Ladies and gentlemen, thank you for standing by. I am Kelly, 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 quarter 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 quarter earnings call. Before giving the details of our strong performance, I'd like to spend a few minutes regarding the operating environment. Looking at the inflation, ongoing higher global commodity and energy prices, tension between Ukraine and Russia, unfortunately, are all affecting inflation evolution all around the world as well as in our country. Accordingly, the high inflation levels are likely to stay in the remainder of the year. During the quarter, as expected, the Central Bank of Turkey remained on hold. The volatility in the Turkish lira and cost of Turkish lira deposits cooled down following the moves from the authorities. Exchange rate protected deposit scheme helped to keep funding rates stable and below 17%.
Lastly, in terms of growth, there are macro-prudential actions being carried on almost every day. Target is to have growth through investments activities rather than the expenditures driven growth. In terms of our performance, I'd like to emphasize that we are continuing to improve our sustainable profitability with solid fundamentals. Our priorities are enhanced liquidity levels. Our foreign currency LCR stands above 600% and total LCR higher than 200%, where our LDR, loan-to-deposit ratio, is at 95%. Equally important, our TL LDR improved 13 %age points year-on-year to 132 level. Rock-solid capital base. Our Tier 1 capital further improved to 13.3, thanks to consistently strong internal capital generation and also support from IRB phasing impact. Now we have more than 370 basis point buffer versus regulatory limit. Customer-oriented approach.
We keep creating convenience to our customers to fulfill their needs. During the quarter, we acquired more than 700,000 new customers and grew more than 500,000 in a quarter. Also, our digital customer penetration reached to 86%. Our seamless digital onboarding is quite strong, five times higher year-on-year and helping to improve digital transformation. Last but not least, employee-oriented approach. We are stronger with all our people and keep improving job satisfaction as well as providing environment for them to reach best place to work. Before starting the presentation, I'd like to share an important news regarding our sustainability efforts. Our MSCI ESG rating upgraded by three levels to AA from BB, and we have been classified as the leader in Turkey.
We are also among the best-in-class banks globally in the scope of managing the most significant ESG risks and opportunities. Now I'm moving to page two of our presentation. In the first quarter of this year, our net profit more than doubled quarter-on-quarter and went up five times year-on-year to TRY 7.3 billion. We have reached to 42.3% ROE, best within peers, at least so far. Our ROA reached to 3.5%, showing a sustainable improvement. Pre-provision profit, PPP, went up by 67% quarter-on-quarter and 184% year-on-year. Our PPP to gross loans stood at 8.7% as of first quarter. Some important drivers.
Quarterly NIM widened a further 138 basis points to 5.08, 5.02%. Loan repricing sustained. TL loan yields went up by 100 basis points quarter-on-quarter. Input funding costs also supported our significant core revenue generation. Our timely accumulation of linkers. Proud to say continue supporting our NIM, creating a great hedge to our profitability. In first quarter, CPI linker portfolio reached 92% of our capital, highest among our peers so far again, visible in our NIM and also profitability performance. Fee income, we had another strong quarter with 22% quarterly increase, and annual increase was 54%. This performance was supported by each component with ongoing focus on transaction numbers. Cost growth remained below inflation at 50% year-on-year, where our continued focus on business growth.
In terms of efficiency, we do have the top performance with the highest fee coverage of OpEx among our peers at 82%. NPL inflows continued to be limited to, so to say, very limited in the quarter at TL 1.3 billion, where recoveries continued to improve in the quarter. We had 1.25, roughly TL 1.3 billion worth of collections. All in all, the net NPL inflow was almost zero, just TL 68 million. I'm leaving the floor to Hilal to give the details of our strong performance.
Thank you very much, Gökhan Bey. Good afternoon to you all, and thank you for joining our call. I will start with our lending performance on page 3. In the quarter, we had 14% quarter-on-quarter increase in Turkish lira loans, whereas FX loans were flat. Again, in this quarter, we gained further market share among private banks in lucrative small tickets. With a 7.5% year-to-date and 47% year-over-year increase in GPLs, mainly personal loans, we increased our market share by 51 basis points quarter-on-quarter. This is on top of 110 basis points gained last year. Please note that around 50% of our generation is through our salary customers. Commercial installment loans, 14% quarterly increase, resulting in 37 basis points market share gains in a single quarter.
All in all, retail loan share in total reached to 55%. We are on page four. Funding side, well, it was very strong, Turkish lira driven, and again, through sticky small tickets. Turkish lira deposits increased 29% quarter-over-quarter with an additional 22% increase in demand. Foreign currency deposits came down 6%. On Turkish lira individual deposits, we gained 45 basis points market share versus prior banks in the quarter. Individual demand deposit market share up by 42 basis points. Looking at the share of demand deposit, it went up 7 %age points in the year to 42%, Turkish lira at 26%, and foreign currency at 52%. Moving to page five, revenues. Revenues increased 39% quarter-over-quarter and a hefty 132% year-over-year.
The support was mainly through core, going up by a very strong 49% quarter-on-quarter and 124% year-over-year. Also, the support was through trading gains, and it is sustaining. Our margins, both revenue and net interest margin, are improving each and every quarter since the beginning of last year. Quarterly increase in the first quarter was at 128 basis points on core and 138 basis points on net interest margin. This is thanks to our agile ALM management. Now, looking at the year-to-date evolution of these margins, net interest margin widens 185 basis points and core revenue margin up by 174 basis points versus 2021. That was better than our guidance of 100 basis points widening for the full year.
This performance was an outcome, once again, I will have to mention, of an agile asset and liability management. It's not just driven by one single balance sheet item, but through all. Core, securities, other funding sources, interest earning assets, so you name it. On next page, very strong fee performance. Net fees increased 54% year-over-year with a 22% quarterly surge. Once again, I cannot mention just one component for this strong performance. It's all across the board. We are improving in our areas of strength and adding on top in diversification efforts. Money transfers up by 106% year-over-year. Number of transactions are going up as Gökhan Bey mentioned. Investment products, 48% year-over-year. Bank insurance, 30%.
With new products on the digital shelf, digital share is up 5 %age points year-over-year at 55%. As the market leader, payment systems fees increased 63%. Lending related fees also supported with 52% increase. Moving to OpEx, we are on page eight. Cost increase very controlled at 50%, lower than the inflation. As we have stated during our guidance call, increase in business growth related costs that we will not sacrifice balanced with the ongoing elimination actions and support from digitalization in the running costs. Accordingly, our fee coverage of OpEx, improving every year, reached to 82%. This is the highest level among peers and also far. Cost income, record low, 21%. Not likely sustainable, but again, among the best in the system. Looking at the bank-only sales, you can see it is wide open at 83%.
Revenues are increasing significantly above the costs. Now I am moving to page nine, digitalization. We are definitely increasing our digital customer base, adding in the first quarter, just in a single quarter, 425 thousand new customers. Annual increase at 1.6 million. Monthly average new GPL origination through digital went up by 80%. It's very important to mention that more than 80% of our GPL sale is fully digital, meaning no human touch. Definitely including digital transactions through our branches, we are almost at a hundred. Digital onboarding very important for us, five times higher than last year. Number of credit cards sold via digital up by 61%. As a result of all, the share of digital in total transactions now stands at 69%. Asset quality on page ten.
As Gökhan Bey mentioned in details, quarterly NPL inflows were very limited at TRY 1.3 billion, when the collections were very strong and I have to once again mention, best among peers and also far at 1.25 level. This excludes NPL write-offs that we had in the quarter. Net NPL inflows as a result was very limited at TRY 68 million. On the consumer and credit cards, we are seeing a slight increase, still very, very limited. SME inflows negligible. When we are seeing ongoing negative flows, meaning very high collections in corporate and commercial. Hence, cost of risk in the quarter, adjusted for the fully hedged currency impact, stood at 39 basis points. Support from collections as high as 79 basis points. As a note, currency impact is at 124 basis points in first Q.
This trend gives us the comfort on maintaining our below 150 basis points cost of risk guidance for the full year. I'm on page 11. Very strong coverage levels at all stages, once again. Stage one close to 1%. Stage two with a further increase at 20%. Just to note, no additions to Stage two. Stage three coverage slightly down to 69%. Our NPL ratio improved 60 basis points to 4%. Total coverage, high levels sustained at 6.7%. These levels definitely are sustainable because of our ongoing very healthy lending growth. Robust capital levels that you can see at page 12. At all solvency levels, we have more than 360 basis points buffer versus the regulatory threshold. CET one
at 11.6. Tier one, 13.3.
Capital adequacy ratio at 15.5%. I'm not mentioning that they are without regulatory forbearance. Capital generation through net profits very strong at 150 basis points, and this is in just one quarter. Equally important, phase two impact of IRB adoption as the only bank in Turkey supported capital adequacy ratio by 90 basis points. We had a 105 basis points negative impact through deductions this quarter, and this is given the high level of deferred tax assets accrued, and it's due to the equity portfolio. This amount will disappear through the year. On the last page of our presentation, but definitely not the least, our sustainability. With our commitment on Scope one and Scope two emissions, we will be carbon neutral this year and Scope three by 2050. Sustainability-linked funding is increasing.
At the moment, 30% of our wholesale funding, and we are aiming to further increase the share. We are increasing our financial inclusion via new sustainable products continuously. We have nature-friendly mortgage and auto loans, ESG-linked investment funds via Yapı Kredi Invest. We are working on ESG advisory services, sustainable credit cards, and you name it so on so forth, lots of products we are working on. All these efforts are further resulting in improving in ratings. MSCI with an AA rating. We are the leader in Turkey and among the best in class globally. We are included in 2022 Bloomberg Gender-Equality Index. We are among the four companies included in the Sustainability Yearbook S&P Global. Now, I am leaving the floor to Gökhan Bey for closing remarks, then we will be taking your questions. Gökhan Bey.
Thank you, Hilal. I believe we as Yapı Kredi will ensure the continuation of strong and sustainable revenue performance through small tickets and transaction banking as the strategy, while maintaining, of course, our strong fundamentals and conservative risk appetite driven by customer-centric approach. With our strong brand, rich organizational culture, fully committed workforce, and support of our shareholders, we will seize the opportunities ahead of us and reach to greater achievements, which will also contribute to our country's economy. I'd 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 our 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 Konstantin Rozantsev with JP Morgan. Please go ahead.
Yes. Thanks a lot for the presentation and for taking my questions. I had a couple of quick questions to ask. The first one is about the FX-protected deposit scheme in retail. So I assume that some of the deposits that have originally entered into the scheme from retail have already started maturing. So I just wanted to ask for some statistics. You know, what fraction of those deposits maturing within the scheme in retail is being rolled within the scheme, as opposed to, you know, what percent leaves the scheme and goes into conventional deposits of retail. The second question, again about FX-protected scheme both for retail and corporates, could you please confirm if, you know, the amount invested into this scheme continues to grow?
Maybe please comment on the pace of this growth in the funds invested into the scheme and how you see this in the coming couple of months. Lastly, in terms of the, you know, foreign funding trends into the end of this year, so how do you see the environment and, you know, are there any specific types of foreign funding you'll be going to focus on, you know, more in the remainder of the year? You know, rollover should be pretty consistent, you know, and to the composition of, you know, foreign debt not change as much in the near term. Thanks a lot.
Hi, Konstantin. Let me answer briefly the first question and also the second one, and then I leave the floor to Kürşad to answer, to give some details about it. First, about the FX-protected deposit scheme. I think so far it's working well, not only for the sector, but for our bank as well. There are two components of it. One, as you know, one part is the treasury-linked part, which is not the conversion, but mainly an inflow from the TL deposit. That part is doing extremely well. Still every day the amount is growing on the treasury-linked. This is how we call it, TL deposit side.
If you move to the FX conversion, the central bank FX-protected deposit scheme, that has not accelerated too much. It started slow. I can tell you that still, Yapı Kredi is slightly below the 5% threshold at the moment, but we are getting there. It takes time. To convince the Turkish lira depositors to this FX-protected deposit scheme was easier than for the depositors that were holding in FX currency and then converting it to Turkish lira. In a nutshell, the TL deposit side is working very well. FX-protected TL is working very well. For the FX conversion deposit, that requires some time.
Still the pace is not there. Why it is obvious? It is because of the measures brought very recently by the central bank, either you call it a carrot or a stick, mainly stick, not the carrot. That's why we feel also for the sector, it is not going at a pace that the central bank wants. This is in a nutshell the first part of your question. If you want to give any details, Kürşad about this.
Sure. For the first two, you have asked me about the maturity and rollovers. On the retail part, maturities are coming, and we see the rollovers are constant. They are rolled over. But as Gökhan Bey mentioned, there are also additions on the retail part, especially for the treasury product. On the corporate, as you may know, the maturities we have not seen yet. In the middle of summer, we will be experiencing a maturity and the rollovers.
Well, in that sense, some maturities came along, and it is adding up. Because in the beginning, I think flat, the TL depositors, the treasury product, made 27% flat, making more than 100% year-on-year. That's why the appetite is there for the treasury product. For the other side, still, as I mentioned, it is not very strong still. Coming to the foreign funding side, as we mentioned during the presentation, the liquidity, especially foreign currency liquidity, is extremely high in the bank. Looking at the FX LCR more than 600 or so, we don't have any problems with rollover of the syndications whatsoever, although the pricing-wise is a little bit costlier, but still.
In that sense, we do not have an issue on the funding side. Whether we'll be on the market for an issue will be opportunistic. You know, Yapı Kredi has always been, at least in the last four or five years, has been very active on the market. We are trying to be extremely investor-friendly on our side. You know, making the transactions, giving some new issues premium, or, you know, from time to time, if it is in a good shape, calling the AT2s, et cetera, or sub debts. In that sense, we still think that we would like to be investor friendly for the market.
Whether the market and our ambition will match, that's more to be seen. From existing levels of the market that we are seeing CDS being 600 basis points or above, it is not very logical. It doesn't make any sense for our bank to borrow at these current levels.
Understood. That's very clear. Apologies, I could have missed the number that you mentioned, but could you please repeat what fraction, what percent of FX-protected deposits in retail which matured, like, in the past month or so have been reinvested into the scheme, have been rolled within the scheme? I assume it should be a high number, right? But what? Is there some indication of the level? What % kind of stays within the scheme?
Konstantin, you can assume it is more than the original amount, the rollovers. Because it is, every day it is totally adding up a new one. Specifically rollovers, you can assume even close to 100%, because with the interest accrual already, they are rolling it over. Yeah.
It is the capital, the initial amount plus the interest and plus also some more new money coming in.
Okay. Understood. Thanks a lot. Thank you.
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 quite impressed by the customer acquisition number. Can you just unpack what kind of customers you're adding, and how you're doing that? That would be interesting. Thank you.
Sure. It's mostly obviously the retail customers and specifically, looking at the segment, it's more about mass segment, definitely. It's not only one channel that we are acquiring customers. One side is the pensioners, for example. Let me start from this side. The pensioners, which was a segment that the bank was a little bit lagging behind, but we are catching up. We are getting there, I think very, very swiftly. The pensioners that have gold also savings accounts, that is also helping our TL deposit or foreign currency deposit on that side. This is one channel. The other channel is the salary payments that we are making and acquiring from the large corporates.
Not limited to, of course, we are also acquiring some seller payments from the SME segment too, SME and commercial segment too. Another channel is the digital channel and digital onboarding. As you know, in Turkey, for almost a year now, we are able to onboard the customers fully digital. This is helping a lot. Only through mobile and through talking visually, we can onboard the customers. Of course, this is a segment that might be a lower income segment for us or a new starter to their careers, you know, a younger generation. It is helping to acquire those customers.
On top of it, we are also very active, especially this year on the performance marketing side, and this is also helping to add up customers, digital customers, to this. This is in total numbers. Also on the SME segment, we know that we are getting market share in terms of number of customers from the SME segment too. It is a full-fledged full segment that we are acquiring customers. This is one part. The only missing part was actually the customers that we were acquiring from the branches that were a little bit stalled during the pandemic times.
As you know, we have a very strong field employee staff that is very capable of acquiring customers. That is also moving ahead at the moment, as well, the branches are almost full every day. We are seeing almost double the customers that we had last year per branch. Customer inflow doubled compared to the same month last year. The pandemic is almost over, and we are acquiring customers also with our strong field.
Interesting. Thank you. Actually, can I also ask a question on the impact of all of the macro-prudential regulation that's been coming in, the new reserve requirements? Yeah, I mean, and what else do you think is on the horizon on the regulatory front, if anything?
Okay. Well, what is on the horizon? I do not know, very frankly.
Okay.
Unfortunately, all of a sudden, every day.
Something new every day.
It is and I think I have the right to complain about it. It's not only you, but also I'm complaining to every person, every regulator that I meet. Obviously there are macro-prudential measures, and in the past it was more on the BRSA side. Now we are seeing that the Central Bank is being active, very active, on those measures. We got the message, obviously, and we are moving ahead accordingly. The impact. There are several impacts about this. Where should I start? I don't know. Adding up, it makes an important amount.
You know, adding up first the April movement, which was, as shared, $65 million, plus, there are two other measurements, plus also not only the macro-prudential measures, but also the tax hike for the financial institutions, unfortunately, from 20%-25%. For this year, from 23 about 25. All adding up is close to 10% of the revenue is impacted by the measures, unfortunately. This is where we have to cope with. We got the message. I hope also the regulators are getting our messages too.
Thanks very much.
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 questions. Thank you.
We have a lot of questions I can see on the webcast, so I will try to start with one. Do you see any upside or downside risk to your budget guidance? Ovunç is asking.
Thank you, Ovunç. Looking at the results of the first quarter, obviously, we are seeing an upside on the revenue generation, as well as on the fee income part. These are putting a very positive possible upsides in the coming quarters, we can talk about. On the lending growth, we have mentioned about high 20s levels. We can say it's still relevant. In terms of return on equity, we have guided to be above last year. Since we are going to be above, we are confirming it. When we come to the next call, we can talk about more precise ROE level. The other possible upside is on the cost of risk, but it is still a question mark to say as boldly as I said for the revenues.
All in all, I can say there are upside risk for all our guidance.
Another question from Erin. How do you see your numbers, and I'm seeing a couple of more on this, if you adopt inflation accounting?
Yes, inflation accounting. In order to have impact analysis for inflation accounting, we need to see when to start, and this is still being analyzed and questioned and discussed by the regulators. You know, in Turkey, there is a separate accounting body, and there is also BRSA and the other regulators. We are aware that they are in talks to decide when to start or should it be started. That's why we are not able to make any calculation yet. As far as we see the clarity, we will be informing all of you.
One more from Knarf Tabyasrum. Can you please touch base on new risk-based asset regulation on your Tier one, given your IRB approach?
Looking at the announcement, the sense of the announcement, it is related to all banking system, I believe. All banking system, we will see some changes in the future in terms of regulation. We don't know, but it is not just specific for banks who are making a standard approach, we believe. Because the sense of the macroprudential efforts are same as we know, and therefore we are still waiting answer from the regulator.
One more question for you. Could you provide some details on the components of loan growth in first Q 2022, and how you expect these components to evolve as the year progress? When do you think business lending will start to slow down, and how quickly will retail start to improve? Alan Webborn is asking.
This is about the TL loan growth, maybe two components, foreign currency and TL loans. Foreign currency loans, we do not see growth potential for the FX loans. Not because of the spreads, but for the asset quality. There are not many investments in Turkey at the moment. If any, that has to be financed by TL loans, lessons learned from the past. That's why, we are trying to, you know, diminish, decrease our FX loan portfolio further down. We started from 22% down to 12% and going down. For the TL loan growth, I think it will also slow down because of the macroprudential measures or any measures that is given by the regulators.
For the sectors taking the messages with strong impact on the P&L, unfortunately. I think there has to be a slowdown. The cost will be definitely reflected to the customers, to Turkish lira loan customers. That already started among the sector. As Yapı Kredi, we also even the Monday morning starting from Monday morning we also reflected our numbers. TL loan growth will be slowing down. Not to forget, if we have a year of, let's say 40%- 45% inflation growth, I cannot tell that 25%- 30% loan growth is too much for the sector.
This will be unfair comment, at least from my side, because in real terms, it's a negative growth. That's why there will be a growth, further growth in Turkish lira loans. The regulator wants us to lend on specific segments. I do not see at the moment, at least such an appetite from these limited segments. That's why from the other segments, there is still the appetite. From the elevated interest rates, I think there will be still some appetite, but less appetite compared to first quarter. Any other questions that I missed?
No. For this question specifically, no.
Okay.
There are two more questions. I will take them. Congratulations on the strong results. This is from NN Investment Partners, Grace Patel. Thank you for Matt as well. If and when inflation pressure moderates in the coming months and quarters, how will this affect your earnings? It means that there will be a good fortune in the market, a normalization, that's what we are getting ready, as Gökhan Bey mentioned in detail. Our main target on the medium term is always beat the cost of equity when everything normalizes. That will be my answer. One more question from Pinar Tabyasrum. Swap costs came down remarkably in the quarter. Is there a specific reason to it? It is because of this FX deposit scheme.
FX deposits are coming down, so our swap volume is going down, and as a result, our swap cost is coming down.
Thank you. Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Okay. Thank you very much, everyone. If you have any further questions, I know that it's Friday and everyone is listening to us. Thank you all for joining once again. If you have any further questions, you can reach our IR team and me always. Thank you.
Thank you. Have a nice weekend.