Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your conference call operator. Welcome and thank you for joining the Yapı Kredi conference call and live webcast to present and discuss the Yapı Kredi 2024 financial results and 2025 guidance conference call and live webcast. All participants will be in listen-only mode and note that the conference is being recorded. The presentation will be followed by a question-and-answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Gökhan Erün, CEO; Mr. Kürşad Keteci, CSO; and Ms. Hilal Varol, Head of Investor Relations and Strategic Analysis. Mr. Erün, you may now proceed.
Good afternoon and thank you all for joining our 2024 earnings and 2025 guidance call. Before going into details of our performance, I'd like to share some information about the operating environment. We have started to see the positive results of Türkiye's ongoing normalization process, along with the improvement in the headline inflation. The Central Bank cut the policy rate twice, 250 points each, to 45%. Meanwhile, macroprudential measures continue. Tight monetary policy stance of the Central Bank remains intact for dis inflation process, and we expect this to continue throughout the year. Looking at the inflation, we ended the year at 44.4%, and it is expected to be below 40% with February reading. On top of the slowdown in domestic demand, we have witnessed the preliminary support from the service inflation in December.
Throughout this year, it is expected to have more support from fiscal policy in order to reduce the inflation. The slowdown in domestic demand has supported the improvement in current account deficit, which is expected to be below 1% of the GDP for the full year. The budget deficit is also improving from its peak in January and is at the edge of 5% of GDP as of 2024 year-end, but continues to lag behind the monetary actions. The impact of this economic normalization is still slow in the banking sector, mainly due to the continuation of macroprudential measures. Postponed improvements in the spreads will be more visible with the lower inflation environment in each quarter of this year. For our bank, Yapı Kredi, as we have mentioned previously, the worst levels had been seen in the second quarter.
In the last quarter, we had the highest improvement on both TL loan-to-deposit and net interest margin among our peers so far. Throughout this year, the level of disinflation, rate-cut cycle, and also continuation of macroprudential measures will lead to a balanced performance in terms of economic normalization. Therefore, the positive impact on the banking system will be limited, but for sure better than last year. Now, I'm moving to the second stage of our presentation. Our pre-provision profit hiked 82% quarter-on-quarter, thanks to around 158-point improvement in the core revenue margin. While improving the top line, we continued to set aside provisions in a prudent manner, and our gross provisions increased by another 20% quarter-on-quarter, bringing our total coverage to 3.8%, which is the highest level among our peers. Total coverage would be even higher at 4.2%, which we include the NPL sales in 2024.
All included, we posted 8.5 billion TL profit before tax in the quarter, increasing more than 60%, and our net profit stood at 6.6 billion TL. For the full year, our net profit stood at 29 billion, corresponding to ROE of 16% and ROA at 1.3%. Some important drivers of our performance are as follows. As I mentioned, the worst is over, and since the end of the second quarter, our margins are gradually improving. Through active loan and also effective deposit pricing, we successfully widened the TL loan-to-deposit spread by another 180 basis points quarter-on-quarter, the highest spread expansion among our peers so far. We also had the highest loan-to-deposit spread contribution to net interest margin, setting us up for the future.
Thanks to ongoing customer acquisition and strong penetration, our fees coverage of OPEX realized as high as 96%, also the highest level among our peers so far. An exceptional performance, and I'd like to note these very high levels are not sustainable for the sector and for us too, but we target, as Yapı Kredi, to continue our above-sector performance going forward. This robust top-line performance enabled us to set aside further provisions in a prudent manner, and gross provisions increased by 20%, and total coverage reached again to 3.8% levels. Now, I'm leaving the floor to Hilal. She'll provide the details behind our numbers.
Thank you very much for your welcome back, and I thank you all for joining our call today. I will start with page three. As was the case throughout 2024, in the last quarter, we continued our selective lending strategy with proactive pricing, bolstering our Turkish Lira loan yield performance. Our quarterly Turkish Lira loans went up by 3%, while the annual increase stood at 31%. We also continued to see the lucrative loan growth availability on the foreign currency side. In the last quarter, the demand was relatively slow. Accordingly, our foreign currency loans increased 1% in dollar terms. That said, annual growth stood at a hefty 32%. Since 2017, in line with our strategy to focus on small ticket, obviously not just on the loan side, but on the deposit side as well, the share of retail loans went up by 16 percentage points, reaching 55%.
This is thanks to our ongoing customer acquisition, which is continuously increasing with a best-in-class service model. As I have stated, we had a very active loan pricing, not just in 4Q, but throughout the year, seeing the positive impact on the loan yield, with a quarterly improvement which visibly accelerated in the past two quarters. Our new Turkish Lira loan pricing was more than 500 basis points above the sector in the fourth quarter, leading to a 7 to 8 basis points improvement in loan yield. These numbers are adjusted for the credit cards, just for the (we are removing the not revolving portion in the last quarter) on top of a hefty increase in the third quarter. We will continue our selective and lucrative lending strategy, which will continue to support our spread going forward. On the funding side, we are now on page four.
Our robust demand deposit performance sustained on top of the agile time deposit pricing, and this is thanks to our widespread customer base. Turkish Lira deposits remained flat quarter-on-quarter, increasing 27% year-over-year. Our Turkish Lira demand deposit base, on the other hand, increased further 6% in the quarter, reaching a very strong 64% jump in 2024. More importantly, this performance is driven by individuals, and our Turkish Lira demand deposits—so this is also showing our small ticket focus—and our Turkish Lira demand deposit, in nominal terms, increased further to 216 billion Turkish lira. Also this quarter, we maintained the highest level, also in nominal terms. Thus, going further up 213 basis points over 2023, demand deposit share in total reached 44% of total, 5% above the closest year. On the Turkish Lira side, again, an eye-catching performance up by 6 percentage points year-over-year at 27%.
This is very supportive to our spread, and I think that now we have a proved consistency on this. Foreign currency deposits, on the other hand, came down 3% quarterly, up by slightly 2% year-over-year, when the share of foreign currency demand deposits in total stood at a significant 6% to 8%. All incorporated, thanks to the widespread customer base, we continue to price the deposits below the sector. Turkish Lira time deposit rates were 100 basis points lower than the sector in the fourth quarter. As a result of all, our Turkish Lira deposit costs improved 120 basis points to 34%, significantly better than our peers. This performance will continue and will support our spread and thus net interest margin. Now, looking at the details of our profits, we are on page five, starting with the top line.
In the quarter, thanks to the strong support from core revenues and ongoing support from trading, total revenues increased 31%, reaching 38 billion Turkish lira. As Gökhan Erün stated, once again, proving that the worst is over for us in the second quarter, and we have already started to see a boost in our top line. The core revenue margin went up by 146 basis points to 6.1% in the quarter. Quarterly improvement in Turkish Lira loan deposit spread is 180 basis points, and this includes the credit cards, our revolving part also, improving every month of the quarter, and net interest margin widened 150 basis points quarter-on-quarter, and now our exit NIM is at around 2%, so we started the year at close to 2% levels of net interest margin.
Our active loan repricing and controlled deposit costs supported this performance, proving the sustainable improvement capability in the upcoming quarters, the contribution of our core business loans and deposits. So our net interest margin is far the highest among peers. The support is as high as 2.7% in 4Q and 1.6% for the full year. Now, on the next page, fees. Our customer acquisition, once again, I'm mentioning this a lot because it's supporting us a lot, and increasing penetration pays off. We have increased our fee base by 7% quarterly and fees more than double the year-over-year. Our payment system business continues to support this performance this year. In 2024, net fee income from card business went up by 2.8-fold, making up 69% of our total fee base. That said, a strong support sustained on money transfers, up 74%, bancassurance increasing 64%, investment products 48%.
These will be supporting our fees further, and again, thanks to increasing customer numbers and customer penetration. Moving to the OpEx, we are on page seven. In 2024, our cost increased 66% when running cost growth held below average inflation. Our HR cost went up 63%, and business growth-related costs were up 66%. As we always mention, we do not sacrifice from human capital, both our people and our customers. In the quarter, we have maintained the top-notch efficiency. As always, I think I'm repeating this every quarter. This is a proven track record. Fees coverage of OpEx at 96% highest. Cost-to-average asset ratio 3.7%. This is the lowest level among our peer group that announced so far. Moving to another hot topic, asset quality. We are on page eight. In the quarter, as expected, NPL inflows through unsecured consumer sites sustained when the strength in recovery is continued.
Excluding one big ticket, the NPL recovery to Stage 2, by the way, it was a very successful recovery thanks to our team. Net NPL inflows were stable quarter-on-quarter, TRY 8 billion. Including it, it was very limited, just TRY 2.6 billion. Looking at 2024 quarterly average, NPL inflows were at TRY 8.8 billion when the collections stood at TRY 3 billion, once again excluding the one big ticket. Looking at the segment, quarterly average NPL inflows from consumer and credit cards increased to TRY 2.8 billion, sorry, billion Turkish lira versus TRY 1.3 billion in 2023, when corporate size was stable at a limited TRY 1 billion. Looking at the quarterly net NPL inflows from unsecured consumer loans, on the general purpose side, net inflows were even lower than third quarter when credit card size was stable.
Looking at the cost of risk level with ongoing prudence in coverage, as I will dig into the details on the next page, fourth quarter cost of risk was at 145 basis points when 2024 cost of risk stood at 58 basis points with a strong 232 basis points support from specific collections and Stage 2 recoveries. This is also showing our prudence and strength in recoveries. As I mentioned, now on the next page, we are looking at the coverages. Our total coverage further increased to 3.8% in this quarter, back at the highest level among peers, and adjusted for the NPL sales in 2024, stood at 4.2%. Note that in 2024, we sold TRY 5.7 billion NPL s with a price hovering around 30-32 levels.
The increase in the coverage is also driven by our unsecured consumer loans and credit cards, where we have been increasing our coverage consistently for the sake of conservatism. So we want to be prudent there. Regarding the increase in stage two portfolio, it is mainly due to the one big ticket recovery I mentioned from NPL to stage two, as well as unsecured consumer loans. So now moving to page 10, our solvency. In the last quarter of the year, internal capital generation kickstarted. We had 49 basis points support to our capital ratios, meaning our profit contribution was higher than credit risk-based asset growth. So we foresee this trend to continue. This provided further relief to our capital buffer. CET1 ratio now stood at 11.5% with 340 basis points buffer and capital adequacy at 15.2%, providing 323 basis points buffer.
In terms of sensitivities, the impacts are very limited. Also, we are mentioning this every quarter. First, 10% depreciation has 34 basis points impact on CET1 and a limited 10 basis points on capital adequacy ratio. The break-even USD/TRY rate is hovering around 85, and this is a separate purpose calculation. The impact of the first 100 basis points parallel shift in the Turkish lira yield curve, it is also limited at 15 basis points, and all incorporated, we are very comfortable, and we are seeing improving levels on the capital. On page 11 is the summary of our guidance versus realization in 2024. In a nutshell, our ROT realized lower than our guidance, given we were guiding this even on the third quarter also, given tighter than expected monetary policy and ongoing regulations. So how, as Yapı Kredi, we are positioned for 2025 and onward?
We are on page 12. Firstly, we continue to increase our customer base. Now it is about 16.5 million and counting, with about 60% efficiency in terms of penetrated products. We are continuously working to improve customer satisfaction, and it is paying off. Number of transactions increased five times in just four years. Demand deposit share in total reached 44%, which was just 19% back in 2017. We are now ahead of our peers, supporting, and we'll continue to support our cost of funding. Second, we have a well-positioned balance sheet for the rate cut cycle. More than 30% of the liabilities are at short-term non-deposit funding, which will reprice earlier than average deposits. This level is significantly lower than our peers.
Furthermore, thanks to the excellence in our service model and strong customer base, our new Turkish lira loan repricing was 500 basis points above the sector when Turkish lira deposit rates were 100 basis points lower, and this is throughout the fourth quarter. As a result, we had the widest Turkish lira loan deposit spread recovery in the third quarter. It will continue. Also, we had a lucrative growth in foreign currency lending, which will continue to support our overall spread performance going forward, and this is with a very healthy asset quality. So third, asset quality. Our quarterly NPL inflows in 2024 were below our peers when we have increased our total coverage to 3.8% back to the highest level in a very prudent way via adding on unsecured consumer coverages. Our performance is given the share of salary customers in GPLs, which is above 60%.
Also, credit card NPL ratio is below the sector, although we have not grown aggressively, so not due to the denominator impact, but our prolonged know-how on credit cards. Last, but obviously not the least, capital. As I mentioned, we are very comfortable. Also, internal capital generation kickstarted, and we will continue to support our capital levels, providing us room for growth when the cycle starts. Now I'm leaving floor to Gökhan Erün for the details of our 2025 guidance. Then we will be taking your questions. Gökhan Erün.
Thank you, Hilal. So 2025 will also be a transitionary year with ongoing normalization in the economy, and we foresee the macroprudential measures to remain to continue. Our guidance for consolidated financials is as follows. In terms of volumes, we expect the loan growth caps to sustain throughout the year. Therefore, we foresee below average inflation increase in Turkish lira loans.
Foreign currency loan growth will be at mid-teens levels. Although there is a pickup in demand, regulatory cap is limiting the growth. In terms of net interest margin, NIM, with the rate cuts, we expect a strong NIM improvement in the range of 300 basis points to around 3.7%. Net interest margin performance will be supported by the widening of Turkish lira loan to deposit spread and also fast repricing of non-deposit funding, mainly repo funding. Our performance in fees has been very strong and reflecting our efforts in customer acquisition, increasing number of transactions, as well as contributions from payment systems. This year, we expect the decreasing rate environment to have a negative impact and reduce the growth in merchant commissions. We will be offsetting this impact by increasing volumes and customer numbers for all fee subsegments.
Therefore, we target the increase to be in the range of 25%-30%. In terms of costs, we would like to keep investing on business growth without sacrificing from talent. On top, there will be some inflation pass-through impact as well. Keeping the running costs under control, we target the cost growth to be below 50%. On asset quality side, retail-driven NPL inflows throughout the year will be partially compensated by our strong collection performance. Therefore, we expect the cost of risk to be in the range of 150-175 basis points this year. Overall, as a result of these performances, we target to deliver an ROT of in the mid-20s for the year. Mid-20s.
And as closing remarks, 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, as always, who contributed to the achievements of our esteemed bank. On behalf of our whole team, I'd like to thank you all for joining our call, and now we can take your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please.
The first question comes from David Taranto with Bank of America Merrill Lynch. Please go ahead.
Good afternoon. Thanks very much for taking my questions. I'll have three, please. The first one is regarding the operating environment. Could you please shed some light on your macro expectations, such as GDP growth, year-end inflation, and the policy rate, please? You already mentioned that you expect regulations to sustain this year, but do you see additional tightening measures along the way this year? And the second question is linked to the first one. Your local currency loan growth guidance is a bit conservative versus peers. Is this because of your cautious macro expectations or having a bigger exposure to segments that are exposed to growth caps, or is it just your strategy for this year being a bit more selective in lending? And the last question is on net interest margin.
Does your NIM guidance capture any conservative expectations? The reason I'm asking is the exit NIM was already 120 basis points above last year's level, and that captures only a small benefit from the first rate cut, which came in late December. So given the solid improvement in such a short period of time, why do you expect the momentum to lose pace considering the direction of the interest rates? I acknowledge that GPL increase contribution will come down a bit, but could you walk us through the main assumptions here? How do you see the deposit rate outlook versus the policy rate? Where and when you see the NIM peaking? I mean, any color here will be appreciated. Thank you.
Hi, David. This is Kürşad. Let me just first start with the macro assumptions, then Gökhan Erün will answer the rest.
Our GDP growth expectation is around 2.5%-3% levels for the whole year, and the policy rate at the end of the year, our expectation is 32.5%, and with a slower pace of rate cuts, and the inflation target is going to be our expectation below 30% levels
And also, within this macro scope, David, which means that Turkey will be growing below its potential growth rate, which means that regulations will continue, must continue to keep the momentum, the growth momentum low. That's why it's also that I referred during the conference that you did a few weeks ago in London, so the regulations will continue and keep putting pressure on the banking sector, so I think this will continue, and if the Central Bank and also the regulators see a momentum of the growth kicking in, then they'll be putting additional measures to prevent this growth.
That's why we are more cautious, I think, or more realistic than our competitors. So on the regulation side, I do not expect that the old regulations will be lifted or canceled. Even coming to your third question, actually, you asked four questions about the TL loans. This is the third question. And the guidance from the Central Bank is very clear, if you ask me. So with the caps that they are putting and the message from the governors that we are hearing, so they will not be lifting or increasing the cap rates, the cap growth rates. So even if they see the other way around, they can even tighten it. So we have seen that also for the foreign currency loan growth as well. In the beginning, there was no foreign currency growth cap.
Then we saw starting from 2.5%, 2%, and then whatever, now 1% per month. Even if they see that those growths are contributing to the inflation, then they can go even further, further tightened. That's why. So putting all the frame together, TL loan growth is in real terms, that is not expected, desired, required, whatever you tell, from the Central Bank . So if we do not get the message from our regulators, then I'm sure that they'll be putting additional measures to prevent it. So that's why we have been very careful and also compliant also with the Central Bank 's guidance. So this is what we did also for the Turkish Lira loan growth. And this is obviously will be impacting also the net interest margin on our side. This is first for the new opening, so it will be limited.
But also the second one is if the Central Bank sees any sign of the inflation not going down as they guided, so even they might decrease the pace of the rate cuts, number of rate cuts or the pace of the rate cut. That's why we've been also careful. This is the first answer to your fourth question. On the NIM side, we've been careful also guiding the investor community.
And the one thing that you mentioned about the composition of the loan book with the exception for the cap, our loan book has 55% of loans are not under the loan growth cap. We already have quite a high amount of loan book, but as Gökhan Erün mentioned, this is a different name of the game is different. It is not about how much you have on your loan book with an exception. It is a tightening game.
Thank you very much. And one follow-up on the NIM. Would it be fair to expect the NIM peaking in the last quarter of this year, or shall we see the NIM peaking a bit earlier in your assumptions?
I think the fourth quarter will be, I think, the highest. This is what we are seeing. So we see also the Kürşad mentioned the rate cuts will continue. And because of the leverage and the wholesale funding that we have higher than the competitors, I think this will help to bring down the cost of funding and also to increase the net interest margin.
Okay. Thank you very much.
Thank you.
Thank you.
And next question, a comment from Cihan with HSBC. Please go ahead. Hello. Thank you very much for taking my question.
It's regarding the fee growth guidance that you provided, which is between 25% and 30%. It looks a little lower than inflation, and when you compare it with the peers, it looks a little bit slower than what they're guiding for. Is there any specific reason behind that, or are you concerned with any sort of regulation or adjustment on the credit card and payment side? Thank you.
Let me start and leave the floor to my colleagues. So are we concerned about the other caps rather than the payment side? No. So these are the caps that are already set. So although very low, if you ask me, that the fees that we can impose to charge the customers, but they are all set. There I do not see any regulation threat.
But on the payment side, especially as we mentioned during the presentation, merchant commissions, yes, we see a threat, a regulatory threat. Also we are seeing that customer complaints a lot to the regulators about those ones, although it's a part of also the funding cost related. So that might squeeze us. Yes, it might be the case, but Kürşad, anything?
It is the case, Gökhan Erün. It is just the reason for the pricing impact on the fees. In terms of volumes, we will be growing the volumes and also the number of transactions as we did in the previous years. But on the pricing impact on the fees, we are again conservative as a base scenario.
All right. Thank you very much. Thank you for the answers.
Thank you.
As a reminder, if you'd like to ask a question, please press star and one on your telephone.
Ladies and gentlemen, there are no further written questions at this time. I will now turn the conference over to management for any written questions. Thank you.
We have two written questions. One is from Erün. Congrats for the good set of results. Thank you. How do you see your NIM trajectory quarter-on-quarter basis going forward? What will be your primary lending focus, especially in the first half of 2025? Do you expect some easing on current lending caps? And if caps are eased, do you see any upside risk on your return on tangible equity guidance? Thank you.
And Erün, thank you for your question. For the quarter-over-quarter NIM trajectory, every quarter will be higher than the previous one, starting from Q1 also. And our lending focus will be again on the small tickets throughout the whole year as far as the regulation rules.
We don't expect, as we said, on the easing on the current lending caps, but as you stated, if there is an easing on that, yes, there is an upside risk on the return on tangible equity. But it might be the other way around. So this is what we are seeing at the moment. Yeah, exactly.
The second question is from Can Demir. Can you tell us why the comprehensive income was so low in the quarter? Quarter-over-quarter book value growth was TL two billion versus TL 6.6 billion net income.
John, hi. The reason behind it is twofold. One of them is the defined pension plan. There is a provision for the defined pension plan every year, and it's happening. It is one of the reasons. The other reason is the mark-to-market losses on a quarterly basis under the equity.
I don't see any written or verbal questions.
Thank you all for joining our call. If you have any further questions, you can reach me or our IR team always. Thank you, and see you in the next call. Bye-bye. Thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling. Have a pleasant evening.