Good evening, ladies and gentlemen. Welcome to Halyk Bank Conference Call on the Presentation of Financial Results for the 12 Months and First Quarter of 2022. Thanks everyone for joining us today. The session will start with the presentation by Halyk team and will be followed by Q&A. Please note that the call is being recorded. The participants to today's call on Halyk Bank side are Ms. Umut Shayakhmetova, Chief Executive Officer. Mr. Murat Koshenov, Deputy CEO, Finance Subsidiaries and International Activities. Mr. Roman Maszczyk, Deputy CEO, Compliance, Risk Management, Data Science and Collateral, Chief Compliance Controller. Ms. Olga Vuros, Deputy CEO, Corporate Banking. Mr. Dauren Sartayev, Deputy CEO, SME Banking, Transactional Banking, PR and Marketing. Mr. Zhumabek Mamutov, Deputy CEO, Retail Banking and Soft Collection. Mr. Nariman Mukushev, Deputy CEO, Digital Government Services, Ecosystem and Customer Experience. Mr. Anton Musin, General Managing Director, responsible for IT and innovation. Mr. Almas Makhanov, our Chief Risk Officer. Mr. Viktor Skryl, Financial Director, responsible for finance and subsidiaries. Margulan Tanirtayev and Nurgul Mukhadi from IR team, and myself, Mira Kasenova, Head of FI and IR. 2022 has been another record year for Halyk Bank. Despite unprecedented challenges and macro shocks we went through this time, the numbers speak for themselves. Our active client base continued to grow. Corporate and SME business reached more than 2,000 and 3,000 and 10,000 active clients respectively, while retail business reached almost 10 million customers. At the same time, we see continuous shift of our customers towards using our apps. As such, our Halyk Homebank and Onlinebank clients increased by 17.5% and 53.2% accordingly.
We recorded an outstanding 32.5% growth in our gross loan portfolio. Correspondingly, both our operating income and net income have grown by 42% and 20% in 2022 respectively. Return on average equities stood at 31.7%. It is important to note that earnings per GDR in USD terms has increased by 16% year-on-year. Next slide, please. Around 12 months ago, we shared with you our financial guidance for 2022, and then revised it upwards in August. Despite a turbulent operating environment and quite upbeat outlook, we over-delivered on all key target metrics. Growth of our net loan portfolio amounted to 33.8%, with 32% growth in retail segment and 34.6% in corporate and SME.
Return on equity reached 31.7%, supported by higher NIM of 5.6%, lower than expected cost of risk of 1.2%, and operating efficiency with cost to income ratio of 19%. Thanks to significantly increased transactional activities, we are able to reach 25.8% increase in net fee and commission income. Result, our net income amounted to KZT 553.8 billion, beating our guidance of KZT 500 million tenge. KZT 500 billion tenge, sorry. I would like to highlight key milestones that we managed to achieve during a stormy 2022. The resilience of bank's credit profile remains undisputable. Fitch, Moody's and S&P have reaffirmed our credit ratings. Our bank was successful in utilizing a one-time opportunity offered by the changes in the operating landscape.
We acquired a portion of a very diversified portfolio with good asset quality from Kazakhstan Sber. Despite an extraordinary geopolitical situation entailing uncertainties and global macro shocks, in October last year, we paid 30% of net income in dividends for the financial year of 2021. It is worth to note that this is the fifth year in a row where the average payout ratio amounted to 47%. During 2022, we disposed our subsidiary banks in Tajikistan and Russia and emphasized our international expansion in Uzbekistan as a strategic focus. We are going to present a dedicated section on this later today. We are also making a significant progress in our ESG initiatives, which we will showcase in the next part of this presentation. Lastly, in the second quarter of 2022, we made a game-changing breakthrough.
We launched brokerage service, Halyk Invest, which is integrated in our Halyk Homebank super app. Evidently, Halyk Invest was well received by users, which transmits an increasing number of clients and served as a vital infrastructure of the quasi-sovereign IPO. Next slide, please. On this slide, we are glad to highlight the substantial progress in implementation of ESG principles throughout the business and corporate government system. This is an important strategic priority for Halyk. In 2022, based on the roadmap worked out jointly with international consultant, a sustainable development action plan for 2022-2024 was developed. The social issues committee under the board of directors was transferred into the sustainable development committee. ESG functions were distributed among the committees under the board of directors.
The bank's management board was instructed to update the board of directors on the progress of the sustainable development action plan at least semi-annually to ensure a quality ESG issues management. We are proud to be the first bank in the country to receive the reputable awards as an acknowledgement of our achievements in developing and improving sustainability practices. Thus, in December 2022, the experts from the international financial magazine Asiamoney recognized Halyk Bank as the best bank for ESG and the best bank for diversity and inclusion in Kazakhstan. We are glad to note that last year our ESG report was in the top ten of ESG information disclosure rating list from PwC, and was awarded by Kazakhstan Stock Exchange as the best ESG report in the financial sector.
Moreover, in January 2023, Halyk Bank became the first bank in Kazakhstan to join the UN Global Compact, implying our commitment to its 10 principles and our willingness to support the UN objectives and initiatives in the sustainable development area. Next slide, please. One of the key ESG strategic areas is the environmental impact management. In 2022, the bank continued to reduce its direct impact on the environment by improving resource use efficiency. At the same time, fully understanding our main environmental impact being indirect, last year the bank has engaged an international consultant for implementation of the ESG agenda in the lending process. We have started integrating ESG into the bank's risk management system and implementing the responsible finance principles. Moreover, we have commenced to calculate Scope 3 on indirect emissions, including from the finance portfolio.
This year, in the sustainability report, in line with the recommendation of TCFD, we are planning to disclose our approach to assessing climate risk and progress on implementing the ESG principles in the lending process. Next slide, please. Now, I would like to continue with the update on our digital initiatives for the fourth quarter of 2022. During last year, our core digital platforms, which are Halyk Homebank and Onlinebank, demonstrated substantial growth of customer engagement. The number of MAU and DAU of Halyk Homebank app has increased by 28.6% and 27.4% year-on-year, respectively. MAU reached 5.4 million in the fourth quarter of 2022.
We also see a growth in the number of active users of Onlinebank app for businesses. The number of MAU reached almost 254,000, increasing by 62.2% year-on-year. Halyk Homebank and Onlinebank apps continue to be within leading financial platforms in the country. We are glad to know that we achieved all of our goals for 2022, continuously developing our client proposition and improving customer experience. Next slide, please. To increase in customer engagement within our digital platforms continues to support a notable growth in credit and non-credit products for retail clients and businesses. Share of digital loans issued equaled 76% in 2022, which is up 10 percentage points year-on-year.
The share of new online deposits increased by 14 percentage points last year and was at 41%. In the absolute terms, the number of new online deposits for the 4th quarter of last year equaled to 63,000. The share of non-cash card payments reached 68% last year, which is up 13 percentage points. We are demonstrating a year-on-year growth by 17.8% in the number of digital loans issued to legal entities. The decrease of digital loans issued in the 4th quarter of last year compared to the 4th quarter of 2021 mainly appeals to the effect of inflation increase, resulting in the base rate hike to 16.75% in 2022 and tightened risk policies.
To compensate, we were shifting our focus in SME from lending to transactional business, which successfully displays in the strong growth of online KZT payments number and volumes, which have grown by 45 and almost 60% year-on-year, respectively. We are proud to highlight that we ramp up our offering to legal entities and launch digital loans and onboarding for LLPs in April last year. Consequently, online onboarding for legal entities increased by almost 99% last year. Next slide, please. In the past two years, we have introduced the vital products and services through our ecosystem verticals to meet our client needs and further improve customer experience. In the fourth quarter of 2022, GMV of auto insurance decreased by 3.3% year-on-year due to shift of the client's focus to the profitable segments.
While QOQ dynamic has demonstrated 13.4% growth. We are glad to note that the GMV of Halyk Travel and Kino.kz have expanded 2.7x and 2.6x year-on-year, respectively. The market share of Kino.kz out of online sales of entertainment tickets increased from 16.7% to 25.4% year-on-year. Development of our marketplace platform, Halyk Market, remains one of the key priorities for us. We achieved 15.2% QOQ increase in GMV in the fourth quarter of 2022. More details on Halyk Market will be discussed later in this presentation. As I previously mentioned, we launched brokerage service, Halyk Invest, integrated in our Halyk Homebank super app, and now we would like to discuss it in a broader way.
On this slide, we are delighted to represent a new structure of our brokerage service offerings. In the beginning of second quarter of 2022, we launched the Halyk Invest, a brokerage service integrated in our Halyk Homebank super app. It is an app solution targeted primarily on broad scope retail investors. At the same time, we are enhancing digital solution of our brokerage arm, Halyk Finance, for which the main scope of clients are qualified retail and institutional investors. This is a game-changing breakthrough, which is confirmed by 4.8 x increase in joint basis number of clients of its brokerage services from second quarter to the fourth quarter of 2022. Additionally, 34% of total brokerage accounts and 77% of omnibus accounts in the country were opened within Halyk Invest last year.
Our bank was the first financial institutions in Kazakhstan to pursue the opportunity of providing brokerage services not only to legal entities, but also to individuals, amid change in the legislation on banks and its activities. We also reached 4.6 x increase in transactions volume in Halyk Invest and Halyk Finance combined in the fourth quarter, mainly propped by the KMG IPO in December of 2022. 34% or KZT 52 billion of total KMG IPO placement amounts were made through Halyk Group's infrastructure. 69% of orders in this IPO were made through Halyk's brokerage services. 57% of retail investors participated in KMG transactions, transaction were Halyk's client. At the moment, the bank possesses the most dynamically growing client base. During the KMG IPO, we opened around 90,000 accounts for our clients. Next slide, please.
Now let me switch to business segments update for the 12 months and the fourth quarter of this year. Moving to our retail segment performance, we are particularly proud with the team's solid performance across key dimensions. We continue to see a strong customer engagement, an increasing digital footprint within our Halyk Homebank app, and growing transactional activity. The transactions volume has increased by 23.4% year-on-year. On consolidated basis, the retail gross loan portfolio has expanded by 32%, partially propped by the acquisition of Sber's loan portfolio. Customer deposits increased by 18.2% year to date. We are also glad to see a solid growth in retail products penetration by 6.2% year-on-year. Next slide, please.
Our main focus remains on enhancing the Halyk Homebank super app, which form the foundation of our offering to retail customers. We keep on to see notable results in customer activity. Moreover, the month's penetration rate in retail active client base has risen from 46% to 54% during last year, showing a further potential for growth. On unconsolidated basis, our retail portfolio has grown by 35% year-on-year. In 2022, the loan issuance volumes have increased by 1.6% year-on-year, and in the fourth quarter, the loan issuance volumes decreased by 18.7%. This mainly applies to the effect of inflation rise, resulting in the base rate hike to 16.75% last year, and tightened risk policies.
On the other hand, digital sales increased by 27.7% year-on-year and reached 41% of total retail loan sales in 2022. Despite some turbulence in the operating environment, we observe stable asset quality in retail lending, with NPL 90+ days ratio standing at 3.9% and with NPL coverage ratio of 171.7%. Next slide, please. To give you more color, let's discuss Halyk marketplace dynamics in more details. Our team was able to successfully withstand the challenges brought by the operating landscape. In 2022, the GMV of our Halyk marketplace increased by 1.8%. In the fourth quarter, Halyk marketplace GMV decreased by 32.8% year-on-year. This mainly relates to the high base effect.
There was a wide scale loyalty bonus program in the fourth quarter of 2021, as well as effect of inflation increase resulting in the base rate hike in 2022 and tightened risk policies, including for BNPL products. It is worth noting that we are continuing to deliver scaled development of UI/UX design of Halyk Market. During last year, we made significant progress in modernizing our architecture and capabilities. These improvements resulted in a substantial increase of partners number and SKUs. In 2022, the number of partners grew by 3.5 x year-on-year, and SKUs raised by 2.8 x. Next slide, please. During 2022, we continued to develop our retail platform in order to simplify our clients' life and meet their needs.
As we discussed earlier, one of our brightest innovation was Halyk Invest brokerage services integrated in Halyk Homebank app. Next slide, please. Over the fourth quarter of 2022, we continued to focus on further upgrade of GovTech. We launched a number of new government services, such as the proactive benefits for socially vulnerable groups, a lien removal in case of early redemption, an insurance policy on vehicles, an insurance report on insurance agreement, and statement of legal entities. It is essential to note that we are the bank with highest number of online government services available among second-tier banks in Kazakhstan. At the end of 2022, our clients had an access to 35 government services. Last year, the government services were used over 10 million times. Next slide, please.
In regards to our corporate and SME businesses, we want to start by emphasizing our bank's role as the biggest player in lending to legal entities in Kazakhstan. On this slide, we are demonstrating the market lending dynamics with and without Halyk. As you may note, last year, market with us increased by 16.7%, whereas market without Halyk increased only by 2.6% year-on-year. Last year, our bank's legal entities loan portfolio increased by 33.7% year-on-year. It is important to highlight that as of the year end of 2022, Halyk's share in total market legal entities loan portfolio was around 52%. Next slide, please. Turning to corporate segment, we would like to note that on consolidated basis, our loan book has expanded by 35.1% year-on-year.
Our corporate portfolio remains well diversified across industries, while local currency loans comprise 75.3% of the loan book. As of 1st of January of 2023, the segment NPL ratio decreased to 0.8%, while the provisioning coverage increased to 557%. We see a sound growth in our active corporate client base as it reached over 2.3 thousand customers in the 4th quarter of 2022. Essentially, the product's penetration and transactional activity have been notably increasing as well. Next slide, please. The SME banking continues to demonstrate a solid performance. The number of SME MAU in Onlinebank digital platform has raised by 55.3% year-to-date.
We also want to highlight that as at the year end of 2022, on consolidated basis, our loan book has expanded by 23.8%. The number of SME borrowers has increased by 1.7 x. Segment NPL ratio decreased to 3.6%. We are continuously enhancing our digital proposition for SME clients. In 2022, we achieved 36.9% growth in SME loan issuing volumes year-over-year. Mainly, it has been driven by digital loans, which already comprise 33% of our SME loan portfolio. Number of IE borrowers increased by 69.7% year-to-date, where 71% of IE borrowers were served digitally. Number of LLP borrowers raised by 49.2% year-to-date, where almost 18% of LLP borrowers were served digitally.
Following the launch of digital tender guarantees in January of 2022, we saw substantially increasing demand for this quite a unique product. Last year, the number of issued digital bank tender guarantees reached 22,000, where the number of clients was 1,600. The total number of issued bank tender guarantees was 7.8 x up year-on-year. I would like to hand over the call to our financial director, Viktor Skryl. Thank you.
Thank you. Hello, everyone. Now I would like to present the group's progress on continuous business expansion in Uzbekistan. Next slide, please. As an active regional financial player, Halyk has always been interested in the Uzbek market. Uzbekistan has the largest population in Central Asia, the largest and fastest growing economically and active population. The country's economy has demonstrated consistently high GDP growth rates for several consecutive years. An additional factor that bolstered interest in this market was the rapid growth of trade and investment links between businesses in Kazakhstan and their partners in Uzbekistan. A few figures supporting this strategic focus. First, since 2019, the trade turnover between the two countries has expanded from $3.3 billion to $4.6 billion through the implementation of agreements reached between the heads of state governments of the two countries.
Kazakhstan is one of Uzbekistan's top 3 trade partners. Second, businesses from Kazakhstan are investing very actively in joint projects with their partners in Uzbekistan. The number of enterprises in Uzbekistan with shareholders from Kazakhstan has increased from 510 in 2019 to around 1,200 in 2022. On the other hand, the number of enterprises in Kazakhstan with shareholders from Uzbekistan has increased from 1,800 in 2019 to 3,700 in 2022. There has been significant progress in the digital technologies development in recent years. The internet and smartphone penetration rapid growth is developing dynamically, as well as the active growth of non-cash payments demonstrates the trend of increasing demand for digital financial services. Next slide, please.
Halyk began to consider a potential market entry in Uzbekistan back in 2017, 2018, following the initial successes of the country's wide-scale reforms and policy of openness for investors. After taking the decision to enter the market, the bank established a subsidiary in Uzbekistan, and in May 2019, Tenge Bank received a license from Central Bank of the Republic of Uzbekistan to conduct banking operations. As of now, Tenge Bank covers 9 regions with over 70% of population. It's worth to note that continuous expansion on the market of Uzbekistan is an integral part of Halyk Group overall economic development strategy. To strengthen our Uzbek market position and further enhance cross-sale capabilities across the board. Last year, we have started to provide non-banking products to our clients in Uzbekistan.
In 2Q 2022 our life and non-life insurance subsidiaries began to issue reinsurance for Tenge Bank insurance partners. Halyk's Kazakhteleport has registered its subsidiary in Tashkent and is now entering the market of data processing and cloud services in Uzbekistan. We are to launch marketplace platform in Tenge market in the first half of 2023. At the same period, Halyk Finservice will establish its subsidiary in Tashkent to start providing internet acquiring services. Next slide, please. We are looking to the expansion in Uzbekistan comprehensively. Apart from the development of Tenge Bank, we provide financing from Halyk Bank's own balance sheet to support trade and cross-border business expansion between two countries. Starting from 2020, the total financing amount has reached more than $550 million.
Out of which around $180 million were provided as bilateral loans to state-owned companies, SMEs, and Kazakh-Uzbek joint ventures. Around $400 million were provided as indicated loans for corporate clients and financial institutions. In 2022, the bank actively participated in trade finance transactions to support trade between Uzbekistan and Kazakhstan via issuance of export letters of credit and import guarantees. Next slide, please. I would like to highlight the results that Tenge Bank has achieved since launch. Tenge Bank is the first financial institution with foreign capital established in Uzbekistan after the launch of major reforms. It has a unique market position due to several competitive advantages. First, and the most important, is Halyk's strong focus on this market, as evidenced by the solid capital injection of more than $113 million.
Number one amongst subsidiary banks in Uzbekistan. This gives the bank a solid base in terms of capitalization and liquidity compared to competitor banks. Second, a high international credit ratings at par with Uzbekistan's sovereign ratings, which serves as additional factor of trust in establishing relationship with clients and partners. The bank is now servicing around 2,000 corporate and more than 200,000 retail clients. Since its inception, the bank has positioned itself as a part of the larger group that offers major companies the possibility of co-financing from Halyk. Gross loan portfolio of Tenge Bank totaled $223 million. Tenge Bank is continuously improving clients' digital proposition by developing remote channels, reformatting BPM software, and providing in-house processing. During 2022, Tenge Bank launched mobile banking solution for retail clients and web banking platform for legal entities.
Next slide, please. In 2022, Tenge Bank's corporate loan portfolio increased by 14.8% year-over-year to almost $127 million, while the corporate deposits grew by 2.2 x to $70.3 million. Tenge Bank provides its corporate clients with full range of lending and non-lending products, including such unique services as settlements between Uzbekistan and Kazakhstan in national currencies, direct purchase of Kazakh tenge, minimal commissions for payments within Halyk Group. The bank is also actively developing its web banking platform for legal entities, which was launched in May 2022. Next slide, please. Tenge Bank positioning itself as a universal bank, but also actively develops its retail business direction. In 2022, Tenge Bank's retail loan portfolio increased by 92% year-on-year to $96.3 million.
In the same period, Tenge Bank's retail deposits grew by more than 5.3 x to almost $72.7 million. Tenge Bank offers the diversified range of lending and non-lending retail products and provides convenient and sophisticated multi-channel customer service format, including mobile banking app launched in April 2022 and marketplace platform to be launched in the first half of 2023. It is worth to mention that Tenge Bank has entered the top three auto lenders in Uzbekistan, thanks to introduction of automated credit process and scoring system. Next slide, please. Tenge Bank is actively developing its digital client proposition. The web banking for legal entities, Tenge Business, provides for different types of payments 24/7 and online statement generation. Being launched in May 2022, it already demonstrate quite a good client engagement with almost 1,000 users.
The mobile banking, Tenge 24 app, enables retail clients with fast identification and online onboarding capabilities, ability to use the app without having physical card, P2P payments, and the fixed transactions. At the year-end, the app had more than 260,000 users. Now, I would like to hand over the floor to my colleague from IR team, Margulan Tanirtayev.
Thank you, Viktor. Hello, everyone. Now let me switch to the overview of Halyk Group consolidated financial results for the 12 months and first quarter of 2022. During the 12 months, the bank generated 553.8 billion KZT of net income. The year-on-year increase by 19.8% was mainly due to significant increase in lending business, including acquisition of Sber's loan portfolio, as well as increase in net gain in foreign exchange operations and net fee and commission income. Other non-interest income increased by 2.4x for the 12 months of 2022 versus the 12 months of 2021.
Mainly due to the volatility of exchange rates and interest rates, which resulted in significant growth of net gain on foreign exchange operations through net dealing operations, which was partially offset by a loss on disposal of subsidiaries amid the sale of subsidiary banks in Tajikistan and Russia. Net insurance income for the 12 months of 2022 decreased versus the 12 months of last year. Let us remind you that previously, the bulk of income from insurance on unsecured loans were recognized on the side of the bank. Starting from 2022, this income has been transferred from the bank to its subsidiary, Halyk Life. Halyk Life, in turn, has created an insurance reserve for the full amount of insurance on consumer loan. Consequently, there was an increase in insurance reserve expenses.
In the 12 months of 2022, we demonstrated 31.7% return on average equity and 4.1% return on assets. Next slide, please. Total assets of the group increased by 18.4% versus the year-end of 2021, as a result of growth in amounts due to customers to support the expansion of lending business. Customer deposits increased by 23.8% as a result of the client's inflow due to changes in the operating landscape. Next slide, please. Interest income for the 12 months of 2022 increased by 41.8% versus the 12 months of 2021, mainly due to increase in average rate and balances of loans to customers.
Interest expense for the 12 months of 2022 increased by 57.4% versus 12 months of the last year, mainly as a result of the growth in average rate and balances of amounts due to customers. Consequently, net interest income for the 12 months of 2022 grew by 30.6% versus the 12 months of 2021. In the 12 months of this year, net interest margin was affected by the increase in average rates on both loans to customers and amounts due to customers, following the base rate hike from 10.25% to 16.75% in the 12 months of 2022. Furthermore, the share of loans to customers in total interest earning assets increased substantially.
Moreover, there was an increase in the average rate and average balances of a fixed amount due to from credit institutions and a fixed interest earning cash and cash equivalents following the global increase of USD interest rates. As a result, net interest margin increased to 5.6% per annum for the 12 months of 2022, compared to 5.2% per annum for the 12 months of 2021. Next slide, please. We made a new slide to our regular earnings results presentation, which represents our bank's core net non-interest and transactional income. It includes net fee and commission income, net dealing income, and net insurance income. This new approach to the disclosure provides more in-depth view of the revenue generated by our bank from sources as an interest income.
Net non-interest income is an important component of our revenue mix. It provides a stable source of income that is not dependent on interest rate movements. Our bank has performed very well in terms of net non-interest income as it increased by 87.4% for the 12 months of 2022 versus the 12 months of 2021, mainly due to the notable increase in net dealing income and net fee and commission income. Next slide, please. The management of the bank made a decision to change the disclosure of fee and commission income and believes that this representation provides a better view of the bank's financial results or this line item of the consolidated financial statements.
Accordingly, the bank has revised its representation of fee and commission income as at year-end of 2021 to conform to the presentation for the current period. Transactional income of individuals and legal entities includes fee and commission income derived from bank transfer on settlements and salary projects, maintenance of customer accounts and plastic card operations, cash operations, and servicing customer pension payments. Transactional expense of individual and legal entities includes fee and commission expense derived from payment cards, bank transfers, and cash operations. In the 12 months of 2022, the overall dynamics of fee and commission income and expense was driven by the increased transactional activity as a result of the client's inflow due to changes in the operating landscape.
Net fee and commission income for the 12 months of 2022 increased by 25.8% versus the 12 months of the last year due to increase in net transactional income of both legal entities and individuals, as well as in fees on letters of credit and guarantees issued, which was mainly propped by the increase in overall volume of letters of credit and guarantees issued. Next slide, please. Operating expenses for the 12 months of 2022 increased by 11.7% versus the 12 months of 2021, mainly due to the indexation of salaries and other employee benefits starting from 1st March of 2022. The employee premiums reserve accrued in the 12 months of this year, as well as increase in charity expenses and IT investments.
Operating expenses for the first quarter of 2022 increased by 2.9% versus the third quarter of 2022, mainly due to the employee premiums reserve accrued in the first quarter of this year, increase in withholding taxes due to the disposal of subsidiaries, and advertisement expenses growth. The bank's cost to income ratio decreased to 19% compared to 24.1% for the 12 months of 2021, amid higher operating income for the 12 months of this year. Next slide, please. On the balance sheet, compared with the year end of 2021, loans to customers increased by 32.5% on a gross and 33.8% on a net basis.
The increase in the gross loan portfolio was attributable to a rise of 35.1% in corporate, 23.8% in SME, and 32.7% in retail loans. We also have to mention that share of fixed loans was at historically low level of 17% as at the end of first quarter of 2022. Next slide, please. Cost of risk on loans to customers for the 12 months of 2022 was at 1.2% compared to 0.2% in 2021, reflecting more normalized credit loss expenses on corporate and SME loan portfolio and higher credit loss expenses on retail loan portfolio.
Cost of risk on loans to customers decreased to 0.4% compared to 1.4% in the third quarter of 2022 due to repayment and recovery of corporate and retail problem loans. 90-day NPL ratio decreased to 2.1% from 2.7% as at the end of third quarter of 2022, mainly due to restructuring of previously impaired corporate loans. Next slide, please. Stage 3 ratio decreased to 7.5% as at the end of fourth quarter of 2022, mainly due to recovery and repayment of corporate problem indebtedness. Next slide, please.
On liability side, the corporate and retail deposits increased by 29.8% and 18.2% respectively compared with the year end of 2021 as a result of the client's inflow due to changes in the operating landscape. As at the end of Q4 2022, the share of KZT deposits in total corporate deposits was 60.6% compared to 52.9% as at the year end of the last year, while the share in total retail deposits was 52.4% compared to 50.6% as at the year end of 2021. Next slide, please.
On consolidated basis, capital adequacy ratios of the bank increased in the fourth quarter of this year as a result of net profit earned by the bank during the fourth quarter of 2022 amid the slight increase of risk-weighted assets and payment of dividends. Risk-weighted assets were almost flat compared to the third quarter of 2022 due to regulatory easing in risk weighting of SME loans in the fourth quarter of 2022. Next slide, please. I am pleased to present our outlook for the financial year of 2023. Retail net loan portfolio growth is expected to be circa 12%. Corporate and SME net loan portfolio growth is expected to be in the area of 18%. Total net loan portfolio growth is expected to be circa 16%.
Growth of net fee and commission income is expected to be in the area of 15%. Cost of risk is expected to be around 1.2%. Consolidated net income is to be more than KZT 700 billion. Return on average equity is to be in the area of 35%. Net interest margin is expected to be more than 6%. Cost to income ratio is expected to be 20%-22%. Dear ladies and gentlemen, this completes our presentation. Now we'd like to open the floor for your questions, please. Just a quick instruction. To state a question, you can raise your hand in Zoom, or if you joined via the cell phone, please press star 9 to raise your hand. You can also enter your question in the written form via chat. While stating your question, please also mention your name and company.
The first question comes from the Elena Tsareva. Elena, please go ahead.
Good afternoon. Thank you very much for the call, for the presentation, and very strong 2022 results. I have several questions. My first question is about 2023 guidance. What kind of non-interest income we can expect in 2023, given it contributed quite a lot in 2022? Especially, I mean, maybe on dealing income. Another question is on net interest margin, and especially implications from quite a high interest rate level in Kazakhstan. As you said, the key rate is 16.75%. How it's going to be passed on borrowers? Do you see any concerns regarding quality, risk quality? What kind of situation with the, say, quite elevated level of interest rates?
The last question is on capital distribution. Given you have a very strong 2022 and guidance for 2023 is quite robust, what kind of capital distribution you can see for 2022? I mean dividends, payouts, or maybe you can see any M&A deals. You are quite successful in Uzbekistan expansion. Do you see any M&A opportunities there or maybe anything else? That's it.
Elena, thank you very much for your questions. This is Murat Koshenov. Let me answer one by one. Regarding non-interest income, indeed, 2022 was quite strong. Actually, we saw increase in dealing business. We also see increase in the fees and commission business, which actually exceeded our expectations. Both items was due to strong client activity.
Also due to change in the operating environment, because we saw some inflow of customers, linked to borrowing, buying portfolio from Sberbank, but also we see some inflow on which was not directly related to this particular transaction. We see volatility in the market. We see that some of these elements would continue in 2023. So we expect to further grow our client base. We expect that certain volatility will remain in the market, but we are not taking as a base case such unusual situations with which we are facing during 2022. So we expect somewhat lower volatility. So from that perspective, we still see that there is further room to grow our fees and commission income.
As you see from our outlook, we expect that it will grow further by around 15%. But we expect the decrease in the dealing revenue, which would be lower than in 2022, but which would be definitely substantially higher than in previous years, like 2021. While we are not providing the specific figure for total operating non-interest income, I think that provides sufficient guidance in that regard. Regarding the net interest margin, again, let me briefly reflect why our NIM improved during 2022 despite increasing in the rates. Actually, there are a few contributors. One is that we saw higher proportion of loans in our total assets.
Within that loan portfolio, we see that, for example, with the purchase of portfolio from Sberbank, some higher portion of retail loans landed in our balance sheets. The higher income generating assets, actually, their share has been increased in the mix of our total assets. Secondly, around thirds of our balance sheet is related to foreign currency, which is dominated by US dollars. The increase in US dollar rates actually substantially improved net interest margin for dollar portion of our balance sheet. Because on funding sides, the rates has not increased substantially compared to increase on the asset side. We expect again that some of these elements would continue in 2023.
That's why we expect that, we have potential to further grow our net interest margin, to the area of, 6%. Regarding the capital distribution, I would like to give the floor to Umut Shayakhmetova, our CEO.
Yes. Good evening, everyone. I would like to say that we see quite good results for the year 2022. As you see in our guidance for 2023, we also see it's positive. We expect that at the shareholders meeting in May, the decision will be made on paying out the dividends for year 2002 and at the level of our normalized levels, which are established in our dividend policy.
Understood. Thank you very much for detailed answers. Thank you.
The next question comes from Olga Naydenova. Olga, please go ahead.
Hello. Thank you very much for taking my questions, and congratulations with a very strong set of results. Hello, can you hear me? I'm sorry.
Yes, we can hear you now, please.
Oh, yeah. Thank you very much for taking my questions and congratulations with very strong set of results. I would like to return to the dividend question, just to reconfirm that the policy remains to keep the 17% CET1. If I may, are you in any way restricted in your dividend payout given the funding from the regulator on the acquisition of Kazkom? My second question would be regarding your provision charges, why did you reduce the coverage of Stage 3 loans, in by provisions, considering your very strong loan growth? What are the main scenarios? Why is that happening? Even though, of course, the, the asset quality has improved over the quarter. Thank you.
Olga, thank you very much for your questions. Regarding the regulation, probably let me provide some reflection on that. As you know, the law has been passed, which says that there should be certain
conditions met before the bank on which is still subject to certain funds which it received during different state support situations, have to met before making any dividend distributions. The law is referring to a sub-law which needs to be taken by the regulator. The sub-law has not been taken yet. The regulation has not been taken yet. there is still some discussions on going on. we expect that within the next few weeks, this regulation would finally developed. we expect that this regulation would set up certain conditions which needs to be taken by the bank in order to make dividend payment decisions. some banks might pass that condition, some might not pass.
We see that within Halyk Bank, capital structure, the portion of state support which was actually received not by Halyk, by Kazkommertsbank , which was taken by Halyk Bank back in 2017, is not material related to total capital of the bank. That's why we expect that after the regulation would come into force, and after we make necessary check-ins regarding the conditions, we expect that we still be able to make dividend payments. We largely expect that it will be in line with our dividend distribution policy and largely in line with dividend payment history, which you might look during last five years.
At this point of time, we are not in position to provide any specific dividend payout ratio because that would be subject to shareholders meeting decision, and after the regulation would be put in force. In dividend policy indeed, we have a reference to mostly as a guidance to which is linked to our capital adequacy ratio. We are currently comfortably above this level, which is guided in the policy.
Thank you.
As far as provisioning and Stage 3 loans coverage ratio, we would like to underline a positive trends that took place in 2022. Overall, as you can see, the problem portfolios decreased in 2022. The coverage that decreased by 2 percentage points is the result of overall assessment of the quality of the Stage 3 loans. It's not significant change in our opinion, and reflects the fact that those loans that were in Stage 3 at the end of the year were better collateralized than they were at the beginning of the year. Our assessment of that is that is not a significant change and is not related to any changes in provisioning practices.
Okay. Thank you, sir. Thank you so much. Very soon.
The next question comes from Babatunde Ojo. Tunde, please go ahead.
All right. Thank you so much. Just a follow-up on the dividend question. Would you or would you expect that you would need to get approval from the regulator before you are able to pay dividend even after shareholders approve during the shareholder meeting in May? That would be my first question. The second one, which I already sent to you by chat anyway, it's around the news about the controlling shareholder, ALMEX, trying to sell their shares and which you didn't deny as a bank.
I was just wondering if you could provide more color on that, if you have any, about why, you know, at this sort of valuation, and is that being forced by the regulator or, you know, just a signal of any sort of problems with the bank? Just for you to clarify, if you can, on those, on that news that came out in the market a couple of months ago. Thanks.
Tunde, thank you very much for your questions. Regarding your first question, from drafts, what we see, we do not expect that banks would need explicitly apply for regulatory approval, but there will be certain conditions which banks need to check in order to make decision whether they are in position to make dividend payments, and what potentially limitations might be in terms of size or percentage wise. Still, because we are regulated entities, definitely we would expect that banks would be fully in compliance with any such conditions.
Yeah. Regarding your second question, there was a report from Bloomberg which was saying that they are expecting that the ALMEX might be coming with certain transaction. I think immediately after that ALMEX came in local business media that the statement which they made back in 2019 that ALMEX from time to time might consider bringing some shares to the market in order to support liquidity. It is still in place, but none transactions, none of transaction is considered and contemplated at that point of time. That report from Bloomberg, I think took place almost 1.5 months ago. As we see, none of transaction took place since then. For us as Halyk Bank is difficult to comment because it's not the transaction which initiated or potentially might be initiated. Again, the fact is that no transaction took place since that note came from Bloomberg.
Got it. Thank you. Just, if I, if you don't mind me adding just one more, because I need to actually run. It is on asset quality. You know, you've had a pretty good year in 2022. It started with, you know, you thinking it was gonna be really bad, and then it turned out not to be as bad. Now you are giving a sort of more stable outlook in terms of your cost of risk expectation. I'm just wondering what is it that has changed from your client base that gives this sort of benign asset quality environment, given all of the problems are still there in terms of inflationary pressures, higher interest rate, you know, Russia, Ukraine problem next door is still there.
If you can just give a sense of how you're thinking about this risk and numbers going forward and what gives you this sort of comfort. Thanks.
Let me answer this question. To understand for all the sides or aspects of this question, let me go back a little back to the history of 2022. As you remember, we had quite an unfortunate series of events at the beginning of last year. First, it started with domestic problems in Kazakhstan in January, then at the end of February, we had this unfortunate military conflict in Ukraine.
Yeah.
Overall, when we even couldn't finish our first quarter last year, we already saw quite a combination of negative factors that caused our bank to be more careful in our guidance. That affected both dividend policy in last year and also the assessment of asset quality. It appears that last year was quite benign, especially for our bank. First, we played a very important role in the Kazakh financial sector as the only bank that had enough time and prepared itself to help the banks that fall into those problems, Russian banks that fall under the sanctions.
We bought $1.2 billion in assets from Sberbank, and it boosted our both quality of the portfolio and profitability. We saw that the military conflict didn't affect the overall situation in Kazakhstan. On the contrary, we also saw that there were positive effects for the whole banking sector and for our customers. For example, certain companies that were active in Russian market started relocating and boosted overall economic environment in Kazakhstan. We didn't see any negative effect for retail customers. We, although we at the beginning of the year tightened our credit policies, then started releasing them as well. Overall, it was a positive year for us that found its reflection in our financial statements.
Going forward.
Yeah.
We think that this, I would say this trend will continue, and if we do not see any shocks that are difficult to be right now, even imagined, right? Those trends will continue this year until interest rate rates in tenge start changing. That would happen probably in the second year of in the second half of this year. Thank you.
Great. Thank you so much. Appreciate it.
The next question comes from Mikhail Butkov. Mikhail, please go ahead.
Good day. Thank you very much for the very detailed presentation and congratulations on the results. One question on dividends and the capital ratio guidance. The beginning of the question is how robust is this guidance on 17% minimum CET1 ratio, how strict is that? Because if we look at the capital buffers over this 17%, it is around 120 basis points, which is equal to around KZT 120 billion, implying a lower percentage rate as percent of net profits than 50%. This will be around 20%-22%.
Does it mean that you will pay out profit, you will pay out dividends including some profits from the months of 2023, which will actually bring the overall CET1 ratio at that point of time also close to the level of 17%? Or there are some additional considerations which we should take into the account? Thank you.
Mikhail, thank you for your question. As I said, it's not a rule. It's mostly kind of guidance. It doesn't says that we should not drop below 17% in any day throughout the year. It's mostly. You mostly can look at the kind of average through the year. Obviously, during the period of dividend payout, we might for some short period of time drop below that threshold. I also recommend to look at the internal capital generation capacity of the bank. With our guidance for full year of more than KZT 700 billion in net profit, it provides quite a good source of internal capital generation.
Supposing that dividend would be approved during months of May, we're talking about 3, sorry, 4-5 months of 2023, which might be contributing internal capital through ongoing operation of the bank.
All right. Yeah, thank you. Thank you for this answer. Another question is also, can you maybe remind on your FX hedging policies so far on the repricing of assets and liabilities? Looks like from the end of the presentation, looks like you expect some moderate depreciation of tenge in 2023. How does that fluctuations are hedged currently? Thank you.
Halyk Finance, our investment arm, has issued the macroeconomic report where it says that under the base case, they expect that tenge versus US dollar would be at a level of 480 at the end of the year. First of all, we do not expect some bigger changes year-over-year basis. There might be some volatility throughout the year related to the fact that there are certain influence on the rates due to certain companies' activities to sell dollars in order to pay taxes, for example. We might see some volatility around tax payment dates. Overall, we are not expecting substantial volatility on the FX side. Secondly, as a matter of fact, we are not preferring to run open currency position in general.
Our treasury might take certain short-term position in order to gain from some short-term momentums. Normally we having close to 0 open currency position on average.
Okay. Okay. Thank you. Thank you very much.
The next question comes from Ronak Gadhia. Ronak, please go ahead.
Good afternoon. Thanks for the presentation. I'll take my questions. My first one is on Uzbekistan. Could you just maybe share some broad level KPIs of that subsidiary? You know, what's its asset profit contribution, ROE, and what do you expect that to be in the next maybe three or five years? The next question is on regulations. Apart from the regulation on dividends, is there some other regulation that, you know, you're aware of that may impact the bank over the next 12 or so months?
Just this morning on one of the local dailies, I was reading that the president has signed a decree to reduce the debt level of ordinary Kazakhs, and there's also a decree to increase lending to the priority sectors of the economy. If you could just talk about that regulation and if there are any other regulations that may impact the bank. Thank you.
Ronak, thank you for your question. I will start answering from the first question. As we presented in this presentation, we look at Uzbekistan on comprehensive way. So we having not only banking out of balance sheets and P&L of Tenge Bank, but we also do a lot of developing our business with Uzbekistan out of balance sheet of Halyk Bank. That includes not only direct lending, but also transactional banking, payment related services. We also start developing certain EM ecosystem services in Uzbekistan.
At this point of time, we are not providing, let's say guidance specifically on our, on our subsidiary. We probably might consider doing that, at some point of time going forward, but at this point of time, please consider our guidance on consolidated basis. But again, we decided to provide much more details around what our thinking is about Uzbekistan and how we approaching that situation. Again, Uzbekistan continues to be our primary focus in international area. We're trying to leverage the services not only of the bank itself, but also of our subsidiaries. Regarding your second question, let me give the floor to my colleague, Almas Makhanov.
Yes. Hi, Ronak. On the second question, indeed, yesterday there was a publication on decree issued. It was, it has a general level. Of course, there are some specific sub-law regulation to be issued by regulator. Overall, yes, the decrease focused on increasing the priority of financing the real sector, specifically, priority customers that work in priority industries. Plus, decrease in overall indebtedness of individual borrowers, including, question on rates for consumer loans. Because there's no specific regulation yet, and it's to be issued, we should expect that probably some regulation will limit, increase in consumer lending.
In terms of the impact on the bank's portfolio, structure of the portfolio says that around 30% is in retail segment. The rest is in for SME and the corporates. That impact should be somewhat balanced between real sector lending and consumer lending. In terms of possible cap on rates, we do not expect significant impact because of the structure of our retail portfolio. Mostly most clients, they work at a corporate and SME segment, they receive salaries. The risk level is relative low than the risk in overall sector. That's why the rates for that type of clients are lower than average.
We don't expect that the cap on rate should also impact our portfolio.
Okay, thanks. Just to recap, the regulation is still quite vague, but when it comes through, you're expecting some sort of caps on interests on consumer loans. Did I understand that correctly?
Yes. I couldn't hear you quite well. Can you please repeat the question again?
No, I'm just saying, just to understand. The decree is still very vague. It needs to be formalized. When it does get formalized, you're expecting some sort of caps on consumer loans.
It's, it-
Is that correct?
The decree is a sub-law still to be issued. Mostly that could relate to limiting the indebtedness of retail clients, consumers, consumer lending. Probably there will be some changes in interest rate regulation. Specifically, probably there might be some cap on consumer lending.
Okay. Okay. In terms of prioritizing lending to, you know, priority sectors, do you expect some sort of a quota that might be introduced that will require the bank to lend a minimum amount of their balance sheet or capital to a certain segment?
Oh, oh.
Let me answer that. No, we don't expect any such radical changes in this regard.
Okay.
One more thing. Those changes that were mentioned by Almas should be also complemented by one change in law in Kazakhstan. Namely, it is possible right now for individuals to apply for bankruptcy. The procedure is quite complicated, but they may end up as bankrupted entities with certain of their loans being written off by the financial institutions. That is also something that we factor in our guidance for 2023. As you can see, the growth in retail portfolio is not that aggressive as it used to be.
Okay. Understood. Thank you.
The next question comes from Tom Jacoby. Tom, please go ahead. Tom, you can unmute yourself and proceed with your question, please.
Oh, yeah. Hello. Thank you for taking my questions. I got three of them. First is the European Union tries to increase trade relations to Kazakhstan. How can you participate in that? Is there any direct participation? Second is on your sold subsidiaries, especially in Russia. I wanna know, is there any direct relation to the Russian war in Ukraine, or why did you sell them even with a loss? A third question is about your stock. When your main shareholder is trying to sell stocks, are there any plans to make stocks available to trade in Europe or North America also without the GDR structure which is making it a bit less attractive than the real stock? Thank you.
Tom, thank you for your question. Regarding trade relations with EU, I think yes, because we the largest corporate bank in Kazakhstan. Obviously, we see that due to current geopolitical situation, many clients who was historically importing different goods, especially some capital goods from Russia, because there was a number of European companies having Russia as a center of distributing different machinery and equipment out of Russia. Now, they're switching to direct trade between particular EU country and Kazakhstan. This is one example. Second example, as you know, there is a lot of done during last year in terms of discussion between China, Kazakhstan, some Central Asia and countries like Georgia and Azerbaijan in terms of promoting Trans-Caspian route.
We expect that certain companies might start investing activity in terms of leveraging that transportation route. Again, we've been the largest corporate bank in Kazakhstan. Whenever our clients would be ready to engage in that activity, we'd be definitely looking in terms of how we can, as a bank, support their capital activities. Regarding selling subsidiaries, actually, we sold 2 subsidiaries last year, one in Russia and one in Tajikistan. Apart from geopolitical situation, one of consideration was that both subsidiaries was quite small, but they required a lot of attention from the management, and also they were not quite profitable.
That's why we think that even with exiting these countries with some loss, we might gain in terms of bringing more focused attention from the bank's management into the growing areas. Also we would be able to redirect the capital into more profitable parts of the business. From that perspective, we think that the situation might look from a different color. In terms of stock, again, there was no transactions done on which Bloomberg was reporting in the beginning of this year. There is no stock which the bank on itself actually can sell to shareholders at this point of time.
Regarding switching stock exchanges, our GDRs already listed in London, and our stocks are listed on Kazakhstan Stock Exchange and AIX. I think there is a possibility to foreign investors to open accounts with our brokerage arm, our investment arm or any other broker in Kazakhstan and can trade in local stock if they wish. But there is no plan to bring our stocks directly to other stock exchanges because we are Kazakh incorporated company, so our shares can be listed on local stock exchange only.
All right. Thank you very much.
We have received several questions via chat, and we believe that questions from Jose Tancari, Tunde Ojo, and Odile Bagao were already covered previously. We also received two questions from Azamat Ayt. The first question was already covered, and the second question is, do you consider to pay dividends quarterly as other banks and not yearly?
At the moment, we stick to our annual dividend payment policy. We do not rule out that at some point in the future we might consider, having some semi-annual payments, no decision has been done yet. I do not think that we would be considering to switching to quarterly payments.
Dear ladies and gentlemen, it seems that there is no questions remaining. This completes our presentation. Thank you very much for participation. As usual, our IR team remains open for any of your further questions. Take care and goodbye.
Thank you much. Bye-bye.