Turkish banks are unlikely to see a significant recovery in the value of their stocks anytime soon as the country continues to grapple with a currency crisis that sent bank share prices tumbling in 2021.
Five of Turkey's banks were among the worst-performing bank stocks in Europe in 2021, with government-owned lender Türkiye Vakiflar Bankasi Türk Anonim Ortakligi's stock losing 21.66% of its value, placing it second on the list of the 15 European bank stocks with the lowest total returns in the year, according to an analysis by S&P Global Market Intelligence. Türkiye Halk Bankasi AS also saw the value of its shares fall, by 17.63%.
Akbank TAS and Türkiye Is Bankasi AS registered share price returns of 8.91% and 9.80%, respectively, while Yapi ve Kredi Bankasi AS had a share price return of 14.63%, but these are still among the lowest in Europe. The top 15 best-performing bank stocks in 2021 were registering total returns ranging from 49.75% to 104.91%.
This comes as the lira lost nearly 50% of its value in 2021, as Turkey's central bank reduced its benchmark rate by 500 basis points in total after a series of actions in the second half. On Oct. 22, 2021, alone, the central bank made a 200 bps reduction in interest rates following President Recep Tayyip Erdoğan's dismissal of three central bank officials, a move seen as part of his efforts to push for further rate cuts. Erdoğan believes too high interest rates cause inflation to rise.
The lira further weakened against the U.S. dollar at the start of 2022, trading at 13.64 yesterday, compared to 13.20 at the end of December 2021.
The currency crisis has affected both government- and private-owned banks, with Lindsey Liddell — senior director, head of Turkish banks at Fitch Ratings — telling Market Intelligence that risks are significant for both state and private- or foreign-owned lenders given their exposure to operating environment risks.
"We consider the large state banks generally to have weaker loss-absorption capacity than private bank peers, although there is a record of regular capital support for state banks from the authorities," Liddell said.
Meanwhile, Dennis Shen — director, sovereign and public sector at Scope Ratings GmbH — said "there is still strength in the domestic banking system." "But, undoubtedly, as lira declines, bond yields rise and the operating environment deteriorates, [and] this has an evolving impact on the liquidity of banks with time," Shen added.
"There is already an ongoing 'bank run' on the sovereign occurring — as yields jump and foreign and domestic investors lose confidence in the governance framework," Shen said.