Ladies and gentlemen, welcome to the Halkbank Fourth Quarter 2024 financial results webcast. Our speakers today are Mr. Miraç Taş, the Group Head of International Banking, Mr. Muharrem Baykara, Head of Investor Relations, and Mr. Kamer Olkay Aşık, the IR Manager at Halkbank. We will have a question and answer session following the presentation by the speakers. If you would like to submit your written questions, you can send them anytime, even during the presentation, by clicking the Q&A button, which you will find there at the bottom of your Zoom screen. If you would like to ask an audio question, you can join the call by clicking the Raise Hand button, again at the bottom of the screen. And with that, I will now hand you over to Mr. Miraç. Sir, the floor is yours.
Dear friends, sorry for the technical issue. This is Mr. Miraç Taş, Group Head of International Banking. I wish you all a happy and prosperous New Year. Welcome, and thank you for joining us in Halkbank's 2024 year-end Earnings Presentation. Today, we have Muharrem Baykara, Head of Investor Relations, and our IR Manager, Kamer Aşık, presenting. Before we dive into our presentation, I am delighted to report our solid financial performance. I firmly believe that Halkbank will distinguish itself among peer banks this year. Turkish lira dominance will set the stage for a significant profitability in 2025, with nearly 75% of our loan book in Turkish lira. Further rate cuts will change Halkbank's profitability, given our high interest rate sensitivity compared to peer banks. Halkbank has adeptly managed its capital buffer in this volatile environment.
As part of this strategy, Halkbank issued a TRY 26 billion Tier 2 bond to raise capital from the market. This issuance will positively impact our capital allocation buffers and further strengthen Halkbank's capital structure, alongside expected internal capital generation in the coming period. Moreover, we have improved our productivity through digital transformation and green energy initiatives. Our bank received approval to establish a digital participation bank, which supports the financial ecosystem and aligns with our digitalization goal. Additionally, we will set up a subsidiary to engage in renewable energy production, meeting our bank energy needs and reducing energy expenses. This initiative underscores our ongoing commitment to sustainability. Looking ahead, I assure you that we will continue to position our balance sheet for sustainability growth and profitability. We are confident in our team's ability to consistently deliver value to our shareholders, customers, and employees.
Kamer now will provide insight regarding our fourth quarter performance. Following his speech, Muharrem will offer some perspective on the macro and banking sector, followed by our 2025 operational plan guidance. Thank you very much.
Thank you, Miraç. Turning back to our earnings presentation, I would like to shift your focus to the first page. Total assets increased by 37% year-over-year, reflecting quarterly modest growth of 4.6%. Accordingly, total assets exceeded TRY 3 trillion as of year-end. Similar to the previous quarter, securities portfolio was the main driver of the quarterly asset growth. The share of loans maintained its decline and decreased to 47.2%. Considering limited TL loan demand, the share of total securities in our assets continued to grow throughout the quarter. On the next page, you may see securities details. Total securities increased by 6.4% quarter-on-quarter, in which TL securities grew by 4.7% and FX securities by 8.3%. We had a strong appetite for Euro bonds during the quarter due to our expectation on easing global financial conditions and declining sovereign risk premium.
In addition, CPI linkers' volume grew by almost 8% quarter-on-quarter. Their increasing volume relied on the widening positive real rate of CPI linkers during the quarter. On the other hand, CPI linkers' valuation rate was revised down to 48.6% from 55%. Accordingly, CPI linkers' income amounted to TRY 72 billion in the fourth quarter. As for securities composition, fair value through P&L securities share declined to 7.4% from 10.9% in the previous quarter. During the fourth quarter, TRY 35 billion in borrowed securities was written off from the balance sheet. Subsequently, our amortized cost securities share increased to 71.7% from 67.9%. Let's dive into our loan growth dynamics on the next page. Total loan growth was nearly flat, only up by 0.7% quarterly. TL loans were managed to grow by 2.5%, while FX loans in USD terms were contracted by 7.1%. Total loan growth was mainly supported by SME loans.
On total loans, our below-sector growth reflects our capital protecting strategy, tight and restrictive credit policies, resulting in weakened TL loan demand due to elevated interest rates. It's also worth mentioning that retail loans supported loan growth. Relative to retail loans, both credit card and overdraft loans have seen significant growth during the quarter. Turning to page four, more details on loan portfolio. Our assets are more TL dominated compared to our peer banks, so we expect to benefit from an earnings growth momentum throughout 2025. TL loans make up 74% of total loans, while FX loans make up 76%. The share of SME loans reached its highest level since early 2024 and ended the year with a 50% share. Additionally, credit card share within retail loans surged to 78% from 73%. Asset quality details are on the next page.
We had TRY 1.9 billion NPL inflows this quarter, which can be seen as an improvement compared to TRY 7.6 billion during the third quarter. NPL inflows were mainly initiated by the SME segment. Accordingly, NPL ratio slightly deteriorated to 2.1% from 2% in the previous quarter. Please note that there were no NPL sales during the quarter. Moreover, due to the denominator impact, our NPL ratio slightly increased despite a lower base. On the other hand, we saw some deterioration on our Stage 2 ratio, increasing to an 8.4% level from 7.5%. Finally, our Stage 2 coverage remains at a robust 14.7%. Further details on NPL ratios are on page six. We saw some deterioration, especially on SME segment, while corporate commercial loans NPL ratio has improved. Although consumer loans NPL increased meaningfully, they are still below the sector.
In addition, we saw an increase in credit card NPL ratios, but their share within total loan book was almost 4%. Moving to asset quality details on page seven. As we have not faced any hard landing in the Turkish economy, we were able to positively revise our provisioning model. As a result, we released some of our performing loan provisions during 2024. On the other hand, we continued to set aside Stage 3 provisions during the quarter. Taking into account all provision expenses cumulatively, our total loan coverage ratio remains at a healthy 2.9% level. Gross cost of risk ended the year with 53 basis points cumulatively. Net cost of risk realized at minus 46 basis points, given the releasing provisions during each quarter throughout the year. Turning to liabilities on the next page. Loan-to-deposit ratio kept its declining trend and finished the year with 60%.
Considering its lower level versus debt of sector average, there is ample room available for potential loan growth over the next couple of quarters, depending on the bank's strategy. On the right-hand side table, we see that the deposit share within our total liabilities is still above 79%. Relative to its deposit share within the liabilities mix, Halkbank will benefit greater than its peers through the year, given the existing rate-cutting cycle. Only 4.2% of our total liabilities are derived from FX wholesale funding versus a sector average of 17.3%. Details of deposits are on the following page. Total deposits are up by 2.8% quarterly and 27.2% on a yearly basis. TL deposits increased by 6.5% quarterly, which is lower than the sector growth. In terms of FX deposits in USD, they contracted by 7% quarter- on- quarter as the de-dollarization continues.
On page 10, we will see further details of deposits. Demand deposits remained flat quarter-on-quarter, while time deposits increased by a strong 6%. Since the post rate cuts commenced, Halkbank will be the main beneficiaries of the cutting cycle, given that TL deposits account for nearly 2/3 of total deposits. On page 11, cost yield spread details. Another positive development of the quarter was that TL core spread accelerated its positive momentum. Put together, TL loan yields have increased by 170 basis points, while TL cost of deposits declined by 50 basis points. So, our TL core spread improved by roughly 220 basis points. Taking into account FX core spreads, blended spread improved by 29 basis points. Moving to P&L items on page 12, NII increased by 32% quarter-on-quarter due to efficient loan repricing. Net fees and commissions continued to grow throughout the quarters.
It grew by 1.4% quarterly and by 108% in a year, mainly due to the continued process in payment systems. Headline NIM started to recover and increased to 1.6% from 1.3% a quarter ago. By doing so, cumulative headline NIM ended the year with 1.9%. Next page, details of profitability. Total operating revenues grew by 7.4% quarter-on-quarter, 134% year-over-year, mainly driven by core banking income items. As you may see in the right-hand side, net trading loss came in at TRY 451 million in Q4, which refers to almost 74% improvement compared to the previous quarter. We reported a net income of TRY 3.9 billion, up by 31.4% quarterly, implying that ROE came in at 10.8% on cumulative basis. On page 14, we have cost details. OpEx was up by 43% year-over-year, which is below inflation. Now, the solvency ratios.
Reported consolidated CAR came in at 14.8%, while CET1 ratio realized at 10.4%. Those were my final remarks. Now, I will hand over to Muharrem Baykara.
Dear guests, I am Muharrem Baykara, Head of Investor Relations. Before we proceed to the Q&A session, I would like to address a few important issues. In 2024, we efficiently managed our capital buffers by adjusting our loan appetite, issuing a sub-debt bond, and recovering the Turkish lira core spread. As announced on the Public Disclosure Platform, we successfully issued TRY 26 billion of Tier 2 bond, selling this sub-debt to qualified investors. Additionally, determination of the higher risk-weighted asset practice balanced the negative impact on the Capital Adequacy Ratio caused by the forbearance exchange rate update. As of now, we have sufficient capital buffers. Our internal capital generation will enable us to further strengthen our capital buffers throughout 2025. Our TL core spread has been widening positively, and a further decline in the cost of funding will support our profitability.
We are implementing balance sheet strategies by shortening the maturities of the deposits and predominantly granting fixed-rate loans, except for overdraft loans and credit cards. The CBRT's restrictive credit policies have been supporting our loan pricing with high yields. There is a high correlation between the policy rate and the yields. However, the beta that we are pricing for the deposit rates is significantly higher than the beta of the loan yields due to restrictive credit policies. In summary, the decline in the deposit costs leads, while the decline in the loan yields lags the CBRT policy rate cuts. This divergence will continue to improve NIM in the coming quarters. Additionally, our Turkish lira-driven asset structure will generate tailwinds for our profitability. Regarding our 2025 guidance, as a state-owned bank, we have based our budgets on the Medium-Term Program.
Our year-end inflation expectation aligns with the CBRT forecast, and we are assuming a 25% policy rate by the year end. We are forecasting mid-20s total loan growth, low 20s TL loan growth, high single-digit FX loan growth in USD terms, and we estimate high-teens total deposit growth, around 20% TL deposit growth, though low single-digit FX deposit contraction in USD terms in line with the de-dollarization trend. We plan to reach a 4% or higher net interest margin by 2025. We are targeting approximately 90% net fees and commissions growth through faster and more productive merchant service and credit card fees turnover. We expect approximately a 50% increase in OpEx. We aim to maintain an NPL ratio below 3% and estimated a gross cost of risk about 200 basis points. We anticipate a return on equity in the mid-20s. These are the key points I wanted to cover.
Thank you. Over to you, Rob.
Right. Thank you, Mr. Muharrem. We will now start our question and answer session, and if you would like to ask a written question, please go ahead, click the Q&A button. You'll see that at the bottom of your screen. Our speakers are ready for those questions. You can do that right now. Click the Q&A button. You'll see that at the bottom of your screen. If you want to ask an audio question, just click the raise hand button, which you will see there at the bottom of your screen. Just move your mouse there and you'll see raise hand. You click on that and we will join you to the call. With that, I open the floor to our panelists for those questions. I believe we have a question from Mr. David Taranto. Would you go ahead, sir?
Good afternoon. Thank you for the presentation. First, could you please share the capital ratios adjusted for the forbearance measures for both bank only and consolidated financials for this quarter? And could you kindly repeat the guidance for 2025? And does your NIM guidance include the swap costs, or is it just on the reported numbers? Thank you.
Our cost of risk is 160 basis points or 170 basis points. It is very close to those levels, and to your second question, our net interest margin excludes the swap costs. Maybe I can just elaborate the NIM. We have been expecting a gradual recovery throughout the quarters. We've been expecting all the CBRT meetings will be the live meetings. In other words, CBRT will potentially cut rates by each meeting. For example, in the 6th of March, the next meeting, we've been expecting 250 basis points rate cut by the CBRT and other remaining meetings. Probably CBRT will gradually cut rates, and we've been expecting the policy rate, the terminal rate for the 2025 will be at 25%, maybe a bit below the market expectation.
Markets mainly expect 30% or above a policy rate, but we are a state-owned bank and we've just done our budget on the Medium-Term Program. We've been expecting mid-20s year-end inflation and the policy rate also will be in tandem with this level. In other words, we've been expecting 25% year-end policy rate. If I elaborate the NIM, as I told you, we've been expecting a gradual recovery in the NIM. Our year-end NIM would be higher than 4%. And maybe I can tell you the exit NIM. Exit NIM would be 5.5%. Just those levels can be referenced. I think I covered your questions. Is there any additional question?
Could you kindly repeat the other parts of the guidance, please, if possible? I mean, I think I missed the growth rates. Thank you.
Okay, David. We are forecasting the 20s total loan growth, low 20s TL loan growth, high single-digit FX loan growth in USD terms. When we look at the funding side, we estimate heightened total deposit growth, around 20% TL deposit growth, low single-digit FX deposit contraction in USD terms in line with the de-dollarization trend.
Okay. Thank you very much.
Can I help?
Yes, thank you.
You're welcome.
Before we move on to our next question, just a reminder, ladies and gentlemen, we are in the Q&A session right now. If you'd like to ask a written question, please go ahead, click the Q&A button at the bottom of the screen. You can do that right now. I see we have a written question coming through. And if you would like to ask an audio question, just join the call by clicking the raise hand button, which you will see down at the bottom of your screen. Speakers, back to you. I believe we have a written question.
Thank you, Rob. I think we have one question from Sadettin . The question is, "Thank you for the presentation. 2025 year-end policy rate, did you say 25%?"
Yeah, that's right. Our policy rate forecast is 25%. It is below market expectations. Market participants have been expecting 30% or more policy rate. But we are optimistic, but this does not contain complacency because there are some downside risks for the inflation. As we look at the GDP numbers, we just contracted by consecutive two quarters. This shows that we are in a technical recession. On the other hand, we've been seeing some technical negative impact on the CPI, which is the service prices, mostly derived from the 25% rent cap lift in 2024 January. We will see this impact will adjust itself through the year, through 2025.
The household demand is not high, and the core service prices have been showing some signals towards easing. Easing in the service prices, core service prices will help the inflation. If the CBRT feels itself comfortable about containing inflation or managing pricing behaviors or anchoring inflation expectations, I think in coming months, there will be a good backdrop for the rate cut. Now, as I told you, we've been seeing an easing in the service prices, and this will help determine the inflation for the CBRT. CBRT will be able to cut rates in every meeting. We've been seeing each meeting of the CBRT is a live meeting. CBRT will start to cut rates, and this will reflect its lower cost of funding, and lowering cost of funding will help us to increase our NIM, will increase our earnings to recover through 2025.
Does it help?
Yes. Muharrem, thank you. There is another question from Sadettin again. The question is, would you also repeat fee growth guidance? Is it 90%?
Yeah, yeah. We have a guidance that we will increase our fees and commissions around 90% in year-over-year terms.
Thank you, Muharrem . In the written questions, Rajesh Bey also demands from you to repeat 2025 guidance.
Okay. One more time, I will just repeat the 2025 guidance. We are forecasting mid-20s total loan growth, low-20s TL loan growth, high single-digit FX loan growth in USD terms. On the funding side, we estimate high-teens total deposit growth, around 20% TL deposit growth, low single-digit FX deposit contraction in USD terms. We plan to reach a 4% or higher net interest margin by 2025. In other words, we've been waiting. We've been seeing a doubled NIM compared to 2024 year-end.
We are targeting approximately 90% net fees and commissions growth. We expect approximately a 50% increase in OPEX. We aim to maintain an NPL ratio below 3% and estimated a gross cost of risk about 200 basis points. On the bottom line, we anticipate a return on equity in the mid-20s.
Thank you, Muharrem . I think there is no another written question.
Yes, indeed, speakers. We don't seem to have any audio questions coming through. So if there are no more written questions, unless you have some other questions that came through, yeah, you can go ahead and conclude. Thank you so much.
Thank you for joining our call. I wish you a good year. Have a nice night. Bye-bye.
Thank you, speakers. Thank you very much. That was our speakers for today. And thank you. Welcome and enjoy the Halkbank Fourth Quarter 2024 Financial Results Webcast. Trust you enjoyed that. Thank you for your participation. That now concludes today's conference call. You may now disconnect. Thank you.