Ladies and gentlemen, welcome to Albaraka Türk 2023 first quarter financial results conference call. There will be a Q&A session following the presentation. If you wish to ask a question, please press star five on your telephone keypad. Mr. Ömer Emeç, Chief Strategy and Transformation Officer and Chief Economist, Mr. Seyfullah Demirlek, Investor Relations and Sustainability Manager, will be with us today here. Sir, the floor is yours.
Good morning to you all. Thank you for joining our call today. This is Seyfullah Demirlek, Head of Investor Relations departments at Albaraka Türk. Before we begin our presentation, I would like to extend my condolences to people who lost their souls in the earthquake disasters. We have condolences to the bereaved ones. I am with our Chief Economist and Transformation and Strategy Assistant General Manager, Mr. Ömer Emeç, who will begin the presentation. I am now leaving the floor to Mr. Ömer Emeç.
Yeah. Thanks, Seyfullah. Thank you for all for joining us today. Actually, I will be giving a brief presentation regarding macroeconomic dynamics, both for global economics as well as Turkish side, and a summary slide. Then I will be giving the floor to Seyfullah to give details. Actually, we are very honored to somehow, as you know, we have actually announced our results yesterday. Compared to general banking sector and participation sector, the sound result is making us happy, actually. But before going to that kind of details, I want to give details about a short brief regarding macroeconomic timings for Turkish market as well. First of all, as you know, after the pandemic, global interest rate has been increased so much.
Later on that, after pent-up demand, the PMI in global right now is somehow, especially on manufacturing side, is below 50, which is, as you know, threshold. But services side, right now above actually threshold, which is also a, let's say, result and actually a root cause for the core inflation in global. As you know, yes, headline inflation in global is somehow decreasing down. But when we look at the details, especially these inflation is coming down due to the energy prices, as well as the slowdown in manufacturing side. But services side especially, which is affecting core inflation, and we see a inflation inertia, especially on core inflation side.
This is why after the global bank crisis, not banking crisis, but it was affected some of banks in global side, there was expectation regarding the interest rate decrease will be coming a bit shorter due to that kind of crisis. Later on that, once we have seen the numbers of inflation, especially on core inflation side, we see both Fed and ECB further increase their interest rate, especially this week. As a general actual expectation, we see that is the top levels on inflation side, and especially somehow after that, perhaps interest rates will be coming down, especially starting end of 2023 and beginning of 2024. For Turkish side, Turkish macroeconomic side, as you know for 2021, the growth was 11% roughly. For 2022, the growth roughly at around 5.6%. For general assumption for 2023, our expectation is generally 3% for whole year.
Due to the election, the uncertainty that will be coming from monetary policy side, we see there are downsides risks. Given the circumstances, our expectation right now, 3% with some downsides risks. Actually, on inflation side, due to especially baseline effect, our inflation has been coming down, and right now our inflation is around 40.2%-43%. For the end of the year and the average of the interest inflation side, as you know, the baseline has been just finished for 2022, baseline has been finished. This is why our expectation for inflation side is roughly around 40% for 2023. We see some risk on upside risk, especially that may come up due to the potential exchange rate movements.
In that kind of macroeconomic environment, when we look at the growth of banking sector on total assets, we see the growth is, for banking sector, around 8%. For participation banking sector, it is about 11%, mostly driven by lastly entered public banks. Their growth rate is higher than the banking sector. This is why the growth is roughly around actually 12% for first quarter of 2023. When we look at the funded credit side, the growth again is actually the multiplied growth dynamics for both participation banking and banking sector is similar. When we look at the participation bank, it is growing like 18%. At the same time, banking sector has grown around 12%. The most important dynamic in here, both in banking sector and participation banking sector side, we see from FX credit, the shift from FX credit to Turkish lira credit.
This is coming both from new Turkish lira credits. This is the monetary policy on liability side affecting the asset side as well, the credit side. That is the first reason. The second reason, some of FX credits converting to Turkish lira, because also regarding with that. For NPL side, we see both growing asset side and as well as the NPL is provision write-off. The result of that kind of environment, for banking sector, NPL ratio has been decreased from 2.1% to 1.9%. For participation banking sector, actually NPL ratio has been coming down from 1.4% to 1.2%. Actually, net profit side, when we look at the banking sector, banking sector growth roughly around 70% growth in net profit side.
As we look at the details, for banking sector, yes, due to the cost of funding, net core actually separately coming down, but at the same time, the revenue coming from the other side, trading side, net fee and commission reversal, that has been supported for banking sector. When we look at the participation banking sector, the growth is again higher than banking sector side. This is due to the, as you know, banking model of the participation banking banks. As you know, increased cost of funding has been not reflected at the same scale for the participation banking banks. That has also affected participation banking, and the net profit side has been roughly around 23% higher than the net profit increase, 23% higher than the banking sector side.
Actually, for Albaraka Türk, I will be just giving that summary and then give floor to Seyfullah for further details. Actually, page three, you may see our net profit has been increased from TRY 194 million to TRY 517 million. This is actually a huge increase both compared to banking sector and participation banking sector as well. This is due to, as you may see from our income and cost dynamic side, profit share income has been increased by 80%. Profit share income has been increased by 84%. Yes, there has been an increase in profit share expense, but these profit share expense somehow a bit in line with our profit share income as well. As you know, profit share income as a volume is higher than profit share expense. So 80% increase in profit share income has been supported our net profit share income.
We can actually easily say our core margin, core banking sector margin, has been increased so much. Net trading income also somehow align with first quarter of 2022, and operational increase expenses, it is actually due to the inflation as well as some other. Actually our expenses has been increased like 144. T hese numbers especially, as you know, due to our good financial result for 2022, we have distributed that big amount of promotion and premium to our employees. When we exclude that, actually promotion and premium, our growth is a bit lower than that number. The number is exactly 106, roughly speaking. This is why this actually around 35% increase is coming from our premium payment for the employees. P rovision expense also is roughly in line with our 2022 first quarter 2022. This is also our precautionary asset quality management approach.
This is due to that factor. As you may see, in line with that profit generation capacity, our ROE and ROA has been increased. When we look at asset quality side, as you may see from NPL ratio, NPL ratio has been decreased from 1.9% to 1.5%. P rovision ratio for Stage 3, as you may see from numbers, it's roughly speaking 90% coverage, roughly speaking, in four. Actually Stage 3 customers. When we look at the Stage 2 side, that has been increased and roughly speaking 21% provision for Stage 2. Apart from that, this is also another important transformation for our balance sheet side. When you look at the FX and Turkish lira credits composition breakdown, when we look at that for year-end 2022, the share of FX credit was 60%.
Just within that three months, within one quarter, we have increased that amount from, that share from 60% to 66%. That is a huge transformation from FX credits. Both this is somehow converting from FX to Turkish lira as well as growth that is coming from Turkish lira new credits. Also, you may see from collected funds the transformation on liability side. When you look at the foreign currency shares in total collected funds, that was actually 54% for year-end 2022, and right now it is 47%. Again, a 7% decrease in FX side. This is general picture regarding our both macroeconomic environment and our results. As you may have seen, yes, we see some uncertainty in macroeconomic dynamics, global economics, and banking sector.
But given that uncertainty, our result is very sound, both in terms of net profit, income and cost dynamics, our asset quality, and transformation on the balance sheet item. Right now, I will be giving floor to Seyfullah to give more details about that transformation.
Thank you, Ömer Emeç. I will start with our profitability on page four on our presentation. Our profitability has continued to rise on behalf of strong operational revenues. Our net profit increased significantly by 166% year-over-year and around 13% quarter-over-quarter. This solid increase achieved thanks to our enhanced operational income generation capacity. The gross operational income went up by about 61% year-over-year. The largest share of total gross operating income equates to net profit share income. Its share was up 7% year-over-year. Also, other operating income also increased. It is shared now total operating income from 18% to 25% year-over-year. Other operating income actually mostly consists of reversal of provisions due to collections from NPL portfolio and asset sales.
Our return on equity and return on assets has been rising for the consecutive last five quarters since our solid financial performance has been improving. Return on average equity went up from 5.6% at the end of first quarter of 2022 to 23.4% at the end of last quarter. Similarly, return on average assets were up from 0.3% at the first quarter of 2022 to 1.2% at the end of last quarter. I am now moving on to page five, on the balance sheet side. Growth in our total assets were only 4.2% year- to- date. Since the Turkish banking sector has been very tightly regulated for the last one year, and as other banks, our bank has focused on fulfillment of regulations and acquisition of a successful asset and liability management.
When we look at the composition of our total assets, which has not been changed very much in the last quarter. At the end of last quarter, funded credits consist of the largest portion in our total assets by about 52%. Our securities portfolio was the second largest part of our total assets by around 25%. The share of cash and banks came down from 23% at the first quarter of 2022 to about 19% at the end of March of this year. Actually, idle cash has been utilized as funded credits in the last quarter. Therefore, our liquid assets to total assets ratio were down further, which was revised at almost 31% at the end of first quarter of 2023. Increase in our asset yield still was higher than increase in the cost of liabilities, which helped us improve our profitability.
At the end of March 2023, asset yields reached to 10.3%, and cost of liabilities reached to 5.3%. I am now moving on to next page. Our funded credit portfolio has become healthier on the base of increasing Turkish lira performing credits. Gross funded credits increased by 3.2% in the last quarter. Share of Stage 3 credits, in other words, our NPL portfolio came down further, which was only 1.5% of total gross funded credits, which is below the sector average. Our NPL portfolio came down very significantly by over 70% year-over-year basis at the end of last quarter. Almost all foreign currency NPL has been cleared up, which helped us make the asset quality further improved. Thanks to our foreign currency deleveraging strategy, the share of our foreign currency credit book shrank to 34% in our total performing credits at the end of first quarter this year.
Our Turkish lira performing credits increased by about 22% year- to- date at the end of last quarter. When we look at the credit yield, both Turkish lira and foreign currency credit yield remains at good levels. Profit and loss, when we adjust the yields, excluding the profit and loss project in our calculations, blended yield for total funded credits portfolio were up by 70 basis points in the last quarter. I am now on page seven. Our asset quality further improved in the last quarter with an NPL ratio of 1.5%, as I mentioned earlier, which was below the sector average. When we look at the details of development in the NPL portfolio, new inflows into the portfolio were very low in the last quarter. Also, collections wasn't much high. Around TRY 230 million NPL were written off in the last quarter.
Since our NPL ratio has been very low and our provisioning ratio has been up to around 90%, our cost of risk came down by 20 basis points year to date at the end of last quarter. Our total three provisions reached to TRY 1.885 billion at the end of last quarter. I am now moving on to page eight. On the securities portfolio side, our securities portfolio increased by 8.4% in the last quarter. Our securities portfolio has gone up very significantly for the last one year due to the inflationary operational environment and CBRT's place. When we look at the currency composition of the securities portfolio, foreign currency securities comprised of 62% of our total securities portfolio at the end of the last quarter, and 30% of securities portfolio on the Turkish lira side portfolio was floating rate, actually. Rest of the whole securities portfolio was fixed rate.
Since our securities portfolio has been growing, the yield of the portfolio has been rising. At the end of 2023 first quarter, yield of total securities reached 10.8%. Securities portfolio income in total went up by 107% year-over-year. I am now on page nine. Composition of our total liabilities slightly changed by the addition of Tier 2 Sukuk issuance in the last quarter. However, participation funds constitute 75% of our total liabilities. Due to $100 million new Tier 2 Sukuk issuance, some share of the borrowings in total liabilities went up to 11% in the last quarter, which was at 6% at the end of last year. Growth in total borrowings increased by almost 4% year-to-date. Total Tier 2 Sukuk portfolio were up by 46.4% in the last quarter.
When we look at the deposits, our collected funds through participation and current accounts increased by 1.3% from the last year-end to the end of March 2023. Thanks to our localization strategy, share of foreign currency funds went down from 54% to 47%, and FX-protected participation accounts helped us achieve the Turkish lira conversion in our total collected funds. FX-protected deposits also helped us extend the maturity of our deposit base. As end of 2023 first quarter, participation accounts for over one year constituted 11% of our total deposits, which were at 8.4% level at the end of last year. Participation accounts from three months to one year in total deposits went from 3.4% at the end of last year to 4.1% at the end of last quarter.
Share of participation accounts from one month to three months increased by 10 basis points year-to-date as end of March 2023. I am now on page 10. TRY funds collection continued to increase by the help of FX-protected deposit scheme. It can be seen that our Turkish lira participation accounts showed a solid increase by almost 21% year-to-date. On the other hand, Turkish lira current accounts were up by around 2% year-to-date. Foreign currency deleveraging caused a sharp decrease in our foreign currency participation accounts, which were down by over 22% in terms of Turkish lira equivalent and 24.4% in terms of USD equivalents in the last quarter. Although funding cost has already been rising in the market, our cost of collected fund has been a steady increase in total and foreign currency funds, and kept downward trend in Turkish lira fund in the last quarter.
High currency accounts to total deposit ratio enabled us to keep cost of our deposits lower. I am now moving on to page 11. On the income side, our profit share income increased by around 81% year-over-year, and profit share expense increased by 84% year-over-year. The net profit share income increased by about 77% year-over-year. On the operational expenses side, the personal expenses equates to the largest portion of our total operational expenses, which was 61% of our total operational expenses at the end of March 2023. In total operational expenses, the increase was 144% year-over-year, as mentioned, due to the high inflation and premium payments to employees. When we look at the net fees and commission income, which also supports our profitability in the last quarter. The net fees and commission income increased by 35% year-over-year.
The fees and commission paid decreased in the last quarter because we have already fulfilled the Central Bank of the Republic of Turkey's regulations on the Turkish foreign currency composition rules. Because of that, we paid less commission to CBRT. On page 12, when we look at the breakdown of our income, it can be seen that profit share income largely equates to our total income by 64.4% at the end of last quarter. Its share went up from 58.8% at last year's end to 64.4%. This solid increase has shown the enhanced income generation capacity of our bank recently, actually. While total income increased 65% year-over-year, total cost increased by about 58%. Net profit share margin has kept rising since last year end, and reached 4.9% as end of last quarter. On page 13, you can see brief explanations for cost income items.
Net profit share income, which increased by about 81% year-over-year. Profit share has continued to increase since net profit share margin kept rising both quarter-over-quarter and year-over-year basis, actually. When we look at the net fees and commission income, although fees and commission paid raised by 238% year-over-year due to a large amount of commission, which was TRY 108 million in the last quarter paid to Central Bank, fees and commission income increased by 34% year-over-year. Net trading income shrank by 7% year-over-year, despite 91% year-over-year increase in foreign currency transaction income. This is due to reduction of income generated from capital market transactions by about 50% year-over-year. Other income increased over 100%.
Reversal of provision due to collections from Stage 3 credits and other sales increased our other income in the last quarter. When we look at the provisioning, Stage 3 coverage ratio has been increased to almost 90%, and total fee provisions increased to total TRY 1.885 billion. Personal employee expenses went up by 189% year-over-year. Although personal expenses increased that much hard year-over-year, due to increasing personal expenses in line with inflation and bonus premiums payments first quarter, actually. When we look at the other costs, operational expenses increased rapidly due to the high inflationary environment. Now moving on to page 14. You can see that our capital adequacy ratio is at a comfortable level, especially when we add our pre-provisions to our total equity. The capital adequacy ratio reaches 16.7%.
At the end of our presentation, you may find our ratios in comparison with participation banking and banking sector for the last year end, and also for the first quarter of this year. Summary balance sheet and income statement are also at the end of our presentation. I'm going to leave the floor to Ömer Emeç for closing remarks, and then we can move on to question- and- answer session.
Thank you very much. Actually, let me briefly give details regarding our strategic priorities in coming period. As you know, banking sector is highly regulated right now by Central Bank, and we are safe regulations. As you know, once you are developing a strategy, you always should be looking at first things first. Our first thing right now are to somehow complying Central Bank regulations. As you know, if not, we are somehow having lots of commission reflection on security side, things like that. That is why our one of the main actually focus right now and motivation is regarding complying to regulations. Secondly, actually after the election, yes, maybe there will be changes on the macroeconomic dynamics. We are following up. As you know, Seyfullah already mentioned about the free-float side.
Right now, we have roughly TRY 1.9 billion to somehow buffer that potential risk that can be coming in. So both are transformational, Turkish lira on both performing credits as well as NPL sides. In the past, our FX portfolio, in total, our NPL portfolio was high. Right now it is very limited, almost none. So a potential hike on, yes, FX side may be affecting some corporates, depending on their balance sheet. As you know, Turkish real sector, FX position is very favorable compared to past. Since there is a general expectation on exchange rate, we actually estimate the potential negative effect will be lower. As well as our existing NPL book is actually 97% right now having Turkish lira, so it wouldn't be affecting our existing NPL book.
Apart from that, we want to actually increase our cross-sell in our sales activities, and building and enhancing our platform ecosystem. We just focus on API and service banking. As you know, we are amongst one of the best in terms of API platforms. We know the trend and the banking sector will be coming from here. We are well prepared for that. We want to increase that side, and we want to improve our mobile infrastructure. We want to increase the utilization, especially on digital sales capacity side, both for our customer and for our internal system. Automation and increasing our channel migration and digital customer acquisition side. Apart from that, we want to somehow transfer our organization into a more favorable in terms of new trends for employees. As you know, after COVID, there has been a huge shift in employee behavior as well.
We want to be prepared for that. This is my general guidance regarding strategic priorities. Thank you for attending our presentation. We will be welcoming for your question, comment, and opening sides.
All right. Thank you for the presentation, Mr. Ömer Emeç and Mr. Seyfullah Demirlek. Now we are heading to our question- and- answer session. If you would like to ask a question, please press star five on your telephone keypad. Star five to questions. We will wait a couple of seconds. Okay, a reminder for questions. Ladies and gentlemen, if you would like to ask a question, please press star five on your telephone keypad. We are waiting for your questions. All right. Seems like we do not have any questions. Gentlemen, if you would like to conclude, the floor is yours.
Okay. Thank you so much for attendance. Actually, we will be welcoming any question, opinion, in any time. Both investor relations and including me directly, we will be welcoming for your questions, opinions. Apart from that, in coming period, both Seyfullah, our Head of Investor Relations, and me, we want to plan to visit yourself in order to have a direct link, direct communication, for discussing that result and other opinion side. Thank you for your attendance.
Thank you. This now concludes today's conference call. Thank you for your participation.
Thank you. Thank you so much.