Adequacy Ratio (CAR): 14.5% as of June 2024; expected to be close to 16% in July 2024.

• Warning! GuruFocus has detected 6 Warning Signs with IST:VAKBN.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Turkiye Vakiflar Bankasi TAO (IST:VAKBN) reported a net income of TRY7.2 billion for the second quarter, bringing the first-half net income to TRY19.2 billion, in line with market consensus.
• The bank's core banking revenues increased by 229% year-over-year, significantly outperforming the sector average of 98%.
• Turkiye Vakiflar Bankasi TAO successfully issued $1.25 billion in capital instruments, enhancing its capital management effectiveness.
• The bank maintained a strong position in the lending market, ranking first in total lending, infrastructure lending, and hard currency lending.
• Turkiye Vakiflar Bankasi TAO's total NPL cash coverage ratio stands at 77%, above the sector average, indicating strong asset quality management.

Negative Points

• The bank's net interest margin saw a slight decline, with a swap-adjusted net interest margin decreasing from 1.31% to 1.25% quarter-over-quarter.
• NPL inflows increased, with TRY4.8 billion in new NPL formation, primarily driven by retail and credit card lending.
• The bank's lending growth of 6.2% QoQ was slightly lower than the sector average of 7.1%.
• Turkiye Vakiflar Bankasi TAO's CET1 ratio at 9.5% is lower compared to peers, raising concerns about capital adequacy.
• The bank revised its net interest margin guidance to reflect limited improvement, indicating challenges in achieving previous targets.

Q & A Highlights

Q: Can you talk about the earnings and margin development in the second quarter, and how does it compare to private peers? What are your expectations for net interest margin in the second half of 2024? A: Ali Tahan, Senior Vice President, explained that VakifBank's net interest margin performance is competitive and in line with private peers, despite starting from a weaker base. The bank's asset repricing and loan yield improvements, particularly in Turkish lira loans, have contributed positively. VakifBank maintains a conservative CPI expectation, which supports future margin improvements. The bank anticipates limited improvement in net interest margin for the full year, adjusting previous guidance due to current dynamics.

Q: CET1 ratio appears lower compared to peers. Do you have a target for this ratio by the end of the year? A: Ali Tahan stated that VakifBank expects the CET1 ratio to remain stable year-over-year, around 11.7%, similar to the previous year. The bank anticipates improvement in net interest margin and profitability, with limited or no dividend payouts, which should support the CET1 ratio.

Q: Regarding the cost of risk ratio, do you foresee a reduction in the provisioning ratio? A: Ali Tahan mentioned that VakifBank expects a slight decline in coverage ratios, particularly for NPL cash coverage, due to increased NPL inflows from retail and credit card lending. However, the bank's coverage ratios are expected to remain above sector averages.

Q: Is the updated net interest margin guidance based on any anticipated Central Bank rate cuts? A: The updated guidance does not assume any Central Bank rate cuts this year. VakifBank expects the full-year swap-adjusted net interest margin to be above last year's 2.3%, driven by asset repricing and improved Turkish lira net interest margins.

Q: Do you see any deterioration in asset quality on the real sector side? A: Ali Tahan noted that most NPL inflows are from retail and credit card segments, with no specific deterioration in the real sector. The bank is monitoring micro SMEs, which are more vulnerable to current economic conditions, but there are no significant concerns at this time.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.