Ladies and gentlemen, welcome to Halkbank fourth quarter 2025 financial results. We will have a question and answer session following the presentation. If you would like to submit your questions, you can send them anytime by clicking the Q and A button which you will see there at the bottom of your Zoom screen. If you would like to ask an audio question, you can join the call simply by clicking the raise hand button. Again, you'll see that at the bottom of your Zoom screen. Before we begin, I'd like to welcome our hosts for today. They are Mr. Miraç Taş, the Deputy General Manager of International Banking; Mr. Muharrem Baykara, Head of Investor Relations; and Mr. Kubilay Alkım Ayaz , Investor Relations Manager. Now it is my pleasure to introduce Mr. Miraç Taş. Sir, the floor is yours.
Dear friends, good evening, welcome to our fourth quarter earnings call. This is Miraç Taş, Deputy General Manager of International Banking. It's a pleasure to be with you today as we wrap another resilient and strong quarter. Joining me today are our Investor Relations Manager, Mr. Kubilay Alkım Ayaz , who will walk with you through our financial results, and our Head of Investor Relations, Mr. Muharrem Baykara , who will provide insight into the broader macroeconomic landscape and operating environment, including 2026 expectations. Before we dive into the financials, I would like to highlight how we position ourselves during the final quarter of the year. Throughout 2025, our core banking operations remain the cornerstone of our strength, delivering robust revenue growth and reinforcing the sustainable nature of Halkbank profitability.
We achieved healthy interest income growth boosted by strong fee generation from our expanding customer base and advanced payment system. On the efficiency front of our discipline, cost management was reflected in numbers. Significant contributions from our subsidiaries aligned with the sector-wide methodologies remain a vital driver of success. Our securities-driven assets growth continues to be a key differentiation. Securities now constitute a noticeable amount of the our total assets, showing a steady increase from previous quarter. Our prudent loan growth strategy is a reflection of our discipline underwriting and efficient risk management. As always, we demonstrate excellence in preserving asset quality. We remain fully focused on proactive risk monitoring and prudent underwriting standards. Our well-diversified portfolio continues to support the overall resilience of our asset base.
On the funding side, we saw a strong performance in demand deposits, which significant enhanced efficiency of our funding base. We also continue to increase our whole funding diversify funding source. During this quarter, we increased our outstanding bilateral loans to $650 million. We also successfully executed $300 million AT1 issuance in four quarters. By completing these issuance, we fully utilize our $1 billion AT1 regulatory limit, which was the largest execution in 2025. In 2026, we got the regulatory approvals for another $1 billion USD AT1. This effort clearly shows our strong commitment to support our capital adequacy ratio levels. Moving the forwards, we are well-equipped to capture for FX wholesale funding opportunities backed by our growing presence in international markets. We are executing our strategy today by transforming tomorrow through our clear long-term vision.
I would like to extend a sincere thank you to our teams for their hard work and dedication. They are true drivers of success. I also want to thank you, our shareholders, for your continued trust and support. I look forward to seeing you all again in the coming quarters. I will turn the floor over to Mr. Kubilay Alkım Ayaz for the financial. Thank you.
Thank you, Miraç Taş. Hello, everyone. I will walk you through our Q4 financials. Let me start with the first page. Total assets increased by 42.7% year-over-year, reflecting our quarterly growth of 6.5%. Accordingly, total assets reached TRY 4.3 trillion as of the Q4. This quarter, the loan growth accelerated compared to the previous quarter by a nearly 10% hefty growth. Additionally, the securities portfolio continued its growing pace just like the previous quarters. Year-over-year terms, securities was the main driver of the asset growth in 2025, and its share in our total assets approached to 20-28%. On a yearly basis, the share of loans kept declining due to our conservative approach in terms of loan underwriting strategy, and the securities low risk-weighted asset nature. Now moving on our securities portfolio.
Total securities increased by 5.6% quarter-on-quarter, reaching an almost 52% year-over-year. In terms of currency breakdown, TL securities grew by 43.4% and FX securities by 44.3% year-over-year in USD terms. We continued to compensate our asset growth with securities portfolio. In other words, our securities portfolio grew above the sector average. The composition between fixed and floating rate notes was largely stable. We continue to benefit from CPI linkers revenue with another TRY 28 billion interest income in the fourth quarter, relying on realized CPI for December 2025. CPI linkers valuation rate is 28.7% for the full year of 2026, which will provide us another solid revenue stream from this portfolio till the last quarter of 2026.
Depending on inflation outlook, we may see some deceleration for CPI linkers income in the last quarter. Our securities composition, fair value through P&L securities share increased to 9.5% from 8.6%. During the quarter, amortized cost securities decreased to 66.9%, while fair value OCI securities inched up to 23.6%. We are strategic, strategically reducing the amortized cost securities share to increase mark-to-market income and liquidity generation in the coming quarters. The CPI, the CBRT has been moving in the rate cut cycle, all the upcoming meetings will be the live meetings in terms of new rate cuts. Therefore, potential declines on loan yields will feed into either trading income or liquidity. Now let's go over the loan growth dynamics presented on page three.
Total loans growth accelerated quarterly, growing by 9.8%, which was 5.7% in the previous quarter. FX loan growth continued to support total loan growth. In more details, FX loan in USD terms increased by 5.4%, while TL loans grew slightly above the sector growth of 8.9%. Turning the next page, more details on loan portfolio. Total loan growth was well distributed across all segments. SME segment had the highest contribution to the TL loan growth, the TL loan book, in which increased CGF loans utilization, woman entrepreneur loans, and cooperatives were the main supporters. FX loan growth was mainly supported by strong business loans. We had a strong appetite on FX loans during the quarter, especially commercial segment FX loan growth gained momentum on the top of ongoing high demand on corporate segment.
Moreover, the share of FX loans in our total loan book increased to 6.7% with a 70 basis points expansion since 2024. We are seeing additional market share increase on the back of increasing FX liquidity, stable exchange rate, and continuing strong FX loan demand. It's also worth noting that retail loans started picking up and realized 11.7% growth during the quarter. Both credit card and consumer loans have seen significant growth during the quarter, respectively, 20% and 18%. Turning the next page. Structurally, our balance sheet is more TL denominated. TL loans make up 69% of total loans, while FX loans make up 31%. As we mentioned previous slide, surging FX loan demand and increasing FX liquidity continue to change the loan composition in favor of FX loans.
SME loans with a 48% share are the largest segment within our loan portfolio. Additionally, we benefited from our high-yielded retail book. Accordingly, the credit card share within retail loans increased to 38% from 36% sequentially. Similar to credit cards, our consumer loan share increased nearly 25% within retail loan book, which was 23.5% in the previous quarter. Asset quality details are on the page six. We are seeing early signs of moderation in NPL inflows. We had an almost TRY 6.5 billion NPL inflows this quarter, which was TRY 10 billion in the previous quarter. As usual, NPL inflows were mainly initiated by SME segment. Lagged effects of policy tightening continued to lead additional Stage 3 inflows but a slower pace.
As a result, NPL ratio increased slowed to 3.3% from 3.2%. Our NPL ratio is decoupling from the sector, which stems from two main reasons. The first one, we are neither selling nor writing off. The second one, the denominator impact draw our NPL ratio above the sector average. NPL coverage further strengthened to 63.4% from 62%, which is comfortable levels. Our Stage 2 ratio inched up to 9.1% from 8.8% previously. We saw some deterioration, especially on SME segments. Corporate commercial loans NPL ratio was actually improving. Consumer loans NPL continued to increase but a slower pace. Restructuring regulation by BRSA reversed the deterioration in the credit card segment's NPL ratio.
With the help of regulatory relief, our credit card NPL portfolio converged to the sector average. Moving asset quality details on page eight. We again acted prudently and set aside enough Stage 3 provisions. Taking into account all provision expenses cumulatively, our total loan coverage ratio sustained its upward slope and increased to 3.3%. We had again NPL collections and released some of our performing loan provisions. Those two factors supported our total reversal income during the fourth quarter. Gross total cost of risk reached at 203 basis points cumulatively. Taking into account total reversals, our net total cost of risk realized at a comfortable 139 basis points whose number is a simple reflection of our prudence.
Looking back to previous year, net cost of risk was in a negative territory for the same quarter of the last year. Moving on our liabilities on the next page. loan-to-deposit ratio remained intact at around 55%. Considering its low levels versus that of sector average, there is much potential available for loan growth in the upcoming quarters. Our deposit base remains strong, making up 81.2% of our total liabilities, thanks to our wide branch network throughout Türkiye. We continue to optimize our funding structure. Our DCM team have been exploring further opportunities to increase the wholesale funding. Our dedication to wholesale funding continued on expanding and deepening. This reflected as an additional $350 million bilateral loans during the quarter. With these fresh bilateral loans, our outstanding bilateral loans increased to $650 million.
Moreover, we successfully executed $300 million new AT1. With this subdebt issuance, we fully utilized our $1 billion AT1's issuance limit. Thanks to this AT1 issuance, our capital adequacy ratio buffers are replenished by 210 basis points. We also obtained another $1 billion AT1 issuance limit. In a nutshell, we will continue to support our capital buffers this year too. As a result of our efforts, wholesale funding share within the liabilities increased to 6% from 5.4%. Despite some increase of this ratio, it's well below the sector average, which is 19%. Therefore, our balance sheet have further room in terms of additional wholesale funding. Details of deposits are on the following page. On the deposit side, we maintained our concentration on widespread granular core deposit base.
Total deposits were up by some 0.4% quarterly and almost 47.6% on a yearly basis. TL deposits increased by 13% quarterly. On the other hand, FX deposits in USD terms increased by 2.8% quarter-on-quarter due to ongoing FX demand of the deposit holders. We highly focus on increasing our share of state deposits. As a result of strategic focus, we increased its share to 10% within the TL deposits, which was 6% a quarter ago. Following page 11. The share of demand deposits reached to 75.5% quarterly from 74.1% previously. It can be seen as 16% growth quarterly, mainly due to visible increase in gold deposits demand, uptick in retail loans, and newly introduced products. Nearly 70% of our total deposits are comprised of TL deposits.
Therefore, TL-heavy deposits, TL-heavy deposit structure will continue to impact our metrics positively in the rate cuts cycle. On page 12, cost yield and spread details. During the quarter, both TL core spread and blended spread kept their strength, driven by higher loan yields and lower funding costs. Our TL core spreads recorded a decline of 187 basis points. We saw a modest 65 basis points improvement on FX side, and our blended core spread declined by 130 basis points. Following page 13. NII more than tripled on a yearly basis. Similarly, it has seen an almost 79% growth quarterly. Net fees and commissions succeeded to grow low teens levels quarterly, thanks to strong contribution from payment systems. Moving to page 14. Total operating revenues increased by 105% yearly.
Moreover, our net income surged by 78% yearly basis, hosting the bottom line at TRY 6.9 billion. If we add last minute tax burden, our net income would be TRY 12.6 billion. In other words, tax-adjusted net income has shown a notable yearly growth with 124%. Further details on page 15. We continued our disciplined cost management, which is reflected in cost-to-income ratio. Our cost-to-income ratio has a negative slope and incrementally declining over the last quarters from 80% levels to mid-60% levels. As we touched upon in the related slide, AT-1 issuance supported our CAR and Tier 1 ratios by 210 basis points in 2025. Moreover, methodology chains also supported our capital ratios that reflected in shareholders' equity growth.
As you recall, we changed our methodology on the subsidiary valuation, shifting our fair value methodology into equity method generated retained earnings, and those retained earnings gave an additional boost to shareholders' equity growth. Furthermore, as we announced in the third quarter, we start to recognize our NPL accruals in the interest income in line with sector practices. If we exclude forbearance, CAR would be roughly 190 basis points, Tier 1 180 basis points, and CET1 would be roughly 150 basis points lower than the reported ratios. Our reported consolidated CAR came in at 15.6%, while CET1 ratio realized at 7.3%. This is my final remarks. These are, Muharrem Baykara , please go ahead.
Good evening, everyone. This is Muharrem Baykara, Head of Investor Relations. Before we proceed to Q and A session, I would like to address several important issues. Let me start with global and domestic macroeconomic backdrop shaping our operating environment. Globally, financial conditions have become supportive, bolstered by a more accommodative policy stance of major central banks and further improvement in bond spreads. As United States CPI data trends closer to 2% targets, and the Eurozone CPI prints undershoot central bank targets, we expect global financial conditions to ease further in the coming quarters. The decline in global bond yields, combined with the improvement in sovereign risk premium of Turkey, continues to support lower external funding costs. In this context, the recent decision by Fitch to revise up sovereign rating outlook of Turkey to positive supports the re-rating narrative.
This step signals growing confidence in the macro rebalancing process, and points to a meaningful likelihood of a sovereign rating upgrade in the coming rating review, which would further strengthen hard currency lending conditions. On the domestic front, tight monetary policy and macro-prudential measures have started to yield tangible results. Inflation has maintained its downward trajectory while trending inflation expectations have a negative slope, supporting the ongoing disinflation process. The termination of KKM scheme is also expected to strengthen the CBRT's balance sheet and support sterilization of the excess Turkish lira in the system. Moreover, lower roll-over ratio guidance by the Minister of Treasury and Finance, and significant improvement on the primary budget balance will also streamline the balance between the money supply and the money demands. Further improvement in these indicators is quite positive for both the price stability and the financial stability.
The central bank's prudent and data-dependent approach remain intact, which we view as a key anchor for maintaining the credibility and continuity of the disinflation process. Looking ahead, we expect policy rate cuts to continue in a gradual and measured manner over the coming months. This normalization process, when implemented prudently, is supportive for the profitability of the sector on the mid and the long term. A potential easing of restrictive credit policies and any flexibility regarding Turkish lira deposit share targets could further enhance sector profitability over the coming quarters. We did not see any hard landing in the Turkish economy. Unemployment rate remained in single-digit levels, asset prices continued to yield higher, and the exchange rate has remained stable. This favorable macroeconomic backdrop has slowed the pace of the asset quality deterioration.
Additionally, regulatory steps that has taken recently also help to preserve the asset quality. That said, we remain mindful that the lagged effects of the previous monetary tightening may continue to add into Stage 3, albeit at a slowing pace. In this regard, our prudent risk management approach remains firmly in place, ensuring that asset quality and balance sheet resilience continue to be key priorities. On the funding side, conditions have started to shift in favor of Halkbank to diversify its funding structure. The growing share of the FX wholesale funding will reduce our balance sheet's reliance on deposits, contribute to a more efficient funding mix, lower overall funding costs, and allow us for improved management of required reserve related costs. All of which will continue to support our profitability in the coming quarters.
As Miraç Taş mentioned, we also plan to continue to issue new AT1 bonds to support our regulatory capital buffers. Regarding our 2025 expectations, as a state-owned bank, we generally rely on MTP forecast as a guide in our budgeting process. At the same time, to reflect our prudence, we have used an inflation forecast that is in line with the CBRT's survey of market participants. Accordingly, we expect year-end CPI to be around 23% levels. Our year-end policy rate expectation is approximately 28%. We are forecasting mid-30s total loan growth, low 30s Turkish lira loan growth, and mid-20s FX loan growth in the USD terms. We expect to exceed 4% net interest margin in 2026. We are targeting above 40% net fees and commissions growth. We expect mid-40s OpEx increase. We aim to maintain NPL ratio below 3.5%.
We estimate a gross cost of risk hovering slightly above 200 basis points. We anticipate a return on equity right above our CPI assumption, which is 23%. These are my key points I wanted to cover. Thank you. Over to you, Ralph.
Thank you very much, speakers. Thank you, gentlemen. Right, ladies and gentlemen, we are now going to begin our question- and- answer session. The floor is open for audio questions, and if you would like to ask an audio question, just join the call by clicking the raise hand button , and we'll pop you onto the call, and you can direct your question to one of our speakers. The floor is open for that. If you would like to ask a written question, please why don't you click the Q and A button, which you will see there at the bottom of your Zoom screen, and submit your question. Gentlemen, I don't see any audio questions, so if you would like to kick things off with some written questions, that'd be great.
There is a written question. Kubilay Alkım Ayaz will read the written question. I will answer those question.
Yes. Mustafa Bey asked, "I congratulate you clearly on strong results and open communication. I would like to ask about the process regarding the addition of credit deposits accounts to the capital. BRSA's timeline appears to be in June. What's the status of your preparations? Do you expect new macroprudential measures in 2026?
I think-
If you want, we can one by one. We can go one by one.
Kemal Bey, I'm just trying to understand the question. Maybe it is related to the Basel IV transition. The BRSA is just expecting, in parallel, a Basel IV-formed balance sheet, and we are starting to report this Basel IV-formed balance sheet to BRSA. But the application will start on July 1st. Now we are just trying to estimate the effects of those Basel IV transition on our capital adequacy ratio buffers. It would be probably negative. We are trying to understand, we are trying to understand the Basel IV transition. Now I cannot say anything about the impact on the Basel IV transition, impact on our capital adequacy ratios, but it will. It is expected to start on July 1st.
In other words, it will start in the second half of this year. Mustafa Kemal Bey also asked, "Are you expecting additional macroprudential measures?" CBRT always says we can just tighten the macroprudential measures because there are a lot of Turkish lira liquidity in the system which is generated by the KKM. After the after those colossal liquidity in the system, the CBRT, as you know, in the previous years increased the required reserve ratio to sterilize those Turkish lira glut from the market. BRSA also started to do deposit auctions. As far as I know, the BRSA, the CBRT, only have been sterilizing the excess Turkish lira liquidity from the market with the deposit auctions.
On the other hand, as you know, there is two sides of the sword. One side is the month long gross limits. Month long gross limits have been tightened on the effects loan side to 0.5% on for eight months, which means 0.25% for one month. This is it is expected to decrease the pace of the increase in the FX loan supply because it was $126 billion FX loans in the system before the orthodox monetary policy started.
After the CBRT tilted towards orthodox monetary policies after a low exchange rate volatility, the demand for the FX loans increased. Now the FX loans stock in the system increased above $200 billion. We will see. The CBRT also will monitor these FX loan trends. If there will be more increase in the FX loans, CBRT may decide on to tighten more on the FX loan limit because it is very important in terms of the financial stability. Now the exchange rate is very smoothly trading. There is no volatility increase, it doesn't rule out FX strokes in the coming years because of this reason. CBRT trying to decrease the pace of the FX loans.
In a nutshell, we don't expect additional tightening on the FX loan side because it is very tight. The second side of the sword is the Turkish lira deposit targets. The monthly effect, monthly loan growth limits have been increasing the loan yields. The deposit, Turkish lira deposit shares have been tightening the deposit markets. I think the CBRT in the short run will continue to maintain its its targets, its macroprudential measures at these levels. If the excess liquidity in the system cannot be sterilized with those with those current macroprudential measures, it can also tighten, but we're not expecting. These macroprudential measures will probably be maintained at these levels. The fiscal policies have been consolidating.
As you know, the primary balance on the budget side have been improving. Additionally, the Ministry of Finance guided they will roll over their debt to you with a lower rollover levels. The fiscal consolidation will also help to sterilize the excess money in the market. I think in the short run, the these macroprudential measures will maintain.
Another question from Mustafa Kemal Bey . How did you see, 2026? He believe, private banks are positive but state banks should be even more positive. Do you think, he's wrong, or is he missed any, expectations?
Why we are positive, I can explain. Not only the Turkish lira financial conditions have been easing, but also the external funding conditions have been easing. Because the ECB just now on the neutral rates, its policy rate is 2% and there will be a people change in the Fed. Probably Warsh will replace Powell following May 15. The Fed under Warsh management may cut rates more. The easing financial conditions on the external side will also a catalyst to be positive. On the other hand, the portfolio inflows have been increasing, and this is also a tailwind for the emerging markets. Now the markets see a surprise upside surprise on the CPI numbers.
Everyone just changed their expectation towards the end of 2026 year-end CPI expectations. Almost 1% increase we saw in the CPI expectations. I think we need to see the February inflation number. After the February inflation number, if the inflation numbers normalize after that levels, the rate cut expectations, also the inflation expectations may change favorably. Not maybe, the CBRT's upper bound, which is at 1% cannot be realized, but the 22% or 23% inflation number is possible if just we expect 23% inflation numbers. Now, the real rate is about 6%. This real interest rate may be conversed to 5%, and the policy rate can low down, can decline to the 28% by the year-end.
Muharrem Baykara , there are many people asking you to repeat our 2026 expectations.
Okay. I can repeat. We expect year-end CPI to be around 23%. Our year-end policy rate expectation is approximately 28%. We are forecasting mid-30s total loan growth, low 30s Turkish lira loan growth, mid-20s FX loan growth in USD terms. We expect to exceed 4% net interest margin by 2026. Our exit NIM would be 4.5%-5% levels. We are targeting above 40% net fees and commissions growth. We expect mid-40s OpEx increase. We aim to maintain NPL ratio below 3.5%. We estimate a gross cost of risk hovering slightly above 200 basis points. We anticipate a return on equity right above our CPI assumption.
I think there is one other analyst asking our NIM guidance. Could you repeat our NIM guidance?
Our NIM guidance, we expect to exceed 4% by 2026 year-end expectation. Our exit NIM would be four and half percent-5% levels. Let's say 4.6 or 4.7 levels.
Yeah. It might be helpful if you say again, loan growth guidance, Muharrem.
Loan growth guidance. We are forecasting mid-30s total loan growth, low TRY 30s loan growth, and mid-20s FX loan growth in USD terms.
Thank you. I think there is no further written questions. I haven't seen any audio questions. Muharrem Baykara, this floor is yours.
Before we conclude, I would like to make one financial announcement. We are planning to host an investor day event with you and your related colleagues at our premise in the Istanbul Financial Center. We will be sending you the invitations via email for two days with two sessions each day. These sessions will takes place between the 25th and the 26th of February next week. If those dates do not fit your schedule, you can request a meeting from us on a different day. Our lines are always open. Please keep in touch. Have a wonderful evening.
Thank you very much, speakers. Thank you very much for your presentations. Ladies and gentlemen, this concludes today's conference call, and we thank you for your participation.