Garanti BBVA's Resilience and Growth Amid NIM Pressures in Q2 2025

In Q2 2025, Garanti BBVA navigated a challenging macroeconomic environment in Turkey with a blend of strategic capital management and digital innovation, positioning itself as a standout performer in a sector grappling with net interest margin (NIM) compression. Despite a cost of risk of 164 basis points and elevated impairments, the bank reported a net profit of EUR 412 million, underscoring its resilience. This analysis explores how Garanti BBVA's disciplined capital strategies and digital-led customer retention efforts are enabling it to outperform peers in a high-interest-rate climate.

Strategic Capital Management: A Pillar of Resilience

Garanti BBVA's capital position remains robust, with a CET1 ratio of 12.6% and a total capital adequacy ratio of 15.6% in Q2 2025—well above the regulatory minimum of 12.16%. The bank's proactive approach to capital optimization includes leveraging synthetic securitizations and Significant Risk Transfer (SRT) transactions, which reduce risk-weighted assets (RWAs) by 80–90% while retaining economic exposure. For instance, a €314 million re-performing loan sale to One William Street Capital and the €2.5 billion BBVA Vela Consumer 2025-1 securitization deal exemplify its ability to free up capital for higher-margin opportunities.

The bank's recent $500 million subordinated bond issuance in July 2025—oversubscribed fourfold—further strengthens its capital base. This liquidity, combined with a full rollover of its sustainability-linked syndicated loan in June, demonstrates Garanti BBVA's credibility in international markets. These actions align with BBVA's broader capital-light model, which has unlocked 40–50 basis points of CET1 through operational efficiency and model simplification.

Navigating NIM Pressures with Prudence

Garanti BBVA's NIM trajectory reflects the headwinds of tighter monetary conditions. While the bank acknowledged a potential downside risk to its NIM guidance, it expects a slight improvement in Q3 2025, with NIM projected to stabilize at ~7% by year-end. This resilience stems from proactive loan portfolio management, including the sale of non-performing loans (NPLs) and early recognition of impaired assets. For example, a TL 260 million NPL portfolio was sold for TL 18.4 million in 2019, a strategy that continues to optimize balance sheet efficiency.

The bank's ability to absorb disinflationary pressures is bolstered by its high return on equity (ROE) and efficient margin management. While sector peers face NIM erosion due to falling interest rates, Garanti BBVA's disciplined cost and risk management—reflected in a group-level efficiency ratio of 37.6%—position it to maintain profitability.

Digital-Driven Customer Retention: A Competitive Edge

Garanti BBVA's digital transformation has been a game-changer in retaining customers and driving growth. Nearly all transactions (98%) now occur via non-branch channels, with 86% of product sales completed digitally. The redesigned Garanti BBVA Mobile app serves 17 million active users, offering real-time financial advice and AI-powered personalization.

The AI assistant “UGI,” leveraging large language model (LLM) technology, handled 63 million customer interactions in the past year, enhancing satisfaction and loyalty. Features like “Smart Transactions” (e.g., “Regular Deposit Order” and “Spend & Save”) automate savings and reduce the effort required for daily financial management, fostering long-term engagement.

The launch of the “My Banker” unit—a first in Turkey—extends personalized, remote banking services to SMEs and commercial clients, deepening relationships with high-margin segments. This innovation, coupled with an inflation-indexed loan product and a TLREF-indexed financing bill, reinforces Garanti BBVA's leadership in digital banking.

Investment Implications

Garanti BBVA's dual focus on capital resilience and digital innovation creates a compelling case for investors. Its strong CET1 position and proactive risk management mitigate vulnerabilities in Turkey's volatile economic environment. Meanwhile, digital-led customer retention ensures steady revenue streams, even as NIM pressures persist.

For long-term investors, the bank's alignment with BBVA's broader capital return plan (€36 billion in shareholder returns over four years) and its ESG-driven initiatives (€63 billion mobilized in green and social projects in H1 2025) add layers of sustainability and growth potential. While short-term NIM challenges remain, the bank's strategic agility and digital-first approach suggest a path to outperforming sector peers.

Final Verdict: Garanti BBVA's combination of robust capital management, NIM resilience, and digital leadership makes it a defensive yet growth-oriented play in the Turkish banking sector. Investors seeking exposure to a bank with a proven ability to adapt to macroeconomic headwinds should consider a long-term position.