Dear friends, thank you all for joining us. I hope that you, your loved ones are all well, and I wish you a healthy, prosperous, and happy New Year. We are very excited to be hosting our full- year 2021 earnings, along with our 2022 guidance, where our CEO Hakan Binbaşgil and CFO Türker Tunalı will be sharing the strategy behind the numbers. After which, we'll be more than happy to answer all your questions. Before we move on to the bank's solid performance, Hakan Bey, would you like to share a few thoughts?
Ebru, thank you very much. Hi, everybody. I'm very happy to be with you as usual, and I hope that you, your families, colleagues, and loved ones are all doing well. Obviously, we are going through challenging times, globally and also locally. Despite all these challenges, I have to say that we have very good news from Akbank. First of all, we ended the year on a very strong note. Our robust performance was driven by very strong organic growth, where every business contributed significantly, outstanding balance sheet management, and state-of-the-art infrastructure. Secondly, we excellently positioned the bank for strong financial results in the coming years. Third, but not the least, we also did not forget to invest in our future.
I'm proud to say that today, Akbank, with its infrastructure, digital and analytical capabilities, people, culture, mindset, and customer-focused organization, is the most ready bank to smoothly weave through the challenges of the new era. Before leaving the floor to Ebru, I'd like to express my sincere gratitude to all our people for rising to challenges and being a source of strength. I also would like to thank all our stakeholders for their consistent trust and confidence in us. After the presentation, I'll be very happy to answer your questions. Ebru, stage is yours.
Thank you very much, Hakan Bey. Before diving deep, let's start off with a summary of the performance. We achieved an all-time high net income of TRY 12.127 billion for the full-y ear, delivering almost 100% year-on-year growth. We set aside additional TRY 250 million free provisions in the last quarter. Our last year's ROE came in at 17.9%, while the quarter alone was very robust at 26.2%. Adjusted for free provisions, our ROE has reached 18.2% for the year, well ahead of our guidance. For this year, our focus will continue to remain on healthy, profitable growth and customer acquisition, while sustainability remains at the heart of our strategy as we aim to mitigate environmental footprint and increase positive impact.
Let's now dive deeper into our main contributors of the fourth quarter. Our TL loan growth has been strong with 30% year-on-year growth, exceeding our full- year guidance. Consecutive market share gains in consumer loans has reached 160 basis points, thanks to our strong momentum and customer acquisition. Market share gains in consumer segment were across the board: 175 basis points in GPLs, 120 basis points in mortgages, and 70 basis points in autos. The market share gains in these segments were totally in line with our ambition. TL business loans also gained pace in the second half of the year, following heavy redemptions at first half, up 24% year-on-year with 30 basis points market share gain. In business banking, significant contribution in growth came in from SME banking.
As a result, we are very happy to have delivered on our strategy of consumer and SME-driven TL loan growth, which was shared at the beginning of last year. For this year, we expect to grow a further 30% in TL loans, which will once again be driven by consumer and SME. Our new organization structure, as well as recently launched comprehensive SME movement package designed to empower the SMEs, will be a supportive factors in this growth. Our net FX loans contracted by 5.6% year-on-year versus end of last year. We still observe muted demand for investment loans. Also, given volatile currency environment, we do not expect imminent change to this trend, which is actually in line with our flattish foreign currency loan growth guidance of this year.
We feel comfortable with our delevered foreign currency book as we have taken several actions to mitigate the foreign currency risk. On to the securities slide. On this slide, you may find the details of our strategic positioning in the CPI linker portfolio. This positioning works as hedge in the higher than expected inflation backdrop. As you can see, year-to-date increases in TL securities mostly took place in CPI linkers, which are now 69% of the total. While linker plus floating equates to 82% of our TL securities. We increased the CPI portfolio in a very timely manner with real yields around 3%. This portfolio now equates to TRY 56 billion, which is almost 75% of total equity. In fourth quarter last year, we updated our CPI valuation with an actual October CPI of 19.9 versus 17% of the nine months.
This adjustment elevated our CPI linker income during the quarter. At the beginning of this year, we further increased our CPI linker portfolio. Our 2022 guidance for October to October CPI linker valuation estimate is at 30%. Every additional 1% CPI will have around TRY 420 million net income, six basis points NIM and 50 basis points ROE impact based on 2022 expected average equity. Onto our wholesale funding slide. In a very volatile year, we maintained our focus on well-diversified and disciplined funding mix. Deposits continued to be our main source of funding as they were up by 55% year-on-year and TRY 455 billion, equating to 60% of total liabilities. Our TL deposits were up strongly by 40%.
Demand deposits were also up by a stellar 78% year-on-year, increasing its share in total by 5 percentage points to 36%. Our TL LDR stood at 142% with a significant 11 percentage points improvement versus end of last year or the previous year, actually, 2020. Despite dollarization reaching all-time high level during the year, this actually underlines our strong customer franchise. Our foreign currency deposits, on the other hand, were down by 9% in dollar terms. However, our sound foreign currency liquidity with an FX LDR of 47% remains one of our strong muscles. As a result, our total LDR ended the year at a low level of 86%, which is once again significantly below the sectors. On to the next slide.
On the wholesale funding side of the story, we kept our balanced funding profile with very robust foreign currency liquidity. Our fourth quarter average foreign currency LCR was solid at 364%, and our foreign currency liquidity buffer was noteworthy at $12.6 billion versus our next 12 month rollovers at $2.7 billion, of which actually $1.4 billion are syndicated loans. Due to our ample FX liquidity and low foreign currency loan demand, we will continue to be opportunistic in our borrowing strategies, prioritizing sustainable funding while extending overall maturity. When we look at our NIM performance, the bank was challenged by the elevated funding costs during the majority of the year.
While some of the impact was compensated by successful positioning of CPI linkers and also dynamic, obviously, asset liability management. The performance improved in the second half, also evident in fourth quarter with a strong support from CPI linkers as well as core spreads. In the fourth quarter, NII impact of the CPI adjustment was TRY 1.3 billion with 74 basis points NIM impact. Definitely the strategic positioning of our CPI linkers has paid off. However, also worth to note that our CPI normalized quarterly NII growth was still stellar at 24%. Going forward, we expect around 150 basis points improvement in cost-adjusted NIM supported by asset repricing, our significant margin-accretive TL, the TRY 56 billion CPI linker portfolio, as well as our solid customer deposit franchise.
On the commission revenue side, we had an outstanding performance across the board, ending the year much better than guided with a solid 34% year-on-year growth. As you can see on the slide, all businesses have positively contributed to the revenue base, indicating the sustainability of our fee generation. I would like to especially mention Ak Portföy, our asset management company, which once again did a fantastic job and became number one in total AUM last year, among, basically the privately owned, asset management companies. With the product innovation that they have done, which is supported by digital capabilities and customer-oriented solutions, providing our customers a wide range of investment products. This year, we expect once again fee growth to be strong with over 35% year-on-year growth.
We are very well positioned to serve our customers through our digital channels with simplified processes and increased product availability. Effective cost management remained our strong muscle as our full- year OpEx growth resulted in around average inflation despite unprecedented currency volatility. We continue to have a low cost base, which gives the bank a lot of flexibility, especially in higher inflation backdrop. This year will be a challenging year due to higher global inflationary pressure as well as pass through a weaker currency of last quarter. We expect OpEx growth to be in line with average inflation. However, revenues are expected to grow much higher than costs, resulting in improvements in cost income ratio below 33%. Moving on to asset quality. Our proactive IFRS 9 implementation, despite the forbearances, has proven to be effective. Please note that all staging forbearances have ended.
Therefore, going forward, it will be easier to follow the staging trends. Our prudent approach throughout the years in staging resulted in limited influence to stage two when excluded for currency impact. Also, collection performance remained very robust. As for stage three, we had TRY 1.4 billion write-off during the quarter with 35 basis points NPL impact. This had actually a material impact on our P&L because of our strong coverage. This year, since we have taken necessary actions on all major files, we believe there won't be a material increase in NPL inflows, therefore expect our NPL ratio to be around 4%. Finally, yet importantly, our net cost of credit evolution has fared much better than guided, thanks to our strong risk discipline throughout the cycle, as well as the strong economic activity, obviously, within Turkey.
BRSA staging forbearances and payment deferral schemes have ended in fourth quarter with limited effect on our cost of credit. This is thanks to our prudent provisioning policy regardless of any forbearances. We ended the year with 106 basis points net cost of credit, including currency. Majority of this came from currency weakness. Excluding the currency impact, our net cost of credit was only at 44 basis points. In fourth quarter, as I mentioned earlier, we booked additional TRY 250 million of free provisions, bringing the total amount to TRY 1.4 billion. Our collection performance from retail, corporate, and commercial customer base also remained quite strong. The slight decline in stage two coverage is due to some files with high coverage ratios moving into stage three.
Adjusted for the 1.4 billion TRY NPL write-off, our stage three coverage would be almost 68%. This year, our coverage ratios are expected to remain around the current levels. Also, we expect our net cost of credit, excluding currency, to be around 100 bps. Our significant provision build and solid increases in collateral values will limit the need for additional provisions. Strong profitability has also reflected itself to the capital position as our internal capital generation partially offset the high currency volatility of the final quarter. Our solvency ratios without the BRSA forbearances actually remain well above regulatory limits at 17.2% total capital and 12.9% Tier 1 and core equity Tier 1. Regulatory ratios are also much higher with CAR at 21.1 and Tier 1 and core equity Tier 1 at 16.2.
Solid capital buffers will serve as a shield against unprecedented challenges and volatility and also create ammunition for sustainable profitable growth. On this slide, you may find a summary of our last year's solid results. Let's just basically move quickly on to the next slide. Throughout the presentation, I have also shared this year's guidance. Just to reiterate, we expect 30% TL loan growth led by consumer and SME, while FX loans are expected to remain flattish. Our swap-adjusted NIM is expected to further improve by around 150 basis points. Our fee growth is again guided to be robust with growth over 35%. Our OpEx is expected to remain around average inflation, and these will all result in improving our cost of income ratio to below 33%.
As for asset quality, our NPL ratio is expected to improve to around 4%, while our net cost of credit, excluding currency impact, is expected to be around 100 basis points. All these will obviously result in significantly improved profitability with an ROE of around 30%. Let's now move on to the strategy behind the numbers. Hakan Binbaşgil Bey, you mentioned at the beginning that we ended last year on a very strong note. As promised, we gained consistent market share in areas we targeted to grow, i.e., consumer and SME, along with the accelerated digital engagement and customer acquisition, leading to sustainable higher profitability. Our resilience and years of investments in digital have enabled us to support our customers while managing risks during unprecedented times.
On top of all of last year's robust growth figures and market share gains, we are now once again guiding for 30% TL loan growth this year. Taking into consideration all the headwinds globally, where and how will we achieve this?
Thank you, Ebru. I think this is a very good question. First of all, last year, as you rightly said, we had a great momentum. We had an exceptional growth. As you said, when you look at some of the market share gains, like 160 basis in consumer loans, 175 basis in GPL, 60 basis in business loans, I think these are just remarkable figures in just, you know, 12 months. When you look at the number of customer acquisitions last year, we acquired roughly 1.7 million customers. 1.7 million customers, and roughly one third of it happened during the last quarter. Obviously, there was a lot of contribution coming from the digital.
When you look at our sales, roughly 84% of our GPL sales are coming from the digital channels, around 52% of new credit card sales, and about 53% of bank insurance sales. These are really coming from the digital channels. There's a great contribution. On top of this, actually, as we all remember, at the beginning of May, this digital onboarding became available in the system. Akbank actually did extremely well. Last year, 20% of our new customer acquisition came from that channel. Towards the end of the year, that percentage has even increased. Looking forward, I'm really very positive about the growth potential. But last but not the least, one thing that I would like to mention is our SME digitization project.
We spent like almost two years on this. When you look at the banks in Turkey, there are some very sophisticated banks in terms of digital capability and so on. Also globally, there are some very sophisticated digital banks. But somehow, for some reason, usually banks are excellent on the consumer banking side. Some banks are excellent on the consumer banking side, but SME is, for some reason, somewhat forgotten. Akbank has been trying to reverse this. We made significant effort in this, and we launched this SME new platform as of this January, actually, this month. I think this is a first of its kind in Turkey. It is end-to-end seamless, actually, experience for the SMEs. But not only in banking products, there are some actually financial management services as well.
Like, we are providing lots of insights. We are actually connecting those SMEs to different platforms, HR solutions, e-commerce platforms, accounting systems. On top of this, actually, I also have to add that besides empowering SMEs, there is this ESG element as well, inclusion. We made it easier for SMEs in Turkey to bank with us. I think this is also extremely important. We also created this Akbank Transformation Academy, where there's a lot of training, seminars, networking, facilities, and so on. This ESG element is also something, I guess, valuable looking forward. I have lots of expectations. I think this is another differentiation area for Akbank. When we add all these together, the momentum, the capability of the bank, the strong financials, infrastructure, people, et cetera.
This year, I think, we will continue with that growth. This 30% seems to be relatively, let me say, easy for us. It can be done.
Yes, you talked about the SME side, and obviously, there was an important reshuffling in our organization very recently. Maybe you'd like to share the details on that and what was the rationale behind that.
You are referring to the retail organization, I understand.
Yes, exactly. Mm-hmm.
We divided the retail banking into two: consumer banking and SME banking. There are a couple of reasons behind this. First of all, there is further focus. There will be even more focus, looking forward, both in consumer banking and SME banking. The bank has a lot of potential in this. I think what is more important, in the new structure, our EVPs are actually in charge of all the channels. When an EVP is responsible, let's say, for consumer banking, he, she's actually responsible for all digital channels, branches, call center, ATMs, you name it. It is exactly the same for the SME part. My colleague, my EVP, he will be responsible for all the channels.
There's this multi-channel, actually, management, 360-degree view, focusing on the customer. Again, seamless experience, excellent end-to-end processing. That is what we are actually aiming. On top of this, what I have to say, we don't have a digital banking division anymore. I think this is also something visionary. The reason is actually now the whole bank has become digital. And based on our numbers, the statistics, roughly speaking, 40% of our customers, they only use mobile banking, nothing else. They don't even do a single visit to the branch, nor to the ATM. 40%. The remaining 35%-40%, there is a significant digital focus. Therefore, roughly 70%-80% of our customers, actually, one way or another, are either completely digital or digitally focused.
The bank has become digital. Actually, there is no reason to have another separate digital banking division. I think this is also something very visionary, futuristic looking forward. I have lots of expectations out of this new organization, and I think Akbank will be growing faster. I think we will be doing this cross-selling much better than what we used to do in the past. We will be maximizing our revenues. It will be a better seamless experience, benchmarking with ourselves and also benchmarking with the rest of the system in the country. I'm very positive and I think we did a very important strategic move looking forward, and I have lots of expectations. I think eventually that will be the trend in the country.
Hakan, this all sounds very nice, but I have to be the devil's advocate. Akbank is known for its conservatism. How does this fit into your agility to seize opportunities for sustainable profit at the right time? Because you may be seen as conservative, too conservative sometimes.
Obviously, we are a prudent bank, I have to say. In international standards also, our risk management is pretty strong. These are actually some of the strengths of the bank. Having said this, actually, that doesn't really mean missing the opportunities. Now we have new technologies. We have advanced analytics, which means the bank does this risk versus return analysis much better compared to the past. This risk-return optimization, I think we know how to do this. Looking forward, of course, I mean, we all are looking forward to have is this sustainable, profitable growth. This ambition is the same for everybody, for the major shareholder here, for the investors outside, for the senior management here, all the Akbank people.
There's this common goal, sustainable, profitable growth, having bigger share, more presence in the country. Therefore, what I would like to say, this momentum will continue. We have all the ingredients. We have the highest level of capital among the peers. We have done significant investments in our digital people and so on. We have state-of-the-art infrastructure. We have aligned our organization around the customer. That organization is actually targeting additional growth. To be frank with you, no one has as much growth potential as Akbank does as of today. The management, to be frank with you, is very eager, very motivated, and very committed to create the leading bank of the country. In short, yes, there is this maybe historical, maybe, what you said, this.
Conservatism.
conservatism. Still, I mean, we are not totally deviating from actually a prudent good bank. I mean, the bank always has to be prudent. Having said this, of course, we will be actually maximizing the revenues and tap the growth potential.
Okay, let's move on to the funding side. Obviously, our solid deposit base remains to be our main source of funding. As for the wholesale side, last year, we further diversified, and we had some pioneering transactions actually in sustainable finance. And we actually exceeded also our 30% target of ESG-linked funding for the year, ending above 40%. Now, this year, we have a few redemptions. I mean, we have the $500 million Tier 2 call due in March, and we actually pre-funded that last year with a sustainable Tier 2. And then there's a $500 million euro bond due in October, as well as a total of $1.4 billion, as I mentioned earlier, equivalent of syndications. In light of all these redemptions, what are our borrowing plans?
Well, first of all, I have to say that we have a lot of FX liquidity. When you look at our FX LDR, it is around 47%. It is actually a very low figure. Our FX lending for the last five years or so has decreased dramatically. It used to be around $22 billion, now it is down to $12 billion. FX asset creation is also not as easy as before. This FX liquidity, I think will continue for a while. To actually summarize, we don't really need too much wholesale borrowing from outside. As you said, we have already pre-funded this Tier 2, which will be maturing in March. Our plan is to call that Tier 2, and we have applied to BRSA.
As you know, we have to take a permission from our regulator, and we have already written that we want to call this Tier 2. Having said this, actually, of course, we have to follow the markets opportunistically. Therefore, if there is good pricing, you know, availability of wholesale funding and so on. As we did, like this summer, we can also pre-fund next year's call. Because there's another one coming in next year, we can also pre-fund this. We don't have to, as of today, but we will follow the markets. I know. I also would like to say that, I know that this is your favorite. All our wholesale funding by 2030, we already made a commitment, will be ESG linked.
Last year, we made a great progress. We committed that it will be at least 30%, and it turned out to be around 40%. I think this trend also will be continuing. I am sure that you will be very happy with this.
Definitely very happy. We're looking to do more and more this year as well. Let's move on to the revenue side. Our prudent and proactive asset liability management have led to significant improvements in our NII generation, as I shared earlier during last year. Not only have we given utmost importance to LDR management, but also timely built up our CPI-linked portfolio with decent spreads, and continue to do so, actually beginning of this year as well. Türker, I'd like to move to you now. Could you share with us what lies beneath our outlook for further improvement during this year?
Thank you, Ebru. I think so net interest margin is one of the most important areas for the investor community. First of all, maybe we should start with the trend of last year. As you know very well, especially in the first three quarters of last year actually, net interest margin evolution was heavily impacted by high funding costs. Actually, the funding cost evolution was above our expectations in 2021. Therefore, actually, NIM was one of the few areas where we had missed our last year's guidance. But when we come to the fourth quarter developments, we have started to see gradual improvements in net interest margin in the fourth quarter.
When we look at fourth quarter only NIM, and assuming if you would have used 20% inflation starting from first quarter and CPI normalcy, our fourth quarter-only NIM was at 3.5%. 3.5% versus full- year of 3.2%. Already in the fourth quarter, we have achieved roughly 30 basis points in NIM improvements in the last quarter. When we are coming to this quarter actually, and what are the main contributors actually of that improvement? Surely, the main contribution has come from TL funding side, except for CPI linked, surely. It has come from TL funding side. The policy rate cuts and also the easing on the deposit rates side have positively impacted our net interest margin.
Maybe just as a keynote, our TL wholesale funding, which is done mainly from CBRT at 14%, makes up roughly more than 10% of our interest-earning assets. It gives every significant support to our net interest margin evolution. On top of it, actually, what we can expect this year actually, currently deposit rates have stabilized, so back book and marginal and front book are at similar levels, like 17%-18% levels, whereas the repricing on TL asset side is still continuing.
Maybe just to give some details on that, we have less than 20% fixed income securities in our TL securities book, and roughly 50% of these TL securities have relatively lower yielding tickets in that portfolio, and these are going to redeem in the first nine months of this year. The repricing, replacement of these securities will be NIM supportive. Similarly, on the TL loan side, again, roughly 50% of our TL loans are going to redeem throughout the year. Again, the repricing will take place on that side as well. Surely we should not forget our CPI-linked portfolio and FRNs, which are making up more than 80%. Only CPI linkers are making up close to 70% of TL securities.
We have already touched upon the potential impact of that CPI-linked portfolio onto our NIM. Actually, we are quite confident actually with the NIM evolution, with our NIM guidance, and already we are operating with a net interest margin in this quarter, which is above 4%, already. Maybe as a final note, you know, also on the deposit side, as I said, there has been towards the end of the year some squeeze in TL deposit rates. We have seen increase above 20% levels, but now we are seeing a stabilization. Also this new deposit scheme announced by central bank as well as by the treasury are supporting to this stabilization. This is creating a more healthy funding cost base.
Predictability has increased. Also maybe not significant, but still compared to past, the maturities are slightly increasing because of the structure of these products. All in all, I can say we feel confident with the NIM guidance we have shared.
Thank you, Türker. Talking about sustainable revenue generation, digitization has been a key enabler also in diversifying our fee base, obviously. With the increased engagement, product availability, and cross-sell, we achieved a stellar growth in fees last year. On top of which, again, we are guiding for over 35% growth this year. Hakan Bey, can you please share where you expect to be the key contributors?
Ebru, I think this last year's success story, I think will continue. We did a very good job. When you look at like payment systems, like bank insurance, money transfers, the growth last year was more than 60%. I think this positive trend will continue. There has been a big focus, especially on the retail side, lots of new customer acquisition last year. There will be a lot of contribution coming from this, the retail side, consumer SME. Our other strong businesses like corporate, commercial, private banking, subsidiaries, they are also very successful actually. They will all be contributing to this actually fee generation.
I'm also very positive on the digital side, because when you look at the cross-sell ratios of a digital customer versus a regular non-digital customer, let's say. The cross-sell ratio is twice as much. That means actually more fee generation and the level of digitization is increasing almost every day. There is an exponential growth in that area. One thing that I also would like to mention is the wealth management side. I see a lot of potential on the wealth management side as well, and we have very good companies, subsidiaries. Now, I'm proud to say that our asset management company became number one in the country among privately held asset management companies. That means, you know, more customers, more fee generation. Similarly, we have a very successful brokerage company, Ak Yatırım.
I think they are also doing an excellent job. We have a very strong private banking practice. We have a very strong affluent banking practice. As we all know, we are passing through a high inflationary period. Despite this, we have relatively low interest rates, so people are seeking actually good yields. I think looking forward also, there is a great opportunity in the asset management area. We should not also forget there is a high level of inflation going on, and there is this actually inflation adjustments as well in our pricing. Of course, there will be on top of this significant real growth because of all this, you know, different areas.
Thank you, Hakan. Since we've covered most of the revenue side, let's move on to the cost. Turker, how will we manage to improve our cost income ratio further this year, especially taking into consideration, the higher global inflationary backdrop?
Yes, Ebru. Actually, this has become an area which we are discussing quite frequently with the investor community, especially in the last few months. Yes, there is a fact, there is a reality, there is a high inflationary environment, global. Not only in Turkey, but also globally. This is impacting the cost of our sources. Not only IT or other costs, but also HR sources are becoming more expensive. Maybe it's not only bank specific, we see it in various sectors as well. Therefore, actually, this high inflationary environment will impact OpEx evolution in the coming years. Therefore, actually we have guided for an increase at level of average inflation for next year. Having said that, actually we have a quite big advantage.
As you know, we have the lowest OpEx base among our peers, and this gives us a really big flexibility. Maybe also put it into figures. Every 1% incremental increase in OpEx impacts our gross net income by roughly TRY 100 million. Whereas, just to compare it, the contribution we have from our CPI-linked portfolio is actually for every additional 1% inflation TRY 500 million. Actually five times. It's a really big advantage. The expected revenue improvement of this year enables us actually to expect a significant cost to income ratio improvement for 2022. Therefore, actually we have guided for a level less than 33%.
Having said that, I think if there's any big surprise, I think actual cost-to-income ratio may even evolve at a much lower level during the year. We'll see that. Maybe also we should not take that level as a proxy for coming years. I think we can discuss it for the coming period. All in all, we'll see a significant cost-to-income ratio recovery this year.
During the last two years, also, staging forbearances, along with loan deferrals have made it difficult for investors to understand and compare the credit quality evolution, you know, of the different banks. Türker, can you also share some precaution measures that we have taken while growing, especially following the significant currency volatility? How will we preserve credit quality? Actually, what remains to be quite another challenging year for both the foreign currency and also the TL loan book side.
Maybe just to start with the overall portfolio approach. You know, credit risk management actually is one of strong muscles of Akbank. It has been a very strong muscle, and I'm pretty sure that it will be a strong muscle in the future as well. On the consumer and retail side, actually, we have heavily invested into sophisticated technologies to for the automation of lending decisions. So we have invested in artificial intelligence and machine learning. So with using this big data actually, these all of them positively supporting to our asset quality evolution. I think the last year's evolution of the asset quality trends, despite all the difficulties, is actually a proof of that.
From portfolio perspective, including corporates and commercials, actually, we also have rule sets in our lending policies and credit policies, and these are periodically reviewed at least annually, reviewed and adapted, and the necessary changes are made depending on the macroeconomic conditions. We have caps for different sectors, caps for different decision levels, caps for different rating levels. All of these rule sets we are using are positively contributing to our asset quality evolution, so therefore actually, that way actually we can sleep comfortably. Coming back to the FX side, it was again another important area where we have received quite lots of questions in the past.
I think not only in Akbank but also in our sector, the sensitivity in the FX loan portfolio is not at the level as it used to be in the past. One of the main reasons for that is actually also with the help of restrictions, legislation restrictions, we have observed a significant de-leveraging in the system by non-financials. Therefore, actually the sensitivity has decreased. Non-financial real sector has started to use hedging mechanisms more frequently. Therefore, actually when we look at the net FX position of the real sector, we are seeing the signals of that. Maybe just also give some figures on that front.
When we look at the short-term net FX position of non-financials, it is roughly $65 billion plus. They have a net long position for the first one year. It used to be negative or close to zero in the past. When we look at the total FX position, so not only short-term but also long-term, it is down to $116 billion. Yes, it's a short position, but it used to be close to $200 billion levels in the past, so therefore actually in terms of this position. The picture has improved significantly, therefore actually we feel more comfortably on that. And also maybe also as a final remark, you know, yes, surely some of FX loans may get into trouble, like TL loans.
When we classify these loans into stage two, actually, we take precautionary actions and we hedge our provisions for that, for these exposures, so that even in a situation of currency depreciation, net PNL impact is close to zero, as you can also see from fourth quarter results.
Thank you, Turker. Talking about FX position and hedge position, Hakan Bey, what about our LYY exposure? We all know that it is fully hedged, but it would be great actually if you could share some details on the latest developments on that side.
Ebru, negotiations have started with Türkiye Wealth Fund, actually, towards the end of the year. We have already made a public disclosure for this. It's a complex transaction, so it is still going on. If there is additional, substantial progress in this, we will continue to share this with the investor community. It is going on as planned. That's what I can say. Actually, there are lots of questions about the impact of this on our PNL. Of course, obviously I cannot disclose everything, but what I can say actually, the carrying value is in local currency and it is TRY 7.3 billion.
On the other side, we have 20% of Türk Telekom shares. This TRY 7.3 billion carry value, we kept it unchanged even in a year like 2021, where there was some changes in the valuations, FX volatility, et cetera. That is what I want to say. Also, I hope to see this actually get this resolved for good. I think that will be for the benefit of all parties, the banking system, the telco system, country itself, the infrastructure. There's a lot of work from all sides. That's what I can say at this stage.
Just to sum everything up, as a result of our proactive positioning, fortress balance sheet, and sound long-term strategy, going forward, we expect significant recovery in profitability. Hakan, can you just summarize to us the key contributors that will help us achieve around 30% ROE this year?
Again, on the ROE side, quite positive, looking forward. The trend was very positive in our profitability, especially in the last quarter. There was a significant business growth. All businesses are performing very well actually, from corporate commercial to all the way to actual consumer SME. Subsidiaries, as I said before, they are also doing very well. Türker mentioned about the funding cost. There are positive developments. There's a good progress on the demand deposit side. This CBRT funding is relatively inexpensive to a certain extent. We are utilizing this. There's this new deposit product, which is also a longer maturity product with reasonable, you know, cost. All these together, I think that these are actually positive news for the funding cost, despite the level of inflation in the country.
When you look at the asset yields, actually, now the portfolio there is some improvement, especially with retail loans, with higher margins, with all these expiring loans with relatively low interest rates repricing. These are all positive news. I think, of course, the biggest item on the list is this CPI linker portfolio. This is one of the largest actually in the country, TRY 56 billion. So this is, I think, one of the largest in the system. Now we are assuming that 30% inflation. I think there is an upside potential there as well in the October inflation figure. But it's kind of hard to predict at this stage. I think Akbank has been conservative actually in the assumptions.
Fees and commissions, the progress is relatively good. Cost base, of course, because of the level of inflation, because of the exchange rate and so on, there will be an increase. Again, you know, everything is relative. Akbank has the lowest cost base. I think that is a great advantage over the competition. Yes, percentage-wise, also our cost will be increasing. Again, because of the low cost base, I think that's a great advantage for the bank. As Turker has mentioned, actually, there is this CPI linker portfolio versus the cost base. When you compare these two actually, the revenue potential is like four times, five times as much as the actual cost increase side, so in line with the inflation.
That is also an extremely well-positioned for the bank. I mentioned about the capital adequacy ratio. That is a great advantage. We have the appetite to grow the bank as long as it's profitable and sustainable. No one has the, you know, growth potential as much as we do, given the capital adequacy ratio. On top of this, all the infrastructure and so on, people, digital capabilities, analytical capabilities. I feel very positive. I think the bank is extremely well-positioned.
All this capital profitability increase, what about dividends?
Yes. Of course, Akbank has the highest dividend potential because of its highest level of capital adequacy ratio in the system. Also, Türker has mentioned this, we have this high internal capital generation capability. If it continues like this with the internal capital generation, we will put another 3 or 4% on top of what we have as of now. That gives a huge potential for the bank. As everybody knows, we have to take a permission and from the regulator. We received a letter actually, the whole banking system in Turkey about a couple of weeks ago, actually limiting the dividend payments. Since our position is capital adequacy ratio is extremely high, we applied for a dividend payment.
We are hoping to receive a positive answer. It is up to the regulator, so I can't really say much, but I hope to get a positive answer.
Thank you . Before we move on to the Q&A, I'd like to ask a few questions regarding our ESG strategy. As most of you know, our ESG strategy embraces a truly holistic approach, enabling us to move forward in a much more structured, focused, and effective way with measurable targets. I mean, as a quick reminder, we have four key pillars, namely sustainable finance, ecosystem management, climate change, and people and community. In order to achieve meaningful positive impact in these areas, we also announced actionable targets, becoming actually the first Turkish deposit bank in Turkey to announce solid sustainability goals across both sides of the balance sheet. During last year, we increased our ESG disclosures and deepened our engagement with our stakeholders.
We were the first Turkish deposit bank to include ESG performance in our quarterly earnings results, and we published our first integrated report providing wide-ranging data on non-financial performance, with 36 non-financial indicators being also assured by a third party. This year, we will soon be publishing our first integrated annual report for the fiscal year of 2021, as well as reporting CDP water report. This is a long-term journey, and last year we implemented over 100 actions very successfully. This year we have more than 100 actions and have increased the weight of ESG KPI in the bank scorecard. I am very happy to share that our holistic transparent approach was also validated by the rating agencies last year as we received a double upgrade to BBB by MSCI within less than a year.
Also ESG risk rating was upgraded to low-risk category by Sustainalytics as of November. This year, we will also continue actively engaging with all the stakeholders and also continuing to transparently report our ESG performance. On that note, as a bank, perhaps the biggest impact that we have on our stakeholders is through our financing activities. Türker, could you please share the key developments and outlook for sustainable finance pillar?
Thank you, Ebru. Actually, I am very happy that we were able to show a significant progress last year on sustainable finance side. First of all, actually, we know it very well that Akbank was the first deposit bank in Turkey which has given a numeric target for sustainable financing. We have committed to provide to the real sector TRY 200 billion of sustainable loan financing until 2030. We are well on track in this target. Only in one year, we were able to provide TRY 25 billion of sustainable finance in the last one year. Also simultaneously, we have diversified our product range to better cater the needs of sustainable transformation.
Just to name some of these products like green trade finance package, rooftop solar panel investment loans, are some of these products. I believe with the progress we have shown in the first year, I think we'll be able to reach this TRY 200 billion target much earlier than 2030. I'm very optimistic on that. We have also become the signatory of UN Principles for Responsible Banking by UNEP FI. That was another step we have taken. Looking ahead for 2022 and ahead, we are aiming to offer more products to our customers with innovative solutions in order to support the transition to a low carbon economy.
Coming back to the sustainability-linked funding, again, some major steps have been achieved. First of all, we have pioneered sustainability-linked transactions, and our ESG-linked funding has exceeded $2 billion levels in 2021. We had an aim of converting our wholesale funding of 30% to ESG-linked funding in 2021, but we are already above 40%. That was a major progress. We have published our first allocation report during last year for 2020. This allocation report has received a third-party assurance, and we will issue our 2021 report in this quarter actually.
Yes.
Again, looking ahead, in this area, we want to roll over our syndicated loans again with ESG KPIs in 2022. We have another ambition. This ambition is actually to convert most of our wholesale borrowing to almost 100% into ESG-linked by 2030. We want also to enhance our sustainable finance framework this year as well. This will be the homework we are focusing this year.
The sustainable finance framework will be published in the first quarter along with the allocation report as well.
Perfect.
Yeah.
Thank you. Thank you for the contribution. Maybe also finally, on the sustainable investing side, we are offering different products, actually ESG-linked products, to our customers who want to contribute to positive social and environmental change. Again, we had another target in this field as well. We wanted to achieve an AUM of TRY 15 billion by the end of 2030. In this regard, Ak Asset Management, our successful subsidiary, has issued two ESG themed investment funds, namely health sector funds and alternative energy funds. These funds have already reached an AUM of TRY 2.5 billion. 2.5 billion in one year compared to 15 billion by 2030.
Again, I think we will be able to achieve these targets much earlier, so I am very happy on that. Also it's another important thing is actually the number of investors who have invested into these funds. They are more than 55,000 actually. I think it makes us very happy actually in this field as well. Also we have issued a social bond this year in the amount of TRY 340 million. It was again first social domestic bond issuance in Turkey. In 2020, we are going to further focus, further diversify ESG linked funds in 2022.
Okay, this is all great, but what about the climate change, the second pillar? Could you share how we manage this risk as well?
Actually we have already in place an environmental and social impact assessments. During last year actually we have revisited this assessment process and we have reduced our threshold from $50 million-$10 million for project finance and new investment deals. Also, we have expanded our non-financing activities during last year and into these non-finance activities, we have included new coal power plant projects. We have also included coal mining, coal transportation, and power plants operating with coal for SMEs. These have been excluded from our financing activities as well. Also we have started a new project to better quantify and manage our risks and opportunities on the climate change side, which we aim to finish by mid-year.
With this project we are aiming to enhance our technical, technological, and governance infrastructure for the integration of climate risks and opportunities into our lending practices as well as policies. We will, in this regard, also with that of this project, be able to develop TCFD- and TNFD-aligned reporting. We are also on track on our carbon-neutral target for Scope 1 and Scope 2 as of end of 2025. We are already using more than 60% of our electricity from renewable energy. That was another target for last year, and we have achieved that. We plan to further increase this, the usage of renewable resource in electricity consumption during this year.
We have also received energy efficiency and environmental management-related ISO certificates in 2021 for our headquarters, for our operations center, as well as for some of our branches, like 40 branches in 2021. We are aiming to include all our branches and buildings into the scope by the end of 2023. It's a very long journey, but I think the progress we have shown in the last year was quite promising.
Thank you, Türker. Now moving on to how we empower our people and communities. Hakan Bey, could you please mention some of the key developments in this area?
Sure. Ebru, first of all, there is a very strong representation of women at Akbank, and I'm actually very proud of this. 53% of our people are women, but actually this is common in banking. Yeah, 50%, 55%. I mean, this is common. It's not really a game changer. What I'm really very proud of is the leadership roles at Akbank. When you look at my direct reports today, I'm happy to say that 50% of my direct reports are women. When you look at our technology side, roughly 40% of the technology people in our bank are women. The share of women in revenue generating roles, it is 56%. I think this is a very another remarkable figure.
Actually we have a very, I think, well-deserved international recognition. This OMFIF ranked us among the top five banks globally, and they also ranked us as the number one bank in the emerging markets in terms of gender equality. I think this is something very valuable for us. This Bloomberg GEI, Gender Equality Index, we became a member in 2021, and this year for the second time, we ranked above sectoral averages. We have also released new policies to foster governance and culture like diversity and inclusion, human rights, zero tolerance to violence policies, supplier code of conduct, and so on. There is actually a lot of work going on in the bank. Another initiative of the bank, which I'm very proud of, is this Akbank Youth Academy.
This is actually almost one and a half years old, so this is a new initiative. We are providing training to young people outside Akbank. These people have nothing to do with Akbank, young people. In the new areas like artificial intelligence, advanced analytics, robotics, design thinking, sustainability, cybersecurity. Last year we were aiming to actually train 20,000 young people, talents, in the country, but that turned out to be 40,000 instead of 20. I think this is a very outstanding figure, and I'm very happy with this initiative of Akbank. I think this is something valuable for the country and also in terms of ESG.
Also now Akbank in the Valuable 500 companies for disability inclusion, and I think it is the first company, if I'm not mistaken.
Mm-hmm
... to join from-
Yes
... from Turkey. These efforts will obviously continue.
Thank you very much. Do you need to answer your phone? Is it urgent, Hakan Bey? Should we
No, no. I'm sorry for this.
All right, let's continue. When we think about our-
This was unplanned.
Okay. When we think about our ecosystem, in addition to our people and communities, we also want to empower our customers obviously. As I mentioned earlier, ecosystem management is one of our key pillars. You already briefly mentioned, but could you also maybe talk about the holistic approach that we have on this side as well, on the ecosystem management side?
The financial health of our customers, of course, is very critical, and we spend a lot of effort on this to empower our customers. Actually there's a lot of innovation, technology, advanced analytical tools, big data usage to provide such services in the bank. Now we have roughly 30 million meaningful customer customized insights for our customers. There's a lot of actually analytical work behind this. We are trying to, in a way, train, educate our customers. There is this digital and financial literacy guidance where we are spending a lot of time and effort. Again, this is to train, educate our customers. We became one of the founding signatories actually of UNEP FI Financial Health and Inclusion Commitment, so this is something important in the international arena.
We have Akbank Lab. This is another initiative that's been going on for about, you know, several years. There is this interaction with over 300 innovation hubs, startups, universities in the country and outside the country, all the way from, you know, you name it, from Silicon Valley to all different places around the globe. This SME actually, so again, we spend a lot of effort on the SME side as well, along with, you know, consumers. They are obviously very critical. They are like the backbone of our economy, 50% of GDP, 75% of employment in the country. We have lots of partnership programs with industry leaders and so on. We have banking products and beyond banking products. We will continue with all these.
This is a great ESG in totality, is a great focus area for us, and we have been spending a lot of effort. You have been leading this actually in the bank.
With the whole team.
Our KPIs anyhow. The whole bank.
Thank you. I mean, I'm really happy to be working for a joint objective with everyone else to mitigate environmental footprint and increase positive impact, obviously. This concludes our presentation. We will be moving on to the Q&A session. Please raise your hand or type your question in the Q&A box. For those of you who are joining us by telephone, please send your questions by email to investor.relations@akbank.com. We have a few hands that have been raised. I will first of all allow Simon Nellis. You may, you are now able to ask your question.
Oh, hi. Thanks. Thanks very much, and thanks for the comprehensive presentation. You didn't leave too many questions for me and the rest of my colleagues. Maybe that was on purpose. I don't know. Yeah, I guess the first question would just be on any changes in regulation you see coming, and the competitive environment. I think the government's thinking of recapping state banks and maybe doing another CGF. Do you see that as having any impact on your targets? And then just on the CPI-linked income. So I think you had, what? TRY 8 billion in 2021. So what actually have you penciled in in absolute terms for CPI-linked income in 2022? Those are my two questions.
Uh-
Maybe one last one.
Let me answer the-
Yeah. Sorry.
Sorry.
Just on average CPI.
Please.
If you give me your average CPI forecast for this year?
Okay. Let me start with the first question. CGF. Yes, CGF is on the way. I think it will be announced pretty soon. The new CGF programs are not like in the old days. If you remember the old days, it was very flexible. Now it is more controllable. The regulators want to make sure that this lending goes to the right, you know, companies.
Mm.
I think this is something positive looking forward. If you look at the size of the actual CGF program as well. I don't think that it is compared to the size of the economy and the size of the lending in the country. I don't think that it will be tremendously big. I think-
Okay
This is something that we can easily absorb. That is my comment on the CGF. Public sector banks. Of course, we are competing with everybody, privately owned companies as well as public sector banks. As of today, actually, I think we have relatively similar rates, practices and so on.
Mm-hmm.
In this, of course, there are some differences, but it's not something that which is affecting our business significantly as of today. For the CPI linker, Turker, would you like to answer this or should I go ahead? Or let me-
No, I mean, I can contribute actually on that.
Good.
Simon, you know, I think your question was with regard to the CPI linker portfolio contribution. Am I right?
That's right, yeah.
Actually, you know, by the end of the year, our CPI linker portfolio has reached TRY 56 billion level.
Mm-hmm.
We have a real rate of roughly close to 3% for the book. In our guidance, we have assumed October to October inflation as 30%.
It's like TRY 18.5 billion then.
Yes.
Okay.
Roughly, yes.
Okay.
You can say it like that. As with regard to average inflation, actually, maybe your question was with regard to our OpEx guidance.
Yeah.
Yeah. Actually, probably, yes. Towards the end of the year, we expect an improvement, an easing in the inflation to 30% levels. We'll see how the trend will evolve. Probably, average full- year inflation may be a bit higher than that when you look at the-
Mm
Expectations of the economists. It may be somewhere in between 40%-50%, during the year with some, with the base effect to improve to 30% levels. Surely monthly renewal of contracts, et cetera, are impacted.
Sure. Okay
by average inflation. Therefore, actually, I think so, around 50%, close to 46%.
Mm
Can be taken as a profit.
That's very helpful. Super.
Yeah.
Thank you.
Maybe one additional comment, Simon.
Mm.
This October inflation will probably be higher than the full- year inflation.
Yes
Therefore, I think there might be an upside in our assumptions. I think we will be starting the year with a relatively conservative approach.
Mm.
Because the core business is also performing very well as well.
Thank you. Thank you very much.
Okay.
Thank you, Simon. The next question comes in from Waleed from Goldman Sachs. Hi, Waleed.
Hi, Ebru. Hi, Hakan. Hi, Turker.
Hi, Waleed.
Thank you both for the presentation. I would echo Simon's comments, very comprehensive. A few questions left. Perhaps first I can, you know, start with the macro questions. Any thoughts on the rates outlook and the FX forecast? You clearly lay out the inflation forecast for the year. Perhaps if you can, you know, talk about the macro assumptions on FX and rates, because obviously it feeds into your broader numbers for the guidance. Then I wanted to delve a little bit further into ROE. If I think about, you know, and obviously this is a, you know, a very strong ROE guidance that you've given of 30% for next year.
If I look at your NIM assumption of 150 basis points expansion, you've said that every 1% CPI, 1% increase in inflation is around six basis points to your NIM. If I take a 12% increase in inflation, 18% versus 30%, that's 72 basis points, which means that on the remaining part, you're assuming 78 basis points NIM expansion ex CPI. I want to confirm that, if you know, if the quantum would be so high or are you being conservative on the CPI side and you expect, you know, that to be higher, to compensate for that? I mean, leverage is another component which has grown significantly. You've gone from 8x in 2020 to around 10x by the end of 2021.
Are you, in your 30% ROE assumption, expecting leverage to increase significantly and that 30% ROE—I mean, either ROA or leverage, what kind of leverage or ROA is this factored on? My last question is, when you look at your balance sheet mix, you've been increasing the contribution from CPI linkers as a percentage of the total book. Where do you see that ending, especially in a high rate environment? Oh, sorry, high inflation environment. Thank you.
Thank you very much, Waleed. These are just great questions. Very comprehensive questions. Obviously we have left a lot of space, Ebru. Our presentation was not probably comprehensive enough. Regarding the rates, Waleed, we have a feeling that this existing you know macro policy will continue. We are not really expecting any deviation from this central bank policy rate and so on. I think this is our base case assumption looking forward. Regarding the FX, I mean, you would probably appreciate that it's a little bit difficult for us to make actually judgments of this. What I can say, in December timeframe, there was this abnormal actually volatility in the system.
Through different initiatives, either by the, actually, central bank or treasury or together, this heat, let me say, in the market, has decreased significantly. Still the level of exchange rate is higher than what we used to have, like, you know, last year, around 13 point something, you know, Turkish lira per dollar. The volatility actually has decreased tremendously. This, I think this new deposits products played a critical role in this. When you look at this deposits products, this is like about a day or two days ago. The volume is actually roughly TRY 225 billion. Roughly TRY 160 billion converting from Turkish lira to this new scheme. The remaining roughly TRY 60 billion- TRY 70 billion converting from FX to local currency.
At the beginning of this week, there's this new tax incentive for corporates, corporate and commercial customers. We are actually expecting some because this tax advantage is so high, so we may see some further conversion from FX to TL. That may also take some of the additional heat on the actually exchange rate. That is what I would like to say about the macro. There was this question about this NIM. Maybe I can leave it to Türker, but let me answer the others. Leverage, yes, it increased to 10x. It is not because of the actually. Of course, there is this growth element in this, but also there is this actually affects volatility, as well.
Looking forward, we don't have actually ambitions to make this leverage, you know, too high. Please keep in mind, we will still be growing. This capital adequacy ratio and the internal capital generation. We have mentioned that we will be generating another, you know, 3%-4% on top of what we have today. In international standards, we have above 17%. With forbearances, we are exceeding 20%, but we are always reporting this, you know, Basel standard. Imagine a situation with this additional profitability, we are putting another 3%-4% on top of that, you know, already exceeding 17%. Therefore, we will have this balance.
We will never, you know, too much risk the bank. We will not, you know, do this. 10x, I think it's a reasonable, you know, leverage. We will not be actually growing this exponentially because our capital will also be accumulating. Would you like to answer the-
Yes, Hakan, sure. While it's coming back to your question with regard to net interest margin, actually, yes, as you are right, like you mentioned, last year we have used 20%, this year we are assuming 30%, so 10% CPI increase, and every additional 1% will give positive support of 60 basis points to our NIM. We can say remaining 90 basis points will come from other areas. Surely we will try to achieve a better level. When we look at the current rates, it seems to be achievable. Already, as I said, we are operating above 4%.
A NIM above 4% right at the beginning compared to 3.2%, actually already more than 80 basis points is in the pockets in terms of NIM improvement. Therefore, actually, hopefully we may achieve a better figure, but for the time being, because we don't know how the market will evolve, how the competition will evolve, therefore, actually 150 basis points year-on-year improvement is a good proxy for the time being. Maybe also as Hakan Binbaşgil mentioned actually, in the past we used to guide leverage as well, but this affects volatility, makes it a bit difficult for us. Therefore, actually it's more important to talk about the capital adequacy ratio. As Hakan Binbaşgil has mentioned actually, this internal capital generation we are expecting is...
will offset loan growth. Therefore, actually probably based on that, let's say, currency evolution in line with inflation outlook of 30%, taking into consideration our loan growth, probably by the end of next year, our liquidity ratio may be still at similar levels.
Thank you much. That's very helpful. Maybe just the last bit, which was left, it's the proportion of CPI linkers as a percentage of balance sheet. Where do you see that, or what would be like a sweet spot for management?
Actually, our treasury department actually is opportunistically managing its securities portfolio. We are looking for opportunities for issuance of treasury. Based on our expectations, we will make necessary decisions in managing our treasury portfolio. The main aim will be surely growing our franchise, but also looking for opportunities.
Yes. Waleed, what I can assure you, though, of course, Akbank, there is a great potential in these CPI linkers, but this is not our focus area, to be frank with you. We are, as a bank, concentrating on the core business. How can we develop our core business? Maybe this year, next year, last year, we benefited a lot. We will. It seems that we will continue to benefit from these CPI linkers, but we cannot rely on CPI linkers all the time. Therefore, that is why we had this, you know, 1.7 million additional customer acquisition last year. That's why we changed the, you know, organization, further focus on SME, et cetera, digital and so on. This core business is also going very well.
The CPI linker, it's a big boost, additional boost, but we will not be relying on this forever.
Got it. Last follow-up from my side. As you said, core business is very important. Core business has very strong momentum, which we've seen in the third quarter, fourth quarter. Once, let's say, the inflation levels normalize, and you're pointing towards something of that sort in the second half of this year, you still expect a high teens return on equity? Is that a more normalized number after inflation settles?
Yes. Yes. Yes.
Got it. Thank you so much. Thank you very much.
You are on mute, Evrim.
Thank you, Waleed. The next question comes in from Gabor.
Oh, hi. Just a few follow-up questions from me. If I understand correctly what you are saying on capital, you would be generating 3-4 percentage points of capital with profits, and you are expecting this to be roughly offset by growth and currency devaluation, which you expect to be around 30% this year. Is this correct? And if it is, then your capital ratios could remain roughly stable this year. Is this a fair interpretation of what you-
Yes, Gabor, actually, it's a fair interpretation. Also just remember, you know, at the beginning of every year, we are also adjusting the capital charge of operational risk. With growing cost of business, it is also impacting capital. Maybe we should add that as well, actually. Therefore, all in all, we can expect a flattish capital adequacy ratio as a starting point for next year. For this year, sorry.
Okay. Understood. The broader guidance, I mean, you are clearly benefiting from higher inflation with margins, the CPI link, especially. Are you saying that if inflation normalizes your ROE or from, let's say, next year could come back to around the high teens? Is this a kind of reasonable expectation?
Yes.
Okay. Okay. Thank you.
Thank you, Gabor.
Thank you, Gabor.
Surely we have to look at how the inflation.
Inflation evolves.
Yeah.
Exactly.
Yeah.
Exactly.
Mm.
There are a few. I guess, if you have any questions, please do raise your hand for live questions, but I guess there are a few written questions. Maybe, Ilknur, you can start to ask some of them.
Yes, Ebru. We have a few written questions from Ellen Blackburn . One of them is, do you expect to outgrow the market in 2022? Are there areas you might not wish to grow in? A second one, what are your FX assumptions regarding asset repricing this year?
What I can say about the growth, I think we will continue to gain market share. Can there be areas which we don't want to grow? Yes, we will probably continue to look at the market conditions. So far, we have been very careful with the maturity mismatch management that we have. As you know, we don't really take too much risk in this. Therefore, we have to feel comfortable with the hedging opportunities and so on in the markets. Or we have to see the inflation coming down, therefore eventually the interest rates in the country for taking additional maturity mismatch risk. That is one maybe area that which I would like to mention.
Of course, we are there if we have enough margins, if there is enough, you know, sustainable growth potential. I can assure you that Akbank will be there with all its, you know, power, financial power, technology, analytical power, people power. If it's not profitable, then we have to of course reevaluate the situation. What was the second question again, Ilknur?
It was regarding what are your assumptions on asset repricing this year?
Maybe I'll come back and offer it on, yeah.
Okay.
Actually, when we look at first of all, actually, on the FX side, we can say the evolution of back book and front book is relatively flattish. We don't expect a big change on that side. Coming to the TL side, TL deposits actually have stabilized, and back book and front book are at similar levels, like 8.17%-8.18% levels. Therefore, actually, we are assuming that this trend will continue throughout the year. Coming back to the TL loan side, also some stabilization have taken place. The lending rates have come down with the easing of deposit rates. Still, when we look at our back book and front book, there's a difference of 3%-4% between front book and back book.
During the year, we are expecting to reprice our back book with the existing margins. These are actually the main assumptions. As I had actually mentioned in one of the questions of Ebru on NIM, on the fixed-rate security side, around 50%, so there was like TRY 7 billion of fixed-rate securities are going to redeem this year. These are quite lower yielding, which we had actually acquired during asset ratio times. These are going to be replaced. This will also give some positive contribution. Finally, as a final remark, since our ambition is actually to grow more on the retail side, this will also be NIM supportive for this year.
Okay. Another question comes from Tomasz Noetzell . Could you please comment on interest for FX-linked deposits and demand for that product?
This new deposit product?
Yes, the new deposit scheme, Hakan Bey.
Yes.
How are we seeing on the FX? Yeah.
Yes. When the regulators introduced those products, actually conversion from TL was more in the initial days. From FX to TL has accelerated recently. As I mentioned in the Q&A session, especially this month because there will be tax, you know, payments, declarations, and so on for the corporate and commercial customers. There are some tax advantages. Until today, I think the volume was roughly 70 billion. That was roughly $4.5 billion conversion from FX to TL. I think this will be accelerating significantly starting from this week because the regulation details have been announced very recently, and some corporate and commercial customers, I think will be trying to benefit from this.
That number might come up significantly compared to today. We are feeling this actually demand as well through the conversation with some of our customers.
Ekrem, can we move on to next question?
Yes. The next question regarding SMEs. What can you tell us? This is Ellen Blackburn's question. Again, what can you tell us to give us confidence that a renewed focus on SME makes sense in a high inflation environment? What are the risks for smaller domestic SMEs looking ahead?
First of all, we have a small portfolio. The growth that we will be achieving between today in the next, you know, couple of years, I think the bank has the capability of cherry-picking, even if there are some challenges at the macro level. Still, we can do that. I also mentioned about our advanced analytical capabilities. We have been actually growing this consumer book actually very well, and there was advanced analytics behind this. We have been working with all these companies across the globe for many, many years. We haven't really done it during the last year. We have done it like, you know, several years ago. We have been working on the SME front as well, this advanced analytics, machine learning and so on.
That is also something that we are relying on as well. I think we will be able to make this cost-benefit analysis, optimization, very well. This is also my expectation. First, the size of the portfolio, it is relatively small. Secondly, this analytical capabilities.
The last written question from Cemal Demirtaş . Regarding Türk Telekom's stake sale, is there any deadline? Do you expect it to be completed this year?
I cannot give you a date, because there are different parties. There is no deadline, as of now. There is goodwill on all sides.
Okay, thank you. Someone has raised their hand. It's Can Demir. I will allow him to ask us a question. Hi, Can.
Hi, everyone. Thank you very much for taking my question. My first question is for Türker. Türker, you mentioned the spreads on the front book being 3-4 percentage points above the back book. In the Central Bank data, it does show that the spreads are very high. I think they even look like an anomaly, you know, if that makes sense. I mean, they are extremely high. I was wondering how confident you are about the sustainability of these spreads. I mean, wouldn't you expect the deposit rates to increase at one point in this market? That's my first question. On the capital front, the bank, I remember the bank raised capital back in late 2018 in a less volatile environment.
I'm wondering how the management's approach change over time on capital. What I mean is we are in a much more volatile and probably in adverse environment versus 2018. In 2018, you raised capital. Why not raise capital now?
First of all, we have the highest level of capital in our category, let me say, privately owned large banks. We do a lot of stress testing in the bank with all the FX volatility and so on. Touch wood, we still have very good results. There is actually no need to raise capital at all, even if the exchange rate, you know, fluctuates significantly. That is actually given. This also internal capital generation, I think looking forward, I think is also an additional contribution to our existing already high capital. Your next, the other question-
Hakan, maybe I can step in on that side. Can Demir, actually I think you are referring to the weekly marginal TL loan data of central bank.
That's right.
The rates of which was like 28.7% for TL loans.
That's right.
If we are talking about the same figure. First of all, I think this reporting is working in such a way that you are compounding all the rates. Actually these are not simple rates, but compounded rates. Therefore, actually these are showing higher levels than we are charging the customers. Again, the report is coming with one week gap, so the normalization has continued in the last one week. Actually, if I am talking of 3%-4% gap between back book and front book, actually it is like high teens% versus low twenties%. Actually, I hear what you say, so these are more realistic levels in the-
Why then would you expect the back book spreads to increase 3-4 percentage points because of the duration gap impact in the past?
Yes, because actually we are in the back book. Actually we are still carrying loans, some of them granted during asset ratio time. These are going to be repriced. You know, yes, depending on the segments, we are talking about different legs, like maybe low 20s or mid-20s, depending on the maturity.
Oh.
Depending on the type of the segment and type of the loan. This assumption is including all of those.
Okay. Understood. Thank you very much.
Welcome.
Yeah. Very, very helpful, Hakan Binbaşgil.
Thank you very much.
Thank you, Can.
Thank you for the presentation. Yes.
Thank you. Okay. We have, I mean, I'm gonna take one last question from someone who's raised their hand. Sadrettin, I'm allowing you to talk now. Hi, Sadrettin.
Great. I think you can hear me now.
Yes, we can hear you.
Thank you very much for the presentation.
Thank you.
I have two questions. The first one is the loan to deposit ratio. In your usual presentations, you used to give some color on the LDR. But we haven't seen anything on this front. If you give any color in terms of deposit growth, maybe I will be happy. My second question is your return on equity guidance. This is around 30%. Do you assume any dividend payouts? Probably I might have missed your comments on dividend, so I just wonder any dividend is assumed here. Thanks.
Okay. Maybe, Hakan, you can comment on the LDR. Sorry, the dividend, and then, Ilknur, you can share the LDR page, 'cause we do have a page on our LDR in our investor presentation.
Yes, I will do.
Thanks.
For the dividend part, we applied to BRSA for a dividend payment, but we are still waiting for an answer. We would like to pay dividends. The bank, as we have been discussing, is exceptionally strong in terms of capital adequacy ratio, and the profitability prospects looking forward still very high. This is the dividend part. Turker, would you like to-
Actually, with regard to LDR, actually, probably your question was with regards much more to the 2022 guidance, Sadrettin Bey. Am I right? Not for the actual-
Yes, Türker Bey.
Actually, you know our stance on that front actually. We would like to keep LDR at similar levels, but surely the market dynamics may impact events. You know, our total LDR is always less than 100%, and it will continue to be that way, I'm expecting. We will aim to grow our deposit base similar to our loan base actually.
I could say, Sadrettin Bey, this probably the total LDR will probably stay the same, somewhere like 90% or something like this. Our FX is too low, below 50%. TL is like 140%. Still one of, I think, the best in the system. With this new deposit product, what is happening actually, there will be probably, if this product continues to be successful in the coming months, there will be some local currency deposits accumulation in the system. Since the beginning of the year, this local currency deposits have increased by 7%, whereas actually there was some shrinkage actually on the FX side. Therefore, maybe the total would be more or less the same in the system, and this is also applicable for Akbank as well.
Maybe FX LDR might go up a little bit, but TL would come down a little bit. The average, the total would be more or less where we are as of today.
Maybe Sadrettin may last for one final remark. I think your question was also with regard to in our ROE guidance, how we have assumed the dividends. Actually, yes, as Hakan may have mentioned, we are aiming to pay out dividends. Dividends impact on ROE is quite negligible because you know we are only, if we can, we are only distributing some portion of the last year's income, whereas the total equity is like at TRY 75 billion. You make that adjustment, you should also consider the funding side as well. Therefore, actually, there is some PNL impact, there is some equity impact. ROE impact is quite negligible.
Thank you very much, Türker Bey. Thank you very much, Hakan Bey, and also thank you, Ebru.
Yeah.
Have a nice evening.
Thank you, Sadrettin.
Thanks.
See you soon, hopefully. All right, thank you. I guess there are no more questions for today. Once again, thank you everyone for your kind attention. You're always free to reach out to us if you have any further questions as Akbank Investor Relations and Sustainability Team. I'd like to leave the floor to you, Hakan Bey, for the closing remarks.
Yes. Ebru, it's been a long session, so I don't really take too much, you know, additional time. What I would like to say, I think Akbank did a very good job last year, and I think the bank is exceptionally well-positioned looking forward. I think we will continue to deliver strong financial results. I think that is obvious, given how we position the bank. This is the Run the Bank side and Change the Bank sides. Probably our investor community knows us pretty well, so there's a lot of focus in the bank for transformation, for digitization, and we will continue with that innovative spirit in the institution. I'm very proud to have such a very strong team, so I would like to thank all our people.
I think that they did a fabulous job, actually, last year. Looking forward, they extremely well-positioned the bank. I'm very thankful to all the people. I also would like to thank all our stakeholders, our investors, for their trust in us. I wish also 2022 a better year, which brings us joy, health, which is very important, and hopefully prosperity. Keep well, and hope to see each other physically this year. That's what I want to say. Thank you for all the attendance. There was a big crowd. Thank you for the, you know, interest, and thank you for being with us.
Thank you.
Thank you.
Bye-bye.