Deutsche Bank AG and Goldman Sachs Group Inc. (GS:US) say a record rally in Turkish banks may turn into a sell-off on rising concern that earnings will be hit by plans to reduce fee income and pare growth in loans.
Industrial companies in Turkey are a better bet because they offer higher dividends, Albert Krespin, chief executive officer of Deutsche Bank’s broker in the country, said in an interview in Istanbul. Goldman Sachs advised clients to exit Turkish lenders last week, saying earnings will come under pressure.
Turkiye Garanti Bankasi AS, owned by Spain’s Banco Bilbao Vizcaya Argentaria SA, led a 64 percent-gain in Turkish banks last year, the biggest rally since 2009. Losses this year have totaled 3.4 percent, dragging the main ISE National 100 index down, partly on bets Prime Minister Recep Tayyip Erdogan’s government will pass legislation to abolish or slash some fees including annual credit card and account maintenance charges.
“Banking shares already started seeing a correction and I would expect that to continue in the near-term,” Krespin said at his offices on Feb. 12. “Given this scenario, we maintain our recommendation to switch from banking shares to industry.”
The ISE National Banks index lost as much as 2.1 percent to 156,658.73 today, dropping below its 100-day moving average, a technical gauge of future price movements used by traders, for the first time since June last year. It headed for the fourth week of falls, the longest losing streak since May.
The banking regulator is giving its views on the draft law “to the necessary authorities,” chief regulator Mukim Oztekin said at a news conference in Ankara yesterday. The law, also designed to bring consumer rights in line with European Union norms, is with the trade ministry, he said.
Goldman Sachs turned negative on Turkey’s banks last week, saying repatriation of money into the U.S. could threaten economic stability in the country, adding to concern about a decline in profits.
“If our earnings scenario materializes, all Turkish banks will be under pressure,” analysts Dmitry Trembovolsky and Alexey Butylin said in a report. Goldman Sachs removed state-run Turkiye Halk Bankasi AS from its most-preferred list for the region and cut Yapi & Kredi Bankasi AS, UniCredit SpA’s unit in the country, to sell.
Turkish Central Bank Governor Erdem Basci has started focusing monetary policy on limiting loan growth to an annual 15 percent this year. He said the curbs are needed to narrow the import-driven current-account deficit, which had threatened to destabilize the economy last year.
Banks will have a positive 2013 even though there are short-term risks, said Ovunc Gursoy, an analyst at Yapi Kredi Yatirim Menkul Degerler, an Istanbul-based broker also owned by UniCredit.
“There’s a good, stable trend in net interest margins,” he said in a telephone interview today. “I would expect that to continue until at least the third quarter this year.”
Narrower interest margins may mean industry profit rises only marginally this year, Oztekin said. Net income may increase to 24 billion liras ($13.6 billion) from 23.6 billion liras in 2012, when it advanced 19 percent, he said.
Gursoy said investors were nervous about a probe by the antitrust board in Ankara into whether 12 Turkish banks, including Garanti and Akbank TAS, colluded to set interest rates. A final hearing is scheduled for Feb. 25 and a decision is expected within 15 days after that.
The banking index has a total market value of 61.7 billion liras, 42 percent of the ISE National 100, according to data compiled by Bloomberg. Garanti is the biggest bank followed by Akbank, part-owned by Citigroup Inc., and Turkiye Is Bankasi AS.
Five of 30 analysts currently recommend buying shares in Garanti compared with 16 of 33 analysts a year ago, according to data compiled by Bloomberg. Six of 29 analysts say buy Akbank shares. The two firms have a combined 52 percent weighting in the banking index.
Investors should turn away from banks and look at firms such as state-run telephone provider Turk Telekomunikasyon AS and refiner Tupras Turkiye Petrol Rafinerileri AS, Krespin said.
“Companies like Tupras have been giving out good dividends and that’s very important in a low-interest rate environment such as this,” he said.
Ten of 32 analysts recommend buying Tupras, according to data compiled by Bloomberg. Tupras paid a dividend of 3.93 liras a share last year and 2.98 liras in 2011. The shares lost 1 percent to 48.30 liras today.
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