Strategy Note

Weak start to 2024

BRSA January data shows that the financial weakness seen in core activities in the banking sector in December continued in January. While deposit rates increased in December, the fact that the redemptions of these deposits were predominantly in January caused interest expenses to increase by 6.4% and interest income to contract by 3.4% in January. However, while the contraction in the net interest margin continues, we see that items such as fee & commission income and dividend collections, which supported financials in December, also lost momentum in January. Increasing operational costs by salary increases also seem to have put some additional pressure on January figures.

When we look at the figures, we see that the sector, which achieved a net profit of 68.2 million TL in December, marked a monthly net profit contraction of 53% (19% annually) with 32.0 million TL in January. While the asset size of the sector grew by 63% year-on-year with 23.9 mlrTL, growth continued around inflation. Similarly, loans, total deposits and shareholders' equity grew by 52%, 63% and 53% year-on-year, respectively. On the income side, we see a 37% monthly contraction (3% annual increase) in net interest income with 53.9 million TL. The sector's fee & commission income and dividend income contracted by 3% and 60% monthly, respectively. As for return on equity (ROE), we calculate a significant decrease of 17.5% in the annualized data for January, compared to 32.8% seen last year.

The banking sector started 2024 with some relief in resource costs, but we are more likely to see the effects of this in the February data. On the other hand, we think that the profitability performance of the sector will be more pronounced in the coming months, especially in the second half of the year, due to positive expectations regarding the sovereign rating and risk premium, the expected improvement in inflation since the middle of the year, and this will support the sector stocks. In addition, we believe that foreign inflows, which we expect to intensify this year, will be more evident in liquid bank stocks.