Net interest income at TL84mn was supported by loan growth but it was shy of our TL91mn estimate due to higher deposit costs. We reckon that although TL deposit costs have come down significantly, we believe there is still way to go particularly in FX deposit costs. Looking at the credit risk, which also played a role on the CAR's climb to 14%, we reckon that Albaraka bet on safer borrowers in 4Q10, which should have a lower yield profile. In net fees and commissions, the bank displayed a meager 3% YoY growth, which is no surprise given the competition in non-cash loan products.
Other income was much higher than expected by some TL9mn, a major deviation. The reasons behind the deviation was asset sales, which look non-recurring.
Asset quality performance did not look bright in 4Q10. NPLs climbed by 16% QoQ when adjusted for write-offs.
The bank lowered the NPL coverage to 86% to cushion for the deteriorating asset quality. New NPL flows
increased to TL21mn in 4Q10 from TL5.7mn in 3Q10. As a result, provisioning expenses were higher than expected.
Good news is that the weight of Group 2 loans in non-NPL loans decreased to 2%, a healthy figure. The bank also released some provisions thanks to this.
No surprises in opex line. Albaraka Turk recorded 14% YoY growth in opex, recording 43% C/I in 2010, which is fine for a bank at this size.
Loan and deposit growth were fast paced in 4Q10. 17% FX loan growth (in US$ terms) was remarkable - it seems that the bank is utilizing the wholesale funding extensively now as FX loan to deposit ratio hit 88%, highest figure in the last five years. TL loan growth at 10% was not negligible either but was actually a natural result of conversion from FX to TL deposits. TL and FX deposit growth was at 11% and 6% (in US$ terms), respectively.
We are taking our stock rating to UNDER REVIEW. Although Albaraka Turk looks much better valuation wise and should benefit from the rising rate environment, we will be revising our model with the guidance provided in the earnings conference call, particularly on asset quality front. Other than asset quality, we think the fast execution in 4Q10 was very positive for Albaraka Turk. In addition, more comfortable CAR at 14.1% is also relieving to see in 4Q10 as it is a good buffer for the bank for not approaching 13% levels.
Source : http://www.strateji.com.tr/scripteng/Haber.asp?v=20110302115027 - March 2, 2011
