Good evening, ladies and gentlemen. Welcome to Halyk Bank Conference Call on presentation of financial results for the nine months of 2021. The session will start with the presentation by our 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 Corporate Banking and International Activities, Ms. Aliya Karpykova, Deputy CEO, Chief Financial Officer, Mr. Anton Musin, Deputy CEO, Digital Banking, Transactional Business, and IT, Mr. Dauren Sartayev, Deputy CEO, SME Banking, PR, and Marketing, Mr. Viktor Skryl, Financial Director, Finance, and Securities, Mr. Almas Makhanov, Chief Risk Officer, Mira Kassenova, Head of FI and IR, and myself, Margulan Tanirtayev from IR team.
Now let me start with an overview of Halyk Group consolidated financial results for the nine months and third quarter of 2021. During the nine months, the bank generated KZT 333.1 billion of net income. The increase by 36.2% compared to the nine months of 2020 was due to the overall business growth across all segments. In the nine months of 2021, we demonstrated 29% return on average equity and 4.1% return on assets. Next slide, please. Total assets of the group increased by 8.6% versus the year-end of 2020 as a result of growth in amounts due to customers, both individuals and legal entities.
Customer deposits increased by 12.6% versus the year-end of 2020 due to fund inflow from the bank's clients. Next slide, please. Interest expense for the nine months of 2021 increased by 6.8% versus the nine months of 2020, mainly due to increase of average balance and share of KZT deposits in the amounts due to customers, which was partially offset by the decrease in interest expense on debt securities as a result of a redemption of bank's high-yielding Eurobonds. Interest income for the nine months of 2021 increased by 17.9% versus the nine months of the last year, mainly due to increase in average balances of loans to customers.
Net interest margin increased to 5.3% per annum for the 9 months of 2021 and to 5.5% per annum for the third quarter of 2021, compared to 4.8% per annum for the 9 months of 2020 and to 4.2% per annum for the third quarter of 2020, mainly due to improved structure of placement of interest-bearing liabilities into interest-earning assets and due to savings on coupon payments as a result of an early redemption of bank's high-yielding Eurobonds. As you remember, in the first quarter of 2021, the bank made full prepayment of its outstanding Eurobond issue, which resulted in accelerated amortization of discount in the amount of KZT 5 billion being recognized in interest expenses.
Additionally, the bank recognized KZT 14 billion of amortization expenses in the third quarter of 2021. Moreover, due to the nature of the transaction, the management of the bank believes that the accelerated amortization of discount on bank's Eurobonds relates to non-interest expenses. As in such way, it provides more valuable information to the readers of the financial statements and enables them to identify a more consistent basis for comparing the bank's performance between financial periods. Therefore, in the third quarter of 2021, the bank recognized additional KZT 14 billion of amortization expenses in non-interest expenses and reclassified previously recognized KZT 5 billion of amortization expenses from interest expenses to non-interest expenses. In total, this translates into KZT 19 billion of amortization expenses being recognized in non-interest expenses for the nine months of 2021. Next slide, please.
Compared to third quarter of 2020, our gross fee and commission income increased by 11.3% as a result of growing volumes of transactional banking, mainly in plastic card operations. The fees derived from bank transfer settlements for the third quarter of 2021 remained almost flat due to a gradual decrease in traditional bank fees, which was offset by the increase in merchant fees as a result of growing volume of online installment loans issued.
The increase in fee and commission expense for the third quarter of 2021 by 12.3% versus the third quarter of 2020 was mainly due to the increase in payment card expenses as a result of growing volumes of transactional banking and non-cash transactions, partially offset by the decrease in deposit insurance fees payable to the Kazakhstan Deposit Insurance Fund due to lower rates for the bank on the back of the increase of capital adequacy ratios. Next slide, please.
Operating expenses for the nine months of 2021 increased by 17.4% versus the nine months of 2020, mainly due to the indexation of salaries and other employee benefits starting from the first March of 2021, increase in IT investments, increase in loyalty program bonuses payable to the customers, and increase in charity expenses as a result of one-time contribution to charity fund Halyk. The bank's cost to income ratio decreased to 24.1% compared to 26% for the nine months of 2020, due to higher operating income for the nine months of 2021. Next slide, please.
On the balance sheet, compared with the year-end of 2020, loans to customers increased by 21.3% on a gross basis and 23.1% on a net basis, while corporate loans increased by 17.5% on a gross basis, and SME and retail loans increased by 16% and 32.2% on a gross basis respectively. Next slide, please. 90-day plus NPL ratio decreased to 3.4% from 4%, mainly due to repayments of large ticket problem and previously impaired corporate loans. Cost of risk on loans to customers in third quarter of this year was at more normalized level of 0.9%. The provisioning rate decreased to 6.4%. The NPL 90-day plus coverage ratio increased to 202.1%. Next slide, please.
As at the end of the third quarter of 2021, Stage 3 ratio decreased to 9.8% from 10.4% as at the end of the second quarter, mainly due to repayments of large ticket problem and previously impaired corporate loans. We are additionally showing here how well the workout of problem loans collateral was done by the bank's SPVs during the nine months of this year. Next slide, please. On liability side, the corporate and retail deposits increased by 12.2% and 13% respectively compared with the year-end of 2020 due to fund inflow from the bank's clients.
As at the end of the third quarter of 2021, share of corporate deposits in total deposits was 55.2% compared to 57.3% as at the end of the second quarter of this year. Whereas the share of retail deposits in total deposits was 50% compared to 49.2% as at the end of second quarter of this year. Next slide, please. Compared with year-end 2020, total equity of the bank increased by 8% as a result of net profit earned by the bank during the nine months of this year. The bank's capital adequacy ratio increased with CET1 and total capital adequacy ratio standing at 21.5% and 22.5%.
Now I would like to hand over to Ms. Mira Kassenova, Head of FI and IR.
Good evening. Now we would like to provide a digital update as well as the bank's business segment updates. Customer engagement within our core online platforms, Homebank and Onlinebank, has continued to grow in 3Q 2021. The number of monthly and daily active users of Homebank app, our key retail digital channel, has increased by 68% and 80% year-on-year respectively. MAU reached 3.7 million in 3Q 2021, and we are well on track to reach our 4 million MAU target by 2021 year- end. We see sound growth in our digital platform for businesses, Onlinebank. Notably, number of active users of our Onlinebank app has reached 116,000, increasing by over four times year-on-year.
The app is ranked number 1 within the respective category in Kazakhstan, reflecting seamless experience and service we offer to our clients. In 3Q 2021, we launched additional services and functions within our platforms. This includes a number of innovative services such as Halyk QR for retail customers and merchants, government services, and online auto loans in Homebank. Next slide, please. Rapid migration of customers to our digital platforms supported strong growth in credit and non-credit products for retail clients and businesses. We see continuous shift to cashless transactions. Over 57% of retail payments volume were represented by non-cash card transactions in 3Q 2021, a notable increase from 36% a year ago. Online sales were the key driver of retail loan growth, as we now issue over 67% of loans digitally.
We started new relationships with almost 40,000 business clients entirely via Onlinebank in nine months of 2021. We see strong growth in online transactions and payment volumes, which have grown by 20% year-on-year in nine months. By 2021 year-end, we expect to onboard 60,000 new businesses online, and we are well on track to reach this goal. While we already exceeded full year target for number of digital loans issued to IE. Next slide, please. We see substantial progress across our retail ecosystem verticals. Premiums written within our online auto insurance platform increased 3 x year-on-year, while GMV of Halyk Travel and Kino.kz have been expanding rapidly by 109% and 45% quarter-on-quarter respectively.
We hit 37,000 mark in the number of customers in Halyk Invest, exceeding our target for 2021 as our investment platform is growing swiftly. Development of our marketplace platform, Halyk Market, remains a key priority for us. Our network expanded to 319 partners offering over 126,000 SKUs nationwide as of September 2021, and we forecast to expand our footprint further. Our marketplace GMV has doubled year-on-year, reaching KZT 30.8 billion in 3Q 2021. At the same time, we are expanding our ecosystem, introducing new services in Homebank app, which are convenient for our clients and support high customer engagement. For example, our recently launched Halyk remote refueling service has been well received by customers as number of orders increased by almost 5 x during two months. Next slide, please.
Turning to retail segment, we would like to highlight solid performance across key dimensions. Our active retail client base has grown to 8.9 million clients as of nine months, 2021, and we see increasing digital footprint with our Homebank app and growing transactional activity. The transaction volumes have increased by 31% year-on-year as we processed over KZT 22.6 trillion tenge of transactions in nine months. More importantly, products per customer increased to 3.1 versus 2.7 a year ago, reflecting strong customer engagement. Retail loans have shown strong growth of 32.2% year- to- date, while customer deposits increased by 13% year- to- date. Next slide, please. As mentioned, we have shown a very robust growth in our retail lending.
Our retail portfolio has grown by 60% since the beginning of 2020, while the loan issuance volumes have increased by 87% year-on-year in nine months, 2021, with record KZT 138 billion new issuances in September alone. The growth has been primarily driven by digital sales, which increased eight times year-on-year and reached 28% of total retail loans issued in nine months. At the same time, asset quality has continued to improve further with retail NPL ratio decreasing from 5.5% in 2Q to 4.8% in 3Q while we increased our already conservative provisioning coverage. Next slide, please.
In corporate banking, our loan book has expanded by 5.4% Q-o-Q or 20.2% year-on-year, as we increased financing volumes from new and existing customers with the recovery of Kazakhstan economy. Corporate portfolio remains well diversified across industries, while local currency loans comprise 68.4% of the loan book. Corporate NPL ratio decreased to 1.9%, while already conservative provisioning coverage increased to circa 295% as of the third quarter of 2021, reflecting our solid asset quality and prudent risk management. We see strong growth in our active corporate client base as it reached over 1,900 customers in the third quarter. Essentially, customer engagement and transaction activity have been increasing as well. Next slide, please.
We continue to develop online bank as our powerful platform for our SME and corporate customers. Over the last month, we added a number of services such as Halyk POS Pin on Glass and Halyk QR for legal entities. Most of our customers are actively using online bank, either in app or via web interface, conducting 99% of payments and transactions online. We are proud of the performance we achieved in SME banking recently, supported by the implementation of our digital initiatives we mentioned previously. We currently have over 123,000 actively transacting SME clients, an increase of 61% year-on-year and 37% Q-on-Q, reflecting our continuous efforts in development of online daily banking and transactional services.
SME loan portfolio grew by 25%, while the number of borrowers has increased by 2.3 x year-on-year in nine months. Asset quality has been continuously improving as segment NPL ratio has decreased to 6.6% in nine months of 2021. Next slide, please. We currently issue over 84% of loans online, which has been the key driver of 2 x increase in number of loans issued we achieved in nine months. Our convenient fully online onboarding supports strong influx of the new customers. In nine months of 2021, we onboarded over 78% of new IE clients online.
Ladies and gentlemen, this completes our presentation. Now we would 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 the company. We have our first question from Elena Tsareva. Elena, please go ahead. Elena, please unmute yourself.
Hello. Thank you. Good afternoon. Thank you for the presentation. I have several questions. First question is on fee dynamics. Looks like in third quarter fee dynamics just a bit subdued compared to what was in previous quarter, as well as compared to guidance for the whole year. Could you please maybe more elaborate of the reason why it's really went just a more smooth dynamics currently, and what maybe you can expect any pickup of activity in fourth quarter and beyond? This will be my first question.
Elena, hello. This is Murat Koshenov. Thank you for your question. Yes, indeed. If we compare third quarter to second quarter with regards to fees and commission income, there was not a big growth, percentage wise. There are a few reasons for that. Reason number one is that, we believe that second quarter was particularly strong, due to, some more activities on the credit side, on retail credit side, including refinancing, which partially affected strong dynamics in fees and commission in the second quarter, and which was not affected the third quarter. That's why quarter-over-quarter basis, that effect was less pronounced.
Secondly, a number of fees and commissions income, particularly regarding cash operations, regarding fees attached to salary projects and pensions, they continue to decrease. That's why they also impacted net fees and commissions. With regards to full- year, indeed, we previously showed that fees and commissions growth on net basis would be in the area of 29%. Given the dynamics in the third quarter, that figure is probably now seems quite ambitious to reach. It's quite likely that the full- year figure for net fees and commissions would be lower than was guided previously.
Understood. Thank you very much. Just a follow on, like a follow-up to this question, given like a bit of downbeat assumption for fee and commission for this year. Like on a rough assumption, given like current trends, is there any risk of net profit guidance as well not to be reached for 2021?
Yeah. Since we moved to probably other items in terms of guidance. Well, typically, we are not revising guidance as we call following the third quarter results. Probably I can say that, except for fees and commission, net fees and commission income guidance, we see that other items in terms of guidance can stay intact. We probably can highlight the risk to fees and commissions net growth only.
Understood. Thank you very much. Another question is more about outlook maybe for 2022. Given like recent hikes of key rates, any like ideas of how it may affect further growth in lending as well as margin dynamics, if you can share as well as your understanding of further monetary policy path.
First of all, if you can see from our net interest margin, actually the recent hikes in the base rate by the National Bank of Kazakhstan didn't affect NIM. Actually it increased partially because of the mix in the credit portfolio. More growth on the retail and SME basis compared to growth in the corporate. Generally more stronger growth in the credit portfolio altogether. The prepayments, full prepayment of Eurobond, which actually positively impacted the NIM. Altogether, the recent hikes in the National Bank of Kazakhstan basically didn't affect negatively NIM. Also we can say that the rates in Kazakhstan already were relatively high. That's why 75 basis point increase in relative terms didn't affect it materially, the margins on the credit portfolio.
Going forward, there are still risks that National Bank might raise base rates probably until year end or beginning of next year, depending on the dynamics of inflation. However, we note that recently IMF concluded the Article IV statements in which they actually expressed their view that National Bank's activity on the inflation, on the anti-inflationary side might be leading to lowering inflation by end of next year. From that perspective, we think that any potential further increase in base rates might be temporary in nature. From that perspective, we do not think that NIM might be materially impacted by the actions by the National Bank. It is more likely that it would continue to be driven by the shift in the composition of our assets and credit portfolio.
Thank you very much. That's it for my side.
The next question comes from Simon Ellis. Simon, please go ahead.
Oh, hi. Can you hear me?
Yes. Yes.
Excellent. I guess my question, some of them have been answered. The other one I would have other than fees was on the expense, the OpEx. It was growing quite rapidly, I think up 12% quarter-on-quarter. What's the outlook for the fourth quarter and going forward? Seems like there's quite heavy cost pressures coming through. That would be my first question.
Simon, let me answer your question. As Murat mentioned, we expect that our like key items of the guidance remain intact, meaning that profit forecast should also be in line with our expectations. I would say that the main drivers they were increase in salaries starting from salary increase in the first quarter and also increase in loyalty program expenses that were key drivers for OpEx growth.
Okay. Thanks very much. My other questions would be on the other income, which I think was a loss in the third quarter. Can you tell us what's behind that KZT 11 billion loss in other expense income?
Simon, are you referring to additional recognition of discount? Is that your question?
I could be. I didn't quite under-
Mm-hmm.
In the actual P&L, there's an KZT 11,193 million loss from just under-
Yeah.
Other expense income.
That relates actually to early amortization of Eurobond which we concluded in the first quarter of this year. Actually, during the first quarter of this year, we recognized acceleration of amortization of discount in the amount of KZT 5 billion. Apparently, that was not the full amount of amortization, and full recognition was recognized in the third quarter of additional KZT 14 billion. That was the main reason which impacted other non-interest income. At this point of time, the full amortization of that discount has been recognized. I also wanted to mention that this is a non-cash expense.
Right. Okay. That's clear. That's now done. That won't affect having this impact going forward.
Yes.
The underlying other income was KZT 3 billion.
Yeah.
That continues to be driven by recoveries of or work out of SPVs.
Yes, indeed. I also want to reiterate that the full repayment of Eurobond is actually positively impacting our interest expenses, which actually translated in better net interest margin, which is evidenced by the results which we showed in the first quarter this year.
Super. Just one last one for me, the usual question. How much of your fees in this quarter are coming from buy now, pay later?
Yeah. At this point in time, Simon, we are not separating the BNPL from the rest of consumer product lending product.
Okay. That's all for me. Thanks. Thanks very much.
Next question comes from Andrew Keeley. Andrew, please go ahead.
Hi. Good afternoon. Thank you. Thanks for the call. I have a few questions. One on your net interest margin. You know, as you've mentioned, you've benefited from the savings on the coupon payments on Eurobonds, as well as the strong growth you're seeing in things like retail unsecured lending. So your NIM now, you know, is around kind of 5.5% mark. I'm just wondering whether, you know, how we should kind of think about that going forward. I mean, do you think that your kind of old guidance of typically seeing kind of 5% or so NIM as a kind of sustainable level needs to be kind of adjusted up? Yeah.
You know, do you think that actually this kind of 5.5% is more potentially a kind of new norm? That would be my first question. Maybe I'll just ask another one afterwards.
Hello, Andrew. Actually, if you see a bit longer history, you would notice that our NIM would typically fluctuating between 5%-5.5%. Basically, the period when our NIM dropped to below 5% as we previously guided was temporary, and we put quite a number of activities in order to bring that to the level which we think better reflects the profitability of our balance sheet. Going forward, we think that NIM might be impacted by the dynamics in the credit portfolio. If we continue to see a stronger growth in retail and SME, particularly small businesses, that might be positively affecting NIM.
Also potential increase in dollar rates might also have a positive NIM effect because particular drop of NIM in 2020 was due to substantial reduction in dollar rates. There are a number of items which potentially might be impacting NIM. Again, there might be quarter-to-quarter fluctuations as previously, so you have to be aware of some quarter-to-quarter variations.
Okay. All right. Thank you. I guess just a quick follow-up in terms of what you mentioned about the kind of retail lending growth. I mean, it's clear. Well, it's consumer kind of lending growth. I mean, I think you said before, you don't disclose the kind of breakdown of this in terms of maybe cash loans or buy now, pay later, et cetera. You know, it's up I think 40% or so year- to- date. I'm just wondering, you know, how...
You know, the extent to which you feel that you've kind of tapped into your kind of existing retail customer base, or do you think that there's still a lot of strong kind of growth potential in the, on the consumer lending side, you know, over the next couple of years, albeit probably a slowdown from the rates of growth that we've seen this year?
Yes. We indeed think that, you know, there is still a good prospect of growth of our retail business. First of all, because we still have a large consumer base which still can be activated. From product basis, we're still in early period of developing our Halyk Market, and that is definitely one of potential drivers. And thirdly, as we mentioned before, we realigned our sales force, which became much more active in terms of activating our client base. We believe that we able to grow not only with the growth of the market, but also, we're able to increase our market share.
Okay. Thank you very much. Then, just a final question on Halyk QR. So if I'm right in thinking you launched this in the third quarter, I wonder if you can provide any kind of details on the kind of merchant response or uptake. Can you give us any color in terms of how your kind of fees compare to those of the main competitor, which seems to have kind of undercut the market for quite a large degree? Thank you.
Yeah. Andrew, indeed, we just recently launched the product. I afraid that at this point of time it's a bit premature to give some specific in terms of number of merchants or the fees. We, as I said, just in early period of launching that service. While we will be developing that, probably would be able to provide a bit more disclosure going forward.
Okay. All right. Fair enough. Thank you.
The next question comes from Ilan Stermer. Ilan, please go ahead.
Hi. Good evening. Thank you very much. It's Ilan Stermer from Renaissance Capital. A couple of follow-up questions. Perhaps to pick up on what Andrew was asking. If I look at the plastic cards income and expense, the proportion of expense to income seems to be increasing every quarter, which implies that there's a bit of loss of market share. Could you shed some light on that? I'm looking specifically at slide nine.
Yes, Ilan. Hi. Let me answer this question. We see that our share of payment cards going through our acquiring network is stable and slightly improving, thanks to our projects on improving transactional activity on the cards. Yet, share of other cards going through our acquiring network is still relatively high. On those transactions, we typically carry a lower margin compared to our own cards. If we take a look on the number of transactions and breakdown of those transactions, share of our own cards and our acquiring network is slightly improving.
Okay. Thanks for that. Second question. Can you give me a sense of the split of the book, the loan book into fixed and floating? Perhaps by segment or by currency or both, that would be very useful.
Ilan, it's typical in Kazakhstan that loans actually are fixed. That is particularly related to tenge. I think it's almost 100% of tenge loans is fixed. Dollar-wise, there is small proportion which is floating rate. But I do not have the exact figure, but my assumption is that the percentage of that is not more than 5%. So again, the majority of loans would be fixed rate.
Corporate as well?
Yes.
Okay. Thanks. Last question. Given the sort of growth that we've seen in the consumer side and in fact in mortgages as well, is there any sense that that the regulator is getting a little bit antsy, a little bit worried about concerned about the growth rate?
Yes. First of all, our growth in mortgages is not that high compared to some other players. In fact, we saw that our mortgage book reduced in the third quarter this year because of the fact that the government allowed people to extract some of their pension savings.
Savings
In order to prepay their mortgages. So from that perspective, we definitely would not say the biggest bank which is actively growing the mortgage book. However, indeed we see that altogether retail loans are increasing and if that would continue to grow at the same pace, at certain point of time, we might see regulatory actions as was the case previously. In previous periods, in previous years when the market was growing at a high level, for some prolonged period of time, we saw that regulator came with some initiatives in order to cool down that growth if the market was not, let's say, coming to plateau.
We have yet to see how the dynamic, sector-wise would be developing next year. We think the growth of loan portfolios could not be looked in isolation, and definitely should be looked compared to growth in salaries. It should be looked in terms of net disposable income. It should be looked in terms of dynamics on employment. All these factors might be impacting the way how the regulator might potentially look into situation with consumer lending.
Okay. Yeah, for now you're not worried, but obviously it's something that bears watching.
Yes. I think we prepared to various situations because we have been in that situation as the market previously.
Yes.
What is important also to know that with Halyk Bank definitely are not the most aggressive player in terms of credit terms. Our client base is mostly related to people who have steady salaries, stable employment. That actually was pronounced in 2020 during the pandemic when, during lockdown, some purely retail-focused banks actually saw reduction in loan issuance while we saw continuous demand because a big portion of our loan portfolio was related to people who we might consider working the segments which is considered as essential workers like doctors, civil servants, teachers, the employees of large enterprises.
Okay. Thank you. Thank you very much.
The next question comes from Andrey Mikhailov. Andrey, please go ahead.
Good evening. I have a number of questions. I'll start with asset quality, loan quality, which is undisputedly good, but my question is how good is it? Do you think we could expect, Cost of Risk, provision recovery, say, once or twice over the next 12-18 months? That's the first question. Thank you.
Well, Andrey, thank you for your question. This is Almas Makhanov. As you see, in third quarter we had the cost of risk at the more normalized level comparing to previous two quarters. In terms of expectations, we can only probably talk about upcoming quarter based on the pipeline of additional recovery that we see in the works as work in progress. We can expect that the cost of risk should be in line with our previous guidance. As far as more mid-term focus, I think we normally provide guidance on overall bank performance when we announce our annual results. I think we will do that once we have those results.
Thank you very much. My second question is on Halyk Market. You had 126,000 SKUs at the end of the third quarter, and as far as I remember, the target for the full- year was 100,000. You are already above that target. It's tempting to assume that you could have around, say 150,000 SKUs by the end of the year. Would you agree with this logic?
Andrey, we are not providing now the particular guidance on SKUs or number of merchants at this point of time. As we previously mentioned during similar calls during previous quarters, I think we said that the key priorities for Halyk Market is indeed to grow number of partners and number of SKUs. That still remains the case because we see that they're the key drivers for further developing Halyk Market.
Thank you very much. My third and more or less the recent question is on dividends. I would be grateful if you could provide any updates on your thinking about the FY 2021 dividends, in particular with regard to the dividend payout ratio and perhaps also the capital allocation ratio. Thank you very much.
Yes. Thank you again for this question. Actually, despite the 60% dividend payout this year and the capital and strong growth in risk-weighted assets, our capital still remains solid. I think going forward, again, as we previously mentioned, we'll be looking at our business prospects. We would be looking at situation in the market in order to make decisions on the capital distribution. Nothing changed from, let's say, the way how we think about that. But probably I cannot add more at this point of time during this call.
Thank you very much. Thank you. That's all from me.
The next question comes from Ronak Gadhia. Ronak, please go ahead.
Thank you. This is Ronak Gadhia from EFG Hermes. Maybe just as a follow-up to Andrey's question on long-term cost of risk. We're seeing the exposure to the retail segment increase given the structural shift in the loan book. Could that have any implications for the sort of the normalized cost of risk NPL ratio for the bank?
Yes. Hello, Ronak. This is Almas Makhanov. Yes, we see that our portion of retail loans is increasing. That segment naturally have a bit higher cost of risk comparing to other segments. Everything will depend on several factors. The way how the situation with COVID will develop. Also, the way how economy will develop in next coming months. But in terms of impact on cost of risk, we believe there should be some impact due to change in loan structure, loan portfolio structure. However, we are normally working within the risk appetite that we set based on our overall performance.
We should not see a significant impact from increasing retail financing.
Thank you. Could you just also talk about the insurance business? I see on a year-on-year basis, the contribution in terms of revenue and profit has continued to increase. Maybe just talk a bit about the growth outlook and the contribution from that going forward.
Hello, Ronak. Yes. The main drivers for this year were bank insurance and also some pickup in life insurance product which we saw during this year. We expect that the contribution of life and general insurance would be at least the same level as we currently see and as we saw historically. Sometimes this line items may be volatile through changes in the legislation or some big contracts which we may have from time to time.
Okay. Understood. Finally, just on your non-Kazakh operations, specificallyn Uzbekistan. I know it's a relatively new subsidiary, but could you maybe talk about the early performance of the subsidiary?
Uzbekistan subsidiary is developing quite well. They're increasing the footprint in the country. It's already present, I think, in eight locations. They also developing certain products and I think the recognition of the brand is increasing. Like as a matter of fact, in terms of auto loans, they're already number three bank. Everything is developed according to the schedule. Yeah, we think that it's progressing quite well.
Okay. Could you maybe share some sort of mid-level targets for this subsidiary in terms of what it could contribute to revenues and bottom line?
I think we in some period of time in the future would be showing the data separately. At this point in time, it's probably a bit premature, but we see that in terms of the growth dynamics, they might start being visible probably starting from 2022-2023. We still have a very good vision of that city. Most of the activities last year, for example, and this year was aimed at building the proper platform in terms of automation, visualization processes, building the footprint, developing the product and services. All these activities, I think, they are done also with the help of our headquarters.
We believe that they're building quite a strong basis on which they would be leveraging in terms of the business starting from the next year.
Understood. Thank you very much. The next question comes from Ludmila Melnikova. Ludmila, please go ahead.
Well, good day. Actually, this is Mikhail Butkov from Goldman Sachs. Yeah. I have two questions. The first one is on the ecosystem assets. What was the contribution from these assets to your operating profit in the nine months? And also, can you maybe provide some outlook, what percentage of equity do you plan to invest into these assets? Or maybe when will you provide such a target?
Let me start answering your first question. First part, we see currently that, like, digital products, including ecosystem, products, now contribute around up to 3% to operating income. At this stage, we are not able to provide you with guidance on how much we plan to invest further into ecosystem.
Okay. Another question is on SME lending. I wonder, can you maybe disclose what's the approval rate for the loans in this segment? And where from do you capture the new clients into this segment? How do you measure the quality in the beginning? Just also, what's the Cost of Risk, if you could disclose yeah for this segment, do you observe currently?
Yes, Mikhail. Unfortunately, we do not disclose specific metrics such as approval rates for product on a product levels. But overall, we can say that for SME segment, we use different underwriting processes, including individual analysis based on financial statement, credit analysis based on collateral valuation and so forth. Given that we have those procedures in place already worked out very well. Approval rate at the late stage of decision is relatively high, including based on the fact that it goes through all these underwriting processes. Plus we have a newly developed product. It's based on model risk engines.
For those clients, it's quite a new product, quite new portfolio, which is performing well right now. The models are based on thorough statistical analysis. I think we should probably see more of this product growing in our portfolio. Overall, approval rates we don't disclose on segment levels.
Right. Thank you.
The next question comes from Can Demir. Can, please go ahead.
Hello, can you hear me?
Yes, we can.
Okay. Thank you very much. I'm trying to understand your strategy in the payment space a bit more. I was wondering if you could talk a bit more about your merchant take rates, how it compares to competition, and also on loyalty points. Can you talk a bit about the nature of these and how do the customers earn loyalty points? Are they cashbacks? And so on and so on. If you could shed some more light on those, that would be great. Thank you.
Yes. Let me answer your question. Hi, Can. From position of take rate from merchant, if we talk about buy now, pay later, it's in the area of somewhat 8%. With respect to loyalty program
We have program which stimulates usage of our cards in our acquiring network. We have now stimulation program till the year end. Our clients earn up to 5% in loyalty programs. One loyalty point means 1 KZT. We have maximum amount per client per month, which is 30,000 KZT or slightly somewhat around $60, which you may earn when you will be using a card of the bank. Of course, we also accrue points when a customer transacts in acquiring network of other banks. In that case, customer gets a lower amount of points.
Okay. Is this? I mean, how should we see this? Is it? Do you have any cooperation with the merchant in the sense that, you know, do you tell your customers or if you go to this XY, that merchant, and if you make a purchase, you get 5% cashback, or is it more general? I mean, as long as the merchant has your POS, does the customer gets loyalty points? How does it really work? I'm just trying to understand, is it a comprehensive program or is it more in the beginning stages?
Yes. It's a very comprehensive program. We have different layers of loyalty programs. The one which I just described is like a base level. We also have cooperation with merchants. Each merchant may provide their own like loyalty program together with us. Like, they can provide additional points on each purchase which is done like through POS terminal of the bank. We also have a number of co-brand projects with our merchants.
Like, for example, one network of gas station, we have co-brand card with them, and the holder of this card can get extra points when they using this card to pay for gas or other products which were purchased on that gas station. This program is very wide. We have different programs in different cities based on the landscape and strong network of merchants in those cities or towns. We are developing further our data factory, which means analytics on customer behaviors of our clients. We can provide special offer to each individual customer based on their behavior.
We have also some programs which are aiming to stimulate transactional activity of clients. We see that number of non-cash payments is increasing, and we see that less customers are now withdrawing cash, and they are more using their payment cards to make non-cash transactions. This is thanks to our further development of our loyalty program.
Mm-hmm. Mm-hmm. Just one more question on the take rate. You mentioned that if it's a BNPL transaction, you mentioned it's 8%. What if it's not a BNPL transaction? How much is the take rate if this is just a normal transaction? Of course, it depends on if it's a credit card or debit card, but just on average.
If it's our transaction in our POS terminal, it's about 2%. If it's like other cards in our acquiring network, then it's a bit less. It's somewhat below 1%.
I think it's pretty much also depends on whether it's what the MCC code of this operation, because it's partially linked to the fees which the international payment companies apply. It also would depends on whether it's a big merchant or small merchant. It's not like one fee rate which is applied.
Sure.
Uh-huh.
Got it. Thank you very much. This was Yakov Levikov. Thank you.
The next question comes from Leonid Despatov. Leonid, please go ahead.
Thank you for your presentation. I have one question. You already mentioned that there is some slowdown in growth rate of net fees and commission.
What is the difference between the fee and commission income already embedded in your previous full- year guidance and the numbers that you expect now for the fee and commission, just about consistent for the whole year?
Leonid, I can say two things here. Thing number one, if we look year-over-year basis, still we think that net fees and commissions is still relatively strong. It's above 10% growth. Growth fee and commission increase was above 11%. What was slowed down is quarter-over-quarter, and as I mentioned before, is also partially explained by relatively strong second quarter results. However, we see the risk for full- year guidance on net fees and commissions, which was previously stated at 29%. We normally are not providing updated guidance at the call following the third quarter results. We are not ready to disclose the particular figure which we expect at this point of time.
We are highlighting that that particular item is at risk of achieving the previous guidance.
How much is the risk if?
Again, we are not ready to provide the particular data at this point in time.
Thank you.
Yeah. Ladies and gentlemen, this completes our presentation. It seems that there is no questions remaining. Thank you very much for participation. As usual, our IR team remains open for any of your further questions. Thank you and bye.