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Best Bank: Akbank |
The battle between Akbank and Garanti Bank has dominated Turkish banking for a decade. Garanti’s focus on technology, infrastructure and a balance sheet that put customers rather than the government first has, in the past, given it the edge. However Akbank’s continuing investment in IT and customer relations management systems (for example, more than 82% of its retail clients are now electronic customers compared with 22% of Garanti’s), its push into the underbanked areas of Turkey and its response to the gathering economic storm have brought the contenders closer together. Garanti is still more profitable but Akbank’s return on assets is higher and elsewhere the bank is performing well: its net interest income grew by 22.5% and net fees and commissions grew by 25.5%.
Swift response
But what wins Akbank this year’s award, in an exceptionally close contest, is its swift response to the crisis at the end of the awards period, a response that has been criticized by some, and its conservative balance sheet. Akbank’s capital adequacy ratio is 17.6% versus Garanti’s 16.1% (Akbank’s ratio has fallen a little from its highs, but Garanti needed to use a portion of its April 2008 rights issue to get to its current level); its tangible common shareholders’ equity is $6.9 billion, a little higher than Garanti’s; its loan-to-deposit ratio is around 85% (as is Garanti’s though the latter’s is falling); its deposit base is extremely well diversified, with deposits from individuals making up 70% of the total; its 100% specific provisioning policy and 137% coverage ratio (Garanti is at around 76%) and its TL400 million ($254.4 million) of hidden reserves gives it better protection against the downturn; and at TL10.5 billion its free capital is the highest in the sector.
Critics say that the bank overlent at the end of the boom and is pulling back too late. They also say that it is flattered by its policy of selling down NPLs. But all banks overlent in the bubble and the quick resolution of NPLs is to be praised. Also, some banks pushed harder in the riskier segments than others: Garanti’s retail NPL ratio of 4.5% is 50% higher than the sector average yet the bank continued to expand aggressively in branch additions (hence its worse cost-to-income ratio than Akbank’s).
The critics also say that Garanti should be praised for continuing to lend while Akbank has restricted credit growth, especially to SMEs. But from a management perspective an intentional sharp contraction in risky lending is the correct response to recession. Garanti is the incumbent to beat. And few banks globally best it for profitability ratios in the last 12 months. But the momentum play, combining improvements in key areas with its well-diversified branch network and customer base, along with its capital strength and an aggressively conservative approach to the downturn, is Akbank.
Turkey’s domestic corporate bond markets have been quiet this year: the only deal has been the Kocfinans TL150 million transaction led by Garanti Securities. However, when the Turkish sovereign requires international funding it repeatedly turns to HSBC. The $1 billion eight-year issue for Turkey in January 2009 achieved the tightest new-issue premium of all emerging market sovereigns since the market reopened in December. In addition to its domination of the sovereign market, HSBC has been a key player in loan syndication for corporates, jointly arranging debt for Koç Group, Finansbank, Isbank and Zorlu Energy. And it is the leading bookrunner of murabaha Islamic financing in Turkey, with deals for many Turkish corporates including Kastamonu Entegre, Boyner Holding, Ülker, Yatas, Kiler and Pakpen. HSBC is well represented in trade finance and export credit, with transactions for Tezcan and Marmara Corp.
Rounded capability
To Turkish banks, domination in equities often means market share on the secondary market. However a more rounded capability is what counts. EFG Istanbul is a unique player in the Turkish equity markets. Foreign owned but effectively local, it is the number one-ranked sales firm and fourth in research; it is a leading player in derivatives and equity arbitrage and a favoured local electronic trading partner for international institutions; and it is the largest foreign bank trader on the stock exchange, where growth has much more than doubled in the past two years. It is also a force in the block trade business, placing almost $230 million-worth of stock in the latter half of 2008.
Corporate finance in Turkey is a tale of three markets. Foreign firms turn, for the most part, to Citi. Groupama chose it for its insurance acquisitions in Turkey, as did Zurich Financial Services. The few foreign banks with local teams, such as Bank of America Merrill Lynch, also pick up the larger, international mandates, like the $3.2 billion acquisition of Migros. Then there is privatization. The government tends to hire foreigners as financial adviser and Citi this year won the role of sole financial adviser to the Privatization Administration in the sale of cigarette maker Tekel. The third market is the most active: advising on local-local deals, and advising the local targets of foreign buyers and sellers. In this sector, which requires the most in-depth corporate relationships and the most industry expertise, Is Investment stands out. (Is was on the other side of the Groupama deal, for example.) This is why in tables of Turkish M&A by number or value Is Investment is rarely displaced from number one and no bank compares in the sheer variety of transactions handled.
