Turkey
Highlights
- Activity growth driven by Turkish lira loans and deposits.
- Outstanding performance of NTI and net fees.
- Operating expenses growth in line with the average inflation.
- Net attributable profit growth driven by lower impairment losses on financial assets in a comparative heavily affected by the effects of the pandemic in 2020.
Business activity (1)
(Year-to-date change, at a constant exchange
rate)
(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: -23.1%
Net attributable profit
(Millions of euros at constant exchange rate)
(1) At current exchange rate: +44.3%
Financial statements and relevant business indicators (Millions of euros and percentage)
| Income statement | 1H21 | ∆% | ∆% (1) | 1H20 |
|---|---|---|---|---|
| Net interest income | 1,036 | (32.5) | (10.1) | 1,534 |
| Net fees and commissions | 297 | 12.5 | 49.7 | 264 |
| Net trading income | 180 | 41.9 | 88.9 | 127 |
| Other operating income and expenses | 58 | 82.8 | 143.3 | 32 |
| Gross income | 1,571 | (19.7) | 6.9 | 1,957 |
| Operating expenses | (499) | (11.4) | 18.0 | (562) |
| Personnel expenses | (282) | (8.3) | 22.0 | (307) |
| Other administrative expenses | (153) | (10.8) | 18.7 | (172) |
| Depreciation | (64) | (23.6) | 1.7 | (83) |
| Operating income | 1,073 | (23.1) | 2.4 | 1,394 |
| Impairment on financial assets not measured at fair value through profit or loss | (168) | (72.9) | (63.9) | (618) |
| Provisions or reversal of provisions and other results | 48 | n.s. | n.s. | (61) |
| Profit/(loss) before tax | 953 | 33.2 | 77.3 | 715 |
| Income tax | (175) | (0.4) | 32.6 | (175) |
| Profit/(loss) for the period | 778 | 44.0 | 91.7 | 540 |
| Non-controlling interests | (394) | 43.7 | 91.3 | (274) |
| Net attributable profit/(loss) | 384 | 44.3 | 92.1 | 266 |
| Balance sheets | 30-06-21 | ∆% | ∆% (1) | 31-12-20 |
|---|---|---|---|---|
| Cash, cash balances at central banks and other demand deposits | 6,657 | 21.5 | 37.6 | 5,477 |
| Financial assets designated at fair value | 5,154 | (3.3) | 9.5 | 5,332 |
| Of which loans and advances | 427 | 2.8 | 16.5 | 415 |
| Financial assets at amortized cost | 45,508 | (2.6) | 10.4 | 46,705 |
| Of which loans and advances to customers | 36,911 | (1.0) | 12.1 | 37,295 |
| Tangible assets | 814 | (9.6) | 2.4 | 901 |
| Other assets | 1,111 | (5.0) | 7.5 | 1,170 |
| Total assets/liabilities and equity | 59,243 | (0.6) | 12.6 | 59,585 |
| Financial liabilities held for trading and designated at fair value through profit or loss | 1,970 | (15.7) | (4.5) | 2,336 |
| Deposits from central banks and credit institutions | 3,749 | 10.9 | 25.6 | 3,381 |
| Deposits from customers | 39,858 | 1.3 | 14.7 | 39,353 |
| Debt certificates | 3,870 | (4.1) | 8.6 | 4,037 |
| Other liabilities | 3,685 | (14.5) | (3.1) | 4,308 |
| Regulatory capital allocated | 6,111 | (0.9) | 12.2 | 6,170 |
| Relevant business indicators | 30-06-21 | ∆% | ∆% (1) | 31-12-20 |
|---|---|---|---|---|
| Performing loans and advances to customers under management (2) | 35,831 | (2.2) | 10.8 | 36,638 |
| Non-performing loans | 3,543 | 11.3 | 26.1 | 3,183 |
| Customer deposits under management (2) | 39,856 | 1.3 | 14.7 | 39,346 |
| Off-balance sheet funds (3) | 3,935 | 14.9 | 30.1 | 3,425 |
| Risk-weighted assets | 53,554 | 1.0 | 14.4 | 53,021 |
| Efficiency ratio (%) | 31.7 | 28.8 | ||
| NPL ratio (%) | 7.3 | 6.6 | ||
| NPL coverage ratio (%) | 69 | 80 | ||
| Cost of risk (%) | 0.97 | 2.13 |
(1) Figures at constant exchange rate.
(2) Excluding repos.
(3) Includes mutual funds and other off-balance sheet funds.
Unless expressly stated otherwise, all comments below on rates of changes for both activity and 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.
Activity
The most relevant aspects related to the area’s activity during the first half of 2021 were:
- Lending activity (performing loans under management) increased by 10.8% year-to-date driven by a growth in Turkish lira loans (up 13.0%) which was supported by consumer loans, thanks to the strong origination in General Purpose Loans, but also by credit cards, mortgage and commercial loans. Foreign-currency loans (in U.S. dollars) contracted during the first quarter of 2021 (down 5.9%).
- In terms of asset quality, the NPL ratio increased 45 basis points to 7.3% compared to March 2021, mainly due to the reclassification of wholesale client in April, without impacting the impairment losses, which compensated the good evolution of the underlying. The NPL coverage ratio stood at 69% as of June 30, 2021, showing a decrease of 879 basis points during the quarter, mainly caused by the before-mentioned wholesale client, whose coverage was already increased in the first quarter of 2021.
- Customer deposits under management (67% of total liabilities in the area as of June 30, 2021) remained as the main source of funding for the balance sheet and increased by 14.7% year-to-date. It is worth mentioning the positive performance of Turkish lira demand deposits (up 22.8%) year-to-date and now represent 27% of total Turkish lira customer deposits, as well as the off-balance sheet funds which grew by 30.1% during the same period. In-line with the sector trend, foreign currency deposits contracted (down 3.4% year-to-date).
Results
Turkey generated a net attributable profit of €384m in the first half of 2021, 92.1% higher than in the same period of the previous year which was impacted by a strong increase of the impairment losses on financial assets due to the outbreak of the COVID-19 pandemic in March 2020. The most significant aspects of the year-on-year evolution in the area's income statement are the followings:
- Net interest income declined (down 10.1%) mainly due to contraction in customer spreads and increasing funding costs despite higher loan volume and higher contribution from inflation-linked bonds.
- Net fees and commissions grew significantly by 49.7% on a year-on-year basis mainly driven by the positive performance in brokerage and payment systems fees.
- NTI performed significantly well (up 88.9%), mainly due to the positive impact of the trading operations in foreign currencies, security trading gains and derivative transactions.
- Other operating income and expenses increased by 143.3% compared to the same period of 2020, mainly due to the positive contribution of the subsidiaries of Garanti BBVA, especially the renting activity.
- Operating expenses increased by 18.0%, affected by, both, the higher average annual inflation rate and the depreciation of the Turkish Lira. On the other hand, there was a reduction in some discretionary expenses due to COVID-19. Nevertheless, the efficiency ratio remained low (31.7%).
- Impairment losses on financial assets decreased by 63.9% compared to the first half of 2020 when high provisions for impairment on financial assets were included due to the outbreak of the pandemic. In the first six months of 2021, lower provision requirements for some big tickets and good recovery of wholesale clients as well as an improvement in the economic forecasts were registered. As a result of all the aforementioned, the cost of risk decreased to 0.97%.
- The provisions and other results line closed the first half of 2021 with a profit of €48m, compared to the loss of €61m in the same period of the previous year, mainly thanks to real estate sales gains and lower provisions for special funds and contingent liabilities and commitments.