BofA raises price target for Turkish banks
BofA stated that the price-to-book ratio, which reflects the future expectations of private banks, will increase and increased its target prices, indicating an improvement in the banks’ condition.
The report states that the return on equity of Yapı Kredi and Garanti BBVA will exceed 30 percent in 2025, while the pressure on Akbank’s activities may decrease with the easing of regulations.
BANKING SECTOR FORECASTS
The highlights of the Bank’s report were the following:
* We predict that by the end of 2023, Turkish banks will operate with a price-to-book multiplier of 1.0 for the first time in almost a decade.
* We believe it is reasonable for the price-to-book ratio to trade at a ratio of 1.2, as greater political stability reduces the cost of equity capital.
* We predict poor performance in state banks as we foresee high risk in the coming period.
* For private banks, we expect the price-to-book ratio to increase over the 12-month period. We predict that higher margins and more favorable regulations compared to the past will increase returns on capital.
* We predict that 2025 will be the first year in which private banks’ return on equity exceeds both inflation and the average return on equity.
ECONOMIC FORECASTS
The report also included predictions about the future of the Turkish economy. The bank said the following about interest, exchange rate and inflation forecasts:
* We believe that the recent turn towards orthodoxy and a well-designed medium-term program have increased international credibility, while domestic flows have increased due to high inflation.
* We predict that inflation at the end of 2023 will be 70 percent, inflation at the end of 2024 will be 40 percent, and inflation will peak at 78 percent in May 2024.
* We expect official interest rates to rise to 30 percent by the end of 2023 and to 45 percent after local elections on March 24.
* We forecast that the dollar/TL will be at 31 levels by the end of 2023, approximately 15 percent above the current level.