Hello, and thank you for joining us today in Garanti BBVA's 1st quarter 2022 financial results 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, the presentation will be followed by a Q&A session. I now leave the floor to our presenters.
Hello, everyone. This is Recep Baştuğ. Before we begin, we appreciate your understanding for moving our earnings call to today and apologies for inconvenience. We moved our earnings date due to BBVA's price revision on their tender call. We wanted our shareholders to be fully informed regarding the bank's financials so that they have sufficient time to evaluate and make an informed decision. I believe you will understand our efforts to be fully transparent. After this explanation, I will give the floor to Handan to make her presentation.
Thank you and welcome, everyone. Thank you again for attending our 1st quarter 2022 financial results call in such short notice. Before diving into our stellar results, let me start with a brief macro backdrop. The main highlights are that there's still strong economic activity. Currency stabilization efforts likely will have positive impact on inflation in the coming period. Post-pandemic world demand remain supportive. Looking into this slide, we see that the growth still remains resilient despite the high global volatility. Given China's COVID restrictions, the war in Ukraine and the severe sanctions, all reinforce both higher inflation and deceleration in growth. In this environment, Turkish economy continues to prove its resilience. We now cast near 7% GDP growth in the 1st quarter of the year. Consumption and exports remain supported on this positive performance.
We expect the full-year GDP growth to be 2.5%, which is one percentage points lower than our guidance in the beginning of the year. We revised it down following the implications of the war in Ukraine, as you can expect. Actually, potential changes in global value chains, change in the new post-pandemic and post-war era, this might even work to benefit Turkey in the mid- to long-term. Regarding inflation, risks remain on the upside, given the continuing supply side problems and loose policies. We expect the year-end inflation to be 50%, helped by the base effects in the last 2 months of the year. On the external side, the demand, especially post-pandemic world, remains supportive for both exports and tourism revenues.
However, increasing energy bill and lower global demand are the downside risks on the current account deficits. On the budget balance, we expect countercyclical fiscal policies to continue, which will likely result in a wider deficit in our expectations. Now on to our 1st quarter 2022 results. Start to the year has been stellar. We booked a new record high profitability in the 1st quarter. Net income recorded of TRY 8.3 billion was double that of the prior quarter and triple year-on-year. Key drivers of this strong profitability has been mainly the net interest income growth, largely backed by robust loan originations and lower cost deposit base. There was also support from the CPI book, of course. Trading growth driven by FX buy and sell activity. Fee and commissions growth supported by the strong performance in payment systems, lending and transaction activity.
Reduced need for provisioning due to already high provisions we have on balance sheet. There was also strong contribution from the subsidiaries. This quarter, following BRSA's approval, both Garanti BBVA Fleet and Garanti BBVA Payment Systems were added to our consolidated financials. Positive contribution of these subsidiaries is around TRY 260 million in the quarter. We've also revised last year's financials to include this change. Moving on to the next page, we wanted to clearly display how the performance is building up on an already proven track record. Turkish lira loan growth booked in the quarter was a robust 17%, significantly higher than the sector growth of 12%. In this series, our customer acquisition resulted in a net customer growth of more than 1 million, half a million, suggesting a beat to our existing customer growth trend.
Our record high profit in the quarter translates into an ROE of 38% and an ROA of 4%. We were also able to further strengthen our capital ratios. Our capital adequacy ratio increased to 14.8% from 14%, whereas our core equity tier one ratio increased to 12.2% from 11.3%. On top of this, we have accumulated so far the highest pre-provision amount in the sector with seven and a half billion TRY on balance sheet. In terms of liquidity, we sustain our high total liquidity. On the foreign currency side, for instance, we have $11 billion of buffer versus a total external debt of $7 billion. Now continuing with our strategically managed asset composition and growth. Asset breakdown continues to be heavier on customer-driven sources, largely loans, fifty...
Almost 58% of the assets, which points, based obviously, to the sustainable nature of our revenues. As I mentioned, Turkish lira lending growth within the 1st quarter of 2022 was a strong 17%. Foreign currency lending growth booked was a positive 2% in dollar terms, due to the timing of a bulky loan. Overall, for the year with the upcoming redemptions, actually we expect shrinkage in this portfolio. There was also some securities purchases across the board in both Turkish lira and foreign currency sides this quarter. The share of securities and assets went slightly up to 14.3%. New CPI-linked purchases more than offset the redemptions, and our CPI book reached TRY 53 billion, including the accruals as well as the IRR and mark-to-market difference.
Continuing in more depth with Turkish lira loans, you may see the well-balanced breakdown of our Turkish lira loan book in the pie chart, with a slight increase in business loans compared to 2021 end. The significant 28% quarterly growth booked in the Turkish lira business banking is definitely eye-catching. It also meant significant market share gains of 83 basis points among private banks. New consumer loan originations in the quarter also remained as strong as in the 1st quarter. Also, in the credit card business, we continue reinforcing our leadership and have the highest market shares in both acquiring and issuing volumes, both nearing 18%. Now moving on to how we fund the assets.
You notice on this slide that the funding mix, deposits, both time and demand deposits and the deposit like Turkish lira bonds issued and merchant payable, fund more than 70% of the assets. Also, notice the share of demand deposits funding alone more than one-third of the assets, which is certainly contributing to our significant performance in free funds to interest-earning assets. Notice also on this chart, the borrowing share in funding assets. It's only around 11%. Total external debt stands at $6.8 billion, of which $3.5 billion is short term. Against this, there's foreign currency liquidity buffer that is well above the debt, and that meets more than threefold the short-term need, with nearly $11 billion, as I mentioned earlier.
Funding contributors show that we are highly liquid, and our active management of funding sources remains to be the main differentiating factor. Detailed look into the deposits on slide 11 show that this quarter there was a strong 30% growth in Turkish lira deposits versus 6% shrinkage in foreign currency deposits, which is a natural outcome post the de-dollarization initiatives introduced with the FX-protected deposit scheme. This scheme resulted in a remarkable 35% growth in our Turkish lira time deposits, where we ended the quarter with 10% market share in this scheme. Despite this unusually high Turkish lira time deposit growth in the quarter, Turkish lira customer demand share in TL deposits remained higher than the sector average, which was also the case for our foreign currency deposits.
In total, this corresponds to the fact that half of our total deposits are demand deposits, undoubtedly reflecting the preference of the customers choosing us as their main bank. Also validating this is that Garanti has the highest Turkish lira deposit base, both in time and demand among private banks. This well-differentiated deposit base contributes noticeably to our margin performance that you will see on next page. In terms of the margin performance, there was further expansion on top of the high base of the last quarter, driven by the further drop in funding costs and our outperformance in lending book in the quarter. Turkish lira loans to Turkish lira deposit spreads increased by another 36 basis points, and this translated into a core margin expansion of 20 basis points to 4.4%.
This represents a level actually that is significantly above that of our nearest peer. Combined with the positive impact of CPI linkers, 1st quarter total margin was 6.6%. Notice here that the core margin, meaning the sustainable customer-driven portion, in total remains to be the biggest component of the margin at Garanti BBVA. This is also evidenced in the net interest income evolution that can be seen in the chart below. Core versus the total net interest income, including swap costs, TRY 7.5 billion out of TRY 11 billion of the total net interest income comes from the core business. Results of our lending business and funding mix management, representing our core and well-proven competitive edge, competitive strength. Moving on to the topic of asset quality on Slide 13.
We maintain our commitment to manage the loan portfolio in a healthy way and stage it proactively. Out of TRY 585 billion of gross loans, TRY 89.7 billion or 15% is in Stage 2, and TRY 19.2 billion or 3% is in Stage 3. In-depth look into Stage 2 shows that the mix has not changed much, and the amount when isolating the currency impact suggests slight improvement owed to strong recoveries incurred in the quarter. Yet we continued strengthening our provisions and the Stage 2 coverage level reached 17%, up from 16.8% in December 2021. Now moving on to NPLs. Notice on this slide that the collection performance in the 1st quarter was higher than the new NPL inflows.
Adjusted with currency, NPL sales and write-downs, the net new NPL was -TRY 102 million, contributing to the improvement in the NPL ratio. Helped also by the lending growth in the quarter, NPL ratio at quarter end was 3.3% with a further increase in the NPL coverage of 67%. If we had not written down the 100% provision loans since 2019, our NPL ratio would have been 5% and the NPL cash coverage would have been a significant 79%. Looking at how we, how they translate into cost of risk, I mean, cost of risk and provisions, you can see on this next slide 15. Despite lower than expected net new NPL inflows, we make no compromise on our disciplined and prudent provisioning.
Furthermore, we incorporated lower GDP growth expectation into our macro model in March. Still, net cost of risk, which is at 1.1% by the end of the 1st quarter, it realized far better than our anticipation of below 150 basis points for the full year. Recall that our annual IFRS 9 model recalibration took place in the 4th quarter last year. From this high base, net provisions excluding currency declined 48% Q-on-Q. Currency depreciation impact, as you can see on the right-hand side corner of the page, is 153 basis points, which has no impact to bottom line as it is fully hedged. Moving on to the topic of net fees and commissions.
Our unrivaled fee generation capability once again got manifested with a new record high growth of 55% on top of the highest base in the sector. Higher than expected economic activity and solid growth resulted in lending-related fee growth of nearly 60% year-on-year. Money transfer fees registered a striking growth of 96% on the back of digital empowerment and best-in-class customer experience. 95% of money transfers go through digital. We also exhibited the positive impact of 7/24 FAST system for local money transfers. We ranked top in FAST transactions as well. Payment systems fees 69% annual growth was also substantially supported given the rise in credit card volumes. We gained market shares both in acquiring and issuing volumes and reinforced our leadership position. Moving on to the operating expenses.
Year on year, OpEx growth was 61%, of which 19% was due to the currency depreciation, which was fully hedged and therefore had no negative bottom line impact. We can say that the net operating expense growth was 42%. Much lower than the revenue growth booked, leading to, of course, a significant improvement in our efficiency ratio. Cost/income as a result ended at an impressive 28% from 34% last year, whereas the fee coverage of operating expenses increased to 61%. Regarding capital, we sustain our strong capital buffers and our capital-generative growth strategy continues to strengthen capital base. Net income generation alone added 119 basis points to our solvency ratio in the 1st quarter.
Our capital equity ratio without the BRSA's forbearance increased to 14.8% from 14% in one quarter. We have currently TRY 21 billion of excess capital. As a secondary buffer, we have TRY 7.5 billion of free provisions. Notice that free provisions, if we were to be included as part of capital, would add another 1 percentage point to our capital equity ratio. Summarizing our 1st quarter performance, Garanti outperformed in Turkish lira lending and registered 17% growth versus 12% in the sectors, gaining healthy market shares and customer growth. The annual growth in core revenues, meaning the net interest income excluding CPI-linked revenues, plus fees, plus trading revenues, was a remarkable more than double that of the last year, which is 103% year on year.
Wide open JAWS leading to further improvements in efficiency. The cost income ratio is an incredible 28% now versus 34% at year-end last year. Cost of risk faring better than expectations with strong recoveries and muted NPL inflows. A strong capital position with ample buffers. Core Equity Tier 1 ratio without the BRSA's forbearance is well above the minimum required level of 12.2%. Now, allow me to share with you some of our non-financial strengths as well. As Garanti, we continue to lead the way in digitalization in the sectors. Our continuous investments in digital since the late nineties to enrich customer experience and meet the growing digital trends clearly carry us to the forefront with being the top choice of the customers. Our digital as well as mobile active number of customers exceeded 11 million mark already.
Representing the highest digital and mobile customer base among peers. Customer empowerment through digital and mobile and our service focus to improve the financial health of our customers clearly differentiate us in attracting the new ones. Our net active customer growth in mobile has exceeded the growth in digital customers since the end of 2019, with a net increase of 3.4 million in a period of only 2 years and a quarter. Now, with more than 85% of total sales going through a digital channel, the share of branch in customer transactions has come down to 3% level, as can be seen on the right-hand pie chart. Customer monthly logins have increased a remarkable 120% versus pre-pandemic level. Lastly, on digital, our market share speaks for itself.
Our mobile financial transactions market share of 19% is almost twice of our third market share. Moving on to the update on sustainability on Slide 22. At Garanti BBVA, we're guided with a clear purpose. That is to bring the age of opportunity to everyone. This purpose consists of 6 strategic priorities, one of which is helping our clients transition towards a sustainable future. Our parent group, BBVA, committed to provide EUR 200 billion in financing to combat climate change and support sustainable development by year 2025. Likewise, at Garanti BBVA, we also pledge to contribute increasing amounts of financing towards the same goal. This year marked the seventh consecutive year earned to remain listed in the Dow Jones Sustainability Index. We are the first and the only Turkish bank that could get qualified to be included in this index.
Garanti BBVA has been a carbon neutral bank since 2020. Even though this greenhouse gas reduction target was set for year 2035, it was achieved 15 years earlier. We're also the first Turkish bank to announce a coal phase out plan and the first and only Turkish signatory to the UN-convened Net-Zero Banking Alliance. Our commitment to sustainable development manifests visibly in our climate change action plan. In line with this action plan, the new project finance loans provided since 2014 have been 100% renewable energy projects. At the end of year 2021, the percentage of green assets to project finance loans reached 24%. In 2021, we increased our sustainable finance mobilization by 103% year-on-year. Both in green and social financing, totaling to TRY 8.8 billion.
We have also adapted TCFD methodology to manage our sustainability risk for carbon-intensive sectors. Regarding our achievements in the last 3 months of the year, we invested $71 million to Turkey's largest rooftop solar energy project, provided our first-ever circular economy loan, as well as realized the first ESG-linked repo transaction. We started the production of our Environmentally Friendly Bonus card, the first of its kind in Europe, using recyclable materials. We plan on extending this initiative to all our credit card brands. Aside from these, we're planning to implement various sustainability engagement projects this year in terms of both public engagement, sectoral know-how, and capacity building. Accordingly, we collaborated with WWF Turkey, starting this quarter for a 3 year project, by providing grants to local initiatives to carry out projects for forest fire prevention.
We also published our 2021 integrated annual report entitled How Does a Bank Create Value? Covering both our non-financial activities throughout the years and our economic indicators. With this, for the first time, we disclosed our bank's concrete contributions to 16 sustainable development goals and exactly 59 sustainable development targets with the aim of preventing greenwashing risk. In the future, we will continue our investments in sustainability and encourage our society and our customers to make a transition to a greener and a more sustainable future. Now, this ends our presentation, and we leave the floor to you for questions. Thank you for listening.
Hello again for the Q&A session. Please feel free to ask your questions either by using the Raise Your Hand button or typing them into the Q&A section. This is not the chat area, but the Q&A box that we can see. Our first question comes from Waleed Mohsin. Hi, Waleed.
Good afternoon. Thank you much for the presentation, and, congrats on a very solid set of results. 3 questions from my side, please. Firstly, we saw over the last couple of days some regulatory changes being made, to the reserve requirements for certain loans. Just wanted to get your thoughts on how this impacts the bank and, you know, if you have any quantification of how or what the impact for the bank would be. That's the number one question. Secondly, I was just wondering, in terms of the success of the new FX-protected deposit scheme, in that context, do you still expect any changes in monetary or fiscal policy from the government?
Especially given that, you know, despite the fact that dollarization levels have come down and the deposit scheme has succeeded on that side, but some of the challenges such as, you know, inflation still remains. Even on the regulatory changes that we saw on the reserve requirement, it seems there was some language where which suggested that there could be some more kind of, you know, changes on the reserve requirement side to, you know, effectively address some of the issues currently. My third and final question is on your guidance. After a very strong 1st quarter, are you making any changes to your guidance for full year 2022? Thank you much.
Okay. Thank you, Waleed. The first question, regulation. I think there has been 4 different regulatory impact we have had during the last 2 weeks. The first one, increase in the penalty, the commission paid on not reaching the conversion rate for dollar to TL. It is related to protected deposit. The second one, elimination of remuneration. The third one, increasing the corporate tax to 25%. The fourth one, last one, reserve requirements for TL loans. Total impact to this year would be less than 10% to our 2022 net income. So this is the impact of those four regulation to our balance sheet, less than 10%. It's more than 5%. So the second, do we expect any policy changes?
As I see, no. Because the Ministry of Finance, central bank, they are fully committed with this monetary policy. We don't expect any change in the short term. In terms of our guidance, do we expect any changes? Guidance revision is inevitable because when we announced that guidance, the inflation rates were around 20% levels. Now we have been experiencing the 60%. As you know, our operating plan guidance was overall conservative, as we have taken into account the possibility of higher funding cost for us to end of year. Current trends are just significant fit to our operating plan. There seems to be clear upside in Turkish lending growth. If we preserve the current pace, TL loan growth can easily surpass 40%.
Both fee and OpEx growth will be impacted by the higher inflationary environment, but we are expecting fee growth to more than offset OpEx growth. On the other side, the OpEx in our guidance was in line with the inflation, but under new circumstances it will be below the inflation level. All in all, related with guidance, there will be some positive changes. In order to be on the safe side, we need some time to share the next guidance levels with you. Not now, but trend is positive. Timing wise, we need to wait a little more.
Perfect. Thank you much. That's very clear. Just one follow-up, if I may. On the provision side, you've obviously had a very good experience during the 1st quarter. And you know, that's in the context of you withstanding very high inflation levels. Are you starting to see any signs of this inflation manifesting itself into asset quality? I mean, obviously you're very well provisioned. You talk about the free provision buffers. So obviously that will provide you with a buffer and it will cushion the impact. But are you seeing any signs of inflation feeding into you know, different parts of your loan book impacting asset quality? Any early signs of that?
Well, as of now, the answer to this question is no. Why? Because the inflation is 60%, the applicable rates in the market for wholesale side is around 20%. For retail it's around 27%-30% level. Under the circumstances, inflation has not reflected its cost due to credit prices. Under these circumstances, we don't see any impact of the inflation at the current cost of lending, cost of deposit. Under these circumstances, we don't expect any asset deterioration due to inflation. If it happens, if the cost of funding goes up to inflation levels, then we may think to consider its impact on the asset quality. As the Ministry of Finance and CBRT are fully committed with the existing policy, I don't expect to see that kind of asset deterioration.
Our guidance was below 150. Still we are committed with our guidance.
Got it. Thank you much. Very helpful as always. Thank you.
Our next question comes from Konstantin Rozantsev. Hi, Konstantin.
Yes. Thank you very much for the presentation and congratulations on the results. I wanted to ask two questions. The first question is about the bank's subordinated bonds in dollars, which has a call date in late May this year. It seems to me that the notice period to announce this call has already expired. Could you please confirm if this is actually the case and if this has in effect expired and you know the bank the bond was not called on the reasons for this, why did this take place in the end? And secondly, about the FX-protected deposits.
Could you please confirm, in terms of the pace of conversion, into this scheme by retail and by corporates, what do you see, you know, in the market at present? Is the pace of conversion into this scheme, you know, slowing down, accelerating, across these, 2 segments, retail and corporate? Yes.
Thank you. First, the first question, Tier 2. As a management decision, we have decided not to exercise the call option on our Tier 2. Per our contract, calling a sub debt is an option. We know the main practice to call at the end of the fifth year and issue a new one depending on the need. However, Russia, Ukraine and other uncertainties significantly increased the cost. With this in mind, I can announce that we have decided to exercise our right to roll our T2 issues. Once we have more visibility, we may call Tier 2 before its second 5 year period and issuing a different amount, either more or less. As of now, this is management decision related with Tier 2.
Your second question, conversion rates in retail across the board all over the country it is around 3%-4% level, and Garanti BBVA is among these rates. In wholesale sides, in company sides, there was very strong conversion. In retail, it is around, let's say 4% level in total. In coming days, CBRT with these penalties, with other incentives, has asked us to increase that level as well. We try to increase this conversion level in retail, the answer to your question is around 4% levels in the sector.
Could you confirm what do you mean by 4% level of the sector?
4%. The amount that converted from dollar deposit base to TL was 4%. Meaning that the total as of today, total amount converted from retail was $8 billion. That $8 billion represents the 3.5%-4% of total retail deposit volume in the country.
Understood. Thanks a lot. On the ongoing basis, so as previous deposits mature, you know, some of those presumably should be rolled into the scheme, across retail and corporate. On an ongoing basis, do you see the pace of conversions accelerating or slowing down in retail and corporate?
The due date, 80% of existing converted amount continues in the same program. 80% of the existing one, because we started it at, I think, 20th of December last year. The first 3 months, you know, the metric is our 3 months. First 3 months. The amounts due subject to maturity. On due date, 80% of it minimum rolls down. 20%, they may use that money, but the program in general approach is successful. 80%, we have 80% roll rate of existing volumes.
Understood. Do you keep attracting new depositors into the scheme? 80% of the existing ones which mature, they're rolled within the same scheme. Do you attract the new-
Yes. Yeah. There are fresh amounts every day we have added. As of now, it is not right to give the exact number, but when we started last month, one and a half months ago, our percentage, Garanti BBVA's percentage of this protected deposit amounts among the total TL deposit was around 30% level. Now, this is by far above that level. Day by day, the amount goes up.
Okay, thanks a lot. Thank you.
It seems like we have, with these questions, we have replied quite a few of the written ones as well. If there aren't any additional questions, I will leave the floor to our presenters for closing remarks. Yes. Seems like there aren't any additional questions, I'm leaving the floor for closing remarks. Thank you.
I want to mention a few points before ending this call. Our focus has always been and continues to be growing in customer-driven assets, namely lending, our core business. We differentiate in terms of securities sharing assets, and we wanted to highlight our efficient management in this volatile environment. It is visible on our strong 1st quarter results, and you will continue to see such strong results from us. Even after the recent regulation introduced, we still keep our full year guidance with upside potential. Thank you so much. Thank you very much for attending. We really appreciate your understanding about this meeting. See you soon.
In the next quarters.
Thank you very much.
Thank you.
Bye-bye.
Bye-bye.