Turkish banks make hay while sun shines

Turkish banks booked big profits as inflation escalated but could feel the pinch as the country's price growth slows. As a result of lower earnings from bonds linked to inflation, Turkish banking shares are likely to take a dip, HSBC said. The lure of inflation-linked bonds increased as the country's inflation rate doubled to 10.2 per cent in April from 5.1 per cent in October. But inflation slowed for three months to 7.6 per cent last month, reducing returns on the bonds.

Yields on the banks' debt will decline in the third quarter from the second, returning 1.2 billion liras less for five banks. Akbank will be most affected, followed by Turkiye Is Bankasi, Turkiye Garanti Bankasi, Turkiye Halk Bankasi and Turkiye Vakiflar Bankasi, the Istanbul analysts Tamer Sengun and Erol Hullu wrote in a report to clients. "Third-quarter earnings weakness in large-cap banks may result in a temporary weakness in banking sector stock prices," the HSBC analysts said.

"Despite their fluctuating yields, [inflation-linked bonds] are still highly profitable products for the banks as they offer a real interest rate ranging between about 4 per cent and about 10 per cent, translating into an annual yield ranging between 12 per cent and 18 per cent," the note said. Yields on February 2012 inflation-indexed bonds dropped to an annual 2.23 per cent on Monday from 3.11 per cent at the end of the second quarter. The yield was 7.19 per cent a year ago.

The impact on profit of the lower yields on inflation-linked bonds will be the equivalent of 50 per cent of Akbank's second-quarter net income, 29 per cent of Isbank's second-quarter net income and 25 per cent of Garanti's profit in the period, HSBC said. Yapi Kredi Bankasi has "almost no exposure", it said. Yields on inflation-linked bonds will return to second-quarter levels in the fourth quarter. The bank "maintains its valuation and ratings for Turkish banks", it said.

* Bloomberg


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Day 5, Abu Dhabi Test: At a glance

Moment of the day When Dilruwan Perera dismissed Yasir Shah to end Pakistan’s limp resistance, the Sri Lankans charged around the field with the fevered delirium of a side not used to winning. Trouble was, they had not. The delivery was deemed a no ball. Sri Lanka had a nervy wait, but it was merely a stay of execution for the beleaguered hosts.

Stat of the day – 5 Pakistan have lost all 10 wickets on the fifth day of a Test five times since the start of 2016. It is an alarming departure for a side who had apparently erased regular collapses from their resume. “The only thing I can say, it’s not a mitigating excuse at all, but that’s a young batting line up, obviously trying to find their way,” said Mickey Arthur, Pakistan’s coach.

The verdict Test matches in the UAE are known for speeding up on the last two days, but this was extreme. The first two innings of this Test took 11 sessions to complete. The remaining two were done in less than four. The nature of Pakistan’s capitulation at the end showed just how difficult the transition is going to be in the post Misbah-ul-Haq era.


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