Hello, thank you for joining us in Garanti BBVA's 2022 financial results and 2023 operating plan guidance webcast. Our CEO, Mr. Recep Baştuğ, our CFO, Mr. Aydın Güler, and our Investor Relations Director, Ms. Handan Saygın, will be presenting today. As always, there will be a Q&A session following the presentation. Now I leave the floor to our presenters.
Good afternoon, everyone. For year 2022, we're honored to present you another set of excellent financial results. As always, let me first remind you the macro backdrop we operated in year 2022. The main highlights are that there was robust economic activity. Domestic demand remained strong due to the support of countercyclical policies. Exports and tourism activities were supportive. High activity results, the tax generation, fed government revenue streams, helping the budget deficit to end at a low and highly manageable level of only 1% of GDP. Even though this growth continues, pressuring inflation, due to base effect, inflation is on a downward trend. On this slide, you'll see how the GDP growth has been faring on a quarterly basis. For the nine months of 2022, the realization was already 6.2%.
As we witness deceleration in growth in the third quarter continuing into the fourth, we expect the whole year's GDP growth to end around 5.3%. On the inflation front, even though we witnessed some ease at year-end with the help of last year base, we remain cautious of the upside risks on the inflation outlook, given the high global inflation and commodity prices, along with the above potential growth rates. Regarding current accounts, even though exports and tourism revenues in the year were supportive, the high energy bill carried current account deficit to high levels, like around 5.7% of GDP. It is also definitely worth mentioning, the highly challenging and frequent regulatory changes happened in 2022, that we had to swiftly adopt in a dynamic and agile fashion.
Even under such challenging regulatory backdrop, we could deliver new records in earnings, both on a quarterly and cumulative basis for year 2022. Quarterly earnings reached almost TRY 20 billion, validating eight consecutive quarters of earnings growth. This took the cumulative earnings to TRY 58.5 billion, suggesting an earnings growth that is around four-fold of last year's TRY 13.6 billion. 2022 earnings not only signifies our sustained outperformance to our operating plan, but also the high quality components to it, as higher portion of the revenues are from core banking operations. The growth in core net interest income, meaning with the exclusion of CPI revenues, was two and 1/2 fold. Fee and commission income was two-fold that of last year's, whereas OpEx growth was managed to a level below average inflation.
This obviously took the jobs to a level never seen before and cost income to exceptionally low levels. A glance into our key performance indicators for growth, profitability and strength verifies our sustainable growth strategy, strengthening capital. In terms of growth, we booked a TRY loan growth of 79%, a level much higher than our full year projection of above 50%. In TRY customer deposits, liraization efforts resulted in a TRY deposit growth that was 2.4-fold that of last year end. In terms of profitability recorded in 2022 was more than double the levels of 2021, with an ROE of 51% and an ROA of 5.4%.
This profitability serves to significantly strengthen our capital. Net income alone added 560 basis points to our capital equity ratio by year end. During the year, we set aside further 500 million TRY of free provisions, bringing the total free provisions on balance sheet to 8 billion TRY. If all were accounted as part of capital, along with forbearance, that adds another 1.8%, our capital adequacy ratio would have been 19.3% on a consolidated level. Notice also our foreign currency liquidity buffer of $10 billion, that is actually double that of the total external debt level and five-fold the short-term dues of $2 billion. Regarding the components of this performance on slide seven, reveals the high weight of the customer-driven portion, namely loans, pointing to our core banking priority.
As of 2022 year-end, our consolidated total assets reached TRY 1.3 trillion. While performing loans domination and assets remained to be at a high 57%, securities share went up to nearly 16% due to the additions to offset the redemption, as well as efforts to meet the regulatory requirements. Of the Turkish lira securities, 65% is CPI linked and 28% is fixed rate, and the rest is FRN. Total loan growth for the year-end year was 56%. Last quarter alone, the growth was 11%, 14% in Turkish lira lending, and 5% in foreign currency, all of which originated in our foreign subsidiaries. The slight foreign currency growth, loan growth, seen in bank-only figures is purely due to the parity effect. Continuing with TL loans on this page.
Turkish lira performing loans reached TRY 472 billion at end of 2022. In the pie chart, Turkish lira loan book can be rather described as well-balanced among business and consumer, with 51% business loans, 24% credit cards, and 26% consumer loans. In line with the regulations limiting lending, business loan growth in the last quarter outside of SMEs cut pace. For the whole year, 85% growth was booked in business lending. That yielded an annual market share gain of 92 basis points. In consumer lending, the growth has been relatively lower. However, we have managed to increase our market share in the high-yielding consumer general purpose loans with rational pricing.
High growth and market share gains also prevailed in credit card volume, as it was up by 30% in the last quarter, bringing the total for the year to 127%. Moving to the funding. Notice how deposits dominate the funding sources. Both time and demand deposits, as well as deposits like Turkish lira bonds issued and merchant payables fund nearly three-quarters of the assets. Demand deposits alone fund one-third of the assets. Actually, at Garanti BBVA, when you add the free equity to it, meaning total free funds an astonishing 50% of the interest-earning assets. This ratio, when I last looked at peers, was only around high 20%s. Borrowing share in funding assets has been further reduced down to 8.4%.
Total external debt is now TRY 5 billion. You can see the foreign debt components in the pie chart on the bottom right-hand side. Continuing with how we performed in deposit growth on slide 10, you will clearly notice the accelerated liraization of deposits through foreign exchange-protected deposit scheme. Turkish lira deposit growth registered by year-end was 138% versus a 16% shrinkage in foreign currency deposits in USD terms. Last quarter alone, the shrinkage in foreign currency deposits was 8%. Looking at the sector data analyzing foreign currency deposit conversion to Turkish lira, we come to a conclusion that we're the bank realizing the highest conversion to TRY in the period.
By year-end, our Turkish lira demand deposits exceeded TRY 113 billion, this makes us proud and happy that customers prefer Garanti BBVA as their main bank to keep their Turkish lira demand deposits. This differentiating strength naturally feeds into our superior margin performance that is on next page. Now, superior core margin generation capability, our legacy, I should say, manifested itself with a core net interest income growth of TRY 26 billion in a year. Combined with the growth in the denominators, core margin expansion for the year 2022 ended to be 195 basis points, suggesting a beat to our operating plan guidance of 175 basis points expansion. Core NIM, core margin by year-end was 5.4%, including the CPI impact. Total margin at year-end was 10.2%.
In the last quarters, with new regulations limiting growth as well as setting price cap on commercial loans, spread contraction was inevitable. We tried to offset the negative impacts with volume growth in the quarter. With the denominator growth, basically, we witnessed a quarterly margin suppression of 51 basis points in the last quarter. Main reasons behind our distinctive outperformance in core banking margins can be attributable to our effective and dynamic balance sheet management, namely healthy loan growth, disciplined pricing, and diversified funding portfolio. Ability to attract new customers and strong capital, basically supporting our profitable growth strategy. Looking at the quality of our loan portfolio on slide 12, the pie chart on the left hand side shows our healthy breakdown of our loan portfolio staging.
Out of TRY 790 billion of gross loans, TRY 20 billion is in Stage 3 and TRY 107 billion or near 14% is in Stage 2. In one quarter, there seems to be a big jump of about TRY 15 billion for Stage 2, or a currency adjusted way of about TRY 11 billion. This has to do largely with the SICR bucket, where we did the IFRS 9 model recalibration that we typically do in the last quarter of each year. You can also see on the bottom of this page, our Stage 2 provision coverages that it had gone up to 20% from last year's 17%.
As for the NPLs, even though our new NPL inflows remains muted and the ratio further improved down to 2.6%, we continue to increase the NPL coverage to 72%, which is actually in a write-down adjusted fashion is 83%. Accordingly, the total loan provisions on our balance sheet reached above TRY 40 billion. This is against a total NPL of TRY 20 billion or TRY 32 billion, including write-downs. How this translates into risk costs or provisions you can see on the next slide, where net cost of risk for the year ended at 130 basis points in line with our operating plan guidance for net cost of risk below 150 basis points.
You also see on this page that the big bulk of the provision increase occurred in the last quarter and has to do with the IFRS 9 model recalibration. Moving on to the topic of net fees and commissions. This is another major differentiating area where we feel confident as we have a long track record of being unrivaled. With the support of strong transaction activity in the year, we booked a net fees and commissions growth of 97% in 2022. We owe our above guidance actual results, which the guidance was higher than 60%. This outperformance to the to our highly diversified fee sources, expanding customer base and continuously increasing existing customer penetration. Main contributors in doubling the net fees and commission were from payment systems, lending and transaction activity.
We rank tops in money transfer fees, Turkish lira loans, and acquiring and issuing volumes among our private peers. Moving on to the operating expenses. Year-on-year operating expense growth was 81%, of which 18% was due to the currency depreciation that's fully hedged. Adjusted net operating expense growth affecting bottom line was a below CPI type of operating expense growth of 63%, which is within the guidance figures. Overall in the year, because the total income growth, meaning, with the inclusion of CPI linked revenues, was much higher than the operating expense growth, cost-income ratio by year-end ended at an extraordinarily low level of 24% versus 33% last year.
Isolating the not so sustainable revenues from CPI, a more meaningful ratio to look at could be fees coverage of operating expenses, where 66% of our operating expenses in 2022 was covered by our fee income. Regarding capital, we sustain our strong capital buffers and our capital generative growth strategy continues to strengthen the capital base. Net income generation alone added 560 basis points to our solvency in 2022, our capital adequacy ratio without the BRSA's forbearance increased to 16.8% from 14.1% in the beginning of the year. Our excess capital accumulated to 48 billion TRY on a consolidated level and without the BRSA's forbearance by year-end. As a secondary buffer, we have accumulated 8 billion TRY of free provisions.
If we were to include free provisions as part of capital, that would add 77 basis points to our capital adequacy ratio. On top of this, if we were to include also the BRSA forbearance impact, it would add additional 180 basis points, technically carrying our consolidated capital ratio to 19.3%. On slide 18, you will see the summary of our 2022 performance relative to our operating plan guidance. We already went over each KPI explaining how we ended with this earnings outperformance. I won't repeat it, but rather just say we're stronger than ever starting a new year. With that, let's move to the next page for our 2023 operating plan guidance. This, though, we should admit, is a rather difficult guidance to give since we're in an election year.
Uncertainties remain while regulatory changes are still happening. For that reason, we may end revisiting and revising guidance throughout the year. Based on our most recent knowledge and operating environment for year 2023, first of all, we expect a lower GDP growth of around 3%. Parallel to this deceleration, we expect to book a Turkish lira loan growth of around average inflation. For foreign currency loan book, though, we expect to keep that flattish. We expect net cost of risk to ease to around 100 basis points given our already quite high provision coverages. Regarding core NIM, we expect contraction of around 185 basis points, taking into account the removal of the price cap from the foreign currency protected deposits and the rising pressure on Turkish lira deposits in light of the recent regulations to increase liraization.
On fee growth, we feel we can deliver a growth above average CPI, given our historic strength in diversified fee sources. For the operating expenses, we expect to see around 100%, a level above inflation, basically, that you're not used to see happening at Garanti. This has to do rather with the base effect. In 2022, we had three pay raises, two of which occurred in the H2. In 2023, the full-year rollover impact will be in the books. All in, return on equity for 2023 likely will end above 28%. Before we end and take your questions, let me also remind you some of our non-financial strengths.
Open banking was one of the most important agenda items of 2022, with our sustained leadership in digital, we're happy to say we were one of the pioneers of the system in Turkey, enabling our customers to view their accounts at other banks on Garanti BBVA channels, as well as being able to perform money transfers from these accounts. With our unique customer experience and platform security, we continue to offer brand new services to our customers every day, our efforts are awarded with an ever-growing customer base. Our mobile active customers reached 13 million, which places us as the bank with the highest mobile and digital customer base in Turkey. Our mobile financial transactions market share is 19%. Roughly one out of five mobile financial transactions in the country go through Garanti BBVA.
With more than 86% of total assets, total sales, sorry, going through a digital channel, the share of branch in customer transactions has come down to 2.3% versus 6% pre-pandemic. Finally, customer monthly logins have increased a remarkable 97% since beginning of the year. Moving on to our achievements on ESG front. As Garanti BBVA, our sustainability commitment is to build a strong and successful future. This year marks the eighth consecutive year earned to remain listed in the Dow Jones Sustainability Index. We're proud to emphasize that we're the first Turkish company that could get qualified to be included in this index. We're also proud to say that we broke our own record by achieving 83 points this year.
We had to revise this because we got the news just yesterday that we earned another additional point. This places us as the fifth highest among global financial institutions. In line with our efforts to combat climate change, we were included in the global A list of the CDP Climate Change Program in this year as well. Garanti BBVA has actually tripled its initial sustainable financing target for year 2025 that was set in 2018 from EUR 100 billion to EUR 300 billion. In parallel, as Garanti BBVA, we commit to contribute TRY 150 billion to sustainable finance until year 2025.
Garanti BBVA has been a carbon neutral bank since 2020, and we reached our greenhouse gas reduction target 15 years earlier. We're the first Turkish bank to announce Coal Phase-Out plan and became a signatory to the United Nations convened Net-Zero Banking Alliance. 100% of our new electricity generation investments are allocated to renewable energy since 2014. With all these great results in our financial and non-financial strategic performance indicators, it is no surprise that we rank first in brand power among private peers. Now, this concludes our presentation, and we leave the floor to you for questions. Thank you for listening.
Hello again for the Q&A session. Just a quick reminder, you can either ask your questions by typing them into the Q&A area or by using raise your hand button. Once your name is announced, you are welcome to ask your question. We have our first question from Cihan Saraçoğlu. Hi, Cihan Saraçoğlu , please go ahead.
Hello. Thank you very much for the presentation. I have one comprehensive question, then, a couple of quick points. The first one is: Could you give us the underlying assumptions of budget? Like, I mean, maybe you have already mentioned and I missed it, but inflation assumption first, then, as policy rate, what do you expect? Do you expect the regulatory environment to continue as it is? After the elections, these regulations stay in place, or do you expect them to be eased somehow? That's the first one. The second one is: Where do you see the biggest risk to this budget? I mean, which lines are you more confident about and which lines are you less confident about? The quick questions are, first, the currency-protected deposits.
Now that the cap is raised, where do you expect the rates to settle? The other one is, in terms of dividends, do you think that it's possible to go to a higher payout ratio this year? Lastly, what would your swap adjusted net interest margin guide, sorry, CPI include net interest margin guidance be? Thank you.
Thank you. Thank you, Cihan Saraçoğlu , for the question. The first one, our expectations about macro assumptions, GDP, would be around 3%, and yearly inflation, the average one, 45%. On interest rate side, regardless of the policy rate, sooner or later, deposit and loan rates will get close to each other. This current situation is not sustainable. As this negative margin environment continues, it wouldn't be so easy for us to make new business with the wholesale side. The second part of this question was regulations. I think that regulations will be in our life till the elections. I hope after the elections, we will be much more normalized after the election. Through the election, this regulation will continue. The second one, the main risk, where do we see the risk?
Let me go one by one. There are, I think, more than one items. First, one is the profitability. In 2020, ROEs were about above 50%. This year it may come down to below 30% levels, which points to a below inflation probability for two consecutive years. This is not sustainable. Also, the fact that this year's CPI linkers income level is extraordinarily high. It supported profitability in a very strong way. This will disappear in 2023. That is the reason in a nominal way, the profit level will come down due to the CPI linkers impact. Second one, interest rates. The link between policy rate, loan rate, and deposit rate has been broken. There must be some kind of adjustment here.
Until that adjustment, bank will operate with negative spreads and normalization will take some time. Although the sector's capitalization is strong, this inevitably pressures banks profits. The interest rate and profits level has very strong correlation. There is a link. Third one, I don't see any currency risk. This means that the banks, if when we look at the bank's balance sheet, the foreign currency loans has decelerated, whereas the TL side accelerated. The foreign currency assets of the bank, the only high quality foreign currency assets are left. Therefore, we don't see any NPL risk for the sector due to exchange rate issue. The fourth one, I think the biggest risk, which is not pronounced at all, is the salary promotion payments. These campaigns got out of control.
Due to these salary payments customer acquisition, it became very costly. Every bank customer growth pace accelerated. This is not an organic growth as banks offer irrational payments to gain the customer. We believe that such way of customer acquisition is not profitable and not sustainable. You may follow this payment impact on ROA/OpEx, which will be more visible in coming quarters. In the next three years, I believe it will be the main headache for the sector. The nominal values would be close. Cost to bank's balance sheet will be very strong. This has to be taken into consideration. These are my personal views about the sector risk. Garanti BBVA attracting new customers is our main strength, and for that, we will not be the part of this irrational competition to expand our customer base.
We will continue to generate high quality and best-in-class earning in 2023 under these circumstances. The deposit cost is around 25%-30% levels. 25% is the rational level, currency competition hovers around this. In foreign exchange-protected deposit scheme, all-in cost is currently around 18%. Rollover ratio for FX protected deposit is around 60% again. The, I think the dividend, as you know, the BRSA is positive about this issue because they made an announcement stating that they may let banks pay dividends in line with their capital ratios. We will apply to pay dividends in line with our policy. We have comfortable capital levels. When BRSA turns the light green, I think that we are gonna get our approval, but we don't know about the levels of dividend.
The other one, the CPI. NIM, yeah, I think it is around. I'm not sure. Guys, should I give this number or not? Yes. Okay. Three. It is, it will be around 350 basis points deterioration it should be, if I'm not wrong. Is the question what is the NIM with.
Yes.
Including the CPI linkers.
Yes, because in the budget you give the net interest margin, taking out the CPI linkers, I believe. If CPI linker income was also included, how much contraction would you expect? If I may add one more thing. What inflation assumption did you use for CPI linkers? Thank you.
I think the first part of your question is just answered. The second one, this year, the October inflation, we expect to be around 45%. We started to the year a little below than this number, for the valuation of CPI amount for 2023. It is below 45%, over 30%.
All right. Thank you very much.
Okay.
Thank you.
Hello. I believe you have a question on the Q&A side, a written question. [Alan Caiste] is asking, "Will you be looking at issuing bonds while you repay your March maturity?
I think similar question we have got during our presentation. Answer is similar. We will be opportunistic because we have more than $10 billion liquidity buffer, so we don't need it. We have to be in the market as Garanti BBVA. That is the reason we are gonna be opportunistic. We are not in a position to pay high costs just for to be in the market. Most probably we may renew depending on the prices. If price are not satisfactory, we would, we wouldn't be in the market.
Outflows from FX Protected Scheme pick up markedly or you do see this likely?
It has been in a reasonable level than the rollover ratios are above 60% and there is new inflow to the program. The existing program, I think, has welcomed by the retailers and the companies. As a bank perspective, I'm not in a situation to answer about the macro impact of this, but as a bank perspective, this is very reasonable one because it helps us to arrange our maturity mismatch. This program works very well. There is one trend in the risk in this program I need to underline, that the treasury side has been decelerated, but the central bank side has been accelerated. This is the trend.
Under these circumstances, 60% of time deposits amount in the sector is a reachable target. Overall, over 50%, this ratio has appeared. I think these are the things that I can tell about the protected scheme.
Thank you. Our next question comes from [Alan Caiste]. Could you please talk about how close you are to the regulatory limit of 60% of TRY deposits, total deposits? Looks like you were at 54%. Thank you.
Among the big banks, we are one of the banks that has the highest foreign currency deposits. That is the reason our homework is bigger than the others. As of now, we have the highest protected scheme or foreign currency conversion among the private peers. We have by far the highest conversion amounts, so we are doing our best to reach the threshold, and we are positive about that.
We have a next question on the line from Mehmet Bodur. Hi, Mehmet Bodur, please go ahead.
I thank you very much. I hope you can hear me well. Just checking.
Yes, we can hear you just fine. Thank you.
Okay, perfect. Again, thanks for the detailed presentation and opportunity once again. Also congrats on your quarter results as well. I have a follow-up question actually on the Turkish lira deposit portion side. I would like to get some guidance regarding to regulation on the realization objective by Turkish lira portion mandate in total deposits. As of 2022 year-end, I believe your Turkish lira deposit portion in total deposits has reached approximately 47%. Correct me if I'm mistaken, considering the respective penalty on portions below 50% and on an additional requirement between 50%-60% level, what should we expect from you in short term on that matter?
Whether you will be aggressive on Turkish lira deposit growth to reach 60% level, or you'll be just willing to bear the additional bond purchasing requirements as suggested by the regulation? Thank you.
Seven is at consolidated level, in a solo one. We are above 50%, the first part of the question, because our foreign international subsidiaries, Netherlands and Romania, change this picture. Türkiye, Garanti BBVA in Türkiye is above 50%. As I said to the earlier question, answer to the earlier question, we are positive to reach to the regulatory required levels. Our biggest concern is to converge the foreign currency amount to Türkiye. We are not gonna be the part of harsh competition in TL deposit market. That is the reason. Organically, we are converting our foreign currency to TL in our own balance sheet. We are not gonna be the part of this harsh competition because we are paying around 25%.
The market pays 30% to any amount of money. Small, medium, big, it doesn't matter. Our approach is very simple: we pay 25% maximum to normal deposits. Mainly we have been focusing on the protected scheme, and we are doing it in a right and reasonable way. That is the reason you are gonna see more TL deposits, but mostly generated from protected scheme.
That is, you wanna take an action within your balance sheet, not by attracting an additional deposit, competition. Okay, perfect. Crystal clear.
We have a written question from Sadık Mıhlar. We observed that private banks loan net FX position squared in the past couple of weeks. Would you please give the main reason behind this move and your view about the financial strength of the sector? Thank you.
The first part of the question, the new regulation between foreign currency assets and liabilities. The difference is subject to some different regulatory measurements. That is the reason every bank has to calculate this delta monthly. That is the reason you see that picture. The second one, about Turkish banking sector. Yes, we have problems. The profitability expectation for 2023 and the ROE is below the inflation. These are the problems and I think gave you some colors about other problems, but these are usual problems. In general, small, medium or big size of private and state banks are very healthy. Their capital adequacy ratio levels are satisfactory, so the sector capitalization is strong.
That is the reason, we should be very comfortable about the future of the banking sector, about the finance sector of Turkey. We are very comfortable.
Thank you. Seems like we don't have any questions. This concludes the Q&A session. I now leave the floor to our presenters for closing remarks.
Thank you all for your participation. Despite the challenging environment, 2022 was a very successful year for the bank. I am really proud of my entire team and would like to express my gratitude to each and every one of them for their commitment. In the upcoming period, the developments on the regulatory front will continue to be the key factor in our balance sheet management. In this inflationary environment, as always, our focus will be to sustain a strong capital structure via our customer-driven growth strategy. Thank you for your support and trust in us. I wish you all the best and look forward to address you again with another set of great results in the next quarter.