Dear friends, thank you all for joining our third quarter Earnings Call. I hope you are all well. This is Ebru speaking, the head of IR and sustainability. Today, I have with me Türker, our CFO, and Gülçe and Berchan from our IR team. Before moving on to Akbank's solid third quarter performance, we'd like to share a few words about the operating environment. Since last earnings call, global economic outlook has deteriorated. Higher than anticipated inflation, monetary policy tightening, and adverse repercussions of the war are weighing on growth prospects. World economy, particularly our main trading partners in Europe, is expected to slow down in the period ahead. As confirmed by the recently revised growth forecasts, the policymakers confront with an undesired trade-off between taming inflation and avoiding a hard landing economic activity.
Looking ahead, global environment is likely to become more challenging for consumers, businesses, and policymakers in the near term. Turning to our economy, we maintained a solid growth in the first half, averaging at 7.5% growth on annual basis. Strong credit impulse, robust export performance, and buoyant tourism season were the main drivers of growth. Unemployment rates came down to 9.6% on a seasonally adjusted basis in August. This is the lowest level observed since 2014. Nevertheless, as outlook becomes gloomier on the global front, the support of foreign demand may wane next year. Recent signals show that the economy started to lose momentum in the third quarter, mainly due to the slowdown in trade partners. The surge in natural gas prices inflates the import bill by driving energy imports to historically high levels.
On the other hand, we have good news coming from the service exports as tourism and transportation revenues have performed well beyond expectation. Winter tourism is also expected to remain vivid. Inflation remains elevated and continues to take a toll on purchasing power of consumers. Despite the recent easing of supply chain disruptions, exchange rate and energy price pass-through remains to be main pro-inflationary factors. While strong dollar and the ongoing war pose upside risks to the outlook, consumer inflation is expected to peak soon at around 85% before coming down significantly in December due to the base effect. Global slowdown and the associated decline in commodity prices are also expected to provide a partial relief in this high inflation environment. Before moving on to the bank's numbers, on this slide we have shared the recent trends in loan growth as well as the marginal market rates.
Now on to our bank. Our nine-month net income was up more than five times year-on-year to TRY 38.223 billion. We achieved an outstanding cumulative ROA of 5.6% and ROE of 51.5%. Our quarterly ROA and ROE were even higher at 6.7% and 59.6%. We have also further built capital during this quarter. Our total capital reached 19.3%, while our Core Equity Tier 1 was at 16.1% without any forbearances, with main contribution coming from internal capital generation, which is profit. Our sound solvency ratios will continue to provide the bank significant competitive advantage going forward. Contributors to this outstanding performance were across the board as guided, including our subsidiaries.
I would especially like to underline our significant momentum in customer acquisition, which reached 1.7 million year to date. This led for our swap adjusted CPI-excluded net interest income to surge by almost 180% year on year. Also, please note that the draft calculation for inflation-adjusted nine-month ROE stands at a high single digit. Let's now dive deeper into the numbers, starting with the balance sheet. Our TL loans were up around 54% year to date, reaching our full year guidance. As shared in several occasions, the bank's motivation at SME and consumer banking continues at full pace. This motivation has resulted in a successful 80 bps year to date market share gain among private banks in the SME segment. As a result, the biggest growth contribution in TL business banking came from the SME segment.
Our new organizational structure, which we implemented at the beginning of the year with a 360-degree customer focus, a comprehensive SME movement package which was designed to empower SMEs, continue to be supportive factors in this success. This year, we have also been active in small ticket variable loans such as CGF, granting around TRY 7 billion year to date. As for the consumer side, on top of the 160 bps market share gain last year, we gained another 40 bps market share year to date. Due to the global uncertainties, while growing, our focus remains on maturity mismatch, interest rate risk management, as well as asset quality evolution of the balance sheet.
In that respect, please note that 50% of our TL loan book will reprice or mature within the next six months, while most of the remaining by end of next year. As for the asset quality side, our analytical data indicates that the PDs or the probability of defaults of the portfolios remains at low levels while we are growing. Our net FX loans were down by around 9% year to date to $10.6 billion, which is in line with our shrinkage guidance. We continue to observe muted demand for foreign currency loans and do not expect an immediate change in this trend. Our Treasury's proactive positioning in CPI linkers continues to work as a hedge against higher inflation backdrop. Our CPI linker portfolio stands at TRY 99 billion, which is 78% of our equity and 70% of our TL securities.
Excluding the mark-to-market increase, year-to-date growth was at 22%. This positioning will help mitigate the negative impact of inflation accounting if or when implemented. Therefore, along with our solid customer base revenue growth, CPI linkers continue to be a supportive factor for NII. As for the newly implemented regulations, we had proactively bought more than TRY 10 billion worth of fixed-rate bonds around 19% levels at the June and July auctions. Our foreign currency securities, by the way, are down by 6% year-to-date, mainly due to the redemption of our Eurobond in September. I would also like to underline that thanks to our prudent ALM management, our Eurobond portfolio is fully hedged against Fed rate hikes. Now on to the funding side. We do maintain our focus on the well-diversified and disciplined funding mix.
Deposits continue to be our main source of funding at 63% of total liabilities. Our TL deposits were up by a solid 86%, resulting in an eye-catching 23 percentage points improvement in our TL LDR to 119%. Our sound customer franchise success in gaining 1.7 million net customers year-to-date, along with the new deposit scheme, were among the supportive factors. The new deposit scheme has reached over 56% of our TL time deposits. The renewal of the ones that matured was strong. Next renewals are mainly in November. Worth to mention that our sticky low-cost TL time deposits and zero cost demand deposits were also up by an outstanding 91% and 92% year-to-date respectively. All of these have been supportive factors for both our deposit maturity profile and cost.
Our foreign currency deposits on the other hand, were down by around 8% year-to-date in dollar terms, with our FX LDR remaining flattish year-to-date at around 46%. Our foreign currency liquidity remains as one of our strong muscles. Regarding the new regulations for the liability side, please note that we have reached the 20% threshold for both retail and commercial customers' foreign currency to TL deposits conversion, while we are very close to 50% TL deposit to total deposit ratio. Moving on to our wholesale funding side. We have a balanced funding profile. Our third quarter foreign currency LCR was robust at 478%, and our foreign currency liquidity buffer remains noteworthy at around $12.9 billion versus our next twelve-month rollovers of around $3 billion, indicating a liquidity buffer of more than four times.
Of the $3 billion due within the next 12 months, $1.4 billion are syndicated loans, and $500 million is a senior bond, which was repaid as planned and guided earlier this week on October 24. Please note that you are all aware that we are currently in the market for $670 million syndicated loan. It is again ESG-linked. First, as we always mention, we will pay back and then we will obviously borrow. We should be announcing the results quite soon. In addition, as usual, due to our ample FX liquidity and low foreign currency loan demand, we may monitor the capital markets on an opportunistic basis, subject to the market conditions, prioritizing such low funding while extending overall maturity. Now moving on to the P&L in more detail.
Our dynamic asset liability management, benign funding costs, ongoing asset yield pricing, as well as our strategic timely positioning in CPI linkers, have all contributed to our almost four percentage points year-to-date NIM improvement to 7.09%, which is in line with our full year guidance. Our second quarter NIM stands at 863 basis points. Our swap costs remained flattish quarter-on-quarter, while our CPI linker income was boosted due to our revised CPI assumption from 50% to 65%. Please note that our guidance for the full year is based on 65% October-to-October inflation assumption. Looking at the latest September inflation data of 83.5%, it seems conservative.
Every 1% inflation above 65 has TRY 430 million net income, six basis points NIM, and 40 basis points positive ROE impact on a yearly basis. On the commission revenue side, we further excelled our outstanding performance across the board of 20% quarter-on-quarter. The performance is well ahead of our guidance. Our fee income reached TRY 7.7 billion, up by 84% year-on-year when adjusted for the one-off LYY commission gain last year. As you can see on this slide, all businesses have positively contributed to the revenue base, indicating the sustainability of our fee generation. Reasons behind this accomplishment can be summarized as customer-oriented solutions leading to customer acquisition, product innovation and diversity, increased transactions, pricing due to either currency or inflation, and the success of our digital channels.
There is a lot of momentum across all business lines, as I mentioned earlier, including our subsidiaries, which solidifies our sustainable core revenue generation capability going forward. We maintained our momentum in customer acquisition as I shared several times, but I wanted to give it a bit more detail. We have added 1.7 million net active customers year-to-date. Our digital customers reached 8.3 million with all-time high penetration. Our monthly number of customers from which we collect commissions is at an all-time high, which solidifies our core revenue generation for the coming periods. Our digital strategy, which is based on our customer's journey, has been a key enabler for us to achieve record-breaking net customer growth for four consecutive quarters. One out of three new Akbank customer acquisition was realized through digital onboarding year-to-date.
Both our daily mobile users as well as our banking transactions are up by around 1.5 times on a year-on-year basis. Customer growth will continue to be reflected to our numbers. Challenges obviously remain on the OpEx side due to both high global inflationary pressures as well as past lower weaker currency. Still, our relatively low cost base versus peers gives the bank significant competitive advantage and a lot more flexibility, which can actually also be seen in our NINE-month cost to average assets ratio, which remains limited at 1.9%. With our solid revenue generation, cost to income ratio also remains at historically low levels of 18%. This level is obviously not sustainable in the long term. That being said, looking at our year-to-date performance, we will end the year significantly better than our revised cost to income ratio guidance.
Now on to asset quality. Our loan portfolio continues to perform well. Year-to-date, there hasn't been any net inflow to Stage two when excluded for currency impact. As you know, foreign currency provisions are hedged. Therefore, our Stage two has declined to 7.5% of gross loans, down 2.4 percentage points year-to-date. Repayment performance continues to remain solid. As for Stage three, the inflows were broad-based and collection performance remains robust. Our third quarter net NPL inflow was only at TRY 139 million, while our third quarter NPL write-off was also immaterial at only TRY 49 million. For fourth quarter, we do not expect a material increase in our NPL inflows, therefore we remain confident in our NPL guidance of below 4% for the year.
Our cost of credit evolution underlines our proactive provisioning as well as our healthy loan composition. We had model updates both in first quarter and second quarter, which had 12 basis points impact on our nine-month net cost of credit. We will consider another model update in the fourth quarter to reflect our updated macro assumptions. Solid repayments, especially ongoing strong collection performance, contribute positively to our cost of credit evolution. As a result, our 9-month cost of credit, excluding currency, has remained at a low 49 basis points, underlining the strong risk discipline through the cycle. Including currency impact, which we are hedged against, our net cost of credit would be at 78 basis points. Despite our solid loan growth, as well as improved collateral values, our coverage ratio for first quarter remains.
NPL Stage one remains flat, but has increased for both Stage two and also Stage three. We believe our significant provision build limits the need for additional provisions. As a result, we expect to end the year better than our full year guidance. Record high profitability also reflected onto capital position as our internal capital generation added 515 basis points to our total capital year-to-date. As a result, our total capital is up by almost 200 basis points year-to-date to 19.3%. Please note that this improvement was despite repayments of Q2 during first quarter, significant growth, and also the temporary risk weight increase applied to some loan types as per BRSA announcement. Adjusted for this risk weight increases, our capital would have actually been 170 basis points higher at an outstanding 21%.
Also, I would like to underline the eye-catching 320 basis points year-to-date improvement in our Tier one and Core Equity Tier one ratios to 16.1%. Our sound capital buffers serve as shield against unprecedented challenges and volatility and also create significant ammunition for sustainable profitable growth. On this slide, you may find a summary of our solid financial performance. I am very happy to share that we have outperformed on every metric except OpEx, which remains a challenge in higher inflation backdrop. Still, as I mentioned earlier, our low OpEx base and CPI linkers will also help on a relative basis. What to take away from this call?
Momentum across all business lines, including our subsidiaries, continue as we deploy our capital with sustainable profitability and focus, with the key drivers being accelerated customer acquisition, healthy market share gains in SME and consumer banking, proactive ALM with maturity mismatch and interest rate risk management, highest level of efficiency, well-built provision book, and very importantly, our robust capital buffers, which is by far the highest among peers. Before moving on to Q&A, I'd also like to share some latest developments on the ESG front. In line with our long-term commitments, we continue to support our customers, communities, and our people towards a more sustainable future. We provided TRY 40 billion sustainable finance this year, bringing us even closer to our long-term target of TRY 200 billion by 2030.
In line with market trends and needs of our customers, we have updated our sustainable finance framework to better integrate ESG into our lending and funding practices. We plan to announce our framework before the year end with an SPO from a third party. In line with our strategy regarding SMEs, in third quarter, we secured TRY 50 million from EBRD, the second tranche of the Turkey Women Business Program, reaching TRY 100 million in year to date. We remain committed to contributing to our ecosystem and communities, harnessing the power of technology while doing so. To share an example, we introduced audio support to empower our visually impaired customers in their access to our mobile and digital banking services. This feature was endorsed by BlindLook. Our digital platform for Akbank volunteers was also launched in third quarter.
In collaboration with AbilityPool, this platform will help our volunteers to participate in community projects more efficiently. Obviously, most importantly, or one of the most important pillars, climate change. The next milestone in fighting climate change will be to tackle the so-called inside out impact in a more systematic and quantitative way. In line with our commitment to become a net zero bank by 2050, we are focused to collect data from our customers to quantify our financed emissions. We'll be updating our stakeholders on the developments of our decarbonization journey in the coming quarters. Last but not least, our transparent and proactive approach in non-financial disclosures continues to improve our ESG ratings. I am very happy to share that we recently received a double upgrade from Refinitive for our ESG score to A.
This concludes our presentation, and now we are moving on to the Q&A. Please do raise your hand or type in your question in the Q&A box. For those of you joining us by telephone, please send your questions by email to investor.relations@akbank.com. The first question comes from Konstantin. Konstantin, I have unmuted you. Hi.
Yes. Hello. Thanks a lot for the presentation and for taking my questions. I had three questions that I wanted to ask. The first one, could you please comment how high do you see the risk around the rollovers of corporate FX-protected deposits in November? As you mentioned, many of these deposits would be maturing in November. I'm curious to, you know, to know, do you expect the majority of this to remain within the scheme? How high do you see the risk around this leaving? The second question that I had was that there was this recent regulation that restricted corporates with high FX cash holdings from accessing Turkish euro loans from local banks. This regulation has recently been tightened.
Previously you said that, if a corporate holds in excess of 10% of revenue assets, in FX cash, they are restricted from using these Turkish Euro loans. Now this regulation has been tightened. The threshold has been reduced to 5%. Do you see this, you know, tightening as material? What do you see with respect to the corporate behavior in response to this tightening in regulation? The last one, could you please comment what should we expect around the call of the dollar subordinated bonds early next year? Thanks a lot.
Okay, thank you. Türker, I believe the floor is yours.
Yeah. Hi, Konstantin. Thank you very much. Just start maybe with the last question. Regarding the call option which is coming due next April. As you may recall, actually, also this year in the first quarter, we had another call option and we exercised our option at that time. Actually, also, we know that the market practice actually and from both liquidity as well as capital perspective, we are in a very well position. We are in a very good position. Sure. Actually, we want to follow the market practice as we did in the past, but surely it will depend on the BRSA approvals, for which we will be applying next year. That's with regard to your third question.
With regard to the rollover, corporate FX protected deposits, yes, there may be some companies which may not prefer to roll it over because of their liquidity position, borrowing, et cetera. You know, also in July, actually, we have seen the first behavior of corporates and commercials. At that time, most of them have preferred to stay in this product. Also, as you know, the tax incentive for this product has been extended as well, very lately. Again, just to mention, still we see new inflows, maybe not at the same pace, but we still see some new inflows to this product by our commercial customers.
Therefore, actually, yes, there may be some of them who may not prefer to roll it over, but it will be important with regard to this 20% threshold of Central Bank. I think we will still be able to meet it because our current ratio is well above this minimum 20% requirement. That's what I can say on that side. With regard to the latest regulation, as you mentioned, this 5% net effect position. Actually, there are further regulations as well, as you know, with regard to corporate lending. Maybe we should look in the broad perspective. I don't think that it will make a major change compared to the current trends.
Already, lending activity on the corporate commercial side has slowed down. Also, you know, the latest fixed rate fixed bond reserve requirements also makes us to be very selective in our lending. We don't want to increase this portfolio too much. We want to keep it at the minimum level as much as we can. That's actually the overall situation.
Got it. Thanks a lot.
Thank you.
Okay. Thank you, Konstantin. The next question comes from Alan Wamberg. Alan?
Hi. Can you hear me?
Hi. Yes, yes, we hear you perfectly fine. Hello.
Great. A couple of questions, if I may. Firstly, could you talk a little bit about the performance and trends in TL loan yields and deposit costs across the third quarter? You know, in the context of these sort of ever-changing regulations and where you see that going, where you are now compared to where you were, say, at the beginning of the quarter. That would be helpful on that sort of core spread, you know, part of the P&L. When you talk about the lending, you know, on the corporate side slowing, I think, how closely linked is that to the sort of regulation?
I mean, has tightening regulation, you know, caused, you know, corporate lending to slow down across Q3? You know, or are we going to see a more sort of brutal slowdown, and presumably is the slowdown just focused on corporate, whereas on the retail, is it more stable? I'd like to understand better the dynamics there. Then the last question, I guess, was whether I mean, I appreciate that your risk experiences has been extremely good so far this year. Are there any areas where you have some concerns and where your sort of macro adjustments to the models are focused? Thank you.
Thank you, Alan.
Hi, Alan. This is Türker again. Maybe again to start with the third question. Maybe the expectations around asset quality. As you know, currently, as Ebru has also mentioned, the asset quality evolution is quite robust. It's also very understandable. You know, the economic activity on the ground is very strong. Funding costs for companies as well as for retail customers are quite favorable. Therefore, actually, we have to see how the coming periods will be evolving actually. Currently we are seeing some slowdown signals globally, in terms of economic growth. We have to see actually how this trend will continue in 2023.
Assuming that current economic activity in Turkey on the ground stays at similar levels. Again, it's a healthy economic growth. I think asset quality may stay at these levels. What may be the risk actually going forward, a scenario where economic slowdown increases further and stays for an extended period in place, and along with this trend, if we see also an increase in the borrowing costs for customers, surely it may have a negative impact on the asset quality trend in the coming periods. I think we won't see it in the very close future, because as I said, currently the funding cost for borrowers is quite favorable.
Therefore, actually, as long as they have the favorable costs and if this potential economic slowdown period does not stay for a very long period, I think it is still manageable. We'll see. What do we do as a for that for this potential risk? Even though actually the asset quality trend is quite positive and also the collateral values have improved significantly, we don't change actually our provisioning levels. Actually, we have even further increased our coverages for our existing portfolio. Surely in the fourth quarter towards the end of the year, we will again revisit our IFRS 9 models with regards to our macro parameters.
If needed, we will make further calibration at the end of the year to address these potential risks in the coming year. With regard to corporate and commercial loan yields and deposit evolution, surely there are some new dynamics in the system. One of them is actually this central bank regulation with regard to fixed rate bonds, actually puts a cap on the lending rates to corporates and commercial. We don't actually want to increase the fixed rate bond portfolio, and we want to actually, we don't want to increase our maturity mismatch. We don't want to take interest rate risks for the future. Therefore, actually, we are quite careful actually in our lending activity.
Refrain from lending in longer maturities because of this cap. Actually, we cannot price in the longer maturity interest rate cost into our prices. We are in this respect quite careful, and therefore, actually, currently we are seeing some evening in the lending rates. Maybe to put it into figures, the back book in commercial loans has a yield of roughly 23, 22%, whereas on the front book it's roughly at 18%-19% levels. Whereas on the consumer side, since we don't have this such a regulation, the back book is at roughly 22% levels, and front book is like 26% levels. The consumer portfolio is actually helping to reprice the loan book.
Surely there is an impact coming from the commercial side. On the deposit side, currently more than 50% of our TL time deposit base is comprising from this FX-protected deposit scheme, and it is linked again to the policy rate. Surely there is some positive contribution coming from there. For the remaining portion of time deposits, currently, actually we see some increases there also in the market. This is mainly due to the reason that maybe the most of the banks are trying to meet this 50% threshold with regard to this latest regulation change. Therefore, actually, while the back book on the TL time deposit is like at close to 17% front book is roughly at 16%.
To put it together, probably in the fourth quarter we may see some shrinkage in the core spreads. Loan-to-deposit core spread. But it is still manageable within the overall portfolio. Surely there will be some further positive contribution which will be coming from the CPI linker revaluation towards the end of the year. Maybe also to put it into net interest margin terms. You know, our nine months net interest margin is at 7.1% levels on a cumulative basis. Fourth quarter net interest margin is slightly below this cumulative rate, but doesn't deviate too much.
Probably also with the repricing of the CPI linker portfolio, we will beat our full year guidance of 7%, very significantly by the end of the year. With lending to corporates, actually already, because of these, since these regulation changes have been in place since July, August, actually, there was a previous regulation. Now this regulation has been changed, with regard to fixed rate bond requirement. Previously we were holding it as liquidity at the central bank. Already actually, since maybe end of July, we are observing this slowdown in corporate commercial lending. This similar trend is continuing in the fourth quarter, actually.
Maybe it's when I compare fourth quarter trends to the second half of third quarter trends, it are mostly at similar levels.
That's very comprehensive. Thank you very much.
You're welcome, Alan.
Thank you, Alan. Yes. Okay, Pinar. Hello, Pinar?
Okay.
Okay. Someone had their hand up, but they removed it. I cannot.
Okay. Maybe the question was already answered.
Maybe. Maybe it was. Okay.
Okay.
All right. Oh, okay. There are two more questions coming. Okay, Pinar, the next question comes from Pinar Uguroglu.
Okay. Yes.
Hi.
Hello. Hi. Can you hear me well?
Yes, we can hear you perfectly well.
Yeah.
Go ahead please.
Thank you very much. Just one sort of detail question on my side. In terms of the recent regulation change and or the obligation, let's put it that way. Where do you stand on your retail deposit to portfolio in terms of Turkish lira to FX? Are you close to 50% benchmark on the retail side? I think you're very close and on the institutional side, but I wonder where do you stand on the retail side? We see that your Turkish lira security book has expanded. Shall we expect more bond buying in the fourth quarter of the year? In the fourth quarter, how much more you should buy given the recent changes?
Hi Pınar then. This is Türker again.
Okay.
Yes, actually, both on corporate and retail side, we are very close to 50% threshold. As Ebru has mentioned, we have already made 20% threshold, at least regulation change. By the end of third quarter, actually, these fixed rate bonds were making up roughly 1% of our total assets size. Assuming we meet and we keep this 50% threshold, the maximum requirement, actually. Therefore, actually, because this latest regulation has been just announced, we may still need to buy some fixed rate bonds in the fourth quarter as well. Again, it's very low levels. Probably at the end or so, the final picture will be roughly 2% of the total assets size.
Thank you very much.
Yeah.
One last question regarding the inflation accounting. Would you announce anything with regards to the IFRS-adjusted financials, which would include inflation accounting? I might have been missing it if you have already done it, but.
Actually, we have just given an indication in our presentation for this third quarter. Inflation-adjusted ROE, this is the result, is high single digits. We are still working actually on this transformation. We are very close, but we are also in close contact with our independent auditor, with other participants in the markets. Because, you know, there are too much detail behind this, and we want to really apply it in the most correct actually manner. Once it's finalized, we will also share further detail with you.
Thank you very much.
So far nothing has been published.
Thank you.
You're welcome.
Thank you, Pinar. The next question comes from Sadettin. Hi, Sadettin.
Hi. I think you can hear me now.
Yes.
Thanks for the presentation. I have two questions. The first one is on possible dividend payment out of 2022 earnings. Türker bey, do you have any concerns paying out, let's say 10%-15% of dividend payout ratio? Because the Core Equity Tier one ratio is pretty high, around 20% level. I ask this question regarding the inflation accounting, actually. If it happens, what may happen on the dividend side, your view, I mean. And if inflation accounting is not applied, what is your view? The second question is, probably I missed your point about the fourth quarter core operating margin outlook, excluding the CPI linkers impact. How should we see the core operating margin in the fourth quarter versus the third one?
Thank you.
Yeah. Hi, Sadettin bey. With regards to dividends payouts, you know, always, actually, we apply for BRSA's permission at the beginning of the year. You know, last year, actually, we were more optimistic actually, to be honest with you, and we were aiming a higher payout ratio, maybe similar to our past ratios, like 20%-25% levels. At the end of the day, we had, but the permission was at 10%. Surely next year we'll again aim to increase this payout, maybe to levels as we had in the past. Surely it will again depend on BRSA's approval.
Since actually in local accounting standards, inflation accounting is not applied actually, I think BRSA will again take into consideration the existing published financials, I think. With regard to the core spread evolution excluding CPI linker impact, when we look at the latest net interest margin, NIM trends actually in the fourth quarter so far, these are slightly like maybe 50, 60 basis points lower than the third quarter. This is mainly due to the fact that these regulation changes actually are limiting our pricing on the loan portfolio side. On the deposit side, yes, FX deposit scheme is quite favorable in terms of funding cost, which makes up more than 50% of our deposit base.
Surely, currently, because of the 50% requirements, we see some increase in the Tier 1 deposit cost for the portion excluding FX deposit scheme. Also not to forget, also, FX deposit cost is evolving at a very low level. Actually, I missed that portion actually. Sorry. When I look at the back book and front book, comparison of our FX deposit. Back book is at roughly 2%, 2.5% levels, and front book is like at 1% levels. So there will be some positive contribution which will be coming from the FX balance sheet side.
Surely, on the TL side, we see the impact of the regulation change, which is putting some pressure, but not very material, on the net interest margin.
Thank you very much, Türker. Thanks, everyone.
You are welcome. We have one, also a written question that is coming from TCW, from Javier. Thank you for your presentation. He's listening by phone. Could you please give us an update of your TRY 660 million equivalent syndicated loan? What amount do you expect to raise, closing date? Türker.
Okay. Actually, there was some news today. Actually, we are just in the signing process. Once it's financed, actually, we will make our public disclosure. As we have mentioned in our previous meetings and previous calls actually, the FX liquidity of the bank is quite strong. New FX asset generation capacity in the system is also quite low actually. Which you can also see from the FX loan growth trends in the system. There is a successive deleveraging in the FX asset side of Akbank, mainly led by FX loans. Also on top of it, not to forget actually, we should also look from the cost perspective as well.
The cost of FX wholesale funding has been increasing, especially for the last one year actually. Taking all of these into consideration actually, we wanted to be very actually cautious in this sense, and we wanted to manage also our costs. Therefore actually, the rollover ratio of this syndication will be roughly at 60% levels, with a cost of SOFR plus 4.25% for dollar side. For Euribor, for euro side, Euribor plus 4.4%. If I just repeat, once the signature process is finalized, we will make the public disclosure as well.
Thank you. Cihan raised his hand. Cihan, the floor is yours.
Cihan.
Hi.
Hello.
Hi.
Couple of confirmations I need from you. One is, you just said that the rollover ratio for this syndication is going to be about 60%. Did I hear you correctly?
Yes, 60%. Right.
For core spread as an answer to Sadettin's question, you said 50-60 basis points compression. Is that right?
On the net interest margin side. Which is what we are seeing very lately. Yes.
Okay. One last thing.
Cihan also maybe we have to see actually how the coming period will be evolving. You know, this regulation change which I've announced last week is quite new. We have to see how it will impact the pricing in the markets for TL time deposits excluding FX-protected deposit scheme.
Okay. Would that risk be on the upside or the downside for the spread?
Maybe some downsides, you know. If really this pricing on that side gets so increases TL deposit rates above current levels, it may create some downside. You know, since we are actually maybe when talking for this year, actually it doesn't pose a risk into our full year guidance.
One last thing or two final questions from my side.
Yes.
One is you said that the front yield on the commercial loans are now 18%-19%.
Yeah.
The front yield on the TL deposits is 16%. Are these numbers before the last rate cut or after the last rate cut?
After last rate cut. Surely we have to see actually how this shall evolve in the coming days. You know, the rollover of especially corporate FX deposit scheme will be happening in November, so which may bring down the cost on that side. Whereas on the commercial lending side, the new reference rates have just been announced, so this may also negatively impact lending rates starting from next week.
Okay. Thank you very much. Final question is about the credit card loans. There is a 17% or so increase on a quarter-on-quarter basis in credit card balances. So I wonder how you think that will continue in the fourth quarter and probably also in the first quarter of next year. Because the cap rate for those loans, the cash withdrawals, et cetera, is also going down. So should we expect this momentum, growth momentum in credit cards to continue?
Yes, that indicates actually. Also we see similar trend in the fourth quarter. Probably currently, you know, from the experience we have also actually in our daily life, most of the customers are actually preferring to use their credit cards.
Okay.
It will also.
Thank you very much. Thank you.
It also led to the economic activity trend actually in the coming period and the consumer consumption behavior. You're welcome.
Thank you to Türker for the call.
You're welcome. Thank you.
Thank you.
Okay. Thank you, Cihan. There's a question regarding our capital level and the currency impact on the capital from Vinod. It says, sensitivity of the capital to FX effects. What FX exchange rate levels are you comfortable with currently with the capital buffer?
I think our sensitivity of 10% TL depreciation is at 70 basis points. You know, with a further increase in the depreciation actually this sensitivity is showing a decreasing trend. It doesn't stay stable at 70 basis points level. Since also we are starting to get from a very high level of capital that actually ends results of 70 basis points. Actually, I haven't made this calculation roughly, but we are running some internal stress scenarios with some interest rate shocks and depreciation shocks, different scenarios. In all these scenarios, our capital is at very healthy levels, well above the minimum requirements. That's what I can say.
Okay. Thank you.
Thank you.
We have one question from Zeno. Could you please identify Zeno?
Yes. Hello.
Hi. Hi. Could you please identify your company?
Yes. Finance in Motion. German asset manager.
Okay.
Can I go on?
Yes, please go ahead.
Just a very quick question. You mentioned before about high collateral values. My question is, if you expect collateral values to decline drastically in case of an economic contraction, given that collateral values might be indeed inflated by high loan growth and high credit growth. Thank you.
Hi, Zeno. As we have actually mentioned, yes, we are seeing and also, it's also partially inflation driven. This year we have seen a significant appreciation in asset prices. Despite that fact, actually, we have kept our provision levels at existing levels. We haven't said actually, "Yes, there is a significant improvement in our collateral value, and let's make some reversal." We haven't done this. We continue to book further provisions to our portfolio.
Yes. Actually, that's something that's quite important to underline maybe. Because if you look at, for example, the provision build, it's actually increased. The total provision build, which actually excludes our free provisions, has increased since the end of the year. This is a result of the bank's prudent basically risk management. As I mentioned also, and Türker reiterated, in the fourth quarter, we could do another a further basically macro update if we see necessary for the upcoming ahead of the upcoming year, Zeno.
Okay. Thank you so much.
You're welcome.
You're welcome. I guess there are no further questions. Is there? Gizem Eraslan is asking a question. Yes, Gizem. Please go ahead.
I guess there's a mistake. I wasn't asking a question. Apologies.
Okay. No worries at all.
No worries.
All right. Okay.
Thank you.
All right. Thank you all for attending our call. Once again, we are here at your disposal if you need any, you know, further assistance or if anybody any further questions. Hope you all keep well, and really look forward to seeing you all soon. Take care. Bye-bye.
Thank you very much. Bye-bye.