Good evening, ladies and gentlemen. Welcome to Halyk Bank's conference call on the presentation of financial results for the nine months in the third quarter of 2022. The session will start with a presentation by Halyk team and will be followed by Q&A session. Please note that the call is being recorded. 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 for IT and Innovation, Mr. Almas Makhanov, Chief Risk Officer, Mr. Viktor Skryl, Financial Director responsible for finance and subsidiaries, Mr. Margulan Tanirtayev from IR team, and myself, Mira Kasenova, Head of IR and FI. We would like to start with the digital update for the nine months and the third quarter of 2022. Customer engagement growth within our core online platforms, Halyk Homebank and Onlinebank, continue to perform well year-on-year. The number of monthly and daily active users of Halyk Homebank app has increased by 37.8% and 44.3% year-on-year, respectively. In the third quarter, the MAU reached 5.1 million.
We also see a growth in the number of active users of Onlinebank app for businesses, and the number of MAU reached almost 226,000, increasing by 59.8% year-on-year. Halyk Homebank and Onlinebank apps continue to be within top three apps within the respective categories in Kazakhstan. Halyk team is constantly developing propositions to the clients. In the third quarter, we launched additional services and functions within our Homebank, such as an onboarding and card issuance for kids and confirmation of transfers via Face ID and Touch ID. In Onlinebank, we launched incoming effects payments in the app, submission of a tax declaration for IE, issuance of a digital card, and POS statement for merchants. Next slide, please. The increase in customer engagement within our digital platforms continues to support a strong growth in credit and non-credit products for retail clients and businesses.
Online sales were one of the key drivers of retail loan growth. Share of digital loans issued equaled 74% in nine months, which is up 14 percentage points year-on-year. In the absolute terms, the number of digital loans issued in the third quarter increased by 45.3% versus the third quarter of 2021. The share of new online deposits increased by 14 percentage points in nine months and was at 40%. In the absolute terms, the number of new online deposits in the third quarter increased by 59.4% versus the third quarter of last year. The share of non-cash card payments reached 66% in nine months, up 14 percentage points year-on-year.
For SME business, we are demonstrating a growth in the number of digital loans issued in nine months, which is up 32.4% year-on-year. We see a strong growth in online KZT payments number and volumes, which have grown in nine months by 43% and 62% year-on-year, respectively. Online onboarding for legal entities increased by 2.2 x in nine months. We're glad to know that around 5,000 LLPs were onboarded online since launch of this service in Onlinebank in the second quarter of this year. Next slide, please. In the third quarter, our ecosystem verticals demonstrated healthy growth year-on-year, except for auto insurance, which has shifted its client focus to the profitable segments.
In the third quarter, the GMV of Halyk Travel and kino.kz have expanded 2.8 and 4.4 x year-on-year, respectively. The market share of kino.kz out of online sales of entertainment tickets increased from 10.5% to 19.5% year-on-year. In the third quarter, the transactions volume of Halyk Invest increased by 38.6% year-on-year. Development of our marketplace platform, Halyk Market, remains one of the key priorities for us. In the third quarter, our total marketplace GMV equaled KZT 41 billion, which is up 32.9% year-on-year. Let me switch to business segments update for the nine months and third quarter of this year. Turning to retail segment, we would like to highlight a solid performance across key dimensions.
We continue to see a strong customer engagement, an increasing digital footprint with our within our Halyk Homebank app, and growing transactional activity. The transactions volume has increased by 33% year-over-year. On consolidated basis, the retail gross loan portfolio has expanded by 34.2% year-over-year, while the customer deposits increased by 10.8% year to date. We're also glad to see a notable growth in retail products penetration by 9.7% year-over-year. Next slide, please. We continue to develop Halyk Bank Super App, which is at core of our retail customer proposition. We keep on to see notable results in customer activity. The most penetration rate in retail's active client base has risen from 46% to 53% during the nine months of 2022, showing a further potential for growth.
Next slide, please. On unconsolidated basis, our retail portfolio has grown by 34% year to date. In nine months, the loan issuance volumes have increased by 10% year-on-year. The growth has been primarily driven by digital sales, which increased by 51% year-on-year and reached 39% of total retail loan sales in nine months. We observe stable asset quality, with NPL 90 days plus ratio at 3.8%, while we continue to maintain conservative provisioning policy with NPL coverage ratio of 167.6%. Next slide, please. Halyk Marketplace remains one of our top priorities as we develop comprehensive service proposition both for retail clients and merchants. In the third quarter, the GMV of our e-com platform, Halyk Market, increased by 5.8% year-on-year.
Our network expanded to more than 1,800 merchants, offering over 400,000 SKUs, and we focus to expand our footprint further. Over the third quarter, we continued to develop our retail platform in order to simplify our clients' life and meet their needs. We launched bank cards for kids, which is called Halyk Easy, international transfers via phone number, and confirmation of transfers via Face ID and Touch ID, which is available exclusively at Halyk. Next slide, please. During the third quarter, we continued to focus on further upgrade of GovTech. We launched a number of new government services such as the registration at the place of residence, submission of a tax declaration, compulsory pension and social contribution statement, a real estate statement, checking and information about labor contracts, which are available exclusively at Halyk.
First on the market, we launched medical statements. It is worth to note that in 2022, the government services were used over 8 million times. Turning to the corporate segment, we would like to highlight that on consolidated basis, our loan book has expanded by 25.4% year to date. Our corporate portfolio remains well diversified across industries, while local currency loans comprise 74.1% of the loan book. As the 1st of October 2022, the segment NPL ratio increased to 1.6%, while the provisioning coverage decreased to circa 304% due to migration of large ticket and previously impaired corporate loan to NPL. We see a sound growth in our active corporate client base as it reached over 2.3 thousand customers.
Essentially, the products penetration and transactional activity have been notably increasing as well. The SME banking continues to demonstrate a solid performance as well. The number of SME MAU in Onlinebank digital platform has increased by 50.8% year-to-date. We would like to highlight that on consolidated basis, our loan book has expanded by 19.4% year-to-date. The number of SME borrowers has increased by 2.1 x year-on-year. The segment NPL ratio decreased to 4.6%. Next slide, please. In nine months, we achieved 40.9% increase in SME loan issuance volumes year-on-year. It has been primarily driven by digital loans, which already comprise 32% of our SME loan portfolio.
Number of IE borrowers in the third quarter of 2022 increased by 78.2% year-over-year, where 71% of IE borrowers were served digitally. Number of LLP borrowers increased by 37.4% year-over-year, where almost 10% of LLP borrowers were served digitally. Following the launch of digital tender guarantees in October last year, we issued five times more blank tender guarantees in nine months of this year compared with nine months of 2021. Let me pass the floor to my colleague, Margulan Tanirtayev. Thank you.
Thanks, Mira. Let me switch to the overview of Halyk Group consolidated financial results for the nine months and third quarter of 2022. During the nine months, the bank generated KZT 417.1 billion net income. The year-over-year increase by 25.2% was mainly due to significant increase in lending business, including acquisition of Sber's loan portfolio, as well as increase in net gain on foreign exchange operations and net fee and commission income. Other non-interest income increased by 3.8 x for the nine months of 2022 versus the nine 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.
Net insurance income for the nine months of 2022 significantly decreased versus the nine months of 2021. 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 increase in insurance reserve expenses. In the nine months of 2022, we demonstrated 32.6% return on average equity and 4.2% return on assets. Next slide, please.
Total assets of the group increased by 17.5% 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 22.6% as a result of the client's inflow due to changes in the operating landscape. Next slide, please. Interest income for the nine months of 2022 increased by 39.2% versus the nine months of 2021, mainly due to increase in average rate and balances of loans to customers. Interest expense for the nine months of 2022 increased by 58.9% versus the nine months of 2021, mainly as a result of the growth in average rate and balances of amounts due to customers.
Consequently, net interest income for the nine months of 2022 grew by 26.1% versus the nine months of 2021. In the nine months of 2022, 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 14.5% in the nine months of this year. The structure of placement of interest-bearing liabilities into interest earning assets continued to improve with increased share of high-yielding retail and SME loans. There was an increase in the average rate and average balances of affixed amounts due to from credit institutions and affixed interest earning cash and cash equivalents following the global increase of USD interest rates.
As a result, net interest margin increased to 5.8% per annum for the third quarter of 2022 compared to 5.5% per annum for the third quarter of the last year. Net interest margin increased to 5.8% per annum for the third quarter of 2022 compared to 5.2% per annum for the second quarter of 2022, mainly due to decrease in average rate on amounts due to credit institutions as a result of significant decline in volumes of repo transactions. Next slide, please. In the nine 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.
Consequently, net fee and commission income for the nine months and third quarter of 2022 increased by 15.4% and by 35.8% versus nine months and third quarter of the last year respectively. Fee and commission income for the nine months of 2022 increased by 26.4% versus the nine months of 2021 as a result of growing volumes of transactional banking, mainly in plastic card operations, bank transfer settlements and cash operations. Next slide, please. Operating expenses for the nine months of 2022 increased by 20.4% versus the nine months of the last year, mainly due to the indexation of salaries and other employee benefits starting from March 1st of 2022.
The employee premium reserve accrued in the nine months of 2022, as well as increase in charity expenses and IT investments. The bank's cost-to-income ratio decreased to 18.9% compared to 22.6% for the nine months of 2021, amid higher operating income for the nine months of this year. Next slide, please. On the balance sheet, compared with the year-end of 2021, loans to customers increased by 27.1% on a gross and 27.7% on a net basis. The increase in the gross loan portfolio was attributable to a rise of 25.4% in corporate, 19.4% in SME, and 34.2% in retail loans.
We also have to mention that share of FX loans was at historical low level of 18% as at the end of third quarter of this year. Next slide, please. cost of risk on loans to customers for the nine months and third quarter of 2022 was a normalized level within the scope of our full year guidance of 1.5%. 90-day NPL ratio increased to 2.7% from 2.4% as at the end of the second quarter of 2022, mainly due to migration of large ticket and previously impaired corporate loan and retail loans to NPL. Next slide, please.
Stage 3 ratio increased to 8% as at the end of third quarter of 2022, mainly due to migration of individual corporate loans and retail loans from Stage 1 and Stage 2 to Stage 3. Next slide, please. On liability side, the corporate and retail deposits increased by 35.5% and 10.8% 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 third quarter of 2022, the share of KZT deposits in total corporate deposits was at 53.6% compared to 52.9% as at the year-end of 2021.
While the share in total retail deposits was almost flat versus the year-end of 2021 and stayed at 50.5%. Next slide, please.
Capital adequacy ratios of the bank increased in the third quarter of 2022 as a result of net profit earned by the bank during the third quarter of 2022 amid the moderate increase of risk-weighted assets. Dear ladies and gentlemen, this completes our presentation. 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 nine 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. We also have the first question from the Elena Tsareva. Elena, please go ahead.
Good afternoon. Thank you very much for the presentation. Yeah, this is Elena Tsareva from BCS. I have several questions. First of all, on your margins. This is quite a pickup of margin this quarter, third quarter, like 60 BPS and quite elevated level. What do you feel in terms of this level to be sustained going forward to expand? You see that this is more like, likely to compress in, I think near term? My second question is about cost of risk. We have this guidance for this year, around 1.5.
If you have any idea, any guidance or, I don't know, any color how it can be evolved going forward in 2023 and some increase in NPL, does it sign that risks stay elevated? My third question is about your sale of bank in Tajikistan. What is the rationale behind the decision? Is it something that you want to reshape your geographical expansion? Maybe you can provide any, like, details of your further strategy, international strategy or any kind of M&A strategy. That's it from me. Thank you.
Hello, Elena. Thank you for your questions. Regarding your first question on the margins, let me remind that during the second quarter results, we already were upgrading our guidance on net interest margin from 5.2% to 5.3%. Basically, we were seeing that the trend is to increasing our net interest income. Basically, there are a couple of reasons for that. First of all, as you see, we were gradually changing the composition of our credit portfolio, and that was happening for the last few quarters. One of the main reasons was also acquisition of Sberbank portfolio.
Altogether, we see a higher growth, the higher share of retail loans and SME loans, particular, loans to small businesses which have high profitability compared to, large, corporate and medium-sized companies. That was one of the driver. The second big driver was increasing rates in U.S. Dollars. Roughly one third to 40% of our balance sheet is in U.S. dollars. When rates in dollars start rising, that actually positively contributed to improved, margin. There was a, let's say third element, which is probably to a smaller degree, but that's still impacting profitability of our interest income, portion, is reduction of, the funding from, on 10-year sites, which were attracted from, our repo sources.
The first two elements probably have the highest impact. Regarding the guidance for the next year, I think it's a bit premature probably to discuss because normally we provide guidance in the beginning of the year when we are presenting the full year results. Altogether, if you would see what elements contributed to shift in net interest margin, I think they'll be same. You have to look how our composition of the credit portfolio would be developing going forward, what will be happening on dollar rates, what will be happening on 10-year rates. In terms of the cost of risk, again, what we are saying that so far we are not seeing main changes from what we have reported previously.
Obviously, current situation definitely has its own impacts on the asset quality. That's why we upgraded guidance for 2022 in the beginning of this year. Also we said that the asset quality, in fact, is behaving in better terms than we anticipated in beginning of this year. We stick to the guidance which we provided last quarter, which is 1.5% for the whole year. So far, our results is within that guidance. Again, with regards to the next year, it's a bit premature to say, but probably as a heads-up, we probably can briefly look at the macro data. From macro perspective, we're seeing that overall economy is adapted to current situation.
While GDP growth was slightly lower third quarter regarding third quarter versus the second quarter, it still remains robust given the current context. GDP for the nine months is standing 2.8% year-over-year basis. We see that the external situation with regards to trades is also having a positive impact. Like trade balance was actually more than 2 x high year-over-year basis and reached $28 billion for the first nine months. The current account is positive. Tenge is stabilized during last quarter. The only big element which is probably providing some concern is elevated inflation, which also driving the base rates to higher levels. This is probably the biggest, let's say negative elements from otherwise good macro picture.
Regarding your third question on Tajikistan, yes, we indeed enter the agreement to sell our Tajikistan subsidiary. Let me again remind that Tajikistan subsidiary was acquired by Halyk Bank when Halyk Bank acquired Kaspi Bank. Previously that was subsidiary of Kaspi Bank in Tajikistan. Also, some time ago, the board of directors of Halyk Bank expressed its opinion to exit Tajik markets. Initial intention was to liquidate this small franchise. In the meantime, we received the offer to acquire our subsidiary. Eventually the negotiations went well, and we entered into sales and purchase agreement. That was actually in line with our view, which we translated a while ago.
Thank you very much for detailed answers.
The next question comes from Mikhail Butkov. Mikhail, please go ahead.
Good day. Thank you very much for the presentation. I have a couple of questions. One is also on the net interest margin. Probably the key, as was mentioned, one of the key reasons for the increase in margin is increase in share of retail and SME loans. This was probably also supported by the acquisition of loans from Sberbank portfolio. If we were to exclude this additional portion, what was the underlying, like, organic improvement in the net interest margin, excluding the mix effect? If you could comment on that. That is the first question. The second question is on the Stage 3 increase. There was some increase quarter-over-quarter basis.
Do you see any signs of deterioration in some high-frequency asset quality metrics because of the higher interest rates, or it was more as a one-off event? Finally, could you maybe share any color on your dividend outlook, if any, for the next year, or any preliminary thoughts considering the current levels of capital? What is it considered to be as a comfortable level to consider dividends for the next year? Or, if any comments you could share on this topic. Thank you.
Hello, Mikhail. Thank you for your question. Let me answer your question regarding net interest margin and dividend payouts, and then I'll ask Almas Makhanov to comment on the cost of risk side. On net interest margin, basically, we are not calculating, let's say, net interest margin with Sberbank transaction or without Sberbank transaction, so this is just one calculation. Regarding what other, let's say, what was other elements which was impacting the positive development in net interest income, basically, even without Sberbank transaction, we saw that we quickly developing our products to small businesses, especially for individual entrepreneurs. That in itself is having a positive impact. Last year we had a good growth in our retail book. Year-over-year basis, again, it's providing a positive contribution.
Third element is overall our dollar portion of balance sheet, which is having a positive impact due to increase in dollar interest rates. Even without Sberbank transaction, we would have some positive development in NIM. The Sberbank transaction has actually improved that trend further. On your question regarding dividend payout, again, it's probably a bit premature to discuss what the decision might be taken next year. Normally we actually our board of directors making recommendation on dividend payout after the full year results, and we translate that. Normally in the month of March. Probably what I can say is that we respected some dividend payouts all recent years, even during 2020, during 2022.
Both years was very unusual if I may say. The dividend payout was varying due to again, external situation. We would look on the normal things like what are the prospects for growth, what are the risk environments, what is the current state of capital adequacy at the time of making decision. It's normal questions on which we'll need to answer to ourselves before making that decision. We will announce that in the month of March.
Mikhail, I will answer the question on cost of risk and movement to Stage 3. There is no specific trend in the third quarter in terms of risk metrics.
It, the movement was attributed to migration of single names from Stage 2 to Stage 3 mostly, and from Stage 1 to Stage 3. There is no specific trend that is different from what we saw in the previous quarters. Also the Stage 3 loans increased due to NPL increase in retail portfolio, which is in line with the trend that you've seen in the past two quarters. Overall, for the third quarter, we don't see any changes in risk metrics. It's only attributed to single names. Okay. And maybe a small follow-up there. Is there any specific coverage ratio which you target on the group level? Yeah, that's the last question. No. There's no specific coverage ratio.
It's mostly relates to product type to a single transactions, depending on the collateral and so forth. There's no specific targeted coverage ratio. Okay, thank you. Thank you very much for the comprehensive answers.
The next question comes from Simon Nellis. Simon, please go ahead.
Hi. Thanks very much for the opportunity. Actually, more follow-up questions since most of my key questions have been answered. Just on the margin, can you just tell us which factor? Was it the higher tenge rates or the U.S. rates was the bigger driver of the margin expansion? Just so we get a sense, you know, looking into next year, what the impacts could be. Do you have a view on tenge rates for next year? I'd be interested in hearing that. Second question would be, you know, good to see that you paid a dividend, but obviously it was less than 50% payout, which I think is your official policy. I guess that's driven by M&A.
I'd be interested if you have any other M&A transactions kind of in the pipeline. That would be my second question. Third question would be technical one, just on risk-weighted asset density. I think at the beginning of the year, you had risk-weighted asset density of around 65%. Now that's up to 72%. Can you explain what's driving that? Why is risk-weighted assets rising faster than assets? Thank you.
Hello, Simon. Thank you for your questions. Regarding which portion of tenge or dollar portion of the balance sheet had a higher impact, tenge is probably having a higher impact simply because it's higher portion of our balance sheet. The dollar portion of the balance sheet also has a fairly good contribution in the improvement of net interest income. On M&A, normally we are not commenting on that, but as of now, we are not looking at any M&A opportunities. I think we have quite robust prospects for organic growth. It's on the banking side, be it large corporate, SME or retail.
Also, we continue to developing our ecosystem and we continue to developing our subsidiary in Uzbekistan and generally business in Uzbekistan, which also includes any trade facilities or financing from Halyk's balance sheet. Regarding your question on the risk-weighted asset density, yeah, that has increased somewhat because we increasing the portion of our trade portfolio in the total assets. That is one of the elements. The second element, there were some changes on the risk-weighted assets on the regulatory side, when the risk weighting for SME actually returned to, let's say, previous norms after there was some relaxation provided during the COVID. At the same time, currently regulator is looking into providing some RWA reduction for some portion of SME businesses, mostly loans to small business.
That might potentially reduce risk-weighted asset density in all things being equal.
Okay, the outlook is for potentially improvement there going forward. Okay. And last, on the rate view for the ten-year, do you have a house view, kind of a macro view on where you think rates go next year?
Unfortunately, inflation is continue keep growing, so we currently have data for 10 months, and inflation increased to 18.8%. That was a further increase from nine-month results. There is still risk that inflation might increase somewhat before it will reach the peak. According to recent comments from National Bank and its governor, National Bank is continuing to look into inflation data carefully, and they prepared to act in order to stabilize inflation and not to anchor high inflation in terms of expectations. Fighting inflation, I think is high at the central bank agenda at this point of time.
Understood. Thank you. Thank you very much.
The next question comes from Olga Naydenova. Olga, please go ahead.
Yeah. Hi. Thank you very much for calling, for taking my questions. Also as a follow-up, regarding dividends, of course, I think your dividend policy earlier assumed some at least 17% capital adequacy ratio. Is this still intact? Should we assume it should not go below? In this regard, does your current capital adequacy ratio assume account for the dividend that was paid in late October? Was it deducted from the capital base already?
My second question is also with regards to NIM and with the dollar proportion of the net interest income, to what extent you are transferring the gains that are you basically how much are you paying on your dollar, on your dollar accounts and what the competition does? Also a broader question on the competitive environment, if you, if you can comment on what is what is going on with the competition in over the past this year, generally, did the competitive environment change substantially over the past months, and what do you expect following going forward?
Hello, Olga. Thank you for your question. Let us answer one by one. Regarding your question on dividend payouts, yes, indeed, we have this desired minimum 17% Tier 1 capital in our policy. Basically, we do not want our Tier 1 to drop below 17%. In the results, as of 1st of October, that was pre-dividend payout. Dividend payout itself roughly has an impact of 1.2 percentage point, but it doesn't take into account the continuous capital accumulation due to ongoing operation of the bank, because we continue to show profitability. The net effect, as of fourth quarter might be different because we continue to hopefully generate good profits. With regards to next year, I think I already answered.
We'll be looking at different positions, like risks, what are the current capital position at the time of decision, what are the prospects of profitability and opportunities on the market. On your question regarding the funding costs for our dollar book, with regards to competition, we do not have this comparison vis-a-vis competition because the banks are generally not providing this granularity of analysis. The expectations might be it's somewhat lower than the markets simply due to composition of our liability because we are universal bank and we have a big, large corporate business both on the asset side and liability side, compared to, let's say, to pure retail players or players who are focusing on retail and SME.
we would have a higher portion of dollar liabilities from large corporates, which tend to keep money not on the longer-term term deposits, but rather keep them in, let's say, shorter, current accounts, for example, or overnights. Simply looking from that perspective, typically the cost of funding for that portion would be lower compared to the bank, which is, let's say, purely attracting retail deposits or deposits from retail and SME. One more comment here is probably that in Kazakhstan at this point of time, the dollar cost of funds is lower compared to other markets because we have Deposit Insurance Fund, which is currently limiting the rates for retail dollar deposits at 1%.
That is generally giving a lower funding rates in dollars for Kazakh banks in general.
Okay. Thank you very much for that.
Next question comes from Ronak Gadhia. Ronak, please go ahead.
Thank you. Thanks for taking the time for the presentation and taking the time. I've got three or four questions. Firstly, if you go back to that slide on average interest rates towards the end, in the appendix, I see the yield on investment securities on a year-on-year basis at nine-month level and three-tier level was still declining. As we go through the rest of the year and into next year, should we expect that yield to shift upwards as you roll over your portfolio at the higher rates or, you know, what should we expect on that side?
The second question is on, I know you guys don't want to talk much about guidance, maybe talk a bit about what we should expect on your loan growth guidance next year. Are you starting to see growth appetite, loan appetite moderate given the higher rates or is the underlying appetite still quite robust? Are you willing to lend into that into this environment? Then the third one is on cost of risk. Again, you've spoken quite a bit about this, as the exposure to SME and retail loans continues to increase, should we expect, you know, in the medium term, your normalized cost of risk to be higher than what it has been historically?
Hello, Ronak. Thank you for your questions. Regarding the rates on securities, I think this is a combination of few things. First of all, the portion of our securities is held to maturity. That's why probably that was not. It is not immediately reflecting in terms of yield change. The changes are going through comprehensive income and affecting the capital. Secondly, on the rate dynamics, the impact might be coming from distribution of securities in terms of the currency. We have 10-year securities and we have dollar securities. That's why the blended rates might be affected by the composition of our securities portfolio in terms of the currencies.
Going forward, all things equal, and even if the rates would remain at current level, by time the current securities is maturing, typically they will be reinvested at higher rates. In terms of loan growth, again, we are not currently providing guidance for the next year, but what we are seeing indeed, the higher rates in 10-year is somewhat affecting our the demand and risk appetite for some portion of the portfolio. Basically for retail portion, for SME portion, which is not linked to state programs, because the appetite for state programs on the SME side is continued to be robust. We also see that the current rate hikes so far is not affecting our large corporate segment.
We still see quite robust pipeline. Again, while making the trade decisions, we would be taking into account the increased interest rate environment. We have yet to see how this demand will be translated in the actual credit growth into the next year.
Okay. On the normalized cost of risk in the medium term, as the exposure to SME retail increases?
Yes, Ronak. In terms of cost of risk, we could say that for legal entities, our cost of risk has normalized since last year, due to the fact that last year was one of repayments on the big corporate loans, problem loans. For retail clients, the current cost of risk is reflecting the actual pace of the portfolio. Given what Murat said, that we are looking at more like stabilized growth in retail side, on retail side, that should not change much the cost of risk. The current level is somewhat normalized.
Okay. Understood. If, if I may just two other very quick questions. On the cost of risk again, I think the discussion earlier this year was the cost of risk, guidance was slightly high because of anticipated regulatory changes. Have those changes materialized and the provisions for those, has that been completed or, you know, where are we with that discussion? Finally, just on the payments side, we continue to see very strong growth on the gross payments income on the one side, but at the same time, we also continue to see pretty strong increase in payments, expenses.
Could you maybe just talk about what's, you know, really driving the strong growth in, on the payments expenses, and if we can expect that to see that level off any, anytime soon? Thank you.
Yes. On the first question regarding the cost of risk, we guided in the beginning of the year higher cost of risk, including because of the expectation on regulatory changes. Those changes should take impact next year. Also for this year, we see normalization of the cost of risk on legal's entity side. For retail portfolio, the cost of risk reflects the overall changes in economy in also reflecting the higher interest rates and changes in creditworthiness of the retail clients.
Okay.
Ronan, on your question regarding the cost on the payment side, yes, they increased somewhat, which actually led to almost flat net fees and commission for the third quarter compared to the second quarter. We still see that altogether, the dynamics on net fees and commission is positive, which is seeing from, I would say, three quarters year-over-year dynamics. We do not expect that this situation in terms of higher costs which was seen in third quarter would continue. We expect that net fees and commission in, let's say medium term and longer term, has a positive positive trend.
There might be some variability quarter to quarter, but altogether we see positive developments in our fees and commission business.
Understood. Thank you very much.
The next question comes from Otar Dgebuadze. Otar, please go ahead.
Good afternoon. Thank you for the presentation and taking my question. Two more generic questions from my side. You mentioned focusing on home market and Uzbekistan as key growth areas. If you could share any views on Uzbek macro, what are your expectations similar to what you mentioned about Kazakhstan in terms of outlook for growth, inflation, current account, anything like that? In which segment on this market do you expect growth to come for Halyk Bank? Secondly, post the elections last night, would you expect any sort of shift in regulatory, fiscal, or monetary policies?
Hello, Otar. Thank you for your question. Let me start from the second one. Yes indeed, yesterday we held a presidential election, and current President Tokayev won that election based on the exit poll results. We, of course, we yet have to see what his statements would be in coming days or weeks. So far we see that the government is trying to, let's say to have some expansionary fiscal policy, which is based on the stimulus provided to economy and to wider groups of population. While the central banks is trying to play some counterbalancing act in order not to have this fiscal stimulus further negative effects on the inflation.
We expect that each of these bodies would continue to play its own tasks in terms of growing economy, but also trying to provide pricing stability. In terms of Uzbekistan, we continue as we're saying that Uzbekistan is important market for Kazakhstan, because it's naturally, geographically, the country which has the long border. The country is important because it has high population, younger population. The banking sector is still underdeveloped but is developing very quickly, not only in terms of the size but also in terms of quality, dynamics in terms of digitalization, which is I think is viewed by us positively.
Because we are a universal bank in Kazakhstan, we also see that Uzbekistan is providing opportunity on all aspects of our business, be it large corporates, SMEs, or retail. We having a positive view on Uzbekistan and would continue to develop our business in comprehensive way.
Do you have any outlook on rates or inflation over the next year or so?
I probably do not have the exact figures in front of me at this point of time.
Okay, no worries. Thank you very much.
What we're seeing, that inflation in Uzbekistan is currently running lower. I think they do not have, let's say, same issues in terms of higher fiscal stimulus like in Kazakhstan, but also.
regional geopolitics, which is affecting Kazakhstan higher, from two channels. One is higher trade with Russia, and secondly, logistical issues. What we see is Uzbekistan has less exposure to these two elements compared to Kazakhstan. That's why on inflation side, we see a better picture in Uzbekistan at this point of time
That's very helpful. Thank you very much.
The next question comes from Can Demir. Jan, please go ahead.
Yes. Good afternoon. Thank you very much for this call. I have three questions, actually. I think Almas mentioned or talked a bit about the regulatory changes or the impact of them on cost of risk. Could you please expand on them a little bit so we can understand more? I was also wondering what run rate do you see for your trading income? Because, I mean, we see in different banks in the region that it's, you know, it's been a good year on the trading income front, but once the volatility dies down next year, what kind of trading income do you think it would make sense for us to model? My last question is on CET1 ratio.
Is the CET1 ratio we see this quarter, is that after dividends or before? Thank you very much.
Hello, Can . Yes, in terms of regulatory changes, we expect a new law to take to start working the next year. If you recall, there was a personal bankers law expected to be introduced in the near future. So far this year, the regulation has been only tightening on the retail side, and through the increase of risk weights and through new restrictions on income calculations.
On your question regarding CET1, what you've seen in the presentation, this is before dividend payout. As I said, the impact of dividend payout is around 1.2 percentage point. Again, that doesn't take into account the ongoing capital accumulation due to profitability. On the trading income, yes, this year is probably somewhat unusual in terms of treasury or trading income. We might expect some moderation in coming quarters and definitely into the next year. Also some portion of that trading income is related to normal client activity.
Because we continue to increase our client base, both on retail and especially on the SME and the corporates on organic basis, but also due to acquisition of Sberbank portfolio and increasing our client base, we expect that this portion, which is more stable, would definitely be higher than what you've seen in 2021, for example. It will be probably moderating, but still at a higher level than it was before 2022.
Super. Thank you very much.
We have two questions left in the chat. The first one I think was covered regarding the dividend payments for the next year. The second one from Azamat Ali: The payout ratio this year was 30%. Is the company planning to pay out additional 30% for this year? In previous years, the payout ratio was 60%. The last question we have from Parsa Kar: What has been driving up the risk-weighted assets year to date? Total assets grew 17% and risk-weighted assets grew 28%.
Hello, Azamat. No, we are not planning additional 30% payment for this year. There is no more dividend further payment is anticipated this year. Decision for 2022 results would be made after we would close full year results. We expect the boards would make its recommendation in March next year. Parsa , thank you for your question. As I explained, I think, also there were two elements for higher growth in risk-weighted assets and increasing density. One is higher growth in the credit portfolio compared to total assets. While the total assets increased by 17.5%, our credit portfolio increased by 27%. That was one element.
Small impact was in a change in risk-weighted assets, weighting on SME portion. We expect some of decisions would be favorable for risk weighting for SME business after upcoming regulatory changes. Some positive impact on the same portfolio, we would expect either in the fourth quarter or first quarter the latest.
Dear ladies and gentlemen, it seems that there is no question remaining. This completes our presentation. Thank you very much for the participation. As usual, our IR team remains open for any of your further questions. Take care and goodbye.