Why Banking Sector Profits Hit 252 Billion Turkish Liras This Quarter. The bank sector’s profits hit a record high of 252 billion liras in the third quarter of this year. The sector’s earnings grew from 199 billion liras in the second quarter and 169 billion liras in the first quarter.
This is thanks to strong lending, especially mortgage loans, and falling operating costs. This article explains why banking sector profits hit 252 billion liras this quarter. If you want to know more about the banking sector or any other industry, register your details here
High Net Interest Income
- Net interest income is the difference between the interest the banks earn on their assets and the interest they pay out on their liabilities. It’s a key driver of profitability, with the sector averaging net interest income of 20 billion liras during the first three quarters of the year. What’s more, banks’ net interest income in the third quarter was the highest in any quarter since 2005.
- That’s particularly impressive given that it nearly tripled compared to the same period last year. At the beginning of 2019, the Turkish government passed a law allowing the banks to increase their benchmark interest rates. Since then, banks have been increasing the interest rates on their loans and deposits in line with the new legislation.
- This has boosted banks’ net interest income by increasing the difference between what they charge on loans and pay out on deposits. As a result, the sector’s net interest income growth remained strong in the third quarter.
Stronger Mortgage Loans
The banking sector’s mortgage loans have grown by about 100 billion liras in the first nine months of the year. They were just 68 billion liras at this time last year. While mortgage loans’ growth was steady throughout the year, it was particularly strong in the third quarter. Mortgage loan growth hit 36 billion liras in the third quarter, up from the previous quarter’s 31 billion liras.
This is thanks to the Turkish government’s “Special Stimulus for Mortgage Loan Growth” program, which was first introduced in April. Since April, mortgage loans have been offered at rates as low as 6.99% annually.
The government increased this rate to 7.99% in July, which led to mortgage loan growth slowing down. However, the sector’s mortgage loan growth picked up again in the third quarter when the government reinstated the 6.99% interest rate.
Falling Operating Costs
Operating costs for the banking sector fell for the seventh consecutive quarter. This is thanks to the cost of funds on deposits falling by nearly 5%, the cost of funds on borrowings falling by 10%, and an increase in operating profit of 15%. What’s more, operating costs fell from 5.2 billion liras in the second quarter to 4.3 billion liras in the third quarter.
This was also the lowest operating cost for the sector in six years. What caused operating costs for the banking sector to fall was the reduction in provisions for bad loans and a fall in interest expenses. Bad loan provisions have fallen by more than 3 billion liras since the first quarter of the year.
This is thanks to the Turkish government’s Credit Guarantee Fund, which has enabled banks to restructure around 7 billion liras worth of loans. As for interest expenses, they were lower thanks to the sector’s increased borrowing and the fall in the LIBOR.
Growing Credit Card Receivables
Credit card receivables for the banking sector grew by 2 billion liras in the third quarter compared to the previous quarter. This is thanks to higher spending on credit cards and more businesses and individuals applying for credit cards. What’s more, credit card receivables have grown by more than 7 billion liras in the first nine months of the year.
This was thanks to increased spending, with credit card spending hitting a record high of more than 50 billion liras in the first three quarters of the year. Credit card spending increased by almost 15 billion liras in the first nine months of the year. Most of that extended credit card spending came from Turkish citizens, with the number of credit card holders increasing by 10 million people in the first nine months of the year.
What’s interesting is that the number of credit card holders who are employed in the private sector increased by 2 million people, while the number of credit card holders in the public sector fell by 6 million people.
Bank Mergers and Acquisitions
The Turkish banking sector saw mergers and acquisitions worth about 55 billion liras in the third quarter. This is the highest for any quarter in the last seven years. What will be interesting to see is if the banks involved in mergers and acquisition will be able to finish the deals. What’s more, the sector’s mergers and acquisition activity was also strong in the first nine months of the year.
Mergers and acquisitions worth more than 90 billion liras have been finalized since the beginning of the year. What drove mergers and acquisitions in the sector was banks’ desire to increase their size and scale in order to expand their businesses. What’s interesting is that the sector’s mergers and acquisitions activity spiked in July when 3 billion liras worth of mergers and acquisitions were finalized.
Conclusion
The banking sector’s profits hit a record high of 252 billion liras in the third quarter of this year. The sector’s earnings grew from 199 billion liras in the second quarter and 169 billion liras in the first quarter. This is thanks to strong lending, especially mortgage loans, and falling operating costs.
What will be interesting to see is how strong earnings in the sector continue and how high they can go. Strong lending, especially mortgage loans, and falling operating costs will continue to drive profits in the sector higher.