22 February 2005 -

Report Summary

Dışbank, 7.9% below than our estimation of YTL 115.6 million (US$ 86.5 million), disclosed a net profit of YTL 107.2 million (US$ 80.2 million) on its bank only 2004 year end balance sheet. Despite the announced operational profit is almost US$ 4 million better than our expectation, higher than expected monetary loss and lower than expected tax income (instead of tax provision due to the legal case won) resulted in a lower than expected net profit for Disbank.

Despite the total asset size of the bank narrowed by 2.3% in real terms in the last quarter of 2004 it grew by over 20% in real terms annually and reached to US$ 5,343 mn at the end of 2004. When analyzed separately, growth in YTL assets is 17% in real terms, while FX denominated assets expanded by 46% in USD terms.

However while loan volume was increasing the NPL ratio of the bank worsened and increased to 4.8% at the end of 2004. It was 3.6% at 2003 year end even decreased to 2.9% on June 2004. We first witnessed the increase on September 2004 balance sheet where it was 3.4%. Even the current level is not still a major concern, it seems that acquiring market share in any type of loans, but especially in the consumer loan market, damaged the loan quality of the bank. Beside that NPL provisioning declined to 70%, it is slightly above the 2003 level of 68.4%.

The declining trend of ROE and ROA in 2004 remained unchanged and these ratios declined to 11% and 1.6% respectively. They were 24% and 3.9% respectively at 2003 year end. It seems that even recording tax revenue, profitability of the bank is getting poorer.

With its current market capitalization of US$ 962 mn, Dışbank is traded with P/B of 1.30 and P/E of 11.99. Since the stock is overvalued regarding our target market capitalization that is US$ 680 mn, we maintain our "Hold" recommendation.

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