Garanti Bankası Earnings Call Highlights Profitable Growth

Turkiye Garanti Bankasi Anonim Sirketi 144A ((TKGZY)) has held its Q4 earnings call. Read on for the main highlights of the call.

Turkiye Garanti Bankasi Anonim Sirketi’s latest earnings call struck an overall upbeat tone, as strong profitability, expanding margins and a solid capital base outweighed tax one-offs and rising costs. Management acknowledged regulatory uncertainty and some asset-quality pressure, yet emphasized sustained core revenue growth and fee diversification as key supports for returns.

Strong Profitability and Returns

Garanti reported cumulative 2025 net income of TRY 111 billion, a 21% year-on-year increase that underscores resilient earnings power in a volatile macro backdrop. Full-year return on equity reached a robust 29%, and management noted that excluding a one-off tax impact in the fourth quarter, ROE would have been close to 30%.

Core Revenues Growing for Eighth Straight Quarter

Core banking revenues climbed to around TRY 300 billion and have now grown for eight consecutive quarters, highlighting the bank’s ability to generate recurring income. In the fourth quarter alone, core revenues rose 11% versus the prior quarter, supported by higher net interest income and resilient fee streams despite regulatory headwinds.

Accelerating TL Loan Growth and Market Share Gains

The bank’s Turkish lira loan book expanded to TRY 1.7 trillion, with 10% quarter-on-quarter growth in the fourth quarter and 45% for the full year, well above its initial operating-plan guidance. This rapid expansion translated into market share gains across key segments, particularly in retail and SME lending, positioning Garanti as a growth leader among private peers.

Deposit Strength Underpins Funding

Customer deposits surpassed TRY 3 trillion and now account for roughly 69% of total assets, underscoring a deep and stable funding base. Within that, TL deposit market share among private banks increased to 21%, while demand deposits represent about 41% of total deposits, helping to support margins and limit funding-cost pressure.

Net Interest Margin Recovery and NII Upside

Net interest margin recovered strongly in the fourth quarter, rising by 60 basis points to 5.4% as the balance sheet adjusted to higher rates and better pricing. Net interest income roughly doubled year-on-year even after swap costs, and management signaled room for further NIM expansion in 2026 if the macro environment follows their base-case assumptions.

Fee Income as a Key Growth Engine

Fee revenues jumped about 50% year-on-year, underpinned mainly by payment systems, where Garanti continues to leverage high transaction volumes and card usage. The bank also reinforced its leadership in money transfers and insurance distribution, while boosting its mutual fund market share to 11.6%, indicating an increasingly diversified fee portfolio.

Capital and Liquidity Provide Strategic Flexibility

Garanti closed the year with a consolidated CET1 ratio of 13.1% and total capital adequacy of 17.5%, both calculated without regulatory forbearance, leaving TRY 179 billion of excess capital. On the funding side, external debt stands at $9.8 billion, backed by a substantial $7.1 billion foreign-currency liquidity buffer that supports confidence in its balance-sheet resilience.

Wholesale Funding and ESG-Themed Issuances

In wholesale markets, the bank completed two new subordinated transactions this year, taking total such issuances to $2.45 billion over the last two years and further reinforcing capital. It also broke new ground by launching Turkey’s first Biodiversity and Blue-Themed Bond and securing a diversified syndicated loan, adding both tenor and investor diversity.

Tax One-Offs Weighed on Fourth Quarter

Fourth-quarter profitability was dented by tax-regulation-related effects that management highlighted as non-recurring in nature, obscuring the underlying operating momentum. Adjusting for these one-offs, the bank estimates that full-year ROE would have been closer to 30%, indicating that the core earnings trajectory remains intact.

Rising NPLs and Retail Credit Stress

The non-performing loan ratio inched up to 3.1%, broadly in line with expectations but reflecting growing strain in retail and credit card portfolios, which represented roughly 70% of net NPL inflows. Management pointed to credit-card-related delinquencies as a key driver and an area they are monitoring closely as household leverage and rates remain elevated.

Provisioning and Stage-2 Dynamics

Stage-2 loans held steady at about 10% of gross loans, but Stage-2 coverage declined to 9% overall, with higher 16% coverage on foreign-currency exposures, signaling a differentiated risk view. Net provisions increased in the fourth quarter in part because large one-off provision reversals seen earlier in the year did not repeat, moving cost of risk closer to more normal levels.

Operating Expenses Rising Faster Than Inflation

Operating expenses surged 67% in 2025, outpacing inflation, mainly due to wage adjustments, salary promotions and investments in customer acquisition and infrastructure. Management cautioned that cost growth is likely to remain above average inflation in 2026 as strategic investments continue, although they expect rising fees to cover the bulk of bank-only operating expenses.

CPI-Linkers Turn from Tailwind to Headwind

A higher CPI assumption of 32.9% in the valuation of inflation-linked securities resulted in a negative contribution from these instruments to NIM in the fourth quarter. Management quantified the quarter-on-quarter net impact at around minus 40 basis points on the margin, illustrating how inflation dynamics can temporarily weigh on reported profitability.

Regulatory and Macroprudential Headwinds

The bank flagged continued macroprudential and regulatory uncertainty, including loan growth caps, tighter FX lending rules and potential changes to interchange and credit card regulations. These measures, along with constraints on TL deposit ratios, can affect both volumes and pricing, and are seen as a key external risk to growth and fee income.

Guidance: Conservative Path to Real ROE

For 2026, management laid out a cautious but constructive plan anchored on inflation easing toward the mid-20s and a policy rate in the low 30s, alongside moderate GDP growth. They expect 30–35% TL loan growth, mid-single-digit FX growth, around 75 basis points of NIM expansion, fee growth of 30–35% and a normalized cost of risk at 2–2.5%, targeting a mid-single-digit positive real ROE with capital and liquidity remaining strong.

In sum, Garanti’s earnings call painted a picture of a bank leveraging strong capital, expanding margins and robust fee engines to navigate a challenging regulatory and macro backdrop. While rising costs, modest asset-quality pressure and tax one-offs temper near-term results, the underlying momentum and conservative guidance suggest the franchise is well positioned for sustained, if more measured, earnings growth.