QNB Finansbank AS is seeking to outpace loan and deposit growth at other Turkish lenders next year on expectations that the government will extend a program to boost lending.
Qatar National Bank’s Turkish unit aims to grow loans and deposits by about 20 percent in 2018, Temel Guzeloglu, chief executive officer of the Istanbul-based lender said in an interview on Thursday. The industrywide average expected for next year is 15 percent, he said.
“You have to inject liquidity into an economy that suffers capital deficiency and the only way to do this through the banking sector,” Guzeloglu said. “We will try to overcome the high loan-to-deposit ratio issue through wholesale funding.”
President Recep Tayyip Erdogan has been calling on banks to lower interest rates to spur economic growth. Loan-to-deposit ratios are at a record high after lenders provided more than 200 billion liras ($52 billion) of loans this year under the government-backed initiative. Prime Minister Binali Yildirim said last month the fund will be permanent and will continue to revolve loans after the government initially said the limit for the fund would be 250 billion liras.
“It’s not easy to add more growth on top of this year’s high growth rates,” Guzeloglu said. “Our basic assumption for our 2018 targets is that loans under the Credit Guarantee Fund will be rolled over and loans used under the plan will be raised to 300 billion liras from 200 billion liras.”
QNB Finansbank this year borrowed around $1.5 billion from international markets through syndicated and securitized loans and plans to borrow about the same in 2018, Guzeloglu said.
“We may consider a Tier 2 issue in the first quarter of next year to comply with Basel III,” he said. “We don’t need a capital injection now, but we will monitor the market conditions and level of interest rates for a possible issue.”
QNB Finansbank’s capital adequacy ratio is 15 percent, while return on equity is expected to be 15 percent this year and slightly lower at 13-14 percent next year, he said.
“If we continue to grow at current paces, existing profits will not be able to cover that growth and may require either capital injection or sub-debt issuance,” Guzeloglu said. “We are not at that point yet, but if risk-free CGF program ends, capital need of the whole sector increases.”
Banking sector profits may take a hit from rising borrowing costs, Guzeloglu said, after Turkey’s central bank raised rates by about 450 basis points in 2017.
“I think rates will remain high to control inflation and the exchange rate,” he said. QNB Finansbank expects its net interest rate margin, including swap costs, to shrink to below 4 percent from 4.5 percent.
The bank has become more active in project financing after QNB, the Middle East’s largest lender by assets, bought Finansbank for $3 billion in cash from National Bank of Greece SA in 2015. QNB Finansbank has extended $2 billion to public-private partnership deals and infrastructure projects this year, Guzeloglu said.
“Our appetite has increased with our new shareholder because infrastructure is their core business,” he said, adding that the bank plans to lend a further $2 billion for project finance next year.