On Monday, JPMorgan issued a rating downgrade for Turkiye Garanti Bankasi AS (IS:GARAN:TI) (OTC: TKGBY) stock, shifting its stance from Overweight to Neutral. The investment firm also set a price target for the bank's shares at TRY172.00. The downgrade comes despite the bank's strong management performance, which has resulted in a notably smaller decline in its net interest margin (NIM) compared to peers, leading to the highest return on tangible equity (ROTE) among its competitors in the 9M24 period.
Garanti Bank's earnings have diverged positively from its peers, with the bank achieving a 32% ROTE versus an 18% average for other banks covered by JPMorgan. This success is attributed to the bank's effective balance sheet management in the current economic cycle. Furthermore, Garanti Bank is the only Turkish bank projected to meet its initial full-year 2024 guidance without the need for subsequent downgrades.
JPMorgan analysts project that Garanti's earnings momentum will continue to outperform that of its peers in the near term. However, they expect the performance gap to narrow in the coming quarters due to the bank's balance sheet being less sensitive to interest rate changes. The analysts acknowledge that Garanti's exceptional operational performance, reflecting the management's commercial acumen, should be a key factor in considering the bank's investment case and could justify a premium valuation relative to its peers.
Despite the positive outlook on the bank's operational performance, JPMorgan's downgrade is based on the stock's significant outperformance in comparison to the index, with Garanti Bank's shares having surged by 110% versus the index's 66% increase in 2024. With the current price target representing a limited 34% nominal upside, JPMorgan has adjusted its recommendation to reflect the limited growth potential at the current valuation.
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