İşbank, Turkey’s biggest listed bank, said loans may jump 15 percent next year after shrinking in the first nine months of 2009, Chief Executive Officer Ersin Özince said.
“We can grow 15 percent if competition in interest rates does not get too aggressive,” Özince said in an interview in Istanbul on Dec. 25. “If we have to sacrifice profit, then we will not grow as much and growth will be around the lower end” of a target range of 12 to 15 percent for loans and deposits.
Turkish banks posted higher profits this year as falling interest rates boosted the value of their bond portfolios and widened the margin between loans and deposits. Lending may be less profitable this year, even as the economy grows, because the central bank is expected to keep rates on hold and then start raising them.
The central bank cut rates for 13 straight months before ending the sequence in December. The reductions helped lift Turkey out of its worst recession since World War II. The economy, which probably shrank more than 6 percent this year, will grow 5 percent in 2010 and the central bank may start raising rates in the second half, JPMorgan Chase estimates.
İşbank’s fourth-quarter profit will be “a parallel performance” to the third, when net income tripled from a year earlier to 433 million Turkish Liras ($287 million), Özince said. Next year, Turkish banks should expect lower interest income from loans, though they’ll remain more profitable than peers in developed countries, he said.
The bank’s loan book shrank 3.5 percent to 47.6 billion liras in the nine months through September. İşbank has not provided more up-to-date figures.
Asset-liability mismatch:
Turkish banks “make more profits when rates fall, because of the mismatch between longer-term assets and shorter-term liabilities,” said Hakan Aygün, an analyst at Ak Investment in Istanbul. “The trend slows when rates are steady, which is the case now, and becomes reversed when rates start rising, which is the case expected in 2010.”
Bank profits rose to about 20 billion liras ($13 billion) in 2009 from 15.2 billion liras in 2008, even as loan growth slowed to about 5 percent, chief regulator Tevfik Bilgin said last month. Lending may increase 15 percent next year, he said.
Higher profits have lifted Turkish bank shares. The index of financial stocks surged 108 percent this year, outperforming the benchmark National 100 Index, which added 92 percent. İşbank shares lagged behind both, posting a 70 percent gain.
İşbank “has more exposure than other private banks in loans to small businesses, which have performed badly during the crisis,” while its ownership of several non-financial businesses has also capped the stock’s gains, Aygün said.
İşbank does not plan to sell those units, which include Turkey’s biggest glassmaker Şişecam and a stake in mobile phone company Avea that the bank sees as “a long-term investment,” Özince said. İşbank may sell shares in some unlisted units to the public, he said, without identifying them.
The bank, which typically “likes to return some profit to our investors” as a dividend, has not decided a policy for 2009 earnings and will seek “agreement” with the regulator, Özince said. Bilgin has told Turkish banks to retain earnings to bolster capital, instead of paying dividends.
Founded by Atatürk:
Established in 1924 by Mustafa Kemal Atatürk, founder of the Turkish Republic, İşbank may seek to expand outside Turkey in 2010.
Özince, 56, said İşbank may buy “a small bank” in Russia, Ukraine or Kazakhstan, markets where it sees “a future.” İşbank has hired Pricewaterhouse Coopers to advise on expansion in the region.
Greece’s financial crisis may also create opportunities. İşbank would be interested in Greek banks’ assets in emerging markets such as the Balkans and Middle East, should they be forced into sales, Özince said.
İşbank plans to open branches in Iraq, provided that the country’s March elections lead to political stability, he said. It will also add “at least 50” to its network of 1,095 branches in Turkey, and create as many as 1,000 jobs, he said.
More than 50 banks operate in Turkey. That creates “a very competitive structure on lending, as banks enter price competition which hurts profitability,” said Sadrettin Bağcı, an analyst at Finans Invest in Istanbul.
Özince, who is also the head of the Banks Association of Turkey, said some European-owned Turkish lenders “may start consolidating” next year after their resources were strained by the financial crisis.
Özince’s İşbank is the only one of Turkey’s 10 biggest non-state banks that does not have a foreign partner.
