GARAN TI: 4Q22 Review (Oyak Yatırım)

Top-line expands further; fees strong
Garanti posted 4Q22 net income of TL19,902mn (+14% q/q, +390% y/y), in line with market consensus (TL19,060mn) and our estimate (TL19,149mn). Core revenues (NII + fees) grew %14 q/q on higher yield from CPI-linkers, strong fees, despite contracted core spread (-1.5ppt q/q, AKBNK: -1.6ppt, OYAKe: -1ppt). Fees rose 128% y/y thanks to growing loans and payment system contribution, while opex expanded by 85%. Net total CoR rose to 280bp this quarter (3Q: 254bp) on precautionary provisioning. NPL coverage rose to 72% (+1.4ppt q/q). ROE went slightly down to 56.1% in 4Q from 57.6% in 3Q and 21.5% a year ago.
Garanti guides for in-line with CPI TL loan growth, 1.85ppt drop in NIM (excluding CPI-linkers), >CPI fee growth and 100bps net CoR coupled with >28% RoE for 2023. This guidance is in line with our 31.5% 23E RoE expectation for Garanti, which indicates 25% drop in net earnings.
We expect earnings to be weaken in 1H on the back of retreating TL spreads as loan yields are under regulatory pressure and potential ebb in inflation reflecting negatively on securities yields. We expect fee growth to be strong on new customer acquisition and loan growth, while some drop in opex could be possible through declining CPI. Asset quality, on the other hand, should remain intact backed by high provisioning.
NIM backed by higher linker yields
TL spread retreated 1.9ppt q/q (AKBNK: -2ppt, OYAKe: -1.9ppt) on lower loan yields, while FX spread rose 80bp q/q. Reflecting this and higher CPI in October (raised to 85.5% in 4Q from 75% in 3Q), NIM expanded 1.1ppt q/q (AKBNK: +2.7ppt, OYAKe: +50bps). Garanti gained market share in loans in 4Q. TL loans grew 14.7% q/q vs +13.7% for private banks (PBs), while TL deposits expanded 27.8% q/q vs +28.8% for PBs. On FX (USD) side, loans went up 1.2% q/q vs -1.5% for PBs, deposits contracted 14.4% vs -9.6% for PBs.
Asset quality appears good; free provisioning remains strong
NPL ratio slid to 2.6% in 4Q from 2.9% in 3Q on limited fresh NPL inflows and strong loan growth. The Stage-2 to total loans ratio increased to 15.1% in 4Q from 14.3% last quarter, while Stage-2 coverage slid to 20% (-1.6ppt q/q). Garanti's free provision buffer remained strong at TL8bn in 4Q.
FY23E earnings and OP rating maintained
We foresee Garanti's 2023E earnings to decline 25% y/y to TL45bn, assuming that inflation retreats and linker yields drop in 2023. Garanti trades attractively at 23E P/BV of 0.7x and 2.2x P/E, while 23E ROE stands at 31.5%. We maintain our Outperform rating for the stock with a TP of TL43.47 per share.



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