Ladies and gentlemen, thank you for standing by. I am Yeli, your conference call operator. Welcome, and thank you for joining the Yapı Kredi Conference Call and via Webcast to Present and Discuss the Yapı Kredi 9 months 2022 Financial Results. At this time, I would like to turn the conference over to Mr. Gökhan Erün, CEO, Mr. Kürşad Keteci, Head of Strategy and IR, and Ms. Hilal Varol, Head of Investor Relations and Strategic Analysis. Mr. Erün, you may now proceed.
Thank you. Good afternoon, and thank you all for joining our nine-month earnings call. Let me first celebrate 99th anniversary of Turkish Republic, which was last Saturday, 2 days ago. Next year it will be a century since the new Turkish Republic was born, and I believe Turkish Republic will celebrate second, third, and many more centuries. Regarding the operating environment at third quarter, I can summarize that both local and global operating environment was not supportive. Rising interest rates all around the world as well as inflationary pressures are unfortunately continuing. On top of these two important facts, political issues in the U.K. and Europe, and monetary decisions in Japan are putting more pressure on global economy. There is still uncertainty where dollar rates will settle. All these constraints are leaving, unfortunately, outflow from emerging markets. Locally, ongoing macro-prudential measures heavily impacting us.
These are taken by Central Bank of Turkey, and these are leading indirect tightening in the economy. We're most probably seeing around 5% growth, GDP growth for this year. Now I'm moving to page 2 on our presentation. In 9 months, our net profit reached TL 35.3 billion. We posted 55 ROE, the highest level among peers announced so far. Our ROA further improved by 5%. Pre-provision profit, PPP, stood at TL 50 billion, and PPP to gross loans improved to 12.6% as of 9 months with a continued, of course, controlled cost growth. Some important drivers of the performance are as follows. Year to date improvement in total NIM reached to 438 basis points and our NIM stands at 7.5%.
TL loan-to-deposit spread widened 206 basis points year to date, thanks to 286 basis points higher TL loan yield, where deposit costs increased a limited 80 basis points. The conversion trend of our balance sheet towards TL sustained, which will further support our spread evolution going forward. In terms of efficiency, we do have a best-in-class performance with fee coverage of OpEx at 76% and cost-to-asset ratio limited at 2%. Despite the limited NPL inflows, we continued for cautious and prudent provisioning. Accordingly, cost of risk stood at 91 basis points. This quarter, we mainly focused on increasing TL lending through small tickets as well as gaining market shares in targeted segments. We gained market share on consumer loans, TL individual demand deposit, and TL deposits, and also deleveraged on foreign currency loans.
Meanwhile, we keep acquiring new customers and we gained above 1 million customers in a single quarter. As a result of this balance sheet management, as you see now, we are able to achieve 50% threshold target for TL deposit share in total for both individuals and companies. I would like to thank our dedicated network and colleagues for this effort. Page three, we are well equipped to navigate through any uncertainty with very strong fundamentals. In terms of liquidity, strong liquidity, foreign currency LCR around 600, total LCR around 160. Additionally, LDR, loan-to-deposit ratio at 87%. Equally important, TL LDR improved 33 percentage points year-on-year to 113%.
We have TL 11 billion worth of liquidity, which is 2.4 times of foreign currency dues in the next one year. Capital front, strong capital also here. Tier 1 capital further improved to 15.5%, thanks to constantly also strong internal capital generation. Now we have in the range of 506 basis points buffer or above versus regulatory limits on each solvency ratio. In terms of asset quality perspective, we have continued our conservative provisioning despite limited NPL inflow, very limited NPL inflow throughout the year. As a result, our total loan coverage realized at 5.8% and also the highest level among peers announced also so far. Now I'm leaving the floor to Hilal. She'll give all the details behind our strong numbers.
Thank you very much, Gökhan Bey, and good afternoon to you all, and thank you for joining our call. I will start my presentation with page four. As you see, we have the best-in-class fundamentals ensuring the sustainable profitability. We have compared our performance and fundamentals versus two of our peers that already announced their results. Looking at the liquidity, as of 9M end, we have the best, so lowest Turkish lira loan-to-deposit ratio standing at 113%. In terms of FX liquidity coverage ratio, we have the strongest and highest level at 587%, and this level is significantly higher than our peers. Showing a pretty strength in fundamentals, our loan loss coverage ratio, as Gökhan Bey also mentioned, is the highest at 5.8%, while our prudent approach sustains.
All together for the 4 consecutive periods, we have the highest return on tangible equity, which hit 55% as of 9M end. Our net interest margin reached to 7.55%, thanks to our ongoing achievements in strategies such as multi-product focus and best-in-class agile asset and liability management. This is the highest level among our peers announced so far. Showing the strength in both revenue generation and controlled OpEx increase. As you see, we have the best-in-class and the highest fee coverage of OpEx, which further improved, standing at 76.2%. Now, I'm moving to page 5, how we achieved this strong result. Our market shares in small tickets lucrative products show the excellence in strategy execution.
In consumer loans, since 2020, we gained 190 basis points market share among private banks, and now we reached 18%. General purpose loans with another 167 basis points gain. Now our market share is at 18.2%. Auto loans, now we are the market leader with almost 10 percentage points market share gain, which now stands at 35%. On the funding side, Turkish lira deposit market share went up by 180 basis points and we are at 16.3%, mainly driven by small tickets and individuals, such as Turkish lira demand deposit market share increased 6.5 percentage points to 19.1.
On the FX loans, however, we continue de-leveraging beyond private banks and our market share came down intentionally 2 percentage points to 14.7%. Very importantly, in a single quarter, in just three months, we have gained more than 1 million customers ensuring our market share in the lucrative small tickets and selected products. This will continue. I'm on page six. Looking at our lending performance. Our Turkish lira loan growth, so that's 59% year-to-date, and we increased 17% on quarter-over-quarter basis. We mentioned that FX loan deleveraging continues in the quarter as well, coming down 11% and we came down 19% year-over-year. This trend will continue in the last quarter of the year with upcoming maturities. Looking at the drivers, definitely again, small tickets.
Consumer loans went up by 31% and it is mainly general purpose loan-driven. 143% increase in auto loans and consumer installment loans up by 61% on a year-to-date basis. All in all, retail loans, this includes SMEs share in total, reached to 59% as of 9M end. One important point is all the single sector share looking at the risk is now below 10%. You know, we have been mentioning that we have a target on this. On the funding side, we are on page seven. Our impressive growth in customer franchise further strengthened and will continue to support the core funding source deposit. Showing a significant 38% quarterly increase. Turkish lira deposits more than doubled year-to-date with an additional 76% increase in demand deposits.
With the ongoing conversion to Turkish lira, FX deposits came down 17%. Share of demand deposits now stand at 39%, Turkish lira at 23%, and foreign currency at 52%. I'm also very happy to mention once again that our FX protected deposit conversion ratio in both individuals and companies are comfortably above the regulatory requirement, the threshold of 20%. Equally important, Turkish lira deposit share in total on both individuals and companies already outpaced 50%. Once again, this is thanks to strength and the scale of our network and definitely the trust of our customers in Yapı Kredi. Now I'm moving to page 8, revenues. Revenues reached to TL 63.8 billion, with revenue to interest earning assets ratio going up more than 2% to 13.4%.
The strong performance was driven by core revenues and as well as timely actions taken by our treasury department further supporting the trading line. Our net interest margin widened 438 basis points on a year-to-date basis, and this is mainly supported by core 125 basis points. 311 basis points coming from securities when the negative impact arising from regulatory changes were at 55 basis points. In the quarter, Turkish lira deposit spread, loan deposit spread came down a mere 9 basis points, although coming from a very high base of second Q, as well as a very strong Turkish lira deposit increase, once again, 38% quarterly. Ongoing repricing, loan repricing supported this performance in the quarter.
Our unique Turkish lira deposit performance in the quarter, alongside with more than 1 million newly acquired customers, will support our cost of funding in the rest of the year. Thus, we foresee a widening. It is very important to mention that due to these regulations, regulatory changes, we are managing the balances as a whole, so we are focusing more on the net interest margin evolution. On the next page, our stellar fee performance while leveraging the digital capabilities on top of our own strengths. Net fees up by 86% year-over-year with a 19% quarterly increase. Once again, I know I'm repeating this, every quarter, but I cannot mention just one component. It is all across the board. Money transfer fees more than doubled with certain number of transactions. Fee income through investment products doubled. Bank insurance up 38%.
As a market leader, payment system fees also doubled year-over-year. Lending related fees, they were also very supportive, 75% increase. We are investing on digital solutions with the intention of providing and sustaining the best-in-class full service model. Looking at our OpEx, we are on page ten. As we have mentioned at the beginning of the year, with the very strong revenue generation, alongside with our daily running the bank business, we are heavily investing for the future, meaning our customers and our people. Our annual cost growth stood at 93% when HR costs increased above inflation level of 96%. Our business growth related cost growth is 130%. Looking at the running costs however, is the costs sustained below the inflation, which is 69%.
With this performance, our LDR further improved to 159% as of 9M. I'm moving to page 11. As a pioneer bank in digital banking, we are ensuring strategic achievements also through digital banking. Yapı Kredi. Our digital customer penetration further increased to 91%. Please note that this is even in a quarter with stellar number of customer acquisitions. Digital customer number increased 2.6 million in a year. Digital onboarding 4.5 times higher than last year. Monthly average mobile login number went up 37%. Number of credit cards sold via digital up by 71%. General purpose loan sales up by 73% year-over-year. Note that digital share in GPL sales is also increasing, and as of now, at 82%.
Looking at our asset quality performance, definitely we continued our prudent and proactive risk management, ensuring the long-term resilience. As Gökhan Bey mentioned, our NPL inflows were very limited. Quarterly NPL inflows were at TL 1.4 billion. The strength in collections continued, TL 930 million collections in the quarter. Just a note that inflows and collection all exclude NPL sales and write-offs. All in all, net NPL inflows in the quarter were limited again at TL 422 million. Our NPL ratio stood at 3.4% with a coverage of 69%. Stage 2 loans are 14% of our total loans, with more than 19% coverage, when Stage 1 coverage were strong at 0.8%.
On consumer and credit card, we are seeing a slight increase on NPL in net NPL inflows, but this is even lower than we anticipated at the beginning of the year. SME net inflows continues to be negligible. With strength in collections, net inflows on corporate and commercial loans were at negative territory. Despite all this, we continued our prudence in provisioning, as was the case since 2017. Our cost of risk, this excludes the currency impact, stood at 91 basis points. Support from collections was strong at 60 basis points. As a note, the currency impact is at 105 basis points in 9M, and it is full-year. Looking at our solvency numbers, we are on page 13.
All the solvency numbers, so the ratios are improving, and we have 560 basis points and above buffers versus the regulatory threshold at all. CET1 at 13.9%, 584 basis points buffer. Tier 1, 15.5, 594 basis points buffer, and Capital Adequacy Ratio at 17.6%. Capital generation to net profits, very strong, further improved at 532 basis points. Once again, we wanted to share our inflation accounting results. These are based on our calculations. Return on tangible equity. Again, the real return on top of inflation further improved versus last quarter, is in the range of low- to mid-teens. This corresponds to a good improvement, a significant improvement on a year-over-year and year-to-date basis.
Definitely all the numbers are comparable, and we have adjusted the link for valuation accordingly. The impact on the capital ratios will be positive. Given the we are already very close to the year-end, we wanted to revise our 2020 guidance as we had a very strong achievement. On the volumes, we now foresee in the range of 65% Turkish lira loan growth. Note that our year-to-date growth stood at 59%, and we will continue to focus on small tickets, so individuals and SMEs. As I mentioned, the leveraging on the foreign currency side sustains with ongoing payments via our customers, thus we foresee high twenties reduction. With further improvement on spreads, we expect above 7.5% net interest margin for the full year.
Fee growth will outpace the inflation through our strength in payments, improved transaction numbers, investment products, and all such items that you can name. We now foresee in the range of 90% increase in costs with ongoing customer acquisition efforts. Note that we are adjusting the compensations for our employees twice a year, which we will have the last one in the last quarter. We already had this month, actually. We maintain our cost of risk level below 150 basis points. Just to note, this is an extremely conservative provisioning assumption. All incorporated, we increased our return on tangible equity guidance to above 50%. If the inflation accounting will be implemented, that's double digits on top of inflation. Now I'm leaving the floor to Gökhan Bey for closing remarks, and then we will hear your questions. Gökhan Bey.
Thank you, Hilal. I believe that as Yapı Kredi, we will ensure the continuation of strong and sustainable revenue performance through small tickets and transactional banking while maintaining our strong fundamentals and also conservative risk appetite driven by customer-centric approach. I'd like to thank to all the stakeholders who stand by us with trust and support, to our dedicated employees, especially for this quarter, very strong results, who contributed to the achievements of our bank and showed commitment to the country and to the bank. On behalf of the whole team, I'd like to thank you all for joining us. Now we can take your questions.
The first question is from the line of Mehmet Sevim with JP Morgan. Please go ahead.
Good evening. Thanks very much for the presentation. I'd be very interested to hear more about your quarterly TL deposit growth, which, at about 40% was significantly above the system average. You did talk about a collective branch effort, but are you able to give more color on how you're able to achieve this really, and what segments the growth comes from. Would you also be able to tell us where you would see TL deposit growth in the full year of 2022? And just two questions on your new guidance, if I may. One, your TL loan growth guidance implies a slowdown into year-end, which, I guess is understandable given the restrictive regulations. Assuming all else equal, would this also be your expectation for the first quarters of 2023 as well?
On FX loan growth, what's driving this accelerated shrinkage in FX loans in the second half of the year? Is this simply prescheduled maturities or is there something else that's driving it? If it's prescheduled maturities, how should we see this trend in 2023? Thank you.
Okay. Mainly three questions, but leading to ALM in general, asset liability management. For the TL deposit, it's a joint effort. It's not only one segment, but obviously this was also driven by the central bank's regulations, macroprudential measures, however you call it. During the presentation, I mentioned that we reached 50% threshold in total Turkish lira deposits, individual and also for the corporate side. What we're hearing from the markets, from at least the ones that have already announced the numbers, they are close to achieving that threshold, but we have achieved it already. Which means that we are a little bit ahead of our competitors in reaching the TL deposit 50% threshold.
Obviously, it has a cost, Mehmet, because it is materially, of course it is, more expensive compared to the stock, but we achieved it. Looking at the pros and cons, the pro side was the cost side, the regulation from the central bank to commissions that we were going to pay or the securities that we don't want to buy. That's why I think we are the leader in terms of conversion, Turkish euro conversion. That's why it was very much widespread starting from very small individuals going up to even corporates. This was one thing.
On the other hand, also, the foreign currency deposit, as you may see from the numbers, also shrank a little bit so that the ratio was met by our bank. This was the first answer. I think for the TL loan side, obviously we will be slowing down with those rates, you know, at 17%, not to be able just shying away to buy those ten-year bonds, Turkish lira bonds at 10%. Anything above 70% is not good for the bank, is not good for the balance sheet of the bank. That's why we'll slow down definitely. We are lending very short term.
Normally three months, maximum, six months, not more than that. This is one side. This is for the corporate side, corporate commercial side. For the other side, for the Turkish lira loan side for the consumer, consumers we will grow. There, we do not have an issue. As Hilal Varol mentioned earlier in auto, for example, we took the leadership, which we had to actually, if you ask me. Because this is the bank, this is the group that knows the auto business more than any bank, any group in Turkey. That's why we took the leadership, and I'm very proud of it. Turkish lira loans, consumer growth will continue. Having said that, especially on the mortgage loan side, we are careful.
We are careful about not to put additional pressure, additional tension to the balance sheet. As unfortunately, we already bought some part of these 10-year bonds having higher maturities in our balance sheet, causing higher duration gaps. That's why, very similar to our competitors, we do not want to lend longer maturities with those rates, with those existing rates. That's why Turkish lira loan, it will be slowing down. It is early to comment on 2023. We are at the moment of making the budget for next year.
I must say if those macroprudential measures continue as it is or even tightening of those circumstances that we are hearing, that there is also possibility to tighten even further for these macroprudential measures. The appetite on our side will be very limited starting even for next year, at least for the first quarter. We are looking. This is a transition period. This is what we are seeing. Everything has to again normalize so that we move on with an environment that the demand and supply is somehow balanced. That's why TL loan side is, under ceteris paribus, under these conditions. First quarter will also be low risk appetite from our side. FX. Last one was the FX loan decrease.
Yes, this was done intentionally, and this is done. It has been more than four years, almost five years, that we've been de-leveraging on a foreign currency loan side because of first because of the asset quality, de-leveraging on the customer's balance sheet also, to have less exposure on the customer side, on the customer's balance sheet side, on the FX exposure side. Which means that we are going to de-leveraging further. We understand that from time to time we are hearing from the central bank that they do not want those FX loans to decrease. For the asset quality, for the healthiness of our asset quality, we have to continue with the FX de-leveraging.
Whenever there are redemptions coming in, also our customers very much willingly have their say to pay their FX debt back to the banks, and if possible, to borrow in Turkish lira loans. Of course, for shorter maturities. For the longer maturities, unfortunately, it is not possible to do so.
That's very comprehensive and useful. Thank you, Gökhan Bey. If I may, would you be able to remind us where your front book TL deposit rates are at the moment?
Mehmet, this is Kürşad speaking. Front book, as you know it is, there's a regulation linked to addition of fixed bonds buying. With this week, depending on where you would like to stay in the regulation, it varies from 17%-18% to 24%-25% levels. Therefore, it depends on our optimization efforts. I think this answer will be fine for you.
Yes. Excellent. Thanks very much, Kürşad Bey.
You're welcome.
The next question is from the line of Alan Webborn with Société Générale. Please go ahead.
Oh, hi. Thanks for the call today. In terms of your revised NIM guidance for the full year of over 7.5%, how do you see that between sort of core spreads and sort of CPI contributions in Q4? I mean, are you expecting to see any pressure on loan yields in the fourth quarter? I guess in terms of the regulation, you might see that. I just wondered where you think things are going from where they were in the third quarter. Thanks.
Hi, Alan. I'll start, and then I'll give the floor to Kürşad to answer. Well, definitely it's lending at 17% in Turkish lira loans. That will be shrinking our margin, definitely. That's why our appetite to lend at 17% is very limited. Very limited. There are two reasons. One, if you grow faster than three points or 3% or 10% in total, then we have to buy the low interest rate securities. Which means that the central bank doesn't want us to grow in lending. This is a fact. That's why it's a macro-prudential measure. They do not want us to grow in lending side, and they will be.
They can even tighten their policies not to lend with those rates. This is one thing. Also on the other hand, we are seeing just to comply with the mandatory 50% conversion for the deposits, that marginally some banks, especially last week, were very aggressive in TL deposits pricing side. We heard 25%, 26%, even higher than that. Which means, you know, getting a deposit at 25%, 26%, lending at 17%. This is not the banking that I know. That's why we will not be in the race of lending at the moment. Kürşat may comment more.
Yes. Thank you, Gökhan Bey. What I would add, Alan, and in this time, where we talk about the regulation and other impacts operationally, we are managing the balance sheet in a way that it's a optimization problem. Therefore, breaking it down into CPI linkers, core spreads, others sometimes doesn't tell the real story. If we are losing something on core spread, we are trying to optimize the balance sheet in order to not have additional fixed rate bonds, and we are optimizing through that, or CPI linker sometimes pays off. Therefore, we are thinking the whole balance sheet in terms of balance sheet management, and that's why we are guiding. We are revising the guidance. No specific breakdown because it changes in a week time.
Do you see that there is further opportunity to grow in areas less affected by these regulations, for example, in SME lending? I mean, can you push further on that side of things?
For SME lending, we may not, because obviously, although it is seen as a good loan, that is not creating any pressure for the TL security portfolio increase. On the other hand, there's a limitation of the cap. We have a cap in terms of interest rates. That's why with 17%, the appetite for our lending at 17% and then getting the deposits, let's say not 25-26, but about 20%, is a loss-making business. Even with the huge capacity of the bank, thanks to the field that they can make the cross-sell, I do not have any cross-sell products or bundle of cross-sell products that would compensate the negative interest rate difference in that sense.
I think in Turkey overall, we do not have it. Maybe in other worlds, or in parts of the other worlds, maybe they have, but we don't have.
Okay. Now do you think, I mean, it's interesting one of your peers today was actually talking about the problem for the banks in terms of managing these regulations. I mean, do you feel that the authorities are listening to your concerns about your ability to lend?
Definitely. I think the ability to lend is coming from the macroprudential measures of the central bank, which means that this is what is desired from the central bank. I think this is the main point. You know, 3% threshold for a month, 10% growth for the year. These are the measures already is in place. It is not a mind reading or the different kind of rumors that we are hearing. It is the fact, it is the regulation. That's why I think it is not a surprise for any of us, not also for you. If you are reading the regulation, it says that. Anything 3% per month and 10% in total. Don't worry about this. If then, you'll have the penalty for that.
I think this is that. That's why some of my colleagues were vocal today. Yes, we heard it. I think with the regulators, we are constantly sharing our views. They are also sharing their views with us. Very tough ones. The minister, the governor, the central bank governor, and always, of course, the Chairman of the BRSA, the regulators. They are constantly talking to us or one-on-ones with me too. They know our position and of course, they have their position too.
Okay. That's very kind. Thank you.
Ladies and gentlemen, there are no further audio questions at this time. I will now turn the conference over to management for any webcast written questions. Thank you.
We have two recent questions. One is from Valentina from Barclays. What is the total external debt as of year-end? So it is $9.7 billion. Our total short-term liquidity, $11 billion, more than covers it. As a note, $1.5 billion is syndication. You know, we have one Tier 2 coming. It is $1 billion, but we will be paying $900 'cause we bought a bit on that. We have some upcoming senior and covered bonds, some securitizations. As I mentioned, syndications is $1.5 billion. One question is from Goris Patel. Congratulations on the strong results.
While the overall net NPL formation appears manageable, the inflows have been sustained above TL 1.3 billion for four consecutive quarters now. Could you please let us know where those NPL inflows are concentrated? In looking at the inflow and growth loans, it is very limited, 0.5% of total, and it's very limited compared to the generation. As I mentioned, looking at the net NPL inflows on the company side, it is at the negative territory with strong collections. We are seeing a negligible results on the SMEs. Some inflows are coming in on the individual side, but still very, very limited. As I mentioned, 0.4% of the generation. I think we don't have any further questions left.
We thank you all for joining the call. If you have any further questions, as the IR team, we are here to answer your questions. Thank you.