Bloomberg News

Garanti Gives Up Loan Limits as Turkey Signals Target Dumped

October 06, 2011

(Updates share price in seventh paragraph.)

Oct. 6 (Bloomberg) -- Turkiye Garanti Bankasi AS, Turkey’s biggest listed bank, is abandoning efforts to stem loan growth that cut third-quarter profit as authorities signaled a reluctance to enforce curbs, said Mehmet Sezgin, general manager of the credit card unit.

Garanti’s third-quarter net income was lower than the previous three months and will recover as lending growth persists, he said. Economy Minister Ali Babacan said June 7 that banks could be penalized for boosting loans by more than 25 percent a year as the government sought to ease inflation and stem credit-fueled demand for imported goods. Babacan said Sept. 13 the administration would no longer enforce the limit for individual banks as Europe’s debt crisis threatens growth.

The past three months were “the quarter when everyone took 25 percent seriously,” Sezgin said in an interview at Garanti’s headquarters in Istanbul. Babacan’s latest remarks suggest the limit no longer is required, he said.

Loan growth for Garanti may exceed 25 percent this year, and the bank may expand credit about 23 percent next year even as growth in the economy slows, Sezgin said. Turkey’s economy expanded by 8.8 percent in the second quarter, following 11.6 percent growth in the first, faster than China. The ratio of outstanding loans as a proportion of gross domestic product is 33 percent in Turkey compared with 29 percent in Brazil, according to International Monetary Fund data.

‘Balance’

“Every emerging market is trying to find a balance between not overheating and at the same time continuing to grow,” Sezgin said.

Garanti reported net income of 919.9 million liras ($492 million) in the second quarter and 855.2 million liras in the first. Third-quarter earnings are due next month.

The bank’s shares fell 1.5 percent to 6.66 liras at the 5:30 p.m. close in Istanbul. The shares have fallen 17 percent this year, more than the benchmark ISE National 100 index’s 14 percent decline.

Goldman Sachs Group Inc. added Garanti to its “focus sell list” yesterday, saying the stock’s gain last month was based on optimistic macroeconomic assumptions that don’t account for a “relatively high probability” of a recession.

Central bank governor Erdem Basci, concerned that record economic growth and low interest rates may further swell the current-account deficit and fuel inflation, has raised banks’ reserve requirements for lira deposits six times since September 2010 to help curb loans, with the most recent move coming in April. Inflation was 6.2 percent last month compared with a four-decade low of 4 percent in March.

Lending Surge

Turkish lending accelerated to an annual 38 percent in the week to Sept. 23, according to data from the Ankara-based banking regulator, raising concern that the borrowing will continue to fuel imports. The current-account reached a record $74.6 billion deficit in July, equivalent to about 10 percent of gross domestic product.

Consumer loans at Turkish banks have increased 23 percent over last year’s figure in the year to Sept. 16, driven by a 31 percent increase in general purpose personal loans, central bank data showed. That compares with a 33 percent increase in 2010, including a 42 percent increase in general purpose loans.

Garanti’s year-to-date loan growth in 2011 is in line with industry averages at 23 percent, while consumer loan expansion is lower at 19 percent, according to Sinem Ozonur, a vice president in charge of investor relations.

State-Run Banks

“We always go for the mid-20s for both loans and deposits, and we expect to meet that target next year,” Sezgin said. State-run banks including TC Ziraat Bankasi AS, the country’s largest bank by assets, have extended lending faster this year than non-government banks, and the trend is expected to reverse next year, he said.

The Turkish banking industry is healthy and “I don’t see a danger of loan defaults going up,” Sezgin said. “Actually defaults have been going down since 2008.”

Industry-wide non-performing loan rates are 2 percent on consumer loans and 6.7 percent on credit cards, nearly half the total default rate in 2009, with Garanti’s figures lower than average, Sezgin said.

Defaults

Renaissance Capital, the broker half-owned by Russian billionaire Mikhail Prokhorov, forecast the value of non- performing loans in Turkey will increase 73 percent next year to comprise 4.1 percent of total loans, according to a report e- mailed to clients today. The biggest rate of default was foreseen in car loans, at 8.1 percent, followed by credit cards at 8 percent, according to the report.

Borrowing in Turkey is low as a percentage of household net worth compared with other markets, and “it’s normal for people to go out and spend money,” Sezgin said.

The ratio of outstanding loans as a proportion of gross domestic product is 46 percent in the U.S., 56 percent in France and 108 percent in China, about three times higher than Turkey’s 33 percent, according to data from the IMF’s Financial Access Survey.

Expansion in general purpose consumer loans is likely to continue to grow as Turks use the lower-cost borrowing to pay off credit card debt that’s more expensive to service, Sezgin said.

The Turkish economy will probably expand around 4 percent next year, according to Garanti Bank. “If Turkey grows in real terms, we won’t have increased non-performing loan rates,” Sezgin said. Garanti Yatirim, the bank’s broker, cut its 2012 growth forecast to 1.5 percent yesterday from 4 percent.

The IMF predicts Turkey’s economy will grow 2.5 percent next year, down from a 7.5 percent forecast for 2011.

--Editors: Mark Bentley, Laura Zelenko

To contact the reporter on this story: Benjamin Harvey in Istanbul at bharvey11@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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