Right here. Okay. Ladies and gentlemen, welcome to the VakıfBank Audio Webcast First Quarter 2024 Bank-only Earnings Results. We will have a question and answer session following the presentation. Now, if you would like to submit your questions, you can send them anytime by clicking the Q&A button, which you will find at the bottom of your Zoom screen. With that, I'll now hand you over to your hosts, Mr. Ali Tahan, Head of International Banking & Investor Relations, and Mrs. Zeynep Nihan DİNÇEL , Head of Investor Relations. Sir, madam, the floor is yours.
Thank you, Rob. Good afternoon, everybody, and welcome to first quarter 2024 earnings presentation conference call. Our financial footnotes not published at the public disclosure platform yet, but according to information from our accounting department, it will be published both bank only financials as well as consolidated financials in a very short period of time. Without making you waiting for the results, our investor relations colleagues already started to share investor presentation and all necessary information via email to you. Within this concept, we would like to also start our presentation. Starting with the first page, this quarter we have the net income number of TRY 12 billion, which is up by 20% Q on Q and 167% year-over-year.
As you can see in the middle of the page, compared to sector numbers, we are outperforming net income growth substantially both on Q-on-Q as well as year-over-year basis. During the first quarter, the Turkish banking sector had 15% Q-on-Q contraction, but in our case it was + 20% up. On the annual basis, Turkish banking sector delivered 43% year-over-year increase. Our increase was way higher than this. Those numbers are bank-only numbers. The net income numbers are even stronger at a consolidated level. On a consolidated level, we are announcing TRY 13.3 billion net income, which corresponds to 28% above 28% average ROE.
Equally important, in this quarter, we didn't touch our free provisioning. As of year-end numbers, we had TRY 11 billion free provisioning in our balance sheet, and without any reversal from this free provisioning, we announced TRY 12 billion as strong quarterly net income. The market consensus was also hovering around TRY 11.7 billion, so our number came slightly above than the market consensus. That bank only P&L take us to 27% quarterly ROE versus sector average of 28%. In this manner we are flattish to sector average and above than our initial budget guidance for the full year. In terms of the details, core banking revenue increase is also in line with the net income growth.
Core banking revenues consisting of net interest income and net fee and commission income is also up by another 168% on annual terms, which is way above compared to sector average of 78%, year-over-year basis. Another eye-catching strong performance came in the net trading income in this quarter, of course, excluding with the swap cost. Thanks to exchange gains, as well as thanks to additional income coming from the trading activities. In this quarter, we delivered TRY 6.5 billion net trading income excluding swap cost again, which is referring to 135% annual growth. The last point in this slide is related to pre-provisioning profit. We outperformed in terms of pre-provisioning profit growth on year-over-year basis.
It was up by 83% for VakıfBank specific versus sector average of 20%. The next slide we would like to take your attention to is page five actually, just to use the time effectively and maybe to provide some more time to the Q&A. We would like to take your attention to some important slides. Net interest margin slide on page five is important. This quarter, our reported net interest margin came at 3%, and swap-adjusted net interest margin came at 1.3%. Of course, compared to especially a quarter ago, we are witnessing a dramatic decline from 5.3% to 3% on a reported net interest margin level.
On a swap-adjusted net interest margin level, we are seeing a contraction from 3.9% to 1.3%. This is mainly driven by, of course, CPI linking impact, because last quarter, as you can see on the left-hand side above chart, we were aligning our interest income with the realized October-to-October inflation data of 61.4%. This quarter, in line with the private peer group, we are also starting to align our year with 40.7% October to October inflation data. As a result of this revision in the CPI numbers, interest income we enjoy from our CPI-linked portfolio decreased from TRY 33 billion to almost TRY 17 billion.
This is the main driver of quarter net interest margin contraction, which is quite similar with the private peers. However, assuming our CPI linkers contribution would remain same Q-on-Q wise, thereafter, our reported first quarter net interest margin would be 5.6%, which corresponds to additional 30 bps positive increase. Likewise, first quarter swap-adjusted net interest margin would be 3.9%, which is almost flattish compared to a quarter ago. This quarter, swap cost numbers further increased to TRY 10 billion, as you can see on the left-hand side below chart.
Despite swap usage decline from TRY 145 billion a quarter ago to TRY 118 billion in this quarter, swap cost, because of the increase in the overall cost of funding, increased from TRY 7.3 billion to TRY 10 billion. Therefore, average cost of money market funding further increased to 41% this quarter, which was 27% a quarter ago. The last point we would like to mention is related to average interest rate evolution of Turkish lira floating loan portfolio. In a year period of time, thanks to very short maturity profile of floating, especially commercial loan portfolio, year-over-year basis, average interest rate increased from 14% to 52%, which corresponds to a very dramatic and visible increase.
Equally important, on a quarterly basis, it increased 7 percentage point from 45% to 52%. Therefore, on an annual basis, we are witnessing 38 percentage point improvement in our total yield in our floating Turkish lira portfolio. And as you can see, out of total Turkish lira loan portfolio, 72% as of first quarter is floating, which is providing us a better outlook with the upward repricing of loan portfolio, especially for the upcoming quarters. On page six, you can also see the detailed numbers related to net fee and commission income. Part of our core revenue generation capacity, we also have a very strong performance on the fee income.
Fee income is up by 159% year-over-year from TRY 4.1 billion to TRY 10.6 billion, which also corresponds to 12% increase on a Q-on-Q basis. Contribution of payment system to the fee income for the first time maybe exceeded 50% threshold, so a strong fee income in line with the average private peers also mainly driven by a very visible contribution from the payment systems. Payment system share in our total fee income a year ago was almost one quarter, even inside one quarter with 24.4%.
As of first quarter, that number increased to almost 53%, and this is the main driver of very strong fee income growth, both Q- on- Q as well as on annual terms. As a result of that, fee to OpEx ratio further improved both year-over-year and Q-on-Q , and materialized at 72%, which was 51% a year ago, and which was also 64% a quarter ago. Despite OpEx growth, fee income growth was outperforming OpEx growth, and therefore fee to OpEx ratio continued to improve further. The next slide is related to OpEx side. OpEx is up by 85% year-over-year and 19% Q-on-Q . Despite such relatively high OpEx growth, we managed to maintain our cost income ratio to hover around 30% area.
It was exactly 30.6% a quarter ago, and now as of first quarter, it is hovering around 30.8% area. In terms of the HR cost and non-HR cost breakdown, 61% is coming from non-HR cost versus 39% is coming from HR cost. HR cost is up by 94% year-over-year and 22% quarter-on-quarter. On the non-HR side, overall cost is up by 80% year-over-year and 18% quarter-on-quarter. We expect in the upcoming quarters overall annual OpEx growth will be normalizing towards our full year OpEx guidance number of 50% area, especially because of the very low base effect of first quarter 2023.
We started the year with 85% annual OpEx growth, but over the quarters we expect it will normalize, and it will become in line with our full year guidance of 50% OpEx growth by the end of 2024. With the page eight, we can shift to asset side, and starting with the lending. Similar to last year, a strategic shift in our loan portfolio continued in favor of high quality business lending portfolio. In terms of the composition, now 55% is coming from corporate and commercial lending, 26% is coming from SME lending, and retail has a 19% share in our total loan portfolio.
In terms of the market share gaining, we increased our corporate and commercial lending market share to 13.7% as of first quarter 2024, which is up by almost 80 basis points compared to a year ago. We have almost flattish market share in our SME lending with 15.5%, which was almost same a year ago. There is no change in terms of market share in our SME loan portfolio compared to a year ago. In line with our shift and in line with our focus area, we see some sort of decline in our market share on the retail lending side. Retail market share was 13.3% a year ago, but now it came down to 10.4%.
In terms of the overall, quarterly growth, total lending growth in this quarter was 7.2%, and it was mainly, well distributed between both Turkish lira lending as well as hard currency lending. Especially, because of the high rates of Turkish lira lending, we also started to receive a very high quality demand for hard currency lending. We have 4.2%, Q-on-Q Turkish lira lending growth and another 4.1% hard currency lending in dollar terms. Most of the lending growth during the quarter came during the months of January and February before Central Bank of Turkey put a cap of 2% monthly lending growth. The next page is related to breakdown of loan portfolio in terms of currency.
2/3 is coming from Turkish lira loans, and 1/3 is coming from hard currency loans. In terms of the interest rate structure, in our Turkish lira loan portfolio, 72% is coming from floating rates, which covers almost entire non-retail lending, and the remaining 28% is coming from fixed rate loans, mainly coming from the residential mortgage, as well as general purpose consumer loans on the lending side. On the hard currency side, similar ratios, 69% coming from the floating rate and 31% coming from the fixed rate. Especially in recent quarters, in line with the increase of the interest rate levels, we started to change in favor of more fixed rate rather than the floating rate. The next page is related to asset quality. On the asset quality side, starting with the NPL side.
Ratio-wise, it was flattish at 1.3% Q- on- Q. In terms of the new NPL inflows, we have around TRY 2.8 billion new NPL formation. To some extent, it was covered by collections. We had around TRY 1.5 billion collections during the quarter, and therefore, cumulative NPL amount further increased to above TRY 21 billion as of first quarter end. In terms of the stage two, stage two ratio is slightly declining from 7.8% a quarter ago to 7.5%.
In this quarter, especially as we can see on the coverage ratio side, we have slight decline in our coverage ratios for both stage one coverage ratio, stage two coverage ratio, and NPL coverage ratio, as well as the total NPL cash coverage ratio. For stage one coverage ratio, it was 1.3% a quarter ago, but this quarter it came down to 0.9%. For stage two, it was 24% a quarter ago, but as of first quarter now, it came down to 22%. For the NPL cash coverage ratio, it is slightly down from 81% a quarter ago to 80%. As a result of those three subcategories, total NPL cash coverage ratio came down to 2.67% from 3.311% a quarter ago.
Despite this decline, still compared to sector average, our conservative and prudent over-provisioning policy is very visible. Total NPL cash coverage ratio of the sector is at 242%, which is 25 percentage point lower than our own numbers. This coverage ratio decline for entire loan portfolio, stage one, stage two, and NPL is the outcome of shift in our IFRS modeling with the much more normalized macro expectations for 2024. Given we were already and we were too much over-provisioned, we decided to change our IFRS provisioning policy in line with this macro normalization base case scenario, and this is reflected as a decline in our entire coverage ratios.
One final point, despite those NPL stage two and stage one coverage ratio decline, on the free provisioning side, nothing changed, and we are still keeping TRY 11 billion free provisioning in our balance sheet. With page 11, we can move to deposit side. Deposit was relatively muted this quarter. Total deposit growth for VakıfBank in the quarter was 2.1%. We have similar to sector, we are also witnessing a small shrinkage in our Turkish lira deposit base. We see 2.4% contraction in our Turkish lira deposits Q-on-Q. On the hard currency side, we have slight increase, 0.5 percentage point increase in dollar terms in our FX deposits.
These deposit numbers compared to sector are, we believe this is in line with sector trend, especially in the month of March. The more we are approaching to local elections, the more we witnessed deposit holders decided to invest in other alternative tools. Therefore, especially Turkish lira deposit growth was relatively muted and negative. After March, starting with April, quarter to date in the second quarter, we also witness this trend is also reversing. In the second quarter so far, unlike the first quarter, we are witnessing a very strong Turkish lira deposit growth following the post-local election period. Despite this trend, still as of first quarter end, our total deposits for the first time exceeded TRY 2 trillion threshold.
Our total assets also for the first time exceeded TRY 3 trillion threshold. In terms of the deposit composition, of course, the bulk is mainly coming from the very granular base of retail deposits with the lion's share of 42%, followed by corporate and commercial deposits of 32% and 17%, total deposits are coming from the SME side. State deposits only have 9% share in our total deposit portfolio. Eye-catching development on the deposit composition is the shift of our deposit portfolio in favor of granular base, especially compared to a year ago. We have a five percentage point increase in the share of retail deposits from 37% to 42%, which is indicating a very stable and much more healthy deposit composition.
The following page is related to wholesale borrowing. Especially this quarter, we were quite active in terms of wholesale borrowing activities. In the first quarter, we had two very eye-catching transaction. One of them was related to a fresh DPR with the amount of $700 million with the participation of six different investors with the maturity of five years. All of them were outright DPR issuance. Therefore, VakıfBank proudly issued the biggest outright DPR transaction with the amount of $700 million in Turkish banking space. Apart from that transaction, we also have a fresh funding with the amount of $500 million with one single counterparty with a 3-year maturity structure. These are the very important wholesale transactions of the quarter.
Of course, on the DCM side, we also have a senior unsecured Eurobond redemption in March with the amount of $600 million. In the middle of April, we also have the first time ever AT1 issues of VakıfBank, and that was also the first public deal AT1 issues from the entire state banking space with the amount of $550 million. It was with the maturity profile of perp non-call 5.25%. This transaction received almost 3x order book from the investor community. As of first quarter end, with the very supportive macro conditions currently we are enjoying, we are having around $9.3 billion dollar free hard currency liquidity.
In the upcoming one-year period of time, given our short-term redemptions are hovering around $5.1 billion, including both May syndication and November syndication, we have 1.8 x coverage compared to our upcoming deals. In the beginning of next week, we will also announce May syndication. We will also have more than 100% rollover with the participation of almost 50 banks in the deal. Out of those 50 banks, 14 were the newcomers, which is of interest to the global banks all over the different continents, let's say. The last part I would like to draw your attention to is related to sustainable funding.
As of first quarter, VakıfBank carries on the liability side $5.2 billion sustainable funding coming from syndications, Eurobonds, IFI, and repo, and other collateralized funding transactions. Given our sustainable lending portfolio under sustainable finance framework is also holding $5.3 billion. It represents a perfect match in terms of sustainable funding versus sustainable lending. The last page we would like to draw your attention to is related to capital ratios. As of first quarter, our total CAR reported basis came at 13.54%. Our Tier 1 ratio came at 12.17%, and our CET1 ratio came at 10.52%.
Similar to what we are doing for many quarters, we are also showing transparently our solvency ratios without BRSA forbearance measures. In this case, our total CAR would be 12.57%. Tier 1 ratio would be 11.21%, and our CET1 ratio would be 9.66%. Of course, assuming we are reversing back our TRY 11 billion free provisioning thereafter, those numbers would be up by almost 70 basis points on top of all the solvency ratios I mentioned without BRSA forbearance measures. Of course, the recent AT1 issuance are not reflected on those ratios. Hypothetically, that AT1 issuance we executed in mid-April will create 100 basis points positive impact both in our Tier 1 ratio as well as Tier 2 ratio.
These are the points we would like to draw your attention. The remaining pages are a regular appendix page. For the sake of time, we would like to stop here and leave the floor to Rob again for the Q&A session. Thank you.
Thank you, Mr. Tahan. All right. Like, Mr. Tahan said, we will now start our question and answer session. This is your opportunity. If you wish to ask a question, a written question, please just click the Q&A button at the bottom of your Zoom screen and submit your question. It's that easy. If you'd like to ask an audio question of Mr. Tahan or any of the other panelists, you can join the call by clicking the Raise Hand button, which you'll find down there on the bottom of your Zoom screen, and then we will put you on. The floor is now open for audio questions or written questions.
I would like to add at this stage, given we believe there is no question from the participants will be related to guidance. Actually, in terms of the guidance, we would like to review our full year guidance after announcing the second quarter financials in August, because clearly we understand that there will be need some revision to our full year guidance. However, for the time being, what we would like to share with you is. I mean, in the beginning of the year when we were talking about full year profitability guidance, we were referring to high teens average ROE for the full year. However, as of first quarter, our first quarter average ROE came at 27%.
Of course, profitability in line with the net interest margin evolution will be under pressure in the very short term, but we expect it will be very supportive, especially in the second half of the year. Those details will be shared in detail after announcing the second quarter financials. As of today, we just wanted to highlight that we will be revising our full year average ROE numbers to a 30% area, which is in line with the first quarter numbers instead of initial high teens average ROE number. Let me pause here again because as far as I understand there are some written questions. If you don't mind, Nihan will read the questions, and we will be trying to answer all together.
Thank you, Ali. The first question came from Pınar Alım from TEB. Given CBRT swap is dwindling, how would you handle excess liquidity? Sorry, Ali Tahan, there is another question from Pınar Alım. What percentage of new Turkish Lira commercial loans are floating rate, and do you think the policy rates have peaked in the system? Thanks again.
Thank you, Pınar Alım. Especially as of today, hard currency liquidity seems to be very in good shape, as we also depicted in the presentation. As of first quarter, we are enjoying $9.3 billion hard currency liquidity. All the external funding channels seems to be working very properly. Syndication, DCM, Eurobond, especially trade finance, and equally important, private placements under GMTN programs. They are all contributing to hard currency liquidity. On top of that, recently, Turkish banks also started to initiate swap transactions with the international banks.
This is also helping us in terms of especially Turkish lira liquidity with much more favorable cost of funding, because with the swap transactions, compared to deposit pricing, banks are capable of generating relatively low cost of Turkish lira funding, which is supportive for the overall net interest margin evolution. In terms of the deposit rates from Turkish lira deposit rates, depending on the maturity profile, they are at the maximum level of course, hovering around 55%-60% area.
Of course, in case the maturities are extending above than three months especially, the numbers can be even much more attractive from deposit holder point of view because like-on-like basis, because of the additional cost attached with the reserve requirement, especially for three months and six months deposit rates, it makes sense from treasury management point of view to offer even higher deposit rates compared to one-month term Turkish lira deposit rates. My point is for the two questions, we believe hard currency liquidity conditions and channels are working very effectively in all such manners. The challenge for the treasury departments is to raise relatively lower cost of Turkish lira liquidity rather than hard currency.
In this manner, given lending, especially in the second quarter, seems to be way lower compared to first quarter. Given that we shouldn't expect in our base case scenario, according to our chief economist, we don't expect additional rate hike from Central Bank of Turkey, because as of today we understand additional rate hike means additional inflationary pressure. Going forward, maybe tightening will be in other forms, especially via sterilization of Turkish lira rather than additional rate hike.
Therefore, given our chief economist and in-house view doesn't expect any rate hike, and given lending activity and lending demand for Turkish lira is relatively muted, especially after the caps introduced by Central Bank of Turkey starting from the beginning of March, we shouldn't expect additional pressure on the cost of Turkish lira deposits. On the other hand, thanks to availability of swap transactions, Turkish banks may be in a position to raise Turkish lira liquidity, which is much more attractive compared to cost of Turkish lira deposits.
We have Valentina's questions from Barclays. Can you share with us for various capital ratios, the first one? Also she's asking for the FX liquidity amount as of first quarter 2024.
Thank you, Valentina. Actually, these are in our presentations on page 13 at the right-hand side. Of course, these are also bank-only numbers. Consolidated numbers are slightly higher than bank-only numbers. Our total CAR without forbearance measures is 12.57%. Our Tier 1 ratio is 11.21%, and our CET1 ratio is 9.66%. Right, to the debt table, we are also showing the impact of our TRY 11 billion hidden capital potential. Assuming we are also reversing back, those numbers will be 13.19%, 11.83%, and 10.28%, respectively, for total CAR, Tier 1, and CET1 ratio. For the hard currency liquidity amount, this is also shown in our presentation on page 12 at the right-hand side above chart. As of first quarter end, that number is almost $9.3 billion.
Valentina has another question regarding available distributable items as of first quarter, but we will send, we will share the information just after the call.
Yeah. Thank you, Nihan. We don't have any written questions unanswered, Rob. If there's any participants would like to ask in person, we are more than happy.
Thank you, Mr. Tahan. Yes, just quickly, got a few more minutes, folks. If you would like to ask an audio question, just click that raise the hand thing down the bottom there on your Zoom screen, or you can click on the, Q&A button and ask a written question. Just a few more moments, but we don't seem to have any audio questions. Back to you, Mr. Tahan, for any written questions.
Thank you, Rob. Actually, we don't have any written questions. Without you, we would like to thank you for all the participants for their time and interest, together with myself, Nihan, and all the investor relations colleagues. We are at your disposal, and we are in the office. If there is any follow-up question, as always, please do not hesitate to contact with us. For the time being, we would like to thank everybody for their time and thank to you, Rob, for this event, and looking forward to talking to you again in the upcoming first occasion.
Thank you, Mr. Tahan. Yes, indeed. Thank you to you, sir, for your presentation. That's it, ladies and gentlemen. That concludes today's conference call. Once again, thank you for your participation.