The market valuation of Turkish banks is currently implying a cost of equity of 12% on average, which we find too low. Turkish risks – inflation, regulatory and political –, as well as global outlook warrant more conservative risk assumptions and hence require higher rate of return. Inflation itself should increase towards 9% mark in 1Q16 to factor in further weakness in currency. Our models factor in an average 14% COE, some 200bp above that implied by the market.