Earnings Call: Q1 2021

Apr 28, 2021

Dear friends, welcome to our Q1 2021 Financial Results Webcast and Conference Call. This is Ebru speaking, Head of IR and Sustainability of Ag Bank. Thank you for joining us. I hope that you are all well in good health. Today, I have with me Hakan Bin Bash Aktil, our CEO Turkar Tounoglu, our CFO and Igor Ultan from our IR team. Before moving on to the financials in detail, I'd like to leave the floor to Hakan to share his thoughts. Hakan? Thank you, Ebru. Hi, everybody. I'm very happy to be with you again. Of Aker. I hope that you, your families, your colleagues and your loved ones are all doing well. We obviously continue to go through extraordinary unprecedented times. Vaccinations have of Aker. We started to gain pace globally, but many of us are still facing certain challenges. The health and well-being of our people, customers and community remain our top priority. Of Akhtar. Over the last year, digitization has been tremendously fast forwarded in both transforming customer behavior and the way we operate. Our long term approach in everything we do has given us Aker. Our years of investments in technology, advanced analytics of Aksha. And our people, as well as our consistent focus on sustainability, helped us of Aker. We are fully aware of the importance in building of Aker. And maintaining a healthy and visionary company. Our robust capital, solid liquidity, of Akhtar. Low leverage, highest level of efficiency, low operating cost base, of Akkad. Outstanding talent and technology are key enablers and differentiating factors in our ambition. Of Aker. And this long term approach also helps us absorb the potential damages of difficult periods of Axtel. Ebru will share with you our Q1 performance in detail in a few minutes. Aksut. But I would also wanted to share my thoughts very briefly. Of Aq. As you know, last year, with the support of favorable liquidity conditions, our sector witnessed of Aksum. From Q3 onwards, with the tight monetary policy, loan growth of our company. Currently, the impact of this tightening is being felt of Aker, both in loan growth as well as margin evolution. At the beginning of the year, Akkad. When we shared our full year guidance, we were expecting loan growth and margins to start the year at low levels and gradually improved throughout. However, I should mention that so far funding cost trends of Acht. As well as inflation expectations have both evolved somewhat above our initial guidance. We Akkadu. We believe that during the second half of this year, we will have a more favorable operating environment. Aker. In light of these latest trends, during the Q1, our NIM has evolved at relatively low levels. Going forward, we expect to see a gradual improvement in NIM. Of Aker. On the fee income side, I'm happy to share that we have a very strong performance across the board. Akka. While our cost discipline continued, similar to the Q4 of 2020, our net of Aker. Cost of credit has evolved favorably, helping to mitigate our performance on the net interest income sites. Aker. As I have shared with you in various occasions, our prudent provision build policy has started to pay off of Akkad. And our cost of credit is moving towards normalized levels. To sum up, Aker. 1st quarter profitability is on path with our full year guidance. Before leaving the floor to Ebru, of Akkadu. I'd like to express my sincere gratitude to all our people for rising to the unprecedented challenges and being a source of strength. Of Akhtar. And after the presentation, I'd be more than happy to answer your questions. Aker. Thank you, Hakan. Let's start off with the big picture. Despite the negative impact of the ongoing pandemic, the economic activity in Turkey still trending relatively well. This trend is driven both by domestic demand and the recovery in exports in line with the recovery in the global economy. Aq. With the help of the cumulative impact of the accommodative policies, most of the manufacturing sector activities are back to or even better than pre COVID levels. However, activity in the service sectors still remains to be weak and the trend in the tourism will be an important factor for this area. As for the current account, the pickup in export is supported, Aq, yet the overall outlook will once again much be dependent on the trend in tourism revenues. And as for growth, we expect this year's GDP to be around 4 point Akhirsen. The main challenge going forward is to reduce unemployment rate with sustainable growth trajectory. Aker. Inflation will arguably be the most closely watched macro parameter in the foreseeable future for Turkey. Both demand and supply related factors continue to lead to upside risks, which may require the continuation of tight monetary policy. And although we expect a decline in trend in annual inflation until year end, it may still remain at elevated levels. And the pace of the deceleration Achin will be important for the course of the monetary policy. In light of all this, we expect policy rates to remain its current high level until a convincing downward trend in inflation is observed. This implies that the TL deposit and loan rates would likely remain at relatively high levels. Although there was a decelerating trend in TL loan growth due active domestic financial conditions until mid February. There has recently been some recovery due to improving domestic demand. ACC. The trend in FX loans, however, still remains to be weak. Overall, although the operating environment AFF will be more favorable in the second half of the year, it will still likely remain challenging due to the tight financial conditions. Aker. Let's move on to the bank. Our first quarter reported net income AFF was up by 56% year on year to $2,028,000,000 When adjusted for the $250,000,000 free provisions Aker. As I said last year in the Q1, it was still up by an outstanding 31%. Our reported ROE stood at 12.9%. AC. Please note that there has been a change in corporate tax rate from 20% to 25% for this year, which will be affecting our profitability on a cumulative basis starting from Q2. But including this negative impact, Aq. We still target mid teens ROE for full year. We had shared at the beginning of this year that our swap adjusted NIM would be at a sequentially improving trend throughout the year. Due to funding costs rising above our expectations, NIM started the year at a lower level than what we initially anticipated. Aker. However, we continue to expect a gradual improving trend in NIM. As for fees, we started the year quite robust and on track for high teens guidance. Aker. On the growth side, our delevered loan book and investments in digital banking have further advanced our market share in retail, I. E. Consumer and SME, which we believe will be supportive factors for our profit mix going forward. We have been gaining market share in these high margin segments since last year Q3. Our pre provision income was up 10% year on year and 49% quarter on quarter, also reflecting the foreign currency gains from LYY Risk Hedge and Foreign Currency Provision Hedge. Both have no impact on net income as they are netted off at the provision line. Aker. This robust performance, which enables the bank to further build reserves, is a clear demonstration of financial strength and the capacity to absorb as well as navigate challenging environments. Thanks to our proactive and prudent IFRS nine implementation in previous quarters, The net cost of credit has been improving since it peaked quarterly in Q2 of last year. And as always, our fortress balance sheet built with robust total capital of 18.5% without forbearances, strong foreign currency liquidity and low leverage of around 8 times underline the inherent benefits of our diversified business model. 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 detail. First with the balance sheet. Akkad. Our total assets were up by 8.1% year to date to TRY517 1,000,000,000. Aq. Net loans increased by 7.3% in the same period to RMB282 1,000,000,000 led by both TL as well as FX loan growth. Akka. By the end of the Q1, loans made up close to 55% of our total assets, almost no change versus year end. ATL Business Loans were around 39% of our total net loans, while consumer loans including credit cards accounted for 23%. Aker. FX loans reached almost 38% of our total net loans, driven by limited new loan generation and also AXA. So the 12% lira depreciation during the quarter. Our securities remained around 21% of our assets. Aker. Amid the heightened volatility of the quarter, the bank prioritized balanced and prudent asset allocation, which will be instrumental in creating sustainable long term shareholder value along with our low leverage and robust capital. Our year to date TL loan growth was led by consumer loans and consumer credit cards where we had a broad based quarterly market share gains. With 50 bps AFF in general purpose consumer loans, 40 bps in mortgages, 50 bps in auto and 15 bps in consumer credit cards. A notable support to GPLs during the quarter came from end to end improvements in analytical decision models. Aker. These initiatives reflect on to healthy increase of our pre approval rates. As a result, our pre approval originations in total GPLs We're up by 5 percentage points quarter on quarter reaching 67%. We continue to enhance our analytical capabilities, which will further advance our market presence. Accelerated marketing efforts as well as digital initiatives We're also key enablers for noteworthy performance. Please see our appendix for the outstanding highlights of our digital banking achievements. Aker. As for TL Business Banking, after closing last year on a high note, we started the year rather flattish. Aker. We also witnessed some competitive pricing during the quarter, which curved our lending appetite, especially in corporate and commercial segments. Aker. On the other hand, our net FX loans were up by 2% year to date reaching $12,700,000,000 from our low base. Aker. Still, muted demand for investment loans hinders us from establishing a more optimistic outlook for foreign currency loans. ALC. To sum up, it is early days, but there may be some downside risk to our full year TL loan growth guidance of around 20%. Aker. However, we believe our efforts in the Retail segment have resulted in better than guided performance so far, which will have positive repercussions for the profit mix. As for the securities, The total securities book is up by 4.8% year to date to TRY107,000,000,000. On the TL side, we continue to increase the share of CPI linkers and floating rates, which now make up 66%. ACC. As a reminder, last year, first half our CPaa Linkers and floating rate portfolio stood at 49%. Aker. In light of the rising inflation outlook, the main increase over the last three quarters took place in CPI linkers, which are now Aq. 57% of total TL Securities, up 14 percentage points since first half of last year. Aker. This portfolio will work as hedge in higher inflation environment. We are currently using 11% for the October to October valuation. Please note that every 1% CP high has around $260,000,000 net income, our 6 bps NIM and 40 bps ROE impact. As for the fixed rate side, around 35% of the portfolio will be maturing towards the end of first half. With current yields being significantly higher, The new purchases should be supportive for NIM. As for the foreign currency side, there was slight uplift in the overall yields of the portfolio as we rolled low yield domestic issuance redemptions with higher yielding sovereign euro bonds. Our proactive positioning in both foreign currency and TLC Securities portfolio will be contributing positively to our net interest income this year. Aker. Now onto the funding side. Our focus remains on well diversified and disciplined funding mix as deposits continued to be our main source of funding with 60% share. Our total deposits were up by 6% year to date to TRY 310,000,000,000. Demand deposits were also up by 4% year to date, keeping a solid 31% share in total deposits. Agfa. Sticky and low cost deposits such as retail, I. E. Consumer and SME have reached a total of 75% of total deposits, TL deposits. Aq. This is 3 percentage points higher versus end of last year. We also improved our TLDR by 6 percentage points. Aker. The de dollarization observed towards the end of the quarter has also been a supportive factor. We have yet to observe whether this trend will continue as it will be dependent on the inflation and interest rate trajectory over the course of the year. Our sound A. Foreign currency liquidity with an FX LDR of 51% remains as one of our strong muscles. ACR. As a result, our total LDR ended the quarter at a low level of 95%, significantly below sectors 103. Aker. For cost optimization purposes, we shifted some of our swaps to TL repo funding, which resulted in higher share of repos. ACC. Thanks to our significant unencumbered securities portfolio, we were able to opportunistically switch to this channel as a cheaper funding alternative. We have a well established wholesale funding profile, which is less than 14% of our total liabilities. Aker. Our Q1 average foreign currency LCR is robust at 286 percent Aqsa and our foreign currency buffer is noteworthy at $12,000,000,000 versus our next 12 months rollover worth $2,700,000,000 Aker. Also want to share that of the $2,700,000,000 due within the next 12 months, we have successfully renewed the 630,000,000 syndicated loan in April with a rollover ratio of 107%. 35 banks participated, 8 being new. Aker. This was our first EST linked syndication having performance criteria such as gender balance, non lending to brief the coal power projects Aq and Electricity Sourcing of our bank from renewables. The total share of ESG Link funding in wholesale now stands around 21%, which we aim to increase to 30% by the end of the year. The all in cost was LIBOR plus 2.50 Aker and Euro plus EUR225. We do not have any real bonds maturing this year and due to the ample FX liquidity ALC. And low foreign currency loan demand, we will continue to be opportunistic in our borrowing strategies. And now on to the P and L. Our quarterly self adjusted NIM was down 120 bps quarter on quarter to 2.4%. Aker. For the quarterly performance, key highlights were significantly higher funding costs with the CBRT funding Aqsa, a lower CPI linker contribution. As you very well know, we booked the higher full year CPI adjustment for last year during the Q4, which the bank had an adjusted additional AKO NIR contribution of around TRY785 1,000,000 or 71 bps. Adjusted for this or in other words, Our CPI normalized NIM was down by around only 50 bps quarter on quarter. AC. I shared earlier, but to highlight once again, we are using 11% in our October to October CPI valuation and every 1% CBI has around 6% 6 BICS NIM, dollars 260,000,000 net income and 40 bps ROE impact. As I just shared, for funding cost optimization purposes, we reduced our swap utilization in nominal terms. Akash. Our average short term and long term swap utilization was around TRY 43,000,000,000, down by around TRY 14,000,000,000 quarter on quarter, led by lower short term swap utilization. Meanwhile, swap yields did increase, but our swap costs were still down by quarter on quarter AFFO around RMB1.4 billion. Looking forward for NIM, we expect to see a gradual improvement starting this quarter. Acre. Currently, TL marginal deposit rates are slightly higher than our back book, so probably we will see the peak in deposit costs in the coming weeks. Whereas the positive spread gap between the TL loan back book and marginal remains to be significant, ALC, hence also positive for asset repricing. 25% of our low yielding commercial TL loans excluding overnight will be maturing in Q2. Also as I just shared, 35% of our TL fixed securities will be redeeming towards the end of the second quarter. Both asset classes being repriced at higher yields ACH should be a blockbuster for NIM this going forward. However, due to the funding environment being tighter than we initially expected as well as the worsening inflation outlook, there may be some downside risk to our full year NIM guidance, which should somewhat be mitigated with the CPI linkers working as Hedge. Now on to the fees. With an across the board solid fee performance, Our fees and commissions were up by 16% year on year, 36% quarter on quarter to 1,462,000,000. Aker. Last year, the effects of the pandemic on fee income started to be felt mainly in the Q2 onwards. Aker. Therefore, Q1 of last year was relatively a higher base. As you can see on this slide, there were many businesses that positively contributed. Aker. To name some, our market share gains in non cash loans, higher interest rates and volume growth in payment systems as well as the positive contribution of our digital first of Akshar that was issued. New project launch and increase of digital premiums and bank assurance along with the ongoing product innovation and digital acquired acquisition of Wealth Management. There was a one off fee income from LYY loan, but even adjusted for this, our fee income was up by 25% quarter on quarter and 6% year on year. We are confident and fully on track to meet our high teens fee growth guidance. Acre. And now on to the cost side. Effective cost management is our strong muscle. We have a very low cost base, which gives the bank a lot of flexibility. Aker. Still, we continue to look line by line for expense control. Our reported OpEx was up by only 1.6% despite currency volatility. Last year in Q1, there was a one off, I. E. The insurance penalty of TRY 71,000,000. If we were to adjust for this, the year on year increase would be around 5%. For this year, despite the higher inflation outlook, We remain confident in our mid teens OpEx growth. The main contribution is expected to come from increasing marketing efforts and regulatory expenses, which are 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. We will continue with our disciplined cost management approach while investing in our future. Accu. And now on to asset quality. Our Stage 2 loans have remained around 9.5% of our gross loans, Aker, while Stage 3 loans declined slightly from 6.2% to 5.8%. We only had R25 $1,000,000 write off during the quarter, which had a negligible NPL impact. On a very positive note, 2nd quarter in a row, our monthly average collection performance continues to be above pre pandemic levels, leading to a net negative NPL inflow for the quarter. Aker. As for the BOSA staging forbearances, of our 30 to 90 day files, only SEK 700,000,000 are in stage 1, while with a strong coverage, while 90 to 180 day files amount to around TRY1.4 billion. And if all of these plus 90 days files would be looked as NPL, the impact would be around 40 bps. Akhtar. But looking at the past trends, we expect around 1 third of these to become NPL. And also due to our prudent coverage policy, We expect limited P and L impact. As a result, we remain confident in our less than 6% NPL guidance for the year, which excludes a possible 1% impact from NPL sale and write off. Our guidance takes into consideration that the forbearances on stagings will be ending in Q2. On this slide, we provide details regarding our loan deferral portfolio. ACC. Please recall that loan deferral schemes were extended until the end of the Q2 this year. Hence, we continue to support our customers in Q1, while maintaining credit discipline and balance sheet strength. Akhtar. The total deferred risk principal amount to date reached TRY 32,000,000,000, but the Outstanding Risk came down to RMB20.8 billion by the end of first quarter. This is a substantial drop from also year end of RMB22.2 billion. Outstanding deferral loans account for 7% of our gross loans, while the total coverage almost reached 8%, up by 40 bps quarter on quarter. Acre. It is also comforting that around 80% of the customers had matured installments Aqsa and repayment performance continues to be very strong. Despite the BRSI staging forbearances, Aq. We did not deviate from IFRS 9 and as in the past, put necessary provisions for potentially problematic assets even before classifying them into Stage 2 or Stage 3. As a result of our prudent approach, our coverages Aker. All three stages remain around the elevated year end levels. Actually, as you can see on the right hand side, despite our improving cost of credit trend over the last 3 quarters. Our coverage ratios remained at similar elevated levels. This is a result of our solid reserve build with our total provisions having exceeded TRY 17,000,000,000. Our net provision charges for the quarter were at TRY 700,000,000, Aker, resulting in total coverage of 6%, which actually excludes our 1,100,000,000 or 1,150,000,000 Agassi provisions as additional buffer. It's early days, but our Q1 net cost of credit hints a better full year performance than we guided. As a reminder, we have guided for our net cost of credit, including currency impact to remain below 200 basis points. Aker. Every 10 bps change equates to around 40 bps ROE. Our LYY low risk was hedged last year in Q3. Aq. 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 TL depreciation, there would have been an additional €1,100,000,000 gross negative P and L impact. Acre. You may find all the provision charge and hedge details in our appendix. And now on to our bank's distinctive sign of strength, our capital position. Acre. Despite all the unprecedented challenges, our solvency ratios remain well above regulatory limit at 18.5% total capital Aker and 15.5 percent Tier 1 and Core Equity Tier 1 excluding the forbearances. In the first quarter. Along with the TL depreciation and higher rates, we had also the impact of the dividend distribution and the yearly adjustment of the Operational Risk, which takes place every year in the Q1. The latter 2 had negative 46 bps on our capital ratio. Acre. Meanwhile, solid internal capital generation uplifted our capital by 50 bps. All in all, we were able to maintain an outstanding $25,400,000,000 excess total capital and $27,600,000,000 Excess Coricothe Tier 1 according to Basel III minimum requirements Aqsa without any forbearances. If we include the forbearances, excess total capital to Encore Equity Tier 1 would reach 29,700,000,000 AX31.5 billion. Our standard capital buffer serves as a shield against extreme volatility Aqsa and also an ammunition for sustainable profitable growth. Before moving on to some of our Q1 financial performance, I'd like to mention some other important areas we delivered value to our stakeholders this quarter. As you may remember, we announced our ESG strategy Akeri and targets at the beginning of the year. Four key areas being sustainable finance, climate change, ecosystem management, people and community. Aker. In order to achieve the set targets, we have been working on numerous bank wide long term projects to further Aker. It's a journey. And on this slide, We have some of the many actions taken during the quarter on the road to our long term targets. As a bank, the principal way we affect the environment and Community is through our financing activities. To that end, in line with responsible banking principles, we have updated our environmental and Social Credit Policy this quarter to better manage climate related risks of our credit activities. UP Bank's non financing activities Aqsa now expanded to include new coal thermal power plant projects as well as coal mining and coal transportation and power plants operating with Alcohol for SMEs. We have reduced the threshold for environmental and social risk assessment for new commercial loans to $10,000,000 Aker. We were the 1st Turkish deposit bank to announce long term targets in sustainable finance. In this respect, We launched our sustainable finance framework, which is an important step in our efforts to make sustainable financing more accessible ALCO to companies that contribute to a greener, more prosperous economy. The framework sets clear, comprehensive rules defining which financing products can be classified as sustainable by outlining social and green eligibility criteria. Aker. It is in line with international standards such as International Capital Market Association Green Bond Principles, Social Bond Principles, Sustainability Balm Guidelines and Green Loan Principles and was externally reviewed by facilities, which also gave a second party opinion. Aker. We further supported companies and activities that follow sustainability principles through our subsidiary UP Portfolio, which launched 2 ESG themed funds in January. Apart from paving the way to a more sustainable economy through our banking operations, We also took part in initiatives to empower our people and communities. As a result of our efforts to create a more diverse and inclusive workplace, We entered Bloomberg Gender Equality Index this year, scoring higher than global and sector averages. We became a top rated EM Bank in official Monetary and Financial Institutions Forum Gender Balance Index. And we became the 1st Turkish company to join Valuable 500, a global initiative that aims to revolutionize disability inclusion. We will continue decisively on our path with our vision to be the leading bank that drives Turkey into the future. To sum up, With the ongoing uncertainties regarding the pandemic as well as inflation, this year is set to be another challenging year. Aker. However, we remain confident in our financial strength and operational resilience. On this slide, you may find the summary of our Q1 performance versus this year's guidance. Aker. I have shared throughout the presentation details on each item. Still there are a few I'd like to highlight once again. Aq. Starting with the TL loan growth, we may end the year slightly below. However, the composition being in favor of consumer and SME will be a supportive factor for the profit mix. Tighter funding conditions and higher than expected inflation outlook will be pressuring NIM beyond our initial expectations. However, CPI linkers, which now make up 57% of RTL Secretures, will work as hedge and somewhat mitigate the downside risks. Aker. We are using 11% October to October inflation and every 1% CPI has 6 bps full year NIM impact. Aker. On a positive note, our cost of credit evolution has so far been better than our initial expectation, indicating we could end the year below our guidance our guidance actually. Every 10 bps NIM equates to around 60 bps ROE, while every 10 bps cost of credit equates to around 40 bps ROE. One last note is regarding the change in the corporate tax rate from 20% to 25% for this year. Despite the challenges, we still target mid teens ROE Agfa for the full year and believe our positioning will be able to enable us to leverage our strength while carrying our priorities for improving profitability throughout the year. And this ends our presentation. 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. Relations@bank.com. Akhtar, would you like to start by Aker, maybe asking the questions from the online. Yes, Ebru. Achtel. We have a question regarding macro indicators. Could you please share your V1 major macro indicators, inflation, rates and GDP? With Dura's recent move creating rather challenging and more difficult environment. Of Aker. Maybe I can answer this question. We had a slide for this actually. Of Aker. At the beginning of the year, our inflation actually expectation was lower. So we were expecting Something like 10%, 11% inflation at the beginning of the year. But and then, of Aker. Of course, there were some changes, currency, etcetera, etcetera. So we believe that of Axt. Still we believe that inflation will peak like April, May timeframe. And then despite this volatility in the exchange rates, still in the second half of the year, of Akkad. There will be a decline in the inflation rate. And the full year inflation, I think, will be we estimate that it will be around 14%. Regarding the growth, Turkey will still grow this year, somewhere like 4%, 4.5%. Aker. So this is our expectation for this year. And the level of interest rates in the country, of Aker. Of course, it will be linked to the level of inflation. So if inflation turns out to be around 14% at of Aker. Then we have to have, of course, a real interest rate. So therefore, of Aker. Interest rate should be somewhere like above 14%. So currently, actually, it is like 19%. Of Aker. So if our assumptions are correct, in the second half of the year, there will be some flexibility of Aker to have some rate cuts, a gradual rate cuts in the country. Aksi. What I can say, yes, there was some volatility, especially over the last month or so. But the good news is actually, when you look at the behavior of deposit holders in the country that there are some positive developments since the beginning of the year. So when we look at the FX deposits, of Aker. FX deposits are down by roughly 4%, roughly US11 $1,000,000,000 There is a decrease in the FX deposits. Of Aker. And there is an increase in the TL deposits, which is like almost 7% because now, of Aker. Yes, inflation is higher than our expectations. But when you look at the ongoing actually of Aker. Deposit rates in the country, it is anywhere between 18%, 19%. And in certain cases, it's even slightly higher than 19%. So of Aker. That is actually changing the actually behavior of deposit holders of Aker in the country. So this is actually a positive movement. And what we have been also observing of Akkad. When there was a volatility in the exchange rates, exchange rates reaching like of Akkad 8.4, 8.3 over the last couple of weeks. We have been observing the households, the individuals actually selling some of their FX. So that was actually balancing some of the demand for the FX in the country. So these are like relatively positive developments. Of Akkad. And on the corporate side, when we look at the open positions of corporates over the last couple of years, Akkad. We are observing a decline. So at the climax, it was as high as like $223,000,000,000 of Aker. A worth of open position in the past, but now this is roughly down to $156,000,000,000 So this is a positive development. Of Aker. And I think what is more important, corporates, in aggregate, they kind of of Aker. So when we look at the short term open position of the corporates, Actually now, it's a plus figure. So it is something like USD 25,000,000,000 plus Aker. So that is also a positive development. So therefore, yes, we have seen some volatility in the FX of Aker. Over the last month or so with recent developments. But as long as we have the real interest rate of Aksum. On the currency, I think where we are more or less, of I would imagine we will continue. Of course, it depends on the demand. But as I said, on the household side, of Aqsa. It is relatively okay. Corporates, that is also relatively okay. So the domestic part of Aker. Of course, prison this year actually is important. Of Aker. We have seen some increase in the number of actually COVID cases in the country, But now we have some further actually actions. So for the next 2 weeks or so, of Aker. So I think this is a good measurement to also to protect our actually tourism Aker. Industry this year, because last year actually, it was not really very good. So as you know, tourism is important for Akerk. We usually create something like $30,000,000,000 $35,000,000,000 worth of TRISAN revenues, which was of Aker. Very marginal last year. So hopefully, if we can fight against this COVID, of Akkad. Probably the TRUTH in revenues hopefully will be higher than at least last year. Akkad. Thank you, Hakan. Now there's a I'm allowing Gabor, you can unmute your line. From Gabor Kamini from Autonomous is on the line now. Gabor, go ahead please with your question. Thank you, Ebru. Of Aqsa. A few quick questions from me. Actually, one is a follow-up on tourism. Can you help us understand how Aker. Sensitive is your business planning to tourism. And if the tourism activity wouldn't go back to wouldn't of Aker. Actually improved much from the previous year's levels, how could that impact your business outlook? You show 3% of the loan book of Aker. It would be useful to understand the risks in that book and the indirect impact from a lower tourism of activity. 2nd question is just to clarify the LYY impact on fees. Can you confirm what was the absolute of Impact. And yes, the final question on margins. You mentioned that you would expect some improvement in the second quarter. Of Aker. Would you be able to help us quantify the magnitude of the possible improvement? Thank you. Abak. Okay. So maybe with the fee, we start with Turcair and then we can go to the okay. Of Aker. Hi, Gabor. This fee relates to the dividend income, dividend distribution of Turk Telekom. As you know, Turk Telekom of Aksum. Has announced a strong dividend payout for this year in 3 installments, and we had an Aker. The outstanding fee income from LY by Iran, which we have because of this dividend decision. Acht. We have a good one third of this dividend, SSC income. In the Aker. Coming quarters, we will have further we are expecting further proceeds from LYY as a result of this of Aksum. But this will be in the form of loan repayments. Of Aqsa. And the amount was roughly TRY 110,000,000. Akkadag. Okay. Thank you. And I guess I had a question on the margin as well, right, Gabor? Maybe Tukar can continue with that. Of Aker. Yes. Gabor, as we have shared, so we have started to have relatively low, adjusted margin of 2 point of Akka. Actually, depending on loan generation, for sure, and with of Aker. The redemption of lower yielding assets, as Ebru has mentioned in her presentation. We're expecting a gradual improvement of Aker. Starting from Q2. But in this but do we expect a major of our Update in the Q2 based on the current trend, I would rather say no. But starting from end of of Aker. 2nd quarter, I'll start from Q3, we see a more positive trend. And is this because you assume rate cuts from that? Actually, we're of Akshay. Depending on the inflation outlook for sure, we expect some rate cuts starting from Q3. But Aksut. The most important things will be the repricing of the asset side. As Ebru has mentioned, actually, of Aker. Roughly onethree of our fixed rated securities are mixed range towards the end of the second quarter. Aker. 25% of our TL commercial loans, again, with relatively lower yielding tickets, are going to mature as well in of Aker. Again, the replacement of those, along with the overall portfolio repricing, will be helpful for the new improvements. And for sure, depending on the CPI expectations in the coming quarters, Aker. We may need to revisit our CPI linker assumption. Understood. Thanks. Akkad. And Hakam, maybe on the tourism side, there was a question on asset quality. Yes. Regarding the tourism, Gabor, on Page 22 actually. We have a breakdown of our loan portfolio. So as Aker. You can see there, I mean, it's quite a diversified portfolio. So we are not really too much worried about our Prism exposure. Aker. We have seen that before. I mean, of course, pandemic is a different case. I mean, this is the first time we are actually of Aker. Experiencing anything as such, but like in like 2, 3 years ago, again, there was a big problem in Prism in Turkey because of of Aker. So the season was extremely bad, but infrastructure was good and so on. And then of Aker. About a year later, 2 years later, there was a full recovery. So this year, of Akkad. Of course, it will still be a very challenging year. But eventually, either next of Aker. I'm sure that the sector will recover. So I'm not really terribly worried about of Akko. And maybe Hakanbe at Ignor. If you can go to the next page, we also share here the coverage ratios for the sector. So you can see here that we have increased the coverage for tourism basically in Q2 sorry, in the Q1 of the year, as you can see, it's around 19%. And so this is something that I like to highlight. And if you look at the breakdown of how much of those are in Stage 3 and how much of those are in Stage 2, you can see that they're actually the overall exposure that we have, very limited amount actually, it's already a small amount, but the coverage ratios are also quite strong. So I wanted to also mention that. Aker. That feels good. Thanks for the color. All right. Thank you. Ignor, maybe you'd like to continue with the our call the questions from the Q and A. Yes, Ebru. We have 2 questions from a participant. The questions are, can you give color on impressive Toksvira deposit increase in the quarter? And second, do you see any rollover or payment risk on loans Aksum giving out at very low rates last year around this time. Of Aker. TL deposit increase in the quarter, yes. As I said, for the aggregate number of Akermes. For the whole country, that is around 7%. And actually, also, it is a healthy growth in our case as well. So this is the TL part and of Akkad. Actually, it's around 10% in our institution. Of Aker. So I think this will continue as long as we are actually paying above the level of inflation in the country. And regarding the launch that we had given last year, So as you know, in the Q2, there was a regulation in the country, which is Asset ratio. And all of a sudden, actually, banks had to grow substantially during that Aker. We had actually substantial growth as well, but we were actually Aksha. Extremely careful with that growth in 2 dimensions. First of all, we were very of Akkad. Actually careful with the asset quality. So no matter what, actually, of Aker. We refrained actually, taking some unnecessary risks. So the loans that we had given during that period of Akka. Our 2 vertical blue chip companies in the country. So we are not actually expecting any of Aker. And we have already started seeing a majority. There's of Aker. In the Q2, we had started seeing those actually payments. So I'm not actually of Akkad. So, actually, I'm happy because we will be recovering R and of Aker. Yes. So that's what I can say. So that was putting a lot of pressure on our NIM. So we are happy that we did not take too much of Aqsa. A mismatch risk, yes, that was the other EMEA I mentioned. So good asset quality and relatively Aker. Short term asset creation. So this was the strategy at that time. So I'm happy that of Akkad. From the asset quality point of view, there won't be any issues. And I'm also happy that in a rising interest rate environment, Actually, majority of those notes will be maturing, especially in the second quarter. Aker. Thank you. If you want to go to the next question? Yes. We have another written question. Aq. Why didn't HR costs grow year on year despite high inflation? Maybe I can respond. Actually, last year in the Q1 actually, we didn't see the initial impacts of the pandemic. But Aker. Starting from the Q2, there have been some savings, which have also impacted indirect HR expenses of Aksum starting from Q2. So this creates actually a high base for last year's Q1. Aker. But when you look actually on a Q on Q basis, we have an increase in our HR cost because we are adjusting our salaries at the beginning of this year. Of Aker. So that's actually the main reason. During the course of the year, of Aker. We may see some additional increase. We will see this year on year increase in the coming quarters. Yes. But this is the benefits of digitization actually. So of Akkad. All those investments and so on, mobility, not on the consumer side, but on the people side as well, our own people. Of Akkad. So what we did was actually we took our iPads and everything and went on. And still the number of transactions in the bank of Akkadu actually increased dramatically. So this was a lot of efficiency gain. There was some of Aker. HR related cost reduction, traveling costs and all that, other costs as well. Aqsa. Thank you, Hakan. I think there's one question regarding again on Whitson you want to ask, Ignor? Aker. Yes, sure. One question. Can you give a breakdown on the first Acquicker Other Revenues, please. I think you are meaning other income mainly. ACV. Yes. These are coming from actually, there is a very these are coming from various areas, which are not either fee income and also reversals of of Aker. Non cash loans and other provision reverses from non cash loans of Akshay. This is also impacting this other income line. Aker. Okay. Thank you. I think there's some other questions as well, so let me know, right? Of Akkadagal. Yes, we have several questions. Okay. But okay, let me first get Mehmet on the line from JP. Great. Akkad. Mehmet, you are on mute here. Hi, hi. Yes, thank you. I thought that was an excellent presentation. Thanks very much, Akerbank. Can I please ask you on for your views on loan growth? You already mentioned that there may be some downside risk to TL loan growth Aker. Do you have a view of what that level would be based on the current information and the trends you're seeing so far in the Q2? And on a similar note, can I please ask you for your views on the upcoming lockdown, which is a first of Aker? Obviously, for Turkey, in terms of being so strict, what kind of impact would that have on the business as well as activity and loan demand, Aker. When we did this of Aker. 20% Turkish lira loan growth assumption for this year. What we were really expecting, relatively of Aker. Slow start at the beginning of the year. And then with the declining interest rate environment, especially in the second half, of Aker. So when you look at the Q1, given the level of high interest Rates and so on. I think the bank did very well. So this is roughly almost 4% growth. Aker. So if our assumptions are correct, if interest rates come down, of Aker. Then probably the growth rates will be higher, especially in the actually of Aker. Second half of the year. But we have a challenge though. And the challenge is because of this asset of Aker. This asset ratio last year, we had an exponential growth of Aker. So therefore, some of these loans, as I mentioned in the previous question, of Akkad. These were like 2 blue chip companies in the country. So some of these loans will be paid back. So therefore, of Aker. We will have a challenge to grow our loan portfolio in the Q2. But of Aker. Later on though, I think if our assumptions are correct, I think the growth of Aker. So still, we are sticking to that guidance around 20%. Of Akkad. At least, I think it will be somewhere like high teens, somewhere close to 20%. I think this is still achievable, Especially the retail part is actually going very well. So there is a lot of actually contribution coming from our digital channels. Akhtar. So we have invested heavily in our digital channels over the last several years and our company is actually benefiting from this. Of Akkad. And I think this is a great competitive advantage for our institution. So when you look at the, for example, general purpose loans, of Akkad. Almost 3 quarters of the general purpose loans are sold through the mobile channels, the digital channels. Akkad. Similarly, about 2 thirds of our credit cards are sold through digital channels. So I mean, again, now we are we will be starting this complete lockdown. Of Akkad. But I'm sure that the level of activity in our institution will continue like of Aker. Almost before, at least on the retail side. So therefore, even if there's a lockdown actually, I'm not of Akkad. Again, too much worried about this because 95% of our transactions are taking place outside the branch environment anyhow. Of Akkad. So when you look at the traffic, the number of customers visiting our branches and so on, of Akkad. That was dramatically down anyhow. But when you look at the number of transactions in our institution that there was this Aktiv. Exponential growth. So we also have a page for our digital banking, mobile banking and so of Aker. And if we visit that page, we will see that of Aker. These numbers are actually phenomenal. 41% increase in monthly of Aker. All these numbers are actually of Akkad. Very dramatic in a positive manner. 106% of Akkad. Increase in the financial transactions, 34% payments, 93% money transfer. So I mean, of Aqsa. Complete shutdowns. I wish this had never happened, of Aker. But this is the digital part. This is one of the key strengths of our institutions. So I think Aker. Business will continue like before. Thanks very much, Hikamir. That's very useful color. Thank you. Akkad. Thank you, Mehmet. Thank you. The next question comes from Kim Klim Fedorff. I'm allowing you to talk. You've been unmuted. Hi, Klim. Klim, you had raised your hand. Would you like to ask a question? Aker. Hello, can you hear me? Yes, yes, we can hear you. Hi, how are you? Okay. Okay. Hi. I have a question on net interest margin. It's come down quite a bit obviously and of Two part question. One is on CPI impact. I would expect that to be a positive impact rather than it was negative this quarter of Aker. Can you just explain why there has been negative 71 basis points impact? Of Aker. And just to clarify, deposit costs are still outpacing loan yields. Is that on due to the our incremental rate move that happened. Thank you. Okay. So Turke, would you like to answer that question, please? Yes. Of Axt. Hi, Klim. Actually, maybe we can shift to the mid slide, Ebru. Switch. Sure. Of Akkim. Actually, we are trying to show here actually last year of Aker. In the Q4, we have adjusted our inflation assumption to the actual inflation of last Aker. Therefore, actually, it has a positive impact of Q4 net interest margin. Aker. So in the Q1, we are again starting the lower mid CPA assumption. Of Aker. So therefore, actually, this 71 basis points actually is showing the inflation assumption difference we are using of Aker in the Q1. This is the it's coming from that. Of Aksum. On the deposit side, actually, during the quarter of Q1, we have seen Continuous repricing of our deposit costs because of the tightening of Turkish lira and post rate increase of the of Central Bank. But when we look at the latest actually rates, currently, Our back book is roughly at 17% levels for TI deposits and also the margins are priced at roughly 17.5% levels. So therefore, actually, we can say the reprice deposit TI deposit book has of Aker. It's almost completed. So maybe starting from in a few weeks' time, of Aker. Okay. Could there any more questions? Axt. No. Thank you for that. Okay. All right. The next question comes from Girish Patel. I'm allowing you to talk. Please ask your question, Girish. Hi, everyone. Many thanks for the presentation as well as for the detailed answers. It's of Akkadu. Definitely very helpful in getting a clear picture. My question is, it touches of Akshay. A little bit on both the FX, any potential weakness in FX of Aker. As well as its impact on the capital ratios, we know that of A. Historical FX rates can potentially be used, but then we would like to know what of Aker. The bank's internal policy on use of those historical FX rates and do you see any of Akkad. Deviation in terms of the reported capital ratios using different rates market rates versus the historical rates. Of Aksut. Okay, Turker? Yes. Actually, Grish, for regulatory reporting, of Aker. We are using the forbearances of BRSA, which we are actually also sharing in the first footnote. So the FX rate for RWA calculation is the average of last 12 months FX rate. But of Aksut. For investor reporting, also in order to be compliant with Basel, we are using actual FX rates of Axt. Without forbearances. So actually also we are managing ourselves of Axt. Also with us with the capital expenditure without 4 balances. And even though of Aker. The exchange rates was quite high at the end of the Q1 to DKK8.3 per dollar. Still, we had a very strong capital adequacy ratio of 18 of Akermes. SBR Sherry and Tier 1 of CET1 of 15.5. If you would use the BRSA forbearances, our total capital expenditure ratio of Aker. We'll be at 20% levels. But as I said, we are managing ourselves with Bezo's confirmed capital to cost ratio. And this 18.5 is actually very strong, Aker. As Ebru has mentioned, leading to an excess capital of TRY 25,000,000,000. And again, we are sharing here the depreciation, the sense of the impact. Additional 10% TRD depreciation of Aker. As all the NABX impact of 70 basis points and 1% NPL has roughly 25 basis points. So we are quite Aker. We are very comfortable with Garish Capital Days. Okay. Thank you, Luca. That was very clear. Of Aq. All right. Thank you, Gaerish. Okay. And Itno, I think there are 1 or 2 more questions maybe you'd like to read from the Q and A? Aker. Yes. We have another written question. Can you please comment on the drivers behind the Aker. Maybe I can answer this question. I mean, yes, 2%, we had a growth 2%. Of Aker. However, over the last couple of years, 2, 3 years, maybe even more, there was a big deleveraging on the FX side. Acht. So actually, this 2%, given a very low base, of Aker. It's not actually a major growth. So I cannot say that the demand of has picked up yet in the country. So if that is the question, this is not the case. Of Acht. So this is a slight growth in a relatively small portfolio. So I think this is how we should read it. Acasti. Thank you, Hakan. I guess there are many more questions, but we'll just take one more and then we'll try to get back to you after ALCAL, the one remaining questions. If you can give one more question maybe, Igor? Yes, sure. And a question, this is regarding Tier 2s. Acht. You have mentioned on previous calls that you intend to call these bonds. So I wanted to check whether this is still the case and also what could potentially make you not call the bonds? Okay, so I can ask you this question as I've been answering this question every single call that we've had so far. As you all know, the market standard for these Tier 2 basically to call on the call date. And in Turkey, obviously, the call exercise is subject to BRSA's approval. The call date for our issuance is in March next year, so there's still a lot of time. And according to the issuers' call definition, as ACK for the drawdown prospectus. We may inform investors basically not less than 30 and not more than 60 days notice of the call decision. So that's the legal ACART. But as I mentioned, normal market practice is for the banks to call, as you know, and that will be subject to basically PRSA approval. So that's what I can say. And because it's March next year, there's still a lot of time, so just wanted to mention that. So I guess, as I said, we have many more calls, but we will get back to you. We are taking notes of your questions. Hakan Bey, maybe a few last Aker Sports from your side, and then we can end the call. Yes. Thank you, Ebru. Just to wrap up actually, I would like to underline that Agfa. Agfa Bank is undoubtedly one of the best positioned banks in the country, and I think we all know this. But of Akhtar. Of course, this unique pandemic experience continues to teach us crucial lessons. And even now, of Akkad. We are still working nonstop in our future banking models and harnessing our state of the art technology and talent to provide actually the best banking experience to our customers and of Aker. Further strengthen our position for years to come. So as we think of Aksum. We will continue to take necessary measures Aksha. And update our stakeholders, clients and shareholders specifically, as best of Aksut. And as transparently as possible. But of course, there is still a lot of of Aker. Uncertainty, and we cannot deny this. However, having been through many cycles, of Aker. I have full faith in our people's capacity and execution, and I would like to thank them all once again of Aker. For their exceptional efforts in helping our customers, supporting each other and also delivering results of Aksum. And I also would like to thank all our stakeholders for their consistent trust of Aker. And confidence in us. I hope we get to meet face to face again, hopefully, later this year. And once again, thank you for joining us today, and have a great evening. Akkad. Keep well and stay safe. So that's what I would like to say, Ebru. Thank you. Thank you, Hakan. Thank you, Truker, and thank you, Iqnur. We look forward to being in touch with all of you. And everyone, stay safe. Take care. Bye bye. Thank you very much. Bye bye.