Turkiye Is Bankasi AS (IST:ISBTR) (Q3 2026) Earnings Call Highlights: Strong NIM Expansion and ...

Negative Points

• OpEx grew 57% year-on-year in the first nine months, with business development investments contributing 22.8 percentage points, raising efficiency concerns.

• Net NPL formation rate was 318 basis points in the quarter, with NPL ratio at 4.2% and further increases expected in 2027, especially from retail loans.

• Full-year fee growth guidance of around 40% may face downside risk, as nine-month growth was 33.1% due to slower lending-related fees.

• ROE guidance of 20% may not be fully achieved due to downside risks in OpEx and net fees and commissions, though an ROE above mid-teens is still expected.

• Sectors under stress include energy, labor-intensive industries, and trade-dependent businesses like textile and construction, which could pressure asset quality.

Q & A Highlights

Q: What are your preliminary macro expectations for 2027, and how do you see net interest margin (NIM) and cost of risk developing? A: Ebru Ozsuca (Senior Deputy CEO) expects disinflation to continue, with year-end 2026 CPI around 29-30% and a preliminary 2027 CPI expectation of 25%. She anticipates the policy rate will decline while still offering a real return on the Turkish lira. NIM is expected to widen gradually each quarter in 2027 from the 2026 exit level of around 4.45%. Mehmet Turk (CFO) added that cost of risk should remain around current levels of 233 basis points, comfortably below the below-250 bps guidance.

Q: How should we interpret nine-month fee growth versus the full-year target? Is 40% achievable, and how do you see fees evolving beyond this year? A: Mehmet Turk (CFO) noted fee income grew 33.1% in the first nine months, a strong performance with inflation below 30%, though slower than the 39.4% seen in the first half. The slowdown reflects selective lending and lower lending-related commissions. He flagged some downside risk to the full-year guidance but expects a pickup in lending activity toward year-end. Beyond 2026, the ambition is to keep fee growth above inflation into 2027.

Q: What is the exit NIM out of Q3, and how much expansion do you expect in Q4? A: Ebru Ozsuca (Senior Deputy CEO) said the exit NIM for Q3 was around 3.2% and is now approaching nearly 4%, supported by the CBRT's 100 bps rate cut in October and lower deposit costs. Projections point to a year-end exit NIM of around 4.5%, supporting the full-year NIM guidance.

Q: What is your lending approach and outlook, and what asset quality trends do you observe? A: Mehmet Turk (CFO) said existing loan growth limits make allocation of growth capacity important, with a degree of relaxation more probable than a broad removal in 2027. Lending margins have reached target levels; the bank will focus on SMEs and commercial lending rather than aggressive retail expansion, given cost of risk. NPL inflows come mainly from retail, with pressure persisting but within budget. He sees the NPL ratio rising modestly in 2027, with no NPL sale planned, and stress concentrated in energy, labor-intensive sectors, and trade-dependent businesses like textiles and construction.

Q: Are NPL ratios near their peak, and what segments are driving incremental inflows? A: Mehmet Turk (CFO) said the bank is not yet at the peak of NPLs, with an increase expected in 2027 while cost of risk stays around current levels. Inflows come from both retail and SME, but retail is higher and continuing at a rapid pace despite earlier expectations of a peak. The 4.2% NPL ratio is close to budget, and the bank expects to stay close to that by year-end, helped by higher Q4 lending growth.

Q: What is driving OpEx growth, and how do you see expense dynamics in Q4 and 2027? A: Mehmet Turk (CFO) said OpEx rose 57% in the first nine months, with 44% growth from HR and 67% from non-HR expenses. Q3 expenses declined 1% quarter-on-quarter. Much of the increase reflects first-half business development and customer acquisition investment, the bulk of which is complete. He expects a more controlled pace going forward and, for 2027, overall expenses staying below inflation.

Q: How are you thinking about your funding strategy over the next 12 months, and which wholesale funding instruments look most opportunistic? A: Ebru Ozsuca (Senior Deputy CEO) said instrument choice is driven by balance sheet requirements and relative funding economics. Options include Eurobond issuances, future flow transactions, bilateral facilities, trade loans, and syndicated term loans, to be used dynamically. With current fixed LCR levels, there is no imminent need for a specific funding structure, but the bank will monitor markets and consider all alternatives through 2027.

Q: Can you provide color on the capital impact of the IRB transition and capital sensitivity? A: Nilgun Osman (Head of IR and Sustainability) said the completion of the IRB transition in July had a positive effect of 140 to 230 bps on capital ratios. At end-September, the capital adequacy ratio rose to 17.2% and Tier 1 to 14.2%. Sensitivity of the CAR to a 10% TL depreciation is around 25 bps, and to a 100 bps TL rate increase around 5 bps.

Q: What is the outlook for the 20% ROE guidance given current trends? A: Nilgun Osman (Head of IR and Sustainability) said the revised NIM guidance looks largely achievable, but downside risks on OpEx and net fees and commissions may affect the ability to fully deliver the 20% ROE guidance. Nevertheless, an ROE above the mid-teen level remains achievable.

Q: How is the deposit base and funding mix evolving, and what does it mean for future loan growth? A: Nilgun Osman (Head of IR and Sustainability) said total deposits reached TRY3.5 trillion, reinforcing the bank's position as the largest private bank by deposits. TL deposits grew 2.8% quarter-on-quarter and 14.5% year-to-date, while FX deposits were flat. Demand deposits rose to 43.3% of total deposits, with TL demand at 62.2% and FX demand at 78%. Loan-to-deposit ratios stand at 76.7% overall, 87.5% for TL, and 62.8% for FX, leaving ample room to support future loan growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .