Following several quarters of slowing down, the Turkish economy is starting to stabilize, and forecasts suggest a V-shaped recovery for 2020. BBVA CEO went to Turkey this week to meet with the Garanti BBVA team. Onur Genç stressed that: “Turkey was the biggest positive surprise for the Group in 2019, and 2020 will be even better.”
BBVA Research forecasts point to a V-shaped recovery for the Turkish economy. Growth had slowed from 2.8 percent in 2018 to 0.8 percent in 2019, but is expected to recover to 4.0 percent in 2020. Estimates also suggest a decline in inflation from 20.3 percent in 2018 to 11.8 percent in 2018, and 8.5 percent in 2020. In this context, Turkey’s central bank began a cycle of interest rate cuts, going from 24 percent to 12 percent in 2019.
The strength of the banking sector
The Turkish banking sector is in an optimal position to take advantage of the rally in the economy. First, it has comfortable liquidity levels, with customer deposits constituting 59 percent of assets, and a buffer of $87 billion in liquidity to cover possible shocks. Second, it has a solid capital position with a CET1 that represents 77 percent of all capital. Finally, it has a high quality asset base, with an NPL rate of 5.5 percent and coverage ratio of 66 percent of troubled assets.
Garanti BBVA is the second largest private bank in Turkey. It has 17 million customers and 920 offices
Turkey’s financial sector has high growth potential thanks in part to the low banking services access rate for the adult population (only 60 percent) and a very young society: 55 percent of the population is under the age of 35. Banking penetration ratios are still low: customer deposits represent 59 percent of GDP (compared to 111 percent in the eurozone) and loans 65 percent (compared to 99 percent in the eurozone).
With assets totalling $73 billion, Garanti BBVA is the second largest private bank in Turkey. It has 17 million customers and 920 offices. In addition, it is at the forefront of digital banking, with digital customers reaching 71 percent in September 2019. In fact, its mobile app was named the second best in the world for the second year in a row by U.S. consulting firm Forrester Research.
Onur Genç, CEO of BBVA, and Recep Bastug, CEO of Garanti BBVA, met with a group of employees of the Turkish bank - BBVA
Onur Genç’s visit to Turkey is part of the working visits the CEO began in 2020 across the countries where the Group has a presence. He met with Garanti BBVA CEO Recep Baştuğ, and a group of employees from the Turkish unit, among other meetings.
Forecasts for Garanti BBVA in 2020
Despite the economic turbulence, Garanti BBVA contributed to the BBVA Group’s results with a net attributable profit of €380 million between January and September 2019 (8.3 percent of the Group’s total). This figure represents a decline of 21.8 percent compared to the same period in 2018, largely affected by the evolution of the Turkish lira. However, although 4Q results are pending, the bank has strong recurrent earnings in 2019 and as Onur Genç, indicated, the performance of the bank and the country was one of the biggest positive surprises of 2019 for the Group.
Regarding 2020, Garanti BBVA published its 2020 Operating Plan Guidance several days ago. The plan includes the bank’s forecasts in terms of local accounting standards, which predict improvement in business indicators. The bank expects to continue reducing loans in foreign currencies (primarily U.S. dollars) and increasing loans in Turkish lira by double digits, between 15 and 20 percent, underscoring the growth in consumer loans. Garanti BBVA also expects the NPL rate to decline, reaching around 6.5 percent (from just under seven percent expected for the end of 2019). Lower provisions as a result of this improvement in credit quality and higher net interest income provide for a predicted increase in returns on average equity (ROAE), reaching 15 to 20 percent in 2020. This would represent a significant improvement over the low double digit levels estimated for the end of 2019.