Ladies and gentlemen, thank you for standing by. I'm Constantinos, your call's 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 2026 financial results conference call and live webcast. At this time, I would like to turn the conference over to Mr. Kürşat Çetinkaya, CFO, and Ms. Hilal Varol, Head of Investor Relations and Strategic Analysis. Mr. Çetinkaya, you may now proceed.
Thank you. Good afternoon, thank you all for joining our first quarter 2026 earnings call. I will start with a brief on operating environment. Strong start to the year has been traded by geopolitical tension started at the end of February. Central bank and governmental authorities took timely and relevant actions to overcome the potential impact of the volatility up until now. Central bank halted weekly repo auctions at 37% and starts to fund the market at 40% overnight, implying a 300 basis points inclusive trade tax. Central bank actively managed the situation in order to have limited impact on Disinflation Program. Equally important, fiscal support strengthened the welfare system. We anticipate that Disinflation Programs to continue at a slower pace for the rest of the year, depending on the evolution of the war situation.
All incorporated before war macro developments were supportive in terms of Turkish lira long deposit spread evolution and net interest margin, especially for Yapı Kredi. Our strong performance will provide a significant buffer for the rest of the year. Let's look at our eye-catching first quarter performance. I am moving to the second page of our presentation. We had a head start to 2026 with an exceptional lead in return on tangible equity, reaching to 31.5% in first quarter. Our net profit reached to TRY 20 billion, more than doubling quarterly and increasing 78% year-on-year. Our performance in the quarter was significantly stronger than our expectations and thus our guides. This performance definitely created a good buffer for the volatility since March and for potential volatility in the rest of the year.
Main driver of the performance was a strong top line. Net interest margin widened, 56 basis points quarterly, 93 basis points year to date, reaching to 3.2%. On the fee side, thanks to our diversification efforts, we managed to offset the lower fee contribution from credit cards. Trade income continues to be strong and supports net profits. All incorporated pre-provision profits went up by additional 37% quarterly. On the top of our revenue performance, I would like to add that we are committed to efficiency improvement in 2026 and beyond, putting a focus on cost elimination efforts. Meanwhile, I would like to also say that our commission income coverage over OpEx is around 90%. As you know, we have a steady performance rather than a reduction quarterly, and we have a steady performance around this level.
Outstanding performance on the top line was further supported by resilient asset quality. Net NPL inflows came down 13% quarterly, yet we continued to set aside provision, increasing the total coverage further to 4%. As a result, this quarter, our cost of risks stood at 176 basis points in consolidated financials. Several other factors contributed to our performance are: As always, our demand deposit share in total deposits continues to be best in class, further supporting cost of deposits and reflecting the effectiveness of our customer origination strategy. Turkish lira long deposit spreads continued widening by 54 basis points quarterly, and this demonstrates our active loan and effective deposit pricing strategies, again, thanks to our service model and strong customer franchise as well as our strong network workforce. Now I am handing the floor to Hilal.
She's going to provide the details behind our exceptional performance. Hilal.
Thank you very much, Kürşat, and I thank you all for joining our call today. I will start with page three. In the first quarter, our focus continued to be on timely and capital generative growth on the lending side. Both Turkish lira foreign currency loans increased 5% quarterly, and Turkish lira loans surpassed TRY 1.2 trillion, while foreign currency increased to $15.6 billion. We have a very well-diversified loan mix. With a 10% quarterly and 58% year-over-year increase, the share of individual loans stands at 19%. Now, on the company side, our effects adjusted loan growth stood at 6%, making up the 23% of the loan portfolio. Our individual credit card portfolio was almost stable quarter-on-quarter and up 50% year-over-year.
Note that just 8% of our loans is to SMEs, which is supporting our asset quality at the moment. Given the competition and lower interest rate environment, mainly in the first two quarters of the year, we witnessed a deceleration in the lending rates in the market. While keeping the rates above the sector, around 500 basis points on the TRY consumer side and around 400 basis points on the TRY company side. Just for the non-evolving part of the credit card, TRY loan yield came down and controlled 211 basis points in 1 Q. I'm moving to the funding side. We are on page four. We had an impressive deposit cost management in the quarter this continuance. This is thanks to well-structured deposit base through our customer-centric approach.
Making up 53% of the portfolio, Turkish lira customer deposits were stable Q on Q with 25% annual increase. We continue to increase the sale of Turkish lira deposits, demand deposits, thanks to the ongoing strength that is driven by individuals. Sale in Turkish lira went up by an additional 98 basis points and now stands at 29%. Thus, our market share also went up a hefty 254 basis points, reaching to 19.8% among private banks. Foreign currency deposits, on the other hand, increased 2% quarterly, up 19% year-over-year. On the foreign currency demand deposit side, it was also strong, up by 6% Q- on- Q and 27% year-over-year, meaning a further 297 basis points increase in the sales.
All the incorporated, our demand deposit share in total further improved 236 basis points quarterly, and it's very strong at 48%. On the unconsolidated basis, it's even higher at 50%. I believe, this even might be continue to be the highest level among our peers. Also supporting our cost of deposits, small ticket deposit base continues to go up. Increasing an additional 130 basis points quarterly, low-cost small ticket deposits share reached to 76% and around, 69% is, individual and around 8% is, from SMEs. Thanks to this strong performance and definitely our agile pricing strategies, Turkish lira deposit cost came down 166 basis points quarterly and 293 year-to-date to 28.3%.
Moving to the details of our very strong profits, starting with our top line. We are on page five. Our strong core revenues, coupled with high trading gains, resulted in 30% quarterly and 64% year-over-year increase in revenues, which reached to TRY 7 billion-TRY 3 billion. Net interest margin expanded 56 basis points quarterly and 93 basis points year-to-date. This is significantly better than our initial expectations at the beginning of the year. Definitely this is thanks to net interest loan deposit spread improvement, which widened 54 basis points quarterly and 43 basis points year-to-date. This performance supported the core revenue margin, which went up to 7.3%. This expansion is around 30 basis points quarterly and 63 basis points year-to-date.
Once again, a proof of sustainable strong trading income supported by AI-centric customer activities and timely actions taken by our treasury. Trading income stood at TRY 4.10 billion in first quarter. Thanks to this strong performance, all is creating a good buffer for the rest of the year. We are still ambitious to achieve our full year NIM guidance of at least 100 basis points improvement in 2026. Let's see how the rate environment will continue. Now moving to our fees. Our resilient high level of fees underpinned by diversification and strength in customer penetration. Offsetting the lower payment systems contribution, our fees increased a slight 0.5% Q- on -Q, a strong 34% annually. Recall that credit card cap rates had been reduced in December and since then stable.
This resulted in 12% quarter-on-quarter decline in net fee generation from our payment business. Money transferred up by 18%. Bank issuance, 67%. Investment products, 19%. Lending-related fees up 16% quarterly, more than compensated for this lower contribution. Once again, our strong customer franchise will continue to support our already high level of fee generation. Looking at the OpEx, we are on page seven. In 2026 and beyond, as we mentioned in our previous call also, we are committed for efficiency improvements through cost and elimination action, putting data analytics and AI in the heart of the operations. In first quarter, our OpEx increased to that 35% year-over-year resulting in fee coverage over OpEx is still very strong at 91%. Cost-to-average asset ratio down to 3.9%.
All the incorporations we are committed with our lower than 35% OpEx increase guidance for the full year. Moving to a very hot topic, I believe, asset quality. Now we are on page eight. Despite the macroeconomic volatility, our net NPL inflows were better than what we had been foreseeing for first quarter. Net NPL inflows stood at TRY 11.2 billion, 13% lower than fourth year. I also need to mention that it's still higher than the quarterly average of 2025. This is mainly through the unsecured consumer loans. Note that given the small ticket sizes and restructuring offer efforts that we have, the pressure is manageable and quite contained. This ongoing strong performance is thanks to our diversified loan portfolio. The highest sector share is at 6%.
The share of salary customers in general purpose loans portfolio is above 65%. Very low lifetime, probability of default, PDs, and limited 8% share in the overall loan portfolio. All the incorporations even, in first quarter cost of risk is in the range of our guidance at 126 basis points. Now I'm moving to page nine . I would like to deep dive our conservative staging and prudent provisioning approach. Our cost of coverage, as Kürşat Çetinkaya mentioned, further increased to 4% and adjusted for the TRY 2.2 billion NPL sales in the quarter, it was 4.1%. NPL ratio stood at 4.1% with further increase in the coverage despite the NPL sales and it stood, the coverage stood at around 62%.
Stage 2 loan share stood at 12% with a strong 9% coverage. I want to dig into our Stage 2 loans, showing why we do not see any significant mitigation from this portfolio. 61% of the Stage 2 loans are restructured and around 40% of this portfolio is, I can call, I think, a legacy file that we restructured in late 2018 and 2019, in which we have already recovered, collected around $1.5 billion. Despite the strong performance, we have a hefty above 20% coverage in this portfolio. 33% of the restructured portfolio is from unsecured consumer loans with a very strong 65% recovery rate. 36% of the Stage 2 portfolio is SICR.
This means significant increase in credit risk, in which we have a very conservative classification approach. More than 80% of this portfolio is without any past due payments. Just a limited 3% of the portfolio is due to day past due classification, in which we might see some mitigation, but it's quite, we are quite comfortable with that also. This shows how prudent we are in staging, and we wanted to give a brief detail on Stage 2 breakdown. Moving to page 10, solvency. As we have stated, in again, in the last call, internal capital generation support is now visible despite the macroeconomic backdrop impact. Note that in first quarter we had a one-off for 2 basis points negative impact from operational risk.
As all the banks, we use basic indicators at first to calculate the operational risk. On top of the negative impact of the macro is around 43 basis points. With 80 basis points support from internal capital generation, CET1 ratio came down a limited 9 basis points, almost stable at 9.7%. The buffer is 167 basis points. With 7 basis points internal capital generation support, Tier 1 ratio is at 11.6%, 206 basis points buffer and 14.1% capital adequacy ratio buffer is at 211 basis points. I just want to restate the sensitivities. They are quite limited. First, 100 basis points move on the interest rate, 13 basis points impact. 10% depreciation on CET1, the impact is 30 basis points and no impact on capital adequacy.
We had a huge room for NPL break-even. This is a third service calculation. NPL ratio could go up to 9.4%. Moving to page 11, showing a summary of our 2026 guidance versus realization in first year 2026. As we have stated, we created a very good buffer for the rest of the year, mainly for the potential pressure in the second quarter, with a very strong 13.5% ROE. Thus, for the moment we are maintaining our mid to high 20s ROE guidance. I'm leaving the floor to Kürşat Çetinkaya for closing remarks. Oh, okay. We will just have the questions. Let's jump into the Q&A.
The first question comes from the line of Cihan Saral with HSBC. Please go ahead.
Hello. Thank you very much for the presentation, congratulations on the results. I have two quick questions. One is regards to the recoveries, which if I see correctly, is TRY 12 billion in the quarter. What's driving that? That's one. Second is, maybe you have already mentioned it during the presentation. I didn't hear. With regards to the very strong trading income. What's driving that and how sustainable is that? Is it by any way related with the 7% drop in the securities book that you have? Basically, did you take profit on those? Thank you.
Cihan, thank you for the question. I just need to find this Turkish lira billion recovery. You mean the NPL recovery or provision reversal? Just to clarify.
Sorry, the provision reversal. I meant the provision reversal.
Okay. I will touch up on it. If we start for the second question, trading income. You know, within the trading income, there are a couple of components, which are, firstly the FX income coming from the FX transaction volume. We have put a quite concentration to improve FX for the FX transaction volume, together with the treasury as well as the network. Therefore, majority of the trading income is coming from this volume increase on the trade, the FX activities. Also, you know, we are actively making moves on the security side. We did quite preparation for the start of the year. You remember last quarter, mid last year, we acquired and purchased some couple of trade securities.
There is also some upside coming from sale of those at a good level. The volumes and the third one, which we are not in, the mark-to-market valuation of the derivatives. We don't have any mark-to-market valuation of the derivatives in the trading income because we are mainly applying hedge accounting. That's the reason why you don't see any trading activities from swap or IRS, et cetera, mainly the FX transaction volume and security trading. For the recovery you see on as an other income, you know, it's the start of the year. It's all the same for the whole bank. If you have any provision reversal and additional provision addition, let me say, first you relieve the provision from last year, and you put it as a other income.
If you are increasing the provision, you apply a new provision as if it's starting this year, and you put it on the ECL line. That's the reason why we are putting all these two lines together as a net ECL. You only see that huge recovery all in the first quarter of the year, then it's going to stabilize. That's why it is better to look at the net ECL. I hope I am clear on that, it is all for the accounting treatment you see on the other side, other income.
Understood. Thank you very much, Kürşat. Thank you.
Yeah.
The next question comes from David Taranto with Bank of America Merrill Lynch. Please go ahead.
Good afternoon. Thank you for taking my questions. My first question is a follow-up on Cihan's question. Last quarter you highlighted purchases of long-term Turkish securities, which appear to have contributed to trading performance, strong trading performance in this quarter. Turkish securities, excluding CPI linkers, are quite down in nominal terms in this quarter and also as a percentage of the assets. Given the current volatility in rates and the implications for the trading income and mark-to-market movements on the books, [Ali], could you provide some color on your positioning duration and strategy for the security portfolio as of first quarter? Second question is on the capital. In the capital evolution slide, you highlight a macro impact of around 40 basis points. Could you please elaborate on what is captured within this line?
Based on my calculations, mark-to-market losses appear to account for around 20 basis points. Could you clarify what constitutes the remainder of the macro impact? Lastly, would it be fair to say that part of the loss recognized in other comprehensive income has already been reversed as of second quarter, currently? Thank you.
Thank you, David. For the first question about positioning security portfolio positioning. You know, we are actively positioning security portfolio, and I can confirm that we are quite best in class. The position we took on the last quarter, last year is all cleared. We did it before this turmoil, luckily, and thanks to our treasury team. The position that we have done in the fourth quarter last year is all clear, and we are looking again opportunistic. When the time comes, we will step in again. We don't have any, how you say, something coming from the last quarter as a minus in our financials. I can confirm it. For the [Q2] one and macro environment impact, one of them is the, as you mentioned, the mark-to-market losses.
Also, we have something about the FX movement. We are not putting it within the business growth. We put it in the macro environment impact. That's the reason why you cannot reconcile. What you see on the business growth is like-for-like basis, excluding FX rate changes. I hope it's clear on your side.
The impact of the mark-to-market is 32 basis points, the AFS chain, and 11 basis points is coming from the FX impact. We are putting the subdebt plus FX loan, the net is 11 basis points.
Yeah. Thank you.
Yeah.
Ladies and gentlemen, all further audio questions are thus done. I will now pass the floor over to management to accommodate any written questions. Thank you.
We have a couple of written questions. One is from Osa Meranos from INA. Congratulations on the strong results. Could you give color on progression of Turkish lira deposits and loan rates? What were the levels of end of March and April? What we are expecting in trajectory for the second quarter? Thank you. Kürşat.
Osa congrats for your new position. Good luck. For Turkish lira deposit and loans rate, on the Turkish lira deposit rates, I can say that it's around 39% as we speak now. On the loan rate, new loans, we are lending is above 45% minimum. This is increasing. The loan part is increasing compared to March, as you may guess, as well as on the deposit part also. We are able to manage the overall deposit cost around 39% levels on average. Our expectation on the NIM trajectory for the second quarter, we are going to see a downside compared to first quarter, depending on how deep the current macro situation. As we speak now with the current condition, we are going to see some decrease on the net interest margin.
Manageable, let me say. Again, without any acceleration in the current war situation, third quarter NIM is going to be in line with the first quarter, and fourth quarter is going to be higher than third quarter. Therefore, we are still sticking on our guidance. In case of a acceleration of this war situation, then we will be guiding accordingly. As we speak now, we are going to keep our guidance with the trajectory I mentioned.
Second question is from Valentino. Can you please share your macro assumptions which you use for the guidance and any changes you have made lately?
Sure. Also part of NIM dynamics in the 1 Q. On the NIM dynamics, our NIM improvement is mainly coming from core NIM. we are improving core NIM by, let me say, around 43 basis points quarterly. On the top of core NIM improvement, also we are benefiting from non-deposit funding, as we have been saying for the last two quarters. This non-deposit funding contribution is around 166 basis points, thanks to a quick re-pricing, where the first two months of the year, there was a decrease on the rates. for our macro and the Q2, as I said, it's going to be lower than Q1 and Q3 is going to stay the same. For the macro assumption at the beginning of the year, we have set inflation to be around 24%.
According to date, according to that, 500 pip addition, to reach, the policy rates. Without having more data points, we are not able to say where the inflation is going to stay and where also the policy rates to be. We would like to see more data points and also how the situation is going forward. Therefore, I am not able to say any revision, but I can say that the direction is on the upwards and we will see an inflation levels, close to 30%. Again, it's all depending on the situation, how to accelerate or decelerate.
Your CET1 buffer has been below 200 basis points for a few quarters already. How comfortable do you feel?
For CET1 buffer, 200 basis points, it is 170 basis points as we speak now. What is important for us, this quarter, we generated internal capital. It's a good time to recover our CET1. We believe it's generating internal capital going to stay for the rest of the capital. Then we will be, as always, in our comfortable zone. Again, I would like to add that we are the only IRB bank in Turkey, and being an IRB bank is making the capital calculation more strict. Another example I will reiterate that, for example, we are providing capital for unused credit card limits. None of the banks are doing the same, and it has some basis points on the capital.
That's why having 170 basis points, having 150 basis points, even having 100 basis points buffer against regulatory limits is quite comfortable compared to standard net. That's how we look at it. Meanwhile, we will keep increasing our internal capital generation.
What was the amount of your FX liquidity and how it compares with total short-term FX maturities? Our FX liquidity immediately is around $11 billion as of 1Q. This covers more than upcoming maturities in one year, it's $6.9 billion. The total external debt is $15.4 billion. This notes that includes syndications. Also around $1.9 billion USD of this is also short-term syndication. We are very, very, very comfortable. FX LCR also very strong at 380 levels. Total is 133 as of 1Q. We are very comfortable in terms of liquidity. Can you provide your bond plan instances?
Firstly, let me add before Hilal says our approach. Currently market is not supportive. When the markets become supportive, then as always, being a market leader on this transaction side, we will be on the market. Today, we are not able to make any guess until the market gets open.
Opportunistic. We will always be opportunistic, we can say. I don't see any further questions anywhere. We thank you all for joining our call today. If you have any further questions, we are always here to support. Our IR teams are there is also with us, and you can reach us all the time. Thank you. Thank you very much. Bye-bye.
Thank you. Bye-bye.