January-September 2013


Macro and industry trends

The macroeconomic situation has improved significantly in Europe. The euro zone began to emerge from recession in the second quarter. The most recent data on the third quarter suggest an incipient economic expansion. This improvement should even reach the peripheral countries, which are now less subject to the fiscal drain and where financial tensions are much better contained. Even so, some uncertainty remains regarding the continuity of the Greek and Portuguese aid programs.

In Turkey economic activity has maintained the strength seen in the first half of the year, thanks to increased private consumption and an expansionary fiscal policy, despite greater volatility in the financial markets and incidents of social conflict during the quarter, which have had a negative impact. As a result, the yield on the Turkish 10-year bond has picked up to levels of close to 10% (from 6% in May). In addition, the lira has depreciated strongly over the quarter, although this was partially restrained by the measures applied by the Turkish Central Bank. The most important of these measures are the use of foreign currency reserves and a tougher monetary policy, which has considerably increased the average cost of funding for the Turkish financial system as a whole.

Despite the above, the financial sector in Turkey still has solid capital adequacy and a high level of profitability, against a backdrop of a strong rate of growth in lending over recent years. However, the NPA ratio in the system remains contained, at around 3%, and provisions are stable compared with last year, with the coverage ratio at around 75%.

In China data show a resurgence in economic growth, driven by the fiscal stimulus measures applied by the authorities, but also by the recovery in confidence levels, now that the threats of a hard landing have been dissipated. The increased confidence and the authorities’ room for maneuver allow optimism with respect to meeting the official growth targets.

Earnings in the Chinese banking sector have increased moderately, although the rate is still high (up 13.6% for listed banks, according to information as of June 2013). This growth is backed by a steep rise in lending and a significant increase in income from fees and commissions, which offset the negative impact of the liberalization of interest rates, the removal (in July) of the floor on interest rates charged for loans and the slight upturn in the NPA ratio. Lastly, listed banks have reduced their capital adequacy ratios in the first half of 2013, although the average level continues to be clearly above the minimum required.