Earnings Call: Q2 2021

Jul 28, 2021

Dear friends, welcome to our Q2 2021 Financial Results Webcast and Conference Call. This is Ebru speaking, Head of IR and Sustainability of Akhag. Thank you for joining us. I hope that you are all in good health. Today, I have with me as usual, Turkar, our CFO, Iqnur from our IR team. But this time, we also have our CTO, Ilkay with us to answer your questions with regards to our incident in July. Before moving on to our bank's first half performance, I would like to share some insights of the macro environment we are operating in. Despite the negative impact of the ongoing pandemic, The economic activity in Turkey has been trending strong and we expect this to continue in the second half of the year. Looking at the demand components, Domestic demand has slightly decelerated, while external demand remains robust. Some macro prudential measures have been implemented to secure a balanced demand composition in economic activity as well as current financial stability risks on both current account balance and inflation. The ongoing recovery in economic activity as well as relatively higher commodity prices, Coupled with the low base of last year have led to prevailing risks on inflation. However, with the impact of monetary tightening as well as base effect, We expect inflation to slightly decline towards this year end. The pace of the deceleration in inflation will be important for the course of monetary policy, which we believe will be kept tight until a significant fall takes place. As a result, we believe Room for rate cuts will remain rather limited until year end. On a positive note, current account balance is in an improving trend. We expect full year current account deficit to decline towards $22,000,000,000 below 3% of GDP. This will be achieved with potentially better trends in tourism revenues, robust export growth and lower gold imports. We expect Overall export growth to outperform import growth for this year. Pacts of tight monetary conditions is being felt both in loan growth as well as margin evolution. TL deposit and loan market trends, that being growth and interest rates, have somewhat stabilized. In light of the higher inflation expectations, we expect TL deposit and loan rates to likely be made at current levels. As far as FX loans, demand remains to be weak. So far, funding cost trends as well as inflation expectations have both evolved above our initial guidance. Although the operating environment is expected to be relatively more favorable in the second half of the year, It will still likely remain challenging due to the tight financial conditions. In light of all this, let's move on to our bank's performance. First, I'd like to touch upon a few of the achievements. Our first half reported net income was up by a stellar 43% year on year to $4,134,000,000 a record high. I'd like to also provide some context on our quarterly profit before tax performance, which was up remarkably by 19% quarter on quarter, reaching all time high both on a quarterly and first half basis. Due to the rise of the corporate tax rate to 25% for this year and with the Q1's cumulative impact, Our effective tax rate for Q2 increased to 31%. For the 1st 6 months, our effective tax rate was up 26% And for the second half of the year, we will continue to apply 25%. We had shared at the beginning of the year that our swap adjusted NIM would be in a Equential improving trend. Due to funding costs rising above our expectations, NIM started the year at a lower level than we initially anticipated. However, with the increase of CPI linkers and floating rates in our TL securities mix, as well as our loan growth being led by high yielding consumer loans, Core NIM started to improve in Q2. Our proactive securities positioning and strategic loan mix will continue to be NIM accretive for the second half of the year. With our deliberate loan book and investments in digital banking, we have been consecutively gaining market share in these high margin segments since last year's Q3 in a healthy and well timed manner. This growth will continue to be a supportive factor not just for NIM, but for the overall profit mix. Our robust PE performance in first half, which indicates a clear beat to our full year guidance, also underlines the success of our growth strategy and diversified business model. Thanks to our proactive and prudent IFRS nine implementation in previous quarters, Net cost of credit has been improving following the Q2 of last year. And as always, our robust capital and strong liquidity buffers Underline the inherent benefits of our strategic priorities and the strength of our customer franchise. Please note that on this slide, we have shared a link to our cheat sheet, which provides the data used for the presentation. Let's move on to the drivers in more detail. First with the balance sheet. Our total assets were up 12.4% year to date to almost TRY538 1,000,000,000. Net loans increased by 10.2% in the same period to TRY 289,000,000,000 led by TL loan growth. By the end of first half, loans make up close to 54% of our total assets, slightly lower versus year end. TL Business Loans were around 39% of total loans, while consumer loans including credit cards accounted for almost 24%, up 2 percentage points year to date in line with our growth strategy which I just shared. FX loans were 37% of our total net loans Year to date higher slightly, driven by tail weakness during the first half. Our CPT stood at 21% of our assets with strategic positioning, which I will discuss further in a few minutes. Our balanced and prudent asset allocation along with our low leverage of 8 times A robust capital adequacy ratio of 20% will continue to drive sustainable long term shareholder value. As highlighted, our year to date TL loan growth was driven and led by the high margin consumer loans, where we continue to enjoy broad based quarterly market share gains. And more importantly, this performance was not confined to this year. Our market share gains since Q3 last year added up to 115 basis in total consumer loans and 120 basis specifically in GPLs. On this slide, we have shared the market share gains year to date. Accelerating marketing efforts as well as digital initiatives having key enablers for the noteworthy performance. I will touch base on the highlights of our digital banking performance in the upcoming slides. We also continue to enhance our analytical capabilities, which will further advance our market presence. As for Teal Business Banking, We had a heavy redemption schedule during the Q2 of this year, leading to a slight growth year to date in this segment. Please recall that in order to effectively manage margin evolution, our growth last year was mainly in short term loans, which is why we had heavy redemptions. To sum up, there is a slight downside risk to our full year guidance of 20% TL loan growth. But when looking into the loan mix, our efforts in retail segment had paid off with decent market share gains, which will be supportive for NII evolution. On the other hand, our net FX loans remained almost unchanged at $12,300,000,000 versus end of last year. Still muted demand for investment loans hinders us from establishing more optimistic outlook for FX loans, which is totally in line with our guidance. Our total securities book is up 13% year to date at TRY115,000,000,000. On the TL side, share of CPI linkers and floating rate is now at 77% underlying our proactive strategic securities strategy. In light of the rising inflation outlook, the main increase over the last three quarters took place in CPI linkers, which are now 63% of total TL securities, up by 20 percentage points since the first half of last year. This portfolio will work as natural hedge in higher inflation environment. During the Q2, we updated our October to October CPI assumption to 14% from 11% of Q1. Please note that every 1% CPI has around $270,000,000 net income, 6 bps NIM and 40 bps ROE impact. As for the fixed rate side, A significant portion of the portfolio matured in Q2 and was replaced by higher yielding securities. As a result of these strategic actions, TL Securities yields increased visibly in Q2, hence we expect considerable NIM contribution in upcoming quarters. Meanwhile, due to limited foreign currency loan demand, we have utilized our ample foreign currency liquidity in higher yielding euro bond purchases, which will also be NIM accretive. To sum up, our treasury's proactive positioning in both foreign currency and Tel Securities portfolio will continue to contribute positively to NII this year. Our focus remains on well diversified and disciplined funding mix, as deposits continue to be our main source of funding with almost 61 percent share. Our total deposits were up by 12% year to date to TRY327 billion. Demand deposits were also up by a solid 14% year to date, increasing its share to 32% in total deposits. Sticky and low cost deposits such as retail, I. E. Consumer and SME reached 76% of total TL deposits, 4 percentage points higher versus end of last year. TL LDR remained flattish quarter on quarter, but still 6 percentage points lower versus end of last year. Our sound FX liquidity with an FX LDR A 49% remains as one of our strong muscles. As a result, our total LDR ended the quarter at a low level of 94%, still below sector's 100%. We have a well established wholesale funding profile, which is 12% of our total liabilities. Our Q2 average foreign currency LCR was robust at 2 76 percent and our foreign currency liquidity buffer Was noteworthy at $13,300,000,000 versus our next 12 month rollovers at $2,600,000,000 of which around $1,450,000,000 are in syndicated loans. Following our successful first ESG linked syndication in April, We continued our efforts in sustainable finance with the 1st benchmark sustainable Tier 2 among Turkish deposit banks in June. As you know, we have a call due on our 2027 sub debt in March next year. Our capital position is already very robust, but as 47% of our assets are foreign currency, In order to keep the capital hedge against currency volatility, we decided to issue a sustainable Tier 2. The timing was very successful as the book attracted around $1,400,000,000 from more than 150 investors pricing at 6.8%. This yield is the same as our senior euro bond issuance of last year July. The positive impact on KAR is 105 bps. As a result, the total share of ESG linked funding in Wholesale NOW stands at around 30%. Due to our ample FX liquidity and low FX loan demand, we will continue to be opportunistic in our borrowing strategies. Let's move on to the P and L in detail. Our quarterly swap adjusted NIM was up 34 bps quarter on quarter to 2.74%. For the quarterly performance, significantly higher swap costs was offset with higher CPI linker contribution. Therefore, The improvement in core NIM was led by asset repricing. To put it into numbers, our average short term and long term swap utilization was around TRY 49,000,000,000 up by TRY 6,500,000,000 quarter on quarter, led by higher short term swap utilization. Swap rates also increased quarter on quarter. So both higher utilization and higher rates resulted in almost $2,000,000,000 swap costs leading to a 36 bps quarter on quarter negative impact on NIM. Meanwhile, The revised October to October inflation assumption for CPI linkers to 14% led to a 40 bps quarter on quarter positive contribution, offsetting the negative impact of the increased swap costs. That said, looking at the recent realizations and upside risk for October October inflation is evident. And every 1% CPI will have around 6 bps NIM impact. Looking forward, we expect the gradual improvement in NIM to continue throughout second half. Currently, marginal TL deposit rates are at similar levels to our back book, probably we are at the peak in deposit costs, whereas positive spread between TL loan back book and marginal still remains significant, hence also positive for asset repricing. 25% of our mainly lower yielding tail commercial loans excluding overnight matured in the 2nd quarter. And in the second half, close to 30% will also be maturing, while 35% Of our TL fixed securities redeemed towards the end of Q2 and of the remaining TL fixed securities, close to 20% We'll be redeeming in Q4. Therefore, during the second half, further repricing of both asset classes at higher yields as well as our CPI linkers should be a bolster for NIM. However, due to the funding environment being tighter than we initially expected, As well as worsening inflation outlook, there is still downside risk to our full year NIM guidance. Our fees and commissions were up 24% year on year at $2,810,000,000 well ahead of our full year guidance. As you can see on this slide, there are many businesses that positively contribute to the revenue base. The increase in Payment Systems performance is eye catching, up 48% year on year, predominantly related to the volume growth in both acquiring and issuing and less so with the increase in interest rates, which support interchange and Our credit card sales increased by 11% following our digital first card launch in September last year. This card enables end to end digital acquisition, approval and immediate usage to customers without waiting for the physical card's arrival. The share of digital first card in total sales reached to 25% as the first half of this year. Digital cards Have 4 times better early activation rates and 20% higher average monthly spend than non digital. During the first half of the year, we offered 50% more campaigns and promotional offers and the increased participation from customers led to higher volumes. Bancassurance continues its strong performance, up 45% year on year as a result of new product launches and increase of digital premiums. There was a significant contribution from digital bank insurance sales, which were up 84% year on year as more products are migrated to the digital platform. Money transfer fees were up by 32% with due to the strong volume. Also, our Wealth Management business continues to grow and support our revenue base with the new ESG and tech focused funds as well as new digital features that were offered throughout the year. To give an example, a new product group named Investments of the Future was added to digital channels, which consists of ESG funds, high-tech stock funds and similar new generation investment products. In only 6 months, the new digital service received good traction and boosted the client base, almost doubling the AUM of this product group, reaching over 10% of AgBank's total mutual fund AUM. To sum up, looking at the first half performance, there is definitely upside potential in our mid teens full year fee growth guidance. We continue to leverage our digital capabilities with our 5,800,000 active digital customers. As you may see on slide 14, our numbers for interaction and financial engagement reflect the drastic improvement in our digital channels. Multi mobile app logins increased by 24% since the beginning of 2020. And more importantly, our mobile net promoter score has improved by 15 percentage points during the same period. Our active mobile customers not only visited outbound mobile almost every day, but also engaged in financial transactions, which increased by 56% year on year. Value driven from each interaction and engagement also picked up remarkably. Shared digital channels in credit card sales and GPLs have reached 55% 83%, respectively. On the bank issuance side, digital channels also had a solid 48% share. 2nd quarter of the year, We also witnessed a groundbreaking change for the Turkish banking industry. Customer onboarding process has become digitized end to end as of May 1st. On slide 15, we'll summarize the main points at Defej's Agbaq along with some initial performance results. While launching this new digital service, We, as always do, we place the special emphasis on customer needs and experience design. Extremely simple experience, Instant access to all banking products and services and strong value propositions are some of the key areas that sets us apart. We see digital onboarding as a potential major customer acquisition travel for Agfa Bank. Though early days, initial results also We will perform this with predominantly young digital savings that have good credit quality profile. For further information regarding this revolutionary change, Please pay a visit to our IR website to watch our video interview with our EVP of Strategy, Digital Banking and Payment Systems, Bhujji Vilek Uje. I'd like to take a moment also briefly to share some information about the interruption to our services that took place between 6th 7th July. First of all, as we shared at the time, there was not any sort of cyber attack and our customers' personal data remains fully secure and intact. On Thursday, July 8, 1.5 times the normal amount of transactions were processed and our systems operated at its usual high performance level. Since then, all our systems have been serving our customers without any interruption. Technology is at the core of the bank's strategies in which we continue to make significant investments. Our core banking application runs on the IBM mainframe system also used by many large around the world. And as mentioned in our footnotes, we expect the financial impact to be immaterial. Effective cost management is our strong muscle. We have a very low cost base, which gives the bank a lot of flexibility. Still, we continue to look line by line for expense control. Our reported OpEx was up only 11% year on year despite currency volatility. For the full year, despite higher inflation outlook, we remain confident in our mid teens OpEx growth. The main contribution will continue to be from increased marketing efforts as well as regulatory expenses, both in line with our growth strategy. We expect our low cost base and solid revenue generation to be supportive of our best in class costincome ratio. Our costincome ratio calculation Excludes foreign currency gains from the long foreign currency positions related to the Stage 1 and Stage 2 provisions as well as our LYY hedge on the income side. We will continue with our disciplined cost management approach while investing in our future. And now on to asset quality. Our Stage 2 loans have increased to 11% of our gross loans, mainly due to a well collateralized corporate loan, which was restructured and therefore moved to stage 2. While our stage 3 loans declined from 6.2% to 5.5. We had only $41,000,000 write off during the quarter, which had negligible NPL impact. On a very positive note, 3rd quarter in a row, our monthly average collection performance continues to be above pre pandemic levels. As a result, we recorded net negative NPL inflow for the first half of the year. As for the VRSA staging forbearances, Of our 30 to 90 day files, only around TRK 600,000,000 are in Stage 1 with strong coverage, while 90 to 180 day files amount to TRY 1,300,000,000. If all of these would be going into NPL, the impact would be around 40 bps. But looking at the past trends, we expect around 1 third of these to become NPL. And also due to our prudent coverage policy, there will be limited P and L impact. Currently, staging forbearances are scheduled to end by the end of Q3. To sum up, we remain confident in our less than 6% NPL guidance for the year. On this slide, we provide details regarding our deferred loan portfolio. Please recall that loan deferral schemes for customers were extended until end of September for the consumer customers, whereas scheme for business banking loans had already ended. Hence, we continue to support our customers in the 2nd quarter, while maintaining great discipline and balance sheet strength. Total deferred risk principal amount to date has reached TRY 34,000,000,000, but the outstanding risk has come down to RMB21 1,000,000,000 by the end of first half. Outstanding deferred loans account for 7% of our gross loans, While total coverage was at 8%, up around 1% year to date, it is also comforting to see that 75% of the customers That had matured installments, had quite strong repayment performances. Also, NPL migration of these loans have remained consistently low versus the total level, which also confirms the healthy asset quality of the specific portfolio. Despite the BRSAs staging forbearances, we did not deviate from IFRS 9 and as in the past with necessary provisions for potentially problematic assets even before classifying them to Stage 2 or Stage 3. As a result of our prudent approach, despite our improving cost of credit trend over the last 4 quarters, our coverage ratios remained at similar elevated levels. Our net provision charges for the quarter were at 427,000,000, lowest quarterly since IFRS 9 implementation, which started at the beginning of 2018. Many factors fed into this performance such as our delevered loan book, prudent reserve build with our total provisions reaching TRY 18,000,000,000 and better collection performance from both retail and corporate and commercial customer base. As a result, our total coverage remains at 6%, which excludes our $1,150,000,000 or 1,150,000,000 Free provisions as additional buffer. Our first half net cost of credit including currency impact is at 79 bps, suggesting a much better full year performance than we guided at the beginning of the year. As a reminder, we had guided for our net cost of credit, including currency impact to remain below 200 basis points. The lower level of net provision charges provide substantial offset to the net interest Income Headwind. Every 10 bps change in cost of credit equates to around 40 bps ROE impact. Our LYY loan risk was hedged last year in Q3. Therefore, the mark to market adjustment is offset at the trading line, and LYY is not included in our cost of credit calculations. Had we not hedged this loan due to the detailed depreciation, there would have been an additional $1,800,000,000 gross negative P and L impact in the first half of the year. You may find all the provision charges, trading income and hedge details in our appendix of the investor and IR presentations. And now on to our bank's distinctive final strength, our capital position. Despite the unprecedented challenges, our solvency remains our solvency ratios remain We look at regulatory limits at 20% total capital, 16% Tier 1 and core equity Tier 1, excluding the forbearances. Our capital ratio was up by a solid 150 basis points quarter on quarter. Let's go over the drivers. New sustainable Tier 2 issuance had a strong contribution of 105 bps. Positive mark to market impact of securities portfolio, which was 35 bps, mostly compensated for the higher credit risk, which was 39 bps, stemming from our loan growth. Our solid internal capital generation Uplifted our capital by 51 bps in 2nd quarter. All in all, we further advanced our excess total capital to TRY 32,400,000,000 and excess core equity Tier 1 to TRY 30,300,000,000 according to Basel III minimum requirements without any forbearances. If we were to include the forbearances, excess total capital and core equity Tier 1 would reach TRY34.5 billion and TKK 32,000,000,000 Our SAMH Capital buffer serves as a shield against unprecedented challenges and volatility and also creates ammunition for sustainable profitable growth. Speaking of sustainable profitable growth, I'd like to mention some of the steps that we have taken to help build a greener, more inclusive future for the next generations. In line with our commitment to ESG strategy which we announced at the beginning of the year. We continue to offer new products to our customers to support the transition to a greener economy. With our Green Trade Finance campaign, which is the first in Turkey, we offer competitive correspondent bank charges and commissions on letters of credit issuances. For the imports of customers with clear environmental sustainability and protection policies. Additionally, pricing and maturity incentives We'll be providing correspondent bank commissions for the confirmed import letters of credit as to the reviews of IFIs and correspondent banks. We also launched our rooftop solar energy product to support the transition to a low carbon economy. As you know, Agba has committed to provide TRY 200,000,000,000 of sustainable loan financing until 2,030. In line with this commitment, we provided around 11,000,000,000 sustainable finance in the 2nd quarter, reaching over 17,000,000,000 Turkish lira in the first half of this year. While providing a more sustainable finance to our customers, as I mentioned earlier, we also increased the amount of wholesale funding from ESC Link Structures or sources this year to 30%. In line with our commitment to become a carbon neutral bank eliminating our operational emissions by 2025, we took further measures to decrease our environment footprint. In the Q2, 60% of our electricity Used for our operations is sourced from renewables, which is up from 20% at the beginning of the year. To further foster our governance and culture, We have prepared and announced 3 policy documents: Diversity and Inclusion policy, Human Rights policy, 0 Tolerance to Violence policy. All three can be reached on our IR website. Last but not least, we are proud to announce that Akhmat is now a signatory of UNEP Afai, which is a partnership between UNEP and the global financial sector to mobilize private sector finance for sustainable development. Long term commitments can only be achieved through consistent and coherent efforts. With the full awareness of this fact, we will continue to take new steps and initiatives on our journey to increase our positive impact on the environment and our committees, while reducing our footprint in the quarters ahead. To sum up, with the ongoing uncertainties regarding the pandemic as well as higher global inflation, This year has been another challenging year. However, we remain confident in our financial strength and operational resilience. On this slide, you may find a summary of our first half performance versus full year guidance. Having reached mid year, we also wanted to share indication as to where we may be expecting some positive or negative surprises. Starting with NIM, as shared earlier, tighter funding conditions and higher inflation outlook pressured NIM beyond our initial expectations. To put in numbers, looking at the current trend, There could be around 50 bps negative deviation from our initial guidance. On a positive note, however, Our cost of credit evolution has been significantly better than our initial expectation of 200 bps, indicating that we could end the year somewhere between 100 to 150 basis, actually more so closer to the lower end. Therefore, we expect the better than guided performance of cost of credit to fully offset the negative ROE impact of the NII miss. And also adding our robust performance in fees, we are confident in our mid teens ROE guidance. All in all, we believe our positioning will enable us to leverage our strength, while carrying out our priorities for improving profitability this year. And this ends our presentation. Thank you for listening. Let's move on to the Q and A. You may raise your hand or type in the Q and A box. And for those of you who are joining us by mobile, please send your questions by e mail to investor. Relationsatbank.com. And the first question comes from Waleed Musen. Hi, Waleed. Hi, Ebru. Thank you much for the presentation. I'll just ask a couple of questions. So thank you for the detail on the guidance. I just want to get a sense, I mean, look, we're almost at the end of July. And as you said, cost of risk has been tracked much better than expected. And you did allude that it's going to probably be at the lower end of the 100 to 150 bps that you think it could be. Maybe you could just talk about what you've seen in July so far and How maybe some of the trends on that are tracking. And I was also curious to hear why You haven't revised that particular guidance in cost of risk because it seems there's good visibility on the credit loss number that it's going to be much better So that was the first question. Then secondly, on the loan growth, You alluded to slight downside risk, but just want to get a sense of in July or so far in the Q3, Any particular trends that you're seeing both in terms of loan origination, both TLFX? And If you're still seeing a further improvement on the loan spreads into July, so any comments on these would be very helpful. And lastly, on asset quality, obviously, I asked you about cost of risk. But any particular areas of stress would still remain, which are at the back of management's mind at this moment, Given that still the 100 to 150 bps range means that cost of risk will be higher than where it was at the end of first half? Thank you. Hi, Walid. This is Dirk Jack. Thank you very much for your questions. Let me start with your first and second questions actually. So now we actually we have not just We haven't finished we haven't seen the full picture of July yet. But so far, we haven't seen A change in the trends so far in terms of cost of credit. So therefore, maybe this 100 to 150 basis points range of expectation, maybe Ebru is conservative as well, so maybe we may end the year around 100 basis points, but we'll see. But so far, we haven't seen a change In the trend, that's what I can say. So why we did not change the guidance actually? Actually, as you know As you can see from the slide, there are some positive and negative deviations from the initial guidance. But all in all, actually, We still think that we will be able to receive mid teens of ROE by the end of the year. Therefore, actually, we checked the guidance unchanged. That's the reason actually why we haven't changed the guidance. With regards to loan growth in July, Actually, when I look at the sector figures in July, so which have been published recently, Actually, we can only see the first half of July. And so far, when I look at the systems on TL loans, on TL commercial loans, There has been some activity like 1% growth on the commercial loans and roughly 0.5% on consumer loans. So no big change actually from the first half of the year. But I think with the opening of the economy, with strong growth Strong growth expectations, I think. In the second half of the year, we may see a more a bit More activity with regard to loan demand as well. But still, I think there may be some downside risks For full year because, as I said, in the first half of the year, our growth was roughly 7%, mainly by retail loans. I don't think that's I think so we will be able to reach this our guidance on the retail MOS side And maybe we may be exceeding we may exceed it as well because of our strong performance in the first half of the year. But maybe we may stay a little bit behind of our TL corporate commercial loan guidance of high keys because of the growth so far. So that's what I can say with regard to loan growth. Surely, since the front book or since the marginal price is above the back book, We are still we are seeing further improvement in our core space. Maybe just to give you some color on that. When I look at the marginal rates on TI loans, these are priced as Roughly, depending on the type of customer metrics, etcetera, is roughly at 20% levels, whereas back book is at roughly 17 So therefore, actually, there is a big area for improvement. That's on the loan growth side. Asset quality, any particular areas of stress? I don't think we don't, At this for the time being, we don't have such a signal coming from our portfolio. I think we have done our homework very carefully in the previous period. That's why actually we are seeing this consecutive Cost of credit improvements since the end of the second quarter of last year. And maybe also just to keep in mind, As you may have seen from our presentation, there has been some increase in our Stage 2 loans because we have classified One of our loans from Stage 1 to Stage 2, some part of this customer was already restructured and was already Cliff White is in Stage 2, whereas some portion of the loan of this customer was in Stage 1, but we had already provided Additional provisioning for that loan at that time. So we have just made the classification without Any further provisioning need for us for this customer? So these are my answers actually to your questions. Any further questions, Helmut? Thank you, Matjus. Just one follow-up on this. So it's all very helpful comments. Just One follow-up would do on fee growth, right? So every on most line items, you've talked about downside or upside risk. With the kind of fee growth that you've had in the first half, I would expect you to say that there would be some upside risk, especially given that First half will be impacted by certain lockdowns. So would it not be fair to think that there's some upside risk to the fee growth guidance that you provided for the full year of high teens? That's actually why we are we have said in the slides that we are expecting better performance because, as you correctly mentioned, In the first half of the year, year on year growth was at 24%. So we are Keeping a similar trend to Dara Park, actually, there's an sizable upside potential. Got it. Understood. Sorry, I missed that. Yes. Thank you so much. That's very helpful. Okay. Thank you, Waleed. The next question comes from Gabor. Deborah, you can ask your question. Hello. Can you hear me? Yes, we can. Firstly, on your margin guidance. Did I get it Right that you were mentioning, gave 50 basis points lower performance potentially for the full year Then the initial guidance, which was minus 2,030. Yes. Right. That's right. So maybe you can't put this 50 basis points on top of it. Got And I guess that would mean a significant recovery of at least 100 basis points in the second half. I guess some of it would come from inflation. Can you comment on how would you expect your core NIM to develop, like excluding The upside from the CPI incurred. Yes. Ebru, first of all, on the funding side, I think we have seen the maximum because the main source of funding is our deposits as well as swaps and Repo funding. And because of the low maturity of these funding sources, actually, we are already at the top of it. Yes. There was as you can see as we have also shared for the system, deposits are priced roughly close to 18% in the system. So I don't think that there will be a further increase on the deposit side or other TL funding sources going forward, Whereas the repricing on the TL loan side is going on because as I've mentioned, The back book is roughly at 17% levels, whereas the front book is roughly at 20% levels. And again, Close to 30% of our TL commercial loans will be maturing in the second half of the year. On top of it, we are around again, roughly 20% of our fixed rate success will be redeeming in the second half of the year as well. So therefore, actually, We expect material course spreads improvement in the second half of the year And maybe if we can see, as we had As Ebru has explained at the beginning, if you can see also an improvement in the inflation trends Starting from Q4 onwards and which may also allow some rate cuts towards the end of the year, this will be helpful as well Because of, again, the low maturity of Customer deposits. And maybe it's also important to mention, on the FX side, FX loan demand is weak in the system, which can also follow from the BRSA figures. But because of the Strong FX liquidity we have. We are able to keep our FX deposit costs at very low levels. Actually, we have maybe not very big figures, but in the last Roughly 1 month, we have further decreased our FX deposit pricing by roughly maybe 30 basis points. Currently, we are paying less than 1%. For our FX dollar deposits, we are paying almost, I think, for euro deposits. So there is also some slight improvement from That's very clear. Thank you, Thierke. And just a broader question. What's your appetite to do TIA commercial lending in an environment when obviously the inflation Actually, we are comfortable with our landing poster. So actually, we would like to grow. Actually, that was actually what we have shared at the beginning of the year as well. And also during that time, actually, we had a similar Interest rate environment, as we said, maybe also because of our relatively lower loan book, We said we would like to grow RTL commercial loss by high teens, and we still keep this Maybe we should really look at these rates. Like for TL corporate commercial loans, the rates are roughly at 19% new levels in the system, margin rates. But When you compare it to the deposit rates and inflation, I don't think that these are very elevated rates. So if you would compare To raise like 30% levels 2 years ago, I think you are okay. The next question comes from Alikirim Akkayumbu. Hello. Hi. Can you hear me? Yes, we can hear you. Yes. My question is on the system glitch you had a few weeks ago. What was the cost of the total dilemma? And more importantly, going forward, Have you seen any issues with clients and the potential cost of basically Keeping those clients, if we can just hear what you have to say about it. Okay. E. K. Bey, would you like to start first regarding the customer base? On the customer side, we see I mean, on the NPS side, on the customer satisfaction side, after the incident, we see a Little decrease in our NPS scores. However, we took necessary actions to quickly cover The impacted customers. Actually, we have solved almost all the customer complaints and compensated for Our customers' unpleasant experiences during this period. And we have now we see it Back to the normal levels in our NPS levels and now it is recovering to the pre incident levels. On the customer acquisition side, maybe Turcalf, you can comment on that. And also to clarify the financial impact. Yes. Yes. Actually, surely, on these two days because of the Interruption actually. Van will look to dramatically dramatic decline in the number of financial transactions for these 2 days. But when we look at the trends starting from 8th July actually, Especially the 1st day, the number of transactions was, as Ebro has mentioned, 1.5% of previous days of a previous normal day. And also when we looked at the trends after that time, number of transactions From all channels of the bank, we don't see any negative trend compared to the So therefore, actually, as we have also in our disclosures in our financial We have also touched this area as well. So we expect Financial impact, so very limited, very immaterial for the system interruption. And really, when we talk to our colleagues actually, also really also our customers actually are Have been very supportive as well. And For the customers which had some complaints, our people have Responded to them as soon as possible in the very in the earliest time. So therefore, actually, all in all, we don't expect Thank you. The next question comes from Alan Webborn. Alan? Hello, Alan? You're right. Yes, okay. I guess you were on mute. Okay. Hi, Alan. How are you? Great. Okay. Just two questions for me. When you point to there being some quite significant maturities of your fixed rate corporate lending In the second half, and clearly, those must be loans that were done at a much lower a lower rate because you're saying that they're going to be positive. I mean, Do you sense any issues at all in terms of asset quality? Are you expecting a lot of them to Repay rather than sort of rollover, is that part of the reason why you're a little bit nervy about Your corporate loan guidance for the full year. So just Some explanation of what you're expecting from that process across the second half would be So that was the last question. And I guess the second would be, You were within retail, are you seeing any signs of Your retail customers struggling in terms of income, are there any early signs of stress? Or do you not sense any of that? And do you think that there will be any shift In terms of where the demand in retail has been in the first half and where it's going to is likely to be in the second half given I guess rates are going to be fairly stable if interest rate cuts don't come at all or maybe just before year end. So Any feeling about the change of dynamics there would also be helpful. Thank you. Hi, Alan. This is again Trucker. Actually, maybe Ebro, maybe we can go to Slide Actually, as we have shared previously, our TL Business Banking loan growth was limited to roughly 2% for the first half of the year. And actually, one of the major Business loss, as we have already shared as I shared in the previous earnings calls, We had sizable redemptions in the first half of this year as well. And many of these Customers have actually paid back their loans. So therefore, actually, we had to replace those loans. So therefore, actually, we had this limited loan growth. So in the second half of the year, some of the loans which will be redeeming will be the ones we have Generating rather towards the end of the year, so not like the ones we have Generates in the first half of the year. So I think, again, some of these loans customers would repay their So therefore, actually, we are a bit more careful with regard to this high teens TL loan growth Because of strength we are seeing actually, having diesel dams and replacing those loans makes it difficult for us to But in terms of asset quality, again, as you know, we have delevered our loan book In the previous year, so therefore, actually, we are rather comfortable with our landing activity. And again, Louis, when you look at the rates, okay, these are like 19%, 20% levels for Commercial loss. But if you compare it with the inflation environment with depository system, I think there are it's a reasonable level of price. So it does make us So concerns with regard to asset quality trends. Actually, we don't see such a trend we haven't seen such a trend so far because of Strong repayment performance from our loan book. Actually, the same is also true for, as Ebru has shared, for the loans For which we had granted payment holders. If I look at the repayment performance of these deferred loans, as we are sharing on Page 18, The performance so far is quite strong. I think that's also another signal actually. So all in all, so far, We don't get such worrying signals, and we should also maybe not forget. So hopefully, with this with the vaccination activity, We won't have any further, hopefully, lockdowns like we had in the previous period, so Which will be supportive for economic activity overall. And I'm not so sure whether I understood your question correctly. So in terms of tranship in retail loans and in between the versus mortgage loans? Yes. Actually, when I look at actually, Again, because of our low base, we are able to gain we have been able to gain market share in mortgage loans. But When looking at the mortgage loan growth in the system so far In the first half of the year, so in the 7 months so far, it is really limited to roughly 0.5%. So far, we haven't seen a high demand on the mortgage loan side. Maybe as long as these rates stay at these levels, I don't think that we would see a major Increasing the mortgage loan appetite from our customers, that's actually what we see from the figure But again, just to repeat, because of our low base in mortgage loans, we were able to gain some market share. And hopefully, we will continue with this trend in the coming months. That's helpful. Thank you. The next question comes from Simon Nellis. Hello. Hi, thanks for the call. Yes, my first question just would be on Dividends, I think it's probably a bit too early, but have you had any discussions with the regulator? Do you think they'll be more willing to let you pay out a higher Portion of your earnings this year as a dividend? That would be my first question. My second question would just be on, is there any hope for kind of de dollarization? Your TL loan to deposit ratio has deteriorated quite a lot. It's a lot higher than it was Last year, beginning of the year, any signs that that's going to improve going forward? First of all, Simon, I think just to mention, on the TLLDR side actually, it has improved So if you go to the slide. As you can see, our TLDR versus year end has improved by 6 percentage points, remaining flattish on a Q on Q basis. And our total LDR is as well flattish and our FX LDR Obviously, it's slightly higher. So that has led to the slight maybe overall, as you can see here, increase in the total LDR. So maybe I can can answer that there. And the remaining, I'll leave it to Turki. Yes. Thank you, Ebru. Hi, Simon. Maybe to start with the globalization trends. Actually, as you know, We have seen such a trend, as you may remember, towards the end of Q1. But after that time, actually, when I look at Sector figures actually may be from week to week, it may change, but it was rather flattish. Maybe time to time, we have seen some By retail customers and dollar and the opposite direction in our corporate commercial customers. But all in all, We haven't we are not observing such a trend shift yet. As you know, Central Bank has announced some incentives for TL deposit or let's say, for TL deposits converting from FX deposits, whether it would Trigger any further dollarization? We'll see. But what I can say is actually because of our strong flexibility, We are paying at very low levels to our FX deposits. And I think It will be the choice of our customers actually based on maybe inflation expectations, They will make this decision. But so far, we don't see a clear trend. With regard to dividends, As you rightly mentioned, it's too early. As you know, BRSA Makes its position more clear towards the end of the year. But at every circumstance, we are Expressing our view that actually we have a very strong capital base. So we would like to increase our dividend payout. Our official payout policy is up to 40% of net income. And in the past, as you may remember, we had paid up to 25% levels Like in 2017, 2018. So we would like to pay our payout ratio, but It will depend on BRSA's stance. Understood. Thank you. Thanks very much, Just one correction from my side, the total LDR also remained flat. It's only the FX LDR that went from 47% to 49%, just to correct myself. I think I rephrased that correctly. And the next question comes from Jihan Sarolo. Okay, maybe we can move to the questions from the web then. Oh, no, Jehan came in. Okay, sorry. Go ahead, Jehan. Okay. Can you hear me now? Yes, we can. Okay. I have a quick question about your Stage 2 loans. There's an echo by the way, if you can Is it any better now? Yes, better now. Thank you, Johan. Okay. I was checking your Stage 2 loans and their share in total loans seems to have gone up by about 2 percentage points or so to 11%. I was wondering whether there is any specific reason behind that. Can, as I explained previously, actually, we have a customer, Some portion of its risk was already in Stage 2 as a restructured loan Some portion of its risk was under Stage 1. So because this the portion of Stage 1 It has been also included into the restructuring scheme of this customer. So therefore, we have also classified this remaining portion into Stage 2, but we had already provided additional provision for that customer while it was in Stage 1, last year actually. So there were actually we didn't have to provide provisioning for this customer, it was just a clarification of the second portion of this customer's exposure together with its Okay. Maybe we can answer just maybe 1 or 2 questions from the web. Okay. We have a question. What are your views on the impact from the latest decree From mid July that allowed banks to sell both NPLs and Stage 2 loans to asset management companies. Where do you see opportunities For the sale of Stage II loans, where coverage is considerably lower than 100%. Okay. Let me answer this question. Actually, yes, this latest Legislation change. I think it brings an additional flexibility to the banking system. But as you know, as AgBank actually, we have a very strong credit monitoring and collections team department. So and our EVP in charge of this department, so she's a very seasoned lady as well. So she has a very Long back experience in the asset management sector as well. So currently, We have no interest, so for Celigard Stage 2 loans. As you know, for our NPS, again, We are always opportunistic. 1st of all, we try to reach the best collection performance from the APAC portfolio. And only after that, for the 8 months, we visit this NPL sales option. So That's what I can say at the moment. Okay. We have another question. This is the last question. In Q1, you booked Turk Telekom dividend in your fees. Did you book any amount in the Q2? And what are your plans for the coming quarters? Actually, No. In the Q2, we didn't have any impact so income impact from LYY. But True Telecom is paying its dividends in 3 installments. So DARPA actually in the 3rd quarter also and At the beginning of Q3 as well as at the beginning of Q4, we will have some repayments for our From our risk, roughly, TRY 110,000,000 for each quarter, So which will be positively impacting our mark to market line in the K and Thank you. Thank you all for joining us today. I see that there are no further questions that No further hands are raised. Thank you for joining us today. If you have any further questions, please do reach out to us. You know how to reach us. And I hope again keeping my hopes up that we get to meet face to face again later this year. Have a great evening and keep well. Thank you very much. Good evening.