Regulations Pressure Turkish Banks' 1Q23 Margins and Profitability
Turkish banks' performance weakened in 1Q23, mainly due to tighter margins stemming from the impact of the regulations on the cost of lira deposit funding and on loan yields, as well as lower CPI-linked gains and slowing loan growth, says Fitch Ratings in its latest quarterly Turkish Banks Datawatch. The covered banks' operating profit/average risk-weighted assets (RWAs) ratio weakened to 4.2% in 1Q23 (4Q22: 8.8%), and the average net interest margin tightened by 5.8pp in 1Q23.
Banks booked higher net fees and commissions as they sought to offset lower yields on loans. Fitch expects banks' profitability to continue to weaken in 2023, given the weaker macro outlook, lower business volumes, persistent cost pressures and the continued impact of the macroprudential regulations.
Reported common equity Tier 1 ratios fell at end-1Q23, mainly reflecting the tightening of forbearance on foreign-currency RWAs, but generally remained adequate. Exceptions were the state-owned banks, which reflected the Turkish authorities' sizeable capital injections.
Covered banks' shares of FC deposits have decreased significantly (end-1Q23: 39%; end-2022: 45%), as banks endeavoured to meet the lira deposit thresholds stipulated by the macroprudential regulations. However, a significant – and increased – share of deposits are lira FX-protected. They comprised 18% of sector deposits at end-1Q23, up from 16% at end-2022, resulting in total sector FC and FX-indexed deposits of about 59%.
The average share of FC wholesale funding continued to decline in 1Q23, reflecting the increased cost of borrowing due to rising global interest rates and the higher risk premium for Turkish banks, as well as banks' reduced FX needs.
The Datawatch report and excel cover 13 banks, comprising 83% of total Turkish banking sector assets. They assess key data from the banks’ unconsolidated financial statements and regulatory disclosures, sourced primarily from the Banking Regulation and Supervision Agency.
First, please LoginComment After ~