Dear friends, this is Kaan Gür speaking, CEO, Akbank. I hope you are all well. Thank you for joining our second quarter earnings call. Before moving on to our bank, I would like to share my thoughts on the operating environment. First of all, I would like to walk through with you about the Turkish economy overview. First of all, economic activity remained strong in the first quarter of the year, growing by 5.7% year-on-year and 2.4% quarter-on-quarter. GDP is projected to be almost flat on quarter-on-quarter basis in the second quarter. The slowdown is expected to become more pronounced towards the end of the year due to tight financial conditions and prospective fiscal tightening. We maintain our growth forecast for 2024 at 3.5% as the weak global backdrop and the lagged effects of the monetary tightening weighs on economic activity.
There are good news from external balance. For example, Turkey's foreign trade balance improved considerably since last year. External balance and financing needs seem to be less of a concern in the short term. As of May, the 12-month cumulative deficit narrowed to $25.2 billion from $45 billion in December. The slowdown in loan growth and domestic demand are likely to contribute to external rebalancing going forward. We estimate current account deficit to be around $22 billion, which is below 2% of GDP by the end of this year. Regarding inflation, I would like to say that consistent with our previous communication in April, consumer inflation peaked at 75.4% in May, marking the turning point of a prolonged inflationary cycle. The worst has been left, we can say, behind us as the downtrend in annual inflation started in June.
Near-term inflation outlook will be mainly shaped by administered price and tax adjustments, which might be critical for expectations and pricing behavior. We still expect year-end inflation around 43%. The prospective improvement in underlying inflation may provide room for monetary easing towards the end of this year. Regarding financial conditions, I can tell that while the CBRT kept the policy rate unchanged since March, it continued to take additional measures to curb excess loan growth, to sterilize excess liquidity, thereby to support monetary transmission mechanism. Regarding the banking sector, I would like to emphasize the key indicators. The first one is tight monetary stance and quantitative restraints continue to keep borrowing rates high. The impact of tightening in financial conditions has been more pronounced on commercial loans, while retail loan growth has also lost momentum.
Turkish lira loan growth slowed down significantly, while the growth cap introduced in May has also limited FX loans. Looking forward, total credit impulse implies a gradual, but not a sharp, softening in economic activity, which will alleviate the demand-pull inflationary pressures. Regarding capital flows and reserves, the current policy stance has strengthened foreign capital inflows and reinforced domestic residence de-dollarization. After the election, depreciation pressures on the lira have eased, and the CBRT has become net buyer in the FX market. Portfolio inflows and the de-dollarization have enabled the CBRT to improve its net FX position remarkably. Net foreign assets, excluding swaps, turned positive for the first time since the pandemic and reached $25.3 billion as of July 2024. Thus, the cumulative improvement since early April has reached approximately $90 billion.
Country risk premium continued to improve, and the five-year CDS declined to around 260 basis points, which was an early sign of the recent double-notch rating upgrade. Again, regarding the banking sector, I would like to emphasize the importance of, as the banks, we are in a transition period in which the monetary transmission mechanism has been largely restored, with a few financial regulations remaining in place. The current inflation outlook leaves no room for complacency, and the policy rate is likely to remain high for an extended period of time. Enhanced policy predictability and a largely simplified regulatory environment have supported the well-functioning of the system, while the rebalancing process brings some challenges in the short term. The slowdown in loan growth and the decline in LDR weigh on the core operating profitability of the sector.
However, going forward, deregulation-induced historical low LDRs provide buffers for improvement in the net interest margin when the economy normalizes to a lower inflation environment. We haven't seen a broad-based rise in delinquency rates up until now, as economic activity and labor markets still remain resilient. The ongoing economic adjustment takes place gradually, and we do not envisage a sharp contraction or a prolonged stagnation in the economy that would put asset quality at material risk. The sector is well prepared against a combination of large adverse shocks, thanks to enhanced fee-income generating capacity, cautious provisioning, and adequate buffers. Now, I would like to share a few highlights of our bank's sound performance before leaving the floor to Ebru for details. First of all, I would like to tell that the dedication and the experience of our people continue to drive our success.
Our capital position remains solid and resilient at 13.9% Tier 1, allowing us to address the interests of all stakeholders. The strength of our flexible balance sheet management, combined with our agility in regulatory matters and persistent fee performance excellence, played key roles in our profitability. However, in light of the current monetary and regulatory environment, we have made the necessary decision to revise our guidance for the upcoming period. Ebru will share all the details, but as a result of the required change, our above 30% return on equity guidance has been revised to meet the high 20s for this year. While this adjustment reflects the external challenge we are facing, I want to assure that our core business remains strong, and we are taking proactive steps to navigate these changes effectively.
As a testament, I am happy to share that the bank's strong momentum in expanding the customer footprint persists. We keep our customers at the core of all our initiatives. The exceptional increase in our active customer base has resulted in our fee-to-OPEX ratio to excel by 23 percentage points in just six quarters. Ongoing organic customer growth strategies strengthen our recurring revenues, ensuring the bank's long-term success in dynamic markets. Our digital capabilities are advanced and are key enablers. Still, our focus remains on investing in our business and our people for future growth and sustained profitability. Dear friends, I am also pleased to inform you that we are continuously on track to achieve our 2025 targets. A focus area that is intentionally scaled back to manage our long-term goals is the Turkish lira widespread consumer-only deposit market share.
This is a result of our low TL/LDR at 84% and our reflection of our current decision-making in light of the regulatory environment. Words to underline that our low Turkish lira LDR will give us significant room for margin improvement going forward. As pointed out in the earlier slide, our enhanced fee-to-OPEX ratio is a major success area achieved through our continuous customer acquisition efforts. It surged impressively and already reached 85%, even exceeding our 2025 ambition of 80%. Second quarter alone, it was at 85%. I would like to take this moment to express my sincere appreciation to all of our staff. Their commitment, passion, and resilience are the driving forces behind our success. Now, Ebru will provide insights regarding our second quarter performance. Following her presentation, I will be more than happy to answer your questions together with Türker and Ebru. Thank you.
Thank you, Kaan Bey. As you have just highlighted, regardless of the sector-wide challenges, especially in margin evolution, our strong commitment to enhance our recurring revenues and to generate sustainable high profitability continues to be the driving forces behind our success. We are operating in a transition period in which the monetary policy transmission mechanism has been largely restored, but the high funding costs, along with the loan growth caps, continue to pressure our margins. However, our superior fee-income generation continues to support core revenue generation more than offsetting the decline in NII, thanks to our outstanding organic growth strategy. Our fee-income almost tripled year-on-year and as a result of our intensified commitment to enlarge our customer base while deepening the relationships. It is important to highlight that thanks to timely actions taken by our Treasury, the trading side also continued to be supportive.
Our revenues were up by 11% year-on-year to $69,582 million for the first half. Robust non-interest income growth has been instrumental in counteracting the effect of the cost pressure on net income. Our net income decreased by 22% year-on-year to $24,104 million, resulting in an ROE of 22.4% and ROA of 2.3% for the first half. Moving on to the key drivers of our healthy performance in more detail, let's start with the balance sheet. In the first half, our TL loans were up by 21%, lent by our ambition to grow in higher-yielding small tickets. While we have continuously been reshaping our loan portfolio, we are successfully and proactively extending the maturities, considering the outlook for a disinflationary environment. This is despite the loan growth caps that constrain asset repricing.
Also, on top of a phenomenal 300 basis points market share gain in consumer loans among private banks last year, we successfully increased our market share by an additional 110 basis points during the first half of this year. Our market share gain in housing loans has been eye-catching at 390 basis points year-to-date. This not only helps extend the maturity of the loan book, but also has very high cross-sell. Also, delinquencies in this area are especially very low, as you know. Our organic growth strategy also features a prudent balance risk between risk and return, with timely adjustments to lending criteria as required. Advanced analytics and technology are central to our growth strategy, driving our robust asset quality. Our 100% automated loan decision processes, with an excellence in AI-based consumer credit models, enable us to take quick and timely actions.
Please also note that in terms of volume, around 90% of our GPLs are pre-approved, and around 30% are to salaried customers. In SME loans, we increased our market share by 76 basis points year-to-date through a cautious and selective growth strategy, carefully managing maturity extensions according to product pricing. For the FX loan side, we successfully grew our foreign currency loan book by a solid 16% year-to-date, with strong foothold within high-profile blue-chip corporates. Our bank-only growth was even stronger at 32%, excluding the impact of big ticket redemption during the first quarter in our fully-owned subsidiary, Akbank AG. This robust growth led us to gain 170 basis points market share among private banks year-to-date. The bank's proactive expansion of its already deleveraged foreign currency loan book was a deliberate strategy to navigate the growth caps set by the regulator.
Foreign currency part of the balance sheet has strong spreads. Therefore, growth on this side is margin-supportive. We remain committed to expand the foreign currency loan portfolio, as demonstrated in our first-half results, leading us to revise our 2024 guidance upwards to above 20% year-on-year accordingly. Moving on to the securities side, we have also dynamically adjusted the composition of our securities portfolio by incorporating higher-yielding securities in light of the disinflation environment. We have been increasing our positioning in TL floating notes since the beginning of the year. Accordingly, FRNs with a decent 61% average yield in the second quarter have a strong 21% share in our TL securities, up from 11% at the end of 2022. Note that the majority of these notes are TL RefIndex bonds and have robust above-market spreads. Our strategic approach also involves decreasing the share of CPI linkers in TL securities.
This strategy resulted in a cumulative reduction of 20 percentage points since the end of 2022. Meanwhile, our Treasury's proactive positioning in positively linked CPI linkers continues to be a differentiating factor, considering the tightening spread between the policy rate and inflation. Our CPI linker portfolio now stands at $166 billion, which equates to 75% of equity and continues to help to mitigate the negative impact of inflation while creating a solid ROE support. Please note that every 1% change in CPI has around TRY 1 billion net income, or 45 basis points ROE impact. Our TL fixed-rate securities were acquired at favorable rates. We may also leverage our expertise in Treasury management to capitalize on trading opportunities. Meanwhile, we continue to lead the sector with our strong positioning in TL corporate bonds.
Our high-yielding corporate bond portfolio, with end-of-quarter 56% yield, stands at TRY 32 billion, or 9% of our TL securities. On the funding side, it is important to highlight that in line with our strategic ambition, our market share in below TRY 1 million deposits and zero-cost TL demand deposits had increased considerably by 260 basis points last year, thanks to our solid customer franchise. Our enhanced TL widespread consumer-only deposit market share provides ample opportunity for tactical adjustments in market positioning and has given us a notable edge in cost optimization this year. As a result, we have preserved our well-diversified and disciplined funding mix, whereby deposits have continued to be the main source of funding. Our deposits now stand at 64% of total liabilities.
It is also important to note that 65% of our TL time deposits are sticky and low-cost, which is actually even up by 4 percentage points quarter-on-quarter. In addition, TL LDR, which now stands at a low 84%, has been essential in supporting our margins and provides us with abundant capacity for growth and enhancing margins going forward. On the wholesale funding side, we continue to pioneer the market with our successful transactions. In the second quarter, as you know, our inaugural Basel III compliant additional Tier 1 issuance was in March. Please recall that our AT1 issuance was the first out of Türkiye fully purchased by international investors with a peak demand of around $3.7 billion. In the second quarter, we renewed our sustainable syndicated loan, which was once again first in Türkiye in allocating according to the sustainable finance framework and received record demand.
During the quarter, we have also successfully completed our issuance of $500 million Sustainability Senior Unsecured Eurobond, with a very strong, like 3 times, demand from international investors. As a result, we have succeeded to increase the share of sustainable transactions in our wholesale funding book to 64%. I am happy to share that we are well on track with our 2030 sustainable wholesale funding target of 100%. Moving on to the P&L. Without any doubt, spread and margin evolution were the major challenges in the sector this year. The tight monetary policy targeting disinflation, along with the competitive pressures and growth caps on asset pricing, have delayed the expected margin recovery in the second quarter. Consequently, we have revised our full-year self-adjusted net interest margin guidance down to around 3%.
Our self-adjusted NIM stood at 2.4% in the first half of the year, and our strategically structured and robust balance sheet will be crucial for margin improvement in the second half. To outline three core factors that will drive margin enhancement in the second half of the year and beyond: first, on the growth side, we prioritize high-yielding small ticket loans while carefully extending maturities, as well as diversifying product mix to lock and spread. Second, on the funding side, we leverage our expertise and agility to optimize costs while our extensive TL deposit base and low TL LDR help minimize margin pressure. Last but not least, our sound, floating, and high-yielding securities portfolio is well-positioned for the disinflation environment. As highlighted earlier, consistent with our organic growth strategy, we have continuously grown our customer base and the customer-driven recurring revenues.
Our active customer base reached 13.9 million, up 64% since the end of year 2021, with an eye-catching 5.4 million net active customer growth. The key to our growth strategy's success lies in our adaptability, dedication to customer satisfaction, and continuing innovations, all core to our strategic vision. Similar to last year, two-thirds of our new-to-bank customers were acquired via digital onboarding, underlining the strength of our digital capabilities. Our active product portfolio, a function of active customer base and average cross-sale per customer, has excelled further by 14% year-on-year, reaching new all-time high. At the same time, our growing young customer base strengthens our sustainability of the recurring revenues generated from our customer-centric strategies for the future. The success of our digital strategies is consistently demonstrated by the growth in our customer base and the advancement in our sustainable fee-income.
The number of our digital customers reached 12 million, with a robust 81% growth since the 2021 year-end. Digital penetration continues to increase, extending to 87%, while migration of transactions to digital channels helped already reach 96%. Please note that digital channels have secured a visibly striking share in credit card sales with 68%, GPLs with 93%, and time-deposit account openings with 83%. We continue to leverage our digital excellence, innovative solutions to revamp our value proposition and to maximize the number of customers' touchpoints. Our One Platform for All, Akbank Mobile, with a simple and social everyday banking vision, attracts more than once-a-day login, thanks to its more than 350 functions. We successfully translate our outstanding digital experience into our customized applications as well.
Just to name a few on the slide, for example, Cüzdan, our bank-agnostic digital payments platform. Akbank Cebepos, a groundbreaking e-sale, e-payment, and invoice application for merchants. Akbank Yatırımcı, a comprehensive investment insight which is tailored for traders and investors. All of these and more will continue to support our sustainable fee income going forward. On the fee and commission income side, our well-diversified fee income base has driven 172% year-on-year growth in the first half, significantly exceeding our full-year guidance of above 80% growth. This achievement leads us to raise our full-year fee income growth guidance for this year. We now project our fee income growth to surpass 100% year-on-year. The excellence in our fee performance can be attributed to our dedicated investments through the cycles, strong momentum in customer acquisition, and the diversified product offerings.
I am delighted to actually repeat what Kaan had mentioned, that we have already reached our 2025 strategic target to increase our fee-to-OPEX above 80%. Our fee-to-OPEX ratio improved by an outstanding 23 percentage points since 2022 to 81%, with an even higher quarterly figure of 85% in the second quarter, thanks to all-time high fee chargeable customer base and the strong cross-sales. Our progress in fee income has also enabled us to sustain our 16% solid fee income market share year-to-date, based on the latest BRSA data. As a reminder, extraordinary growth in our active customer base last year resulted in a 210 basis points surge in our fee market share gain among private banks since the end of 2022. Despite ongoing challenges in OPEX, the quarterly increase has moderated to 5%, a significant drop from 20% average over the last 12 months.
Our revised guidance of around 70% for this year for OPEX reflects our expectation that OPEX will ease for the remaining year. Despite current profitability challenges in the sector, our mid-to-long-term target of mid-to-low 30s cost-to-income ratio is still firmly in place. Moving on to asset quality. Resilient credit risk management framework powered by machine learning-based credit decision models has been enabling us to maintain solid asset quality while growing. Despite the retail-led increased migration trend in the sector, our advanced analytic capabilities across retail segments play a crucial role in managing the quality of the portfolio, while robust and broad-based collection performance across all customer segments supported MPL evolution, which remained at 2.2%. Share of stage two and three in our gross loans, which would be deemed more potentially problematic loans, continue to be limited in our loan portfolio at 8.1%, while coverage also remains strong at around 27%.
Our well-diversified loan book, sophisticated digital capabilities, along with our proactive provisioning, are clearly reflected in the evolution of our cost of credit. We ended the first half of the year at 47 basis points net cost of credit, excluding currency impact. This robust cost of credit performance has led us to improve our full-year guidance from below 150 basis points to around 100 basis points. I would like to emphasize that our loan loss provision build has approached TRY 35 billion as of the second quarter, excluding our TRY 1.4 billion free provision, while our coverages remain solid, even with the substantial recoveries from our MPL portfolio and the TRY 1.5 billion MPL sale during the quarter. Our total capital, Tier 1, and core equity Tier 1 ratios, without forbearances, remain robust at 16.4%, 13.9%, and 12.7%.
This is particularly notable given the adverse effects of sector-wide profitability challenges, as well as our proactive and strategic foreign currency credit growth we achieved during the quarter. Also, please note that adjusted for the temporary risk weight increase applied by BRSA, our capital will be even 190 basis points higher at an outstanding 18.3%. Strong capital reserves continue to provide protection against extraordinary market challenges and fluctuations, as well as offering critical resources for long-term and profitable growth. In terms of sensitivity, the first 10% depreciation impact on our solvency is at 20 basis points, with a 100 basis points change of interest rate impact of 80 basis points on capital adequacy ratios. Note that sensitivities shared have a diminishing impact. Now, before moving on to the Q&A, I'd like to always, as we always do, share a few highlights regarding our ESG journey.
As highlighted in our ESG video at the start of the presentation, we remain committed to embed sustainability into the core of our operations. Our efforts receive full endorsement from our senior management, including our board. In the second quarter, we provided TRY 81 billion sustainable finance, bringing our cumulative total to TRY 307 billion since the end of 2021, actually, and this accounts for around 38% of our new 2030 target. In addition to our ESG-themed and ESG rating funds we launched, we have a website to encourage investors to invest in companies that contribute positively to the environment and society. As for ecosystem management, we have successfully completed the second term of Turkey's first full-time spinoff program. So far, $1.4 million was invested in total to startups founded by the bank, Entrepreneurs.
As for People and Community Pillar under Akbank Academy, we supported youth in developing competency in sustainability and sustainable finance trainings. With our transformation holds the future project, over 4,000 pieces of furniture from the Akbank renovation project have been donated to 318 schools affected by the earthquake. Last but not least, our 2050 net bank commitment remains at the center of our climate change pillar. Following the disclosure of our 2030 emission reduction targets for the power, cement, iron and steel, and commercial real estate sectors, we are now developing our sectoral net zero strategies, which will be announced very soon. I have shared with you throughout the presentation our revised guidance. So this concludes our presentation. Now we are moving on to the Q&A session. Please do raise your hand or type in the Q&A box if you have a question.
And for those of you who are joining us by telephone, please send your questions by email to investor.relations@akbank.com. And the first question comes from Nida. Nida, please go ahead. You can unmute yourself.
Hi. Thank you for the presentation. I have a few questions. Sorry, one second. Can you hear me better now?
Yes, we can. Thank you, Nida.
Okay, great. Thank you. So firstly, on the margin outlook, if you were able to comment on the margin outlook for the second half in 2025, in particular, I'm interested in the downgrade to guidance for margins. To what extent is the downgrade driven by the 500 basis points rate hike in March versus perhaps weaker underlying margin trends than previously expected? And you mentioned competitive pricing as well. If you can comment on that, how is that different in corporate versus consumer loans?
And just on the same topic, what does your guidance assume for policy in Turkey? Do you assume a rate cut in 2024? Thank you.
Hi, Nida. This is Türker with regard to the margin outlook and the impact of the first half developed on our NIM revision. Maybe just to maybe I can start with the reasoning for net interest margin revision from 4% to 3%. Actually, yes, there were various factors. Surely one of them was the last 5% rate hike made in the first quarter. In our initial guidance, we had envisaged 45% SD peak. So that was one of the reasons. And not to forget, the ongoing increases on the reserve requirement side have also significantly impacted the net interest income evolution.
Just to recall, currently, we are holding close to 15% of our TIA balance sheet at the central bank in the form of reserve requirement. Yes, we are getting partial remuneration, but it does not fully offset our actually, it just offsets some part of our funding cost for that part. And on the effects side, actually, the reserve requirements on the effects side make roughly one-fourth of our effects balance sheet. This is also another factor. And surely, maybe not to forget, especially on the corporate commercial lending side, the pricing evolution in the markets, it was a bit competitive. This competition was more to be observed on the commercial side rather than on the consumer side. So that's the overall view for the first half of the year.
With regard to the NIM evolution and the NIM trajectory for the second half of the year, when we look at the front book evolution, maybe just to also give it with figures, currently, new deposit pricing is at low 40s levels, which used to be close to 50% levels, whereas the marginal lending is created at high 40s up to 50% levels. So new business, in net terms, is created with a positive margin of 4%, 5%, up to 6% level. But the issue is actually here is the growth gap. So therefore, actually, because of the 2% growth gap, actually, it takes a bit of time to reflect this positive margin spread onto the backbook. So it will take some time. But in the last three, four weeks in the third quarter, we are observing that the backbook spread is evolving positively.
That will be one of the major contributors to our net interest margin, revised net interest margin guidance. So therefore, actually, we are expecting to see a gradual improvement in the net interest margin, especially towards the end of the third quarter and in the fourth quarter. Therefore, actually, the main positive impact will be coming from the marginal pricing. We are expecting a gradual that some rate cut may begin towards the end of the year, but since it will be happening towards the end of the year, its positive contribution will be rather marginal. But what I can say is actually, with the macro expectations we have, probably the entry into the next year will be much more positive. Policy assumption for this year. Marginal rate cut towards the end of the year.
Nida, does that answer your question? Thank you very much.
That's very helpful.
You're welcome.
Thank you. Now, the next question comes from Jihan from HSBC. Jihan, please go ahead.
Hello. Can you hear me?
Yes, we can.
Hello, Thank you very much for the presentation. I have a very specific question about the market share in SME, which, if I calculated correctly, increased almost 100 basis points in just one quarter. So I'm a little curious about the drivers of that market share gain and whether that's going to continue in incoming quarters because by 2025, you're, according to your targets, aiming for a significant market share gain. You were somewhat behind, but it seems to be accelerating. So any color on that, on your appetite to grow, would be good. Thank you.
Thanks a lot for the question, Jihan. Actually, this trend started the last quarter of last year, actually.
Our focus, especially on the SME business, especially growing on the Turkish loan side, is one of the major success factors because our existing capacity on the especially digital and end-to-end credit underwriting system supports us a lot. In the same time, although there are loan growth caps, especially regarding Turkish lira loans, but at the same time, there are specific areas that we can grow on. First of all, earthquake cities, agriculture. There are lots of areas that we can build up a new SME portfolio. Regarding our existing collateral rating breakdown, we are comfortable that there are niche potential for us in order to grow there. Thanks to our specific focus on that, especially on the Turkish lira loan side, we are gaining the market share in a healthy way.
And so, of course, there are some sweeteners on the spreads and the higher yield on the SME line of businesses. And of course, SMEs are one of the most important segments that we can increase our cross-sell, our demand deposit base. So it is a kind of win-win situation for the bank.
Okay. Thank you very much.
Thank you, Jihan. Okay. The next question comes from Mihal. Please go ahead.
Mihal, and remove your mute. Yeah.
Good day. Thank you very much for the presentation. I have two questions. One is on the underlying asset quality trends and how do you see it developing so far in different categories, including the credit cards and SMEs. And then also on the FX issuances, how do you look at this into this and next year?
Do you see what could be the reason to issue more or less or not to issue more securities? Thank you very much.
Mikhail, thanks a lot for the question. I would like to try to answer the first one, and then Türker, you're going to jump into the second one. I can tell you that up until now, asset quality remained strong. We haven't seen a broad-based rise in delinquency rates yet, but of course, we may expect some increase there. Especially, credit cards have been the most significantly affected group, as we expect. We are very close to monitoring the portfolio. Migration trends have increased, but there is no increase on the MPL side so far. Our MPL ratio remains stable as placement growth continued and our strong collection performances. It is, let's say, the positive way that we can manage our existing portfolio.
Migration rates to stage 3, again, we have seen some increase on the retail side, but we don't expect any of the rates seen in 2018 or 2019 within this year. The other important issue here, since we have machine learning-based 100% automated credit decision models, so we can easily differentiate ourselves in terms of sophistication of those models. Those models, in the same time, enable us to take quick and timely actions. This is a kind of strength of our existing risk management practices. The other thing I would like to emphasize is that on the corporate side, commercial side, including SME business, we are really dealing with the sectors that have positive outlook, such as tourism, logistics, transportation, e-commerce, informatics, telecommunication, food. Actually, this is the policy that we really would like to deepen our relationship within those, let's say, healthy sectors. Türker?
Yeah.
Hi, Mikhail. With regard to FX issuances, as you know, and also as Ebru has already touched upon, this year, in the first quarter and in the second quarter, we've made very successful issuances, first, an AT1 and then in the second quarter, again, a very successful senior unsecured Eurobond issuance. Surely, going forward, we are always opportunistic. We are looking at market developments, but surely the user capacity of this FX liquidity will be quite important. As you know, recently, the imposed 2% growth cap on the FX loan side, we don't know how long it will stay with us. We'll put some limits on the growth side. But based on the developments on that side, as well as our capacity to grow our FX balance sheet, we will always continue to be active.
But what I can say is currently, there isn't any something specific in pipeline as of today.
Great. Thank you very much for the color. Very, very helpful. Thank you. Thank you, Mikhail.
The next question comes from David Taranto. David, please go ahead. You can unmute yourself. David?
Hi. Sorry for that. Can you hear me now? Okay. Yeah, we can hear you. Thanks for taking my questions. I have three questions, if I may. The first two questions are about the swaps. Your swap costs were a bit higher in the second quarter. However, when I look at the central bank data, I assume your onshore swap utilization should be substantially lower nowadays. And could you talk a bit on how your funding has changed now versus the second quarter? And have you started to use the reverse swap facilities with the central bank?
And if so, how should we think about the allocation of the received effects? I mean, what I'm trying to get is the incremental impact on the NIM dynamics in the second half, apart from the core spread dynamics. And finally, in the presentation, you have highlighted that the second quarter NIM was the bottom. A recovery was expected to kick off in the third quarter and continue for some time. If possible, may I please ask the difference between the exit NIM from the second quarter versus the average figure that we see on the presentation? In other words, have you started to see the recovery trend towards the end of the quarter, or is it yet to come? Thank you.
Hi, David. This is Türker. Yes, as you are rightly mentioning, the second quarter swap cost is relatively similar to the first quarter.
Yes, lately, as you can see from CBRT data, actually, CBRT has gradually reduced its swap usage. And very recently, they have also announced reverse swap transactions, but there hasn't been any auction yet by the central bank. Therefore, actually, with some part of your question, actually, so actually, there is no realized transaction yet. But with regard to the swap cost, maybe we should recall that the policy rate increase was gradual in the first quarter. So therefore, actually, our average cost of funding has increased in the second quarter. And the shift of central bank swaps has also gradually happened from central bank to offshore swaps. Therefore, actually, it's a mathematical calculation. So in the second quarter, average CBRT swap usage was still there. Maybe yes, currently, it's close to zero.
The cost of funding has the latest rate hike in March has reflected itself into the second quarter cost of funding. So that's the major reason, actually. With regard to NIM evolution, yes, second quarter NIM was 2%, 2.1%. Exit NIM was slightly below, but currently, we are above this trend. That's what I can say. So on a weekly basis, we are observing the improvements. But just to recall, the low LDR and the growth cap is limiting the pace of the recovery.
Okay. Thank you. And perhaps one more question. Can you fill in the existing growth caps on the TL side, or do you see demand rather muted nowadays?
Yes, actually, we can utilize the growth cap, yes. Okay.
Thank you. You're welcome.
Thank you, David, for your questions. And the next question comes from Mehmet Sevim. Please go ahead and ask your question. Good evening.
Thanks very much. And thank you for taking my question. I had just a couple of follow-ups. Actually, one just on my colleague's question there on the growth caps. Can I ask if there were no growth caps right now, how much the book would be growing in your view on a quarterly basis? And secondly, maybe related to that, also taking into account your view of a small rate cut towards the end of the year, do you have any early thoughts on when the growth caps could be adjusted? And secondly, on the KKM deposits, if you could just remind us of the remaining volumes on those. And specifically, I'm asking because clearly there's a big positive remuneration impact on NIM right now, given the very encouraging conversion trends there. But I was wondering how long we should expect that to continue. Thanks very much.
Hi, Mehmet.
Thanks for the questions. Regarding your first question and related to especially growth caps, first of all, actually, we anticipate that I think the market is on the same page. The central bank, I think they're going to lift the growth caps right after the policy rate cut. So it was the reverse thinking when we were talking about two months ago, three months ago. Now, it's evaluated that way. Then I think we're going to see first rate cut, and then the growth caps are going to be lifted by the central bank. If we assume that there is no growth cap, okay, I think the level of interest rates on both consumer and commercial lending, it is high, and it's curbing the demand.
So the thing is here, some specific customers, they are trying to convert their demand from Turkish lira to foreign currency loans because they are generating FX, their revenues. And especially for the mid- and long-term investments, the main demand is coming from especially foreign currency financings. So this is a kind of dilemma that we have to accept because the limitation for the growth, of course, the unique and essential for the slowdown of the economic activities. But at the same time, there are some investment opportunities that we have to take into consideration for upcoming months and years. So I think we are going to see some normalization starting from the first quarter of 2025 regarding the especially policy rate cuts and, of course, following the lifting the growth caps. Thank you.
Mehmet, with regard to your second question, FX-protected deposit scheme is currently making up around 12% of our deposit portfolio, and the share is continuously coming down, which you can also see from the CBRT and BRSA data as well. KKM stock is down to $57 billion as of last weekend. And we have to meet some rollover and conversion ratios. And currently, we are able to meet these ratios. Especially, the conversion ratio is evolving quite positively. So therefore, probably in the coming months, we are going to talk about a very material share of KKM within total deposits, which is already at a very low level.
That's super. Thanks very much.
You're welcome.
Thank you, Mehmet, for your question. And the next question comes from Nida. Nida, please ask your question. You can unmute yourself.
Thank you very much.
I just have a follow-up on the fee and commission income growth. So, of course, fee and commission income growth is quite impressive. You've raised guidance as well. I just want to get a better understanding of how this is expected to evolve in a more normalized rate environment with lower policy rates as we look out to 2025. To what extent do you think the strength in fees that we've seen is sustainable, and what elements could be addressed? Thank you.
Okay. Just, I'm going to repeat your question, Nida. I guess you're asking about the strength in the fees, how sustainable is it going forward, and going forward, basically, what could contribute, what could be sustained basically in terms of fee generation? I guess that's your question, right? The underlying dynamics.
Yes, I think that's the question. Okay. Nida, hi.
The line was not so good, so we couldn't understand it in the first instance. With regard to fee income growth, yes, this year, in the first six months of the year, again, year-on-year growth was quite high, 172%. But because of the base effect of the second half of last year, probably this growth will be coming down, but still, we are expecting it to be about 100% levels. Going forward, surely, in a normalized world where also the interest rates come down, which is a significant component of the payment systems-related fee generation. But anyway, as Akbank, we are going to aim significant real growth in fee income generation. Maybe it's a bit difficult to put it into figures, but we will be aiming to further improve our fee-to-OPEX ratio, which we have done already quite successfully so far. We are already above our 25-year guidance of 80%.
So it will be one of the benchmarks we are going to meet and beat to further improve our fee-to-OPEX ratio. What will be the main contributors for that? As you know, in the last roughly two years, we have significantly increased our customer base while maintaining our cross-sell and while increasing the products we are selling. The composition is quite balanced. So the fee income is driven from payment systems, from bank assurance, from lending activity, from wealth management. There's a healthy and reasonable distribution. So therefore, actually, maybe it's also minimizing the sensitivity of interest-rate-related fee generation. This composition will be helpful going forward to outbound. As you know, last year, we have significantly increased our market share. Currently, we are protecting this market share at a similar level.
But going forward, in an environment where the interest rates are declining, we are expecting to further improve our fee income market share.
Thank you, Nida, for your question. I guess your internet is very bad. So thank you very much. If you have any further questions, please do send us directly. Kambe, there are no further questions right now. I would like to thank everyone for attending our call today. And I wish you all a very happy summer if we don't meet before September. And if you have any further questions, we're always here as IR to help you out. But I'm leaving the floor to Kambe for closing remarks.
Thank you, Ebru. Dear friends, as we conclude today's webcast, I want to extend my deepest gratitude to all of you for joining us today.
We are proud of our achievements and remain focused on driving sustainable growth and delivering value to our stakeholders. Thank you for your continued support and confidence in our vision. We look forward to meeting you and updating you on our progress in the future. Have a great evening. Thank you.