Turkish banks’ asset quality risks manageable: BofA

Recovery in the Turkish banking system's core spreads and an improved fee base will continue to support revenues, the Bank of America (BofA) has said in a recent report, adding that it sees asset quality risks as manageable.

"Normalization" is probably the best word to describe the ongoing dynamics in the Turkish banking system, the authors of the report said.

Regulations that have played a key role in growth dynamics, asset allocations and key interest rates over the past two years have been partially simplified, the report added.

"With +30 percent sustainable RoEs [return of equity] we believe Turkish private banks offer good value."

BofA sees Turkish Lira loan growth averaging slightly above 30 percent in 2024 - broadly in line with what annualized monthly growth caps suggest- and expects real loan growth to resume in 2025.

"We agree that the current low NPL…levels are unsustainable, and a new cycle is around the corner. However, we are less concerned vs. previous cycles."

Turkish private banks have deliberately given away market share, increased coverage, and accumulated capital since 2018, the report added.

"Our stress test shows that they are well-equipped to stomach extreme scenarios without the need for capital or even reporting P&L losses."

According to BofA, additionally, there are several mitigating factors — FX mismatch is no longer a key risk for corporates; household balance sheets have strengthened given gains from FX deposits and equities versus negative real rates on loans; and the average ticket size of unsecured loans is small, with a large portion distributed to salary clients.