Ladies and gentlemen, thank you for standing by. I am Maria, your Chorus Call operator. Welcome, and thank you for joining the Yapı Kredi conference call and live webcast to present and discuss the Yapı Kredi first half 2022 financial results. At this time, I would like to turn the conference over to Mr. Gökhan Erün, CEO, Mr. Kürşad Keteci, Strategic Planning and IR EVP, 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 first half results earnings call. Before going into details of our strong performance, I'd like to spend a few words regarding the operating environment as always. The inflation remains elevated due to ongoing high global commodity and also energy prices, as is the case all around the world. We expect the high inflation levels to stay in the remainder of the year. During the quarter, there have been considerable number of macroprudential measures taken by especially Central Bank of Turkey. These measures are leading indirect tightening in the economy. In terms of currency, TL weakening is unfortunately continuing. I'm moving now to page two of our presentation. In first half, our net profit went up more than 5x year-on-year to TRY 19.2 billion.
We have reached to 50% ROE as of the first half of 2022. Our ROE, return on assets, reached to 4.3%, showing a continuous improvement. Pre-provision profit, PPP, went up by 283% year-on-year, and our provisions to gross loans stood at 10.8% as of first half. Most importantly, yearly revenue growth was 214%, while costs growth only 70%. Which brings the jaws ratio that everybody knows to 144%. Some important drivers of the performance are as follows. Year-to-date improvements in total NIM reached to 325 basis points, and our NIM reached to 6.4%.
TL loan deposit spread widened to 282 basis points quarter-on-quarter, thanks to 171 basis point higher TL loan yield and also 111 basis point lower TL cost of deposit. In terms of efficiency, we do have best-in-class performance still, with fee coverage of OpEx at 79% and cost-to-asset ratio limited at 1.8%. Quarterly cost of risk increased to 139 basis points with precautionary provisioning strategy of ours. Moving to page three , we are further strengthening our rock-solid fundamentals during times of volatility, which is, I assume, very important. Enhanced liquidity levels. As of today, our foreign currency LCR stands above 680%, and total LCR higher than 165%, where our LDR, loan-to-deposit ratio, is now below 100.
Our TL LDR improved 13 basis points year-on-year to 136%. As we speak, we are talking lower numbers nowadays. We will continue to maintain high levels of liquidity. We have $10 billion worth of liquidity, 2.2x of our foreign currency dues in the next one year. We have plenty of foreign currency liquidity on our balance sheet. I'm moving forward to strong capital base. Our Tier 1 capital further improved to 14.6%, thanks to consistently strong internal capital generation, basically profit. We have more than 470 basis points buffer versus regulatory limit on each solvency level. Coverage levels. We have continued our conservative provisioning despite the limited NPL inflows. As a result, our total coverage is now at 6.1% with ongoing strength in coverage performance. I'm moving to customer-oriented approach.
We keep creating convenience to our customers to fulfill their needs. We continued customer acquisition during the first half that we very much like and proud. Our digital customer penetration reached to 89%, close to 90% now. Our seamless digital onboarding is quite strong, 5x higher year-on-year, and helping to improve digital transformation. Now I'm leaving the floor to Hilal. She'll give details and about our strong numbers.
Thank you very much, Gökhan Bey. Good afternoon to you all, and thank you for joining our call. We'll start with our lending performance on page four. Our Turkish lira loan growth stood at 36% year-to-date, and 61% on a year-over-year basis. FX loan deleveraging continues in the quarter, coming down 10% year-to-date and 15% year-over-year. In line with our strategy, we gained further market share among private banks and lucrative small tickets. This trend continues. Consumer loans went up by 21% year-to-date, and we gained 67 basis points market share. Looking at general purpose loans with 26% year-to-date and 50% year-over-year increase, we increased our market share by an additional 71 basis points on a year-to-date basis.
I want to emphasize that please note that last year we gained 110 bps , and this is on top of it. Commercial installment loans up 48% year to date, resulting in 120 bps market share gain. As the market leader in card business, we gained 46 basis points and 37 basis points market share in the year on debit card and credit card turnover respectively. All in all, retail loan share in total reached 58%. Funding side on page five. Once again, we had Turkish lira-driven deposit growth through the contribution of Turkish small tickets. Turkish lira deposits increased 51% year to date with an additional 44% increase in demand. Foreign currency deposits came down 13%. On Turkish lira individual deposits, we gained 36 basis points market share. This is again versus private peers.
Individual demand deposits market share up by 34 basis points. Share of demand deposits stand at 42%, Turkish lira at 26%, and foreign currency at 54% as of first half 2022. These numbers are improving each and every year, as you know. Now moving to page six, revenues. Revenues surged 25% quarter-over-quarter and 198% year-over-year. The support was mainly through core, again, going up by a very strong 23% quarter-over-quarter and 181% year-over-year. We also see ongoing support from the trading line, thanks to timely action taken by our treasury. In the quarter, Turkish lira loan deposit spread widened as much as 282 basis points, thanks to ongoing loan repricing impact and lower Turkish lira cost of funding.
Turkish lira loan yields went up by 171 bps , when Turkish lira deposit costs improved 111 bps with ongoing support from demand. Showing our agile ALM management, margins are improving each and every quarter. Quarterly increase in the second quarter was 61 basis points. This number is normalized for the linked income and a stellar 325 basis points jump over 2021. The support through core NIM was very strong at 91 basis points. As of first half, our net interest margin stands at 6.4%. On next page, you can see our strong fee performance. Net fees up by 76% year-over-year and 24% quarter-over-quarter.
As a repetition of the previous calls, I know I'm repeating this a lot, but I cannot mention just one component for this. This is strong performance. It's all across the board. Money transfer fees up by 118% year-over-year. Our number of transactions are going up, very supportive. Fee income through investment products up by 76% year-over-year. Bank assurance, 38%. As the market leader, once again in payment systems, fee increased 85% year-over-year. Lending related fees also supported with a 73% increase. Moving to OpEx, we are on page eight. Costs increased 70% and this is with continuous investments on business growth and no sacrifice on HR. Business growth-related costs almost doubled when the increase in HR costs were at 75% year-over-year.
Our best-in-class performances in efficiency KPIs further improving. Fee coverage of OpEx at 79%. Cost to average assets were limited at 1.8% and cost to income ratio at 20%. Now I'm moving to page nine. As Gökhan Bey mentioned, the installment efforts are very supportive and we are focusing a lot. We are increasing our digital customer penetration. This reached to 89% in first half. Digital onboarding, very important and very supportive, 5x higher than last year, and we are seeing an increasing trend every quarter. Number of credit cards sold via digital up by 81%. General purpose loan sales up 93% year-over-year. Note that digital share in GPL sale is around 8% of total.
Looking at asset quality on page 10, quarterly NPL inflows were limited at TRY 2.5 billion, mainly due to a couple of big ticket files when the collections were very strong at TRY 1 billion. Please note that inflows and collections exclude NPL sales and the impact of LYY classification and write-off. All in all, net NPL inflows in the quarter were limited at TRY 1.5 billion. On consumer and credit cards, yes, we are seeing some slight increase, but still very, very limited. SME net inflows negligible. Despite these limited flows, we continued our prudence in provisioning and cost of risk increased to 92 basis points in first half. Support from collections were as high as 195 basis points.
As a note, currency impact, this is FX excluding our calculation, but just as a note, is 123 basis points in first half. As you all know, this part is fully hedged. I'm on page 11 and again, showing the very strong coverage levels at all stages. Stage 1, close to 1%. Stage 2 at 19%. Excluding this move on the LYY, we are even seeing an increase on the coverage ratio. Stage 3 coverage despite the NPL sales in the quarter stable at 69%. Our NPL ratio is at 3.7%. Looking at the robust capital levels, we are on page 12. Overall solvency levels, we have more than 470 basis points buffer versus the regulatory threshold. CET1 at 12.9%. CAR, 14.6%.
Capital adequacy ratio at 16.7%. Looking at capital generation through net profit is very, very strong at 350 bps on a year-to-date basis. We are on page 13. As we promised you, we have included the initial outcome of inflation accounting based on our internal calculation. Return on tangible equity. This is the real return on top of inflation, is in the range of mid to high single digits. This number is, on a comparable basis corresponding to a significant year-over-year and year-to-date improvement. Also, we have adjusted the linkers revaluation to provide you a comparable ground. Capital ratios, the impact of inflation accounting will be positive. Given all these uncertainties, we are keeping our guidance, all guidance at this point.
Now I'm leaving the floor to Gökhan Bey for closing remarks, then we will be taking questions. Gökhan Bey.
Thank you, Hilal. Thank you very much. I believe as Yapı Kredi will ensure the continuation of strong and sustainable revenue performance through small tickets and transactional banking as always, while maintaining our strong fundamentals and our conservative risk appetite driven by customer-centric approach. With our strong brand, our rich organizational culture, fully committed workforce and support of our shareholders, we'll seize the opportunities ahead of us and reach greater achievements, which will also contribute to our country's performance. I would like to take this occasion to extend my thanks to our stakeholders who stand by us with trust and support, and to our dedicated employees 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 our call. Now we can take your questions.
The first question is from the line of Gürsoy Övünc with Oyak Securities. Please go ahead.
Hi, thank you for the presentation, and congratulations for the good set of results. Of course, like other analysts, I wonder about the second half of the year. Do you think this good performance is sustainable going forward? How do you see the funding environment, specifically on the FX side? I would like to hear your views on syndications, and also Eurobonds. If you can give some color about these issues, I would really appreciate. Thank you.
Thank you, Övünc . About the second half operating environment, it will be, I think, more difficult than the first half. Specifically as looking at the global environment, the central banks making rate hikes. Even tomorrow, we'll be hearing from Fed. Very recently we heard ECB 50 basis points, and the target is obviously getting higher. In that kind of environment, the second half will be tougher than the first one. This is no doubt for us. On the funding side, whether we have worries, as I mentioned. First, let me talk about Turkish banking sector or Yapı Kredi specific. In terms of liquidity, we do not have an issue. We are quite well funded.
That's why, on that front, liquidity-wise, I do not see any concern going forward for this year or even, as I mentioned, for a year in front of us. Because we have enough foreign currency liquidity, 2.2x higher than our redemptions, so we are all well prepared as always in the last five years. This is on liquidity side. Whether it will be impacting our bottom line, the P&L, that is on the other side, which means that the cost of funding is going up. Also, especially on the foreign currency funding side, the deposit rates are going up. That's why, obviously, the LIBOR is going up. The risk premium is also going up.
The CDS levels are going up. That's why it will have a negative impact to the P&L. Just expect not as strong as the first half results in terms of funding, et cetera, et cetera. It might be the cost of funding, et cetera. It might not be the case. On the other hand, this is on the cost of funding and P&L side. On the syndication side, we do not see an issue as we always seen in the last 30 years, at least to my experience. Most probably we'll be rolling our syndications over. The percentages, I don't know whether it will be 90% or 85% or 95% or 100%. This has to be seen.
We have a few months ahead of us. As we speak, normally, in this kind of environment, we should be able to roll it over our syndications. Maybe it will be a little bit more costly for us. In terms of liquidity, I do not see an issue for the syndications. Last point about the Eurobond side. We have always been opportunistic about the markets. If and when we see a window opportunity where the cost is the right level for us, we might be, you know, on the market.
Having said that, having those high CDS levels, Turkish Eurobond sovereign bonds being around 11%, I do not think that it will be feasible for the bank, for our bank at least, to borrow. Just, we have to think of the asset side of the balance sheet as well, which is looking at our foreign currency loans that we mentioned also during the presentation, it is coming down significantly. Just to recall, four years ago, or slightly higher than four years ago, our foreign currency loans were $22 billion, give and take. Now it's down to close to $10 billion, $10 billion-$11 billion foreign currency loans.
It is going still as we speak, and it is still going down. We still expect the foreign currency loans to come to $10 billion levels by the end of the year, which means that the leveraging continues. Our customers are more cautious thanks to the 2018 crisis, that volatility that we had. That's why they are still deleveraging their balance sheet. The only remaining part is basically the export loans or the FX-linked income companies that we are keeping, but the others still deleveraging. That's why I do not need additional foreign currency liquidity as we are speaking above 600% foreign currency ourselves.
We do not need excess foreign currency funding as it is also impacting our bottom line.
Thank you. I have one more question. I also wonder about TL loan growth trajectory going forward. I understood from your remarks that it will be difficult going forward to extend more TL loans. But how do you see also the impact of regulations on TL loan growth? I wonder about it. Could you give some color on that as well? Thank you.
Sure. As always, we've been very transparent to the market. You know me. In terms of TL performing loans, obviously there are regulators actually, the BRSA and also mainly Central Bank of Turkey. They are taking those measures, macroprudential measures. I think because of one issue, maybe to slow down slightly the economy and also to see some deleverage on the balance sheet. If this is the case, then going forward, because of this, because of the regulations, it has an impact that will be slowing down for sure for the second half. That is for sure.
This way or another, the TL loan interest rates are going up because of obvious reasons that the central bank is putting lots of additional burden costs on our balance sheet to the liability side, that unfortunately we have to reflect those costs to our customers. In that case, because of this aim or because of this action of the regulators, the TL loan yields are also going up. If they do not reverse their burdens or costs on the liability side, then on the TL loan side, the interest rates will be staying elevated. This is what we are seeing. That's why, with those rates, obviously, the growth will be slowing down.
Thank you.
Thank you.
The next question is from the line of Cihan Saraç with HSBC. Please go ahead.
Thank you very much. My first question is a follow-up to Övünc's question. You mentioned that rising funding costs in the second half may put pressure on the P&L. Does that mean that we are going to see lending spreads contracting in the second half of the year? That's the first question. Second, could you give us some color about the rollover ratio of currency protected deposits? That's the second one. The third one is, you mentioned under inflation accounting that your ROE is going to be somewhere between 5%-10%, as far as I understand. In the first half of the year, inflation was quite high, and in the second half of the year, probably inflation is going to be less than in the first half of the year.
Under that condition, would your inflation adjusted ROE increase in the second half of the year? Thank you.
Okay. Cihan, thank you. Loan to deposit spread, our projection is not that it will come down. Which means that we are trying to keep our spreads or even widen our spreads. As I mentioned earlier, there will be a slowdown in the loan to deposit loans, TL loans, but also gives us some more cushion for the liability side that we can control our cost of funding of the TL deposit, for example. Which means that we'll be trying to keep our margins as much as possible. And as we speak, actually, we are doing it. As of today, which is we are almost in August. We do not see a contraction. This is the good news.
This is thanks to our strong ALM management. You asked about the rollover ratio of the KKM, this famous central bank or the government protected, FX protected TL deposit. The rollovers are going very well. Till now, even the government side, or on the other hand, on the central bank's deposit side, both are going well on the rollovers. For the central bank deposit side, central bank protected side, as you very well know, we have seen the majority part was coming from the corporates. This has yet to be seen in the coming months, in the coming two months.
That's why, let's see. Just it's a little bit early to talk about the second part, the central bank deposit part. That has to be seen. August and September. That, of course, there's an important penalty of the central bank. They are putting important pressure on us. It is the customer's decision after all. Let's see how it goes. On the other hand, for the government supported side, this is going well, and it is also rolling over with more than 100%, I might say.
Gökhan, if I may, for the inflation part. Cihan, your question, our first half ROE year-over-year has a significant improvement versus last year first half ROE if we had applied inflation accounting. From the monetary loss point of view, as you know, monetary loss is arising from monetary position and especially from the capital. This monetary loss is year-to-date inflation. It's calculated over year-to-date inflation. Therefore, if I were you, I wouldn't expect a widening of ROE at the year-end. Our aim would be, based on our performance, to keep it at these levels.
Okay. Thank you very much.
Thank you.
That's very clear.
Thank you.
The next question is from the line of Simon Nellis with Citibank. Please go ahead.
Oh, hi. Thanks for the opportunity. I was just hoping you could kind of walk through where in your credit book you're getting worried about credit quality. I mean, it seems NPL inflow is pretty modest. Things are okay. Where do you see stress? What kind of keeps you up at night? That'd be my only question. Thank you.
Hi again. For the stress, I think in this very volatile environment, it is not easy to say now because it is quite early. Secondly, one thing important is there is an important amount of liquidity being carried on from last year in the economy, as well as due to the sales with the inflationary impact on the sales revenue generation. The companies, the others, individuals has an access to the liquidity. Therefore, we couldn't be saying any stressful area or sector. What we are doing is, most importantly, we are making our new loan disbursement as much as we can in the small tickets. We are not going on the big tickets, as you know, for our strategy for the last four or five years.
With the small tickets and widespread in terms of sectoral distribution, we are managing the bank lending. As of now, to your question specifically, there is no one or two single sectors or areas under stress. Let's wait for a couple of months, even quarters, to say about it.
Okay. Thank you.
Thank you.
There are no further audio questions. I'll now hand over for any questions from our webcast participants.
Okay, we have a couple of questions. The first two is regarding the inflation accounting trajectory. Can you give this from Recep? Can you give some guidance on the trajectory of inflation accounting and its impact on financial results?
Recep, hi. For the inflation accounting trajectory, still it is awaiting regulatory decision. We are making our preparations accordingly. As we promised, we shared some information about what are the results. From the IFRS perspective, international reporting standard, it has already started. Therefore, when we have any IFRS reporting, it will be under inflation accounting. For the local GAAP, local accounting, we are still waiting regulation and their decisions. Just we are making our preparation and keeping it ready for a possible change to inflation accounting.
Also a follow-up question from Valentina Gontcharova. Can you also talk a bit more on hyperinflation impact on P&L and equity? You mentioned mid- to high-single-digit earlier. Does this include any provision reversals? Any additional color will be great. Appreciated.
Valentina, first of all, this bottom line figure does not have any reversal for any provision. We are keeping our conservative approach on the provisioning, and it has only application of inflation accounting as well as CPI linkers valuation. Considering that our loan to deposit ratio is improving for couple of quarters, we are hugely benefiting from core revenue performance. At the bottom line, we have a better performance. We have over the inflation, a real return on top of inflation. There is no any kind of a reversal or unrealized income figures in these figures.
We have again two questions from. I will try to merge them, Recep and Valentina, on asset quality. Recep asks, "Can you give details on the new NPL inflow of TRY 1.5 billion in the second quarter? Is there any specific case or is this across the board?
Yes, Recep, it is a kind of a single case in energy sector which we have been waiting for. It is already planned. It was already in stage two, and it was highly covered in stage two. When we move it to stage three, I can almost say it is a fully covered new NPL inflow. It is not something that's a great burden on us.
Valentina asks, "Can you talk a bit on more detail about asset quality trends that you have seen recently? Do you see accelerating corporate NPL inflows in second half 2022? Where do you see full year cost of risk? Will it be closer to 150 basis points versus 92 basis points in first half?
I think, in the previous answers, we have touched upon the second half evolution, especially for the asset quality, but specific to cost of risk question, Valentina, we are keeping our guidance. As you see, we increased it in the second quarter under 104 bps levels. We would like to be, again, conservative in this, period, therefore we are not changing it, and, we believe it will stay below 150 bps .
We have one question from Valentina: Do you expect more benefit on capital ratios from IRB in the second half of 2022?
No, it was the final one we got, which was again in an amortized way of applying IRB. What will happen from this point, there will not be any bulk change. It will be only changing based on our internal models.
We have one question from Hakan Aygün: Can you give information on the process of Turkish lira lending restrictions on companies with FX liquidity? Can you expect revisions on current regulatory framework?
I think the impact is limited to a few hundred companies that is also announced by the regulators. In that sense, I think those ones that are affected having the excess liquidity, I think we will be starting to see that they will be converting some part of their excess cash to Turkish lira, because in that kind of environment with restrictions for those companies to continue with the existing level of growth, they have to be funded. Basically, most probably we'll be seeing some collars in the coming weeks for them. On the other hand, of course, this is having a negative impact on our TL loan growth.
As we always focus on, the small tickets are not affected by this regulation.
We have two questions from Sadrettin Bağcı from Garanti . Would you please provide a bit more detail on your statement of 2.2x FX assets over FX liabilities? What I can say is our FX liquidity is short-term FX liquidity at $10 billion, and our short-term FX debt in the upcoming one year is at $4.9 billion. Please note that $1.6 billion worth of it is syndications that we, as you know, rolled over in a pretty good way in the last month. If we're looking at the FX liquidity breakdown, what I can say is we have around $1 billion cash. We have around 2.5 in correspondent banks.
We have around 3.5 billion at swaps, and Central Bank TRY is around 3 billion, and the rest is the onward securities that we have. Another question from Sadrettin: Would you please share view on retail segment potential NPL inflow? What I can say is the NPL inflows on the retail is still very limited, Sadri. What we are seeing, the recoveries are also going very strongly, and we are not seeing any deterioration on the retail side so far. Okay, we don't have any further questions. No, we have one, I think, on the audio side.
Yes, we have a question from Oleksiy Soroka with ING. Please go ahead.
Yes, hello. Actually, my questions have been answered. I wanted to ask about the impact on lending, which I guess you have just addressed. Maybe to clarify. In terms of net interest margin, you do expect the margin to decelerate at least in the second half of the year because your full year guidance is 100 basis points impact increase rather, whereas in the first half you had 325, if I remember correctly. It'll be you'll have to be, you know, more modest in the second half. Am I reading it correctly?
We are a bit conservative about our guidance. You are correct. I hope that we'll be doing better than our guidance. Still, in this kind of environment that Central Bank is taking measures on squeezing the liquidity, decreasing the funding of Turkish banking sector at the moment. This have obviously a negative impact on the interest rates, which means that interest, Turkish interest rates are rising at the moment. Because as you very well know, on the regulation side, for example, they are not taking into account or they are taking only the half of the CPI linkers, for example, as the collateral, so they are funding only half of it at the moment.
Which means that they are decreasing the funding on the banking side as the central bank. As the central bank is squeezing the liquidity, therefore the cost of funding might be going up. Therefore we've been careful about the guidance. If those actions were to balance at some point and we are not squeezed more by the Central Bank of Turkey, then we should be able to beat our guidance by the end of the year. This was my, our concern. Tightening of the central bank, at least on the liquidity side.
Right. Okay. Again, from this measure, I mean, I don't know how to quickly describe it, but you know, lending limits to companies with FX liquidity. You are saying that this will not have a disproportionate impact on you if we talk about loan growth of 36% in TL in the first half, if I again remember correctly. Is that going to have a material impact? Like what are we talking about? If you can, you know, put it in some framework.
Well, I got your point. I cannot share, of course, obviously, any numbers for the second half. There will be a deceleration, that is for sure. As we are more focused on the small tickets, which is first the SMEs basically, and also on the business banking and also on the retail side, we've been very active and we are gaining market share on every product that we are supplying to the customers. There we are growing and we will continue with the retail banking side. That's why, to decelerate further, a strong slowdown, I do not expect it. Because for the big tickets, okay, that's fine.
We've been always very careful about those. On the other hand, we'll be growing in the retail for the small tickets, for the business banking SMEs, we'll be growing. We have room to grow, and we'll be getting market share there. It's the very lucrative part for us.
Okay. All right. Thank you very much. Thank you for the call.
Yeah.
Okay.
I think we don't have any further questions, I believe, right?
That is correct. There are no further questions.
I thank you all for joining our call. As always, if you have any further questions, the IR team will be at your disposal, let's say. You can call us anytime. Thank you, Kürşad. Thank you very much, Gökhan Bey.
Thank you.
Thank you. Thank you very much.
Have a nice evening. Bye-bye.
Have a nice evening. Bye-bye.