Turkey
Highlights
- Recovery of the activity in Turkish lira.
- Good performance of the net interest income.
- Operating expenses growth below the inflation rate.
- Positive evolution of the recurring revenue items offset by higher loan-loss provisions on financial assets.
Business activity (1)
(Year-on-year change at constant exchange rate. Data as of 30-09-19)
(1) Excluding repos.
Net interest income/ATAs
(Percentage. Constant exchange rate)
Operating income
(Millions of euros at constant exchange rate)
(1) At current exchange rate: -11.8%.
Net attributable profit
(Millions of euros at constant exchange rate)
(1) At current exchange rate: -21.8%
Financial statements and relevant business indicators (Millions of euros and percentage)
| Income statement | Jan.-Sep. 19 | ∆% | ∆% (1) | Jan.-Sep. 18 |
|---|---|---|---|---|
| Net interest income | 2,029 | (7.9) | 6.0 | 2,204 |
| Net fees and commissions | 547 | 6.2 | 22.3 | 515 |
| Net trading income | (65) | n.s. | n.s. | 31 |
| Other operating income and expenses | 37 | (27.6) | (16.6) | 51 |
| Gross income | 2,548 | (9.0) | 4.7 | 2,801 |
| Operating expenses | (886) | (3.3) | 11.3 | (917) |
| Personnel expenses | (507) | 4.3 | 20.1 | (486) |
| Other administrative expenses | (247) | (24.1) | (12.6) | (326) |
| Depreciation | (132) | 25.8 | 44.8 | (105) |
| Operating income | 1,661 | (11.8) | 1.5 | 1,884 |
| Impaiment on financial assets not measured at fair value through profit or loss | (645) | 1.1 | 16.4 | (638) |
| Provisions or reversal of provisions and other results | (34) | n.s. | n.s. | 17 |
| Profit/(loss) before tax | 982 | (22.3) | (10.5) | 1,264 |
| Income tax | (209) | (24.5) | (13.0) | (277) |
| Profit/(loss) for the year | 773 | (21.6) | (9.8) | 986 |
| Non-controlling interests | (393) | (21.5) | (9.6) | (501) |
| Net attributable profit | 380 | (21.8) | (10.0) | 485 |
| Balance sheets | 30-09-19 | ∆% | ∆% (1) | 31-12-18 |
|---|---|---|---|---|
| Cash. cash balances at central banks and other demand deposits | 7,039 | (10.4) | (9.0) | 7,853 |
| Financial assets designated at fair value | 5,598 | 1.7 | 3.2 | 5,506 |
| Of which loans and advances | 432 | 5.5 | 7.1 | 410 |
| Financial assets at amortized cost | 51,878 | 3.1 | 4.6 | 50,315 |
| Of which loans and advances to customers | 40,776 | (1.7) | (0.2) | 41,478 |
| Tangible assets | 1,184 | 11.8 | 13.4 | 1,059 |
| Other assets | 1,457 | (4.0) | (2.5) | 1,517 |
| Total assets/liabilities and equity | 67,156 | 1.4 | 2.9 | 66,250 |
| Financial liabilities held for trading and designated at fair value through profit or loss | 2,490 | 34.5 | 36.5 | 1,852 |
| Deposits from central banks and credit institutions | 4,938 | (26.7) | (25.6) | 6,734 |
| Deposits from customers | 41,651 | 4.4 | 5.9 | 39,905 |
| Debt certificates | 4,836 | (18.9) | (17.7) | 5,964 |
| Other liabilities | 10,655 | 15.0 | 16.7 | 9,267 |
| Economic capital allocated | 2,586 | 2.3 | 3.8 | 2,529 |
| Relevant business indicators | 30-09-19 | ∆% | ∆% (1) | 31-12-18 |
|---|---|---|---|---|
| Performing loans and advances to customers under management (2) | 39,856 | (2.8) | (1.3) | 40,996 |
| Non-performing loans | 3,818 | 32.8 | 34.7 | 2,876 |
| Customer deposits under management (2) | 41,647 | 4.4 | 5.9 | 39,897 |
| Off-balance sheet funds (3) | 3,460 | 19.6 | 21.4 | 2,894 |
| Risk-weighted assets | 58,521 | 3.6 | 5.1 | 56,486 |
| Efficiency ratio (%) | 34.8 | 32.0 | ||
| NPL ratio (%) | 7.2 | 5.3 | ||
| NPL coverage ratio (%) | 75 | 81 | ||
| Cost of risk (%) | 1.99 | 2.44 |
(1) Figures at constant exchange rate.
(2) Excluding repos.
(3) Includes mutual funds, pension funds and other off-balance-sheet funds.
Activity
Unless expressly stated and communicated otherwise, rates of changes explained ahead, both for activity and for income, will be presented at constant exchange rates. These rates, together with changes at current exchange rates, can be observed in the attached tables of the financial statements and relevant business indicators. In addition, the quarterly variations are from the quarter ending with respect to the previous quarter.
The most relevant aspects related to the area’s activity year-to-date as of September 30, 2019 were:
- Lending activity (performing loans under management) decreased slightly by 1.3% year-to-date (down 12.4% year-on-year) due to the ongoing decrease in foreign currency loans, mainly in U.S. dollars (down 14.7% since December 2018). Recovery of Turkish Lira loans in the third quarter by +1.1% bringing the year-to-date growth to 3.1%.
- Turkish Lira commercial loans grew year-to-date thanks to a strong performance in the first quarter supported by the Credit Guarantee Fund (CGF) utilization and short term corporate loans. In quarterly terms, Turkish Lira commercial loans improved as well. Additionally, retail loans remained flat in the quarter as the growth in credit cards was compensated with the downward trend in mortgage loans.
- In terms of asset quality, the NPL ratio increased to 7.2% from 6.3% as of June 30, 2019 due to the deterioration of some specific wholesale portfolios. The NPL coverage ratio remained stable at 75% reached as of June 30, 2019.
- Customer deposits (62% of total liabilities in the area as of September 30, 2019) remained the main source of funding for the balance sheet and increased by 5.9% on a year to date basis.
Results
Turkey generated a net attributable profit of €380m in the first nine months period of 2019, representing a 10.0% decrease in year-on-year terms (down 33.4% in the third quarter of 2019). The most significant aspects of the year-on-year evolution in the income statement are the following:
- Positive performance of net interest income (up 6.0%) due to successful price management that led to an increase in foreign currency spread and slightly higher inflation-linked bonds contribution.
- Income from net fees and commissions grew by 22.3%. This significant increase was mainly driven by the positive performance in payment systems and backed by money transfers and non-cash loans.
- NTI amounted to -€65m compared with the positive from the previous year, due to the unfavorable market conditions which resulted in lower gains on derivatives and lower results from Global Markets unit.
- Gross income grew 4.7% in the first nine months period of 2019 compared to the same period of 2018, thanks to increased core banking revenues supported with the contribution from inflation-linked bonds.
- Operating expenses increased by 11.3%, significantly below the average inflation rate during the last 12 months of 18.3%. As a result of strict cost-control discipline, the efficiency ratio remained at low levels (34.8%).
- Operating income grew by 1.5%.
- Impairment losses on financial assets rose by 16.4% on a year on year basis due to some negative impacts from the deterioration of retail portfolio. As a result, the cumulative cost of risk of the area stood at 1.99%.