This report provides an update on the market conditions in the banking sector in Turkey through Q3 2013. It also includes corporate news for, among others, the firms Sekerbank, Kuveyt Turk, Is Bankasi, and the state-run Halkbank.

Turkey’s financial intermediation sector (banks and other financial institutions) grew 11% y/y in the third quarter of 2013. This figure was higher than the 4.4% y/y expansion of the country’s national income in the same period. This expansion was the result of very strong loan growth. Official data show that the Turkish banking industry’s net profit rose 16.2% y/y to TRY 19.85bn (EUR 6.5bn) in January–September 2013, supported by the increase in net interest income. Total assets grew 26% y/y, reaching TRY 1,649bn at the end of September, while loans extended by local banks rose 31.1% y/y to TRY 990.4bn. There are 49 banks in Turkey, operating through a network of total 11,986 branches and 214,263 staff as of end-2013.

The year 2013 was a profitable one for Turkish banks as their net income rose 5.1% y/y to TRY 24.73bn. But the operating environment is becoming less comfortable for Turkey’s banks and 2014 will be difficult for them. Both the Central Bank’s rate hike and intensifying competition will squeeze their profits. Monetary tightening will curb growth and limit loan growth. Credit quality may also suffer this year, as banks are likely to see their NPLs rise. There will be less room for loan growth, which will mean lower transaction revenues. But still, Turkish banks are solid and they managed to weather the global financial crisis well. Their capital adequacy ratios are comfortably higher than the required levels set by regulators.

Key Points:

• In corporate news, medium-sized private lender Sekerbank informed that it mandated the issue of up to TRY 500mn (EUR 163mn) in bank bonds/bills with maturities of up to five years.

• Kuwait Finance House's (KFH) Turkish unit Kuveyt Turk said that the Islamic lender’s net profit increased by 20% y/y to TRY 300mn (EUR 98.5mn) in 2013.

• Turkey’s largest private bank by asset Is Bankasi’s unconsolidated net income decreased by 4.5% y/y to TRY 3.16bn in 2013, in parallel with market expectations.

• The state-run Halkbank has appointed a new general manager, Ali Fuat Taskesenlioglu, after the previous general manager, Suleyman Aslan, was detained in connection with a corruption probe.