Good evening, ladies and gentlemen. Welcome to Halyk Bank's conference call on the presentation of growth results for 12 months and the fourth quarter of 2023. Thanks, everyone, for joining us today. The session will start with the presentation by Halyk team and will be followed by the Q&A session. Please note that the call is being recorded.
And the participants to today's call on Halyk Bank's site are Mr. 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. Ms. Olga Vouras, Deputy CEO, Responsible for Corporate Banking. Mr. Dauren Sartayev, Deputy CEO, Responsible for SME Banking, Transactional Banking, PR, and Marketing.
Mr. Zhumabek Mamutov, Deputy CEO, Responsible for Retail Banking and Soft Collection. Mr. Nariman Mukushev, Deputy CEO, Responsible for Digital Government Services, Ecosystem, and Customer Experience. Mr. Almas Makhanov, Financial Director; Mr. Viktor Skryl, Strategy Director; Nurgul Mukhadi; Rustam Telish from IR team; and myself, Mira Kasenova, Head of FI and IR.
Firstly, we would like to highlight our achievements in increasing client engagement and selected business lines scaling up during 2023. Halyk Super App MAU increased by 46% year-on-year, which led to a 48% increase in payments and transfers through our Super App. Onlineb ank, our internet platform for legal entities, demonstrated a strong increase in DAU by 24% year-on-year, which was accompanied by a strong increase in payments by 20%. Marketplace GMV grew almost two times, while Halyk Market increased by 2.7 times.
Kino.kz, our entertainment tickets platform, was 2.8 million MAU, increased GMV 2.6 times, and reached 37% of market share. Brokerage services MAU increased 2.2 times, and we were the main platform in the last four months for two national public offerings. We continue to provide our shareholders with strong returns on a consistent basis through consistent dividend payments. Next slide, please. We are also glad to highlight further progress in implementation of ESG principles throughout the business and corporate governance system, and this is an important strategic priority for us.
Continuing to follow best practices in sustainable development, we became the first bank in Kazakhstan to join the UN Global Compact in January 2023 and published a sustainability report in line with the TCFD recommendations in July 2023. In June, Halyk received the Best Green Investment Bank Award for commitment to environmental values and effective implementation of the principle of sustainable development from AIFC.
We're also glad to note our last year ESG report ranked first among companies in the financial sector by PwC. Next slide, please. For effective achievement of sustainable development goals in 2023, we have developed such corporate documents as Responsible Finance Policy, Methodology for ESG Segmentation of Loan Portfolio by Industries, and Corporate Business Portfolio Carbon Footprint Calculation Methodology. Moreover, a green finance policy is now in the process of development. Next slide, please.
One of the bank's key ESG strategic areas is the environmental impact management. In 2023, Halyk 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 completed the work with an international consultant to implement the ESG agenda in the lending process.
We have integrated ESG into the bank's risk management system and implemented the responsible finance principles. Subject to certain thresholds, our approach includes exclusion list, ESG risk assessment of the customer through self-declaration, full ESG scoring of the customer, project assessment for CapEx financing. Also, we have implemented the ESG components in the bank's lending process. Moreover, we continue to calculate Scope 3 on indirect emissions, including from the finance portfolio.
It is worth noting that the bank has implemented an ESG KPI system to support the sustainable development strategy and develop an action plan to achieve medium and long-term goals. Next slide, please. Being a socially responsible bank, we support the accessibility of our services for the country's remote regions, maintaining one in five out of 570 branches in small and single-industry towns. Moreover, remote regions represent 27% of the bank's SME loan portfolio.
We're actively interacting with four major universities in the country by opening IT laboratories and regularly holding lectures. Last year, we established a strategic partnership with a leading educational platform in the country, and we will provide you more details on this later in our presentation. In 2023, jointly with the Amanat Political Party, we have launched a large-scale social project called Debt-Free Community to provide financial literacy training to the rural population of Kazakhstan.
Next slide, please. Following the principle of sustainable development, we provide financing of sustainable projects that help reduce environmental impact. Halyk finances the supply of natural gas to residential houses of socially vulnerable citizens as part of the Social Gasification Program. In 2021 and 2022, we connected about 100 houses of Almaty residents to the natural gas supply system, and in 2023, the gas infrastructure was expanded to 200 hous es in Almaty and Astana.
On top of that, the bank provides zero-interest lending for individuals for connection of private houses to the gas supply system in Almaty and Astana. In 2023, we also financed a number of sustainable projects in different parts of the country for the total amount of KZT 191 billion. You can see here on the slide the brief descriptions of these projects. The bank also provides support for women's entrepreneurship. 55% of our, IE, borrowers are women. Under our own Women Entrepreneurship Lending Program, we have already financed 573 entrepreneurs in the amount of KZT 5.6 billion.
We also finance healthcare projects of private medical companies and pharmaceuticals, and as of the end of the year, the portfolio of such projects amounted to more than KZT 100 billion. Now, let me hand over the call to Viktor Skryl. Thank you.
Thank you, Mira. We'd like to deep dive in retail business results. Halyk Super App added 2.5 million MAU in 2023. While active client base increased by 3.4%, we were able to increase penetration of our Super App in that base from 54% in 4Q 2022 to 77% in 4Q 2023. Halyk is a trusted partner for our salary project clients. 42% of employees in Kazakhstan choose Halyk's salary card. Next slide, please. Open ecosystem ideology allowed us to launch three new value-adding solutions for our clients. Kundalik is the first such service.
Kundalik is a leading digital educational platform in Kazakhstan, which covers 73% of all schools in Kazakhstan. We reached agreement to integrate Halyk's loyalty program into Kundalik's platform for junior and high school students. In addition, we provided the ability to open payment cards for those children.
This project gave us the opportunity to attract new younger clients and make Halyk their first bank. Retail loan book increased by 22.7% year to date with a strong market share of 17.9%. Volume of issued loans almost doubled in 4Q 2023 year-over-year. 84% of our loans by count were issued digitally in 2023. On the next slide, we show retail deposits, which increased by 11.2% year to date with a strong market share of 27.4%. 78% of our deposits by count were opened online in 2023.
Next slide, please. On this slide, we would like to show in detail the synergy effect which we may reach through our lines of business. In September 2023, we launched a new product, digital auto loans. This was done in partnership with the bank's corporate clients, country's leading auto dealers. Numbers talk, sell to themse lves.
We reached 24.4% market share in auto loans in December 2023, a 12.2x increase. Now, Halyk Solution accounts for a major share in credit sales of auto partner dealers. Next slide. Auto insurance is continuing to deliver strong GMV growth as more clients switch to Halyk's digital solutions. Halyk Travel GMV increased by 20.4% year-over-year. Kino.kz, our entertainment platform, demonstrated strong growth in MAU and GMV. As a result, its market share in the entertainment market further improved to 37.3%.
Next slide, please. Because of our continuing focus and efforts, we see strong dynamics in Marketplace GMV. We attracted more partners and increased SKU base to provide a better experience for our clients. Next slide, please. In our brokerage services, we also see an increase in client base and volume of their transactions.
In 2023, Halyk Finance entered a new market of pension assets management and was able to reach 51% market share. Assets under management increased by 63% year to date. Next slide, please. We would like to show how historically strong investment bank Halyk Finance was able to leverage Halyk's retail client outreach to provide remarkable results in recent IPO placement. Next slide, please. During the year, we added 17 new government digital services into our Super App, making us the market leader.
More than 13 million times our clients use government services. And now, we are moving to an update on SME and corporate banking. In 2023, we were focusing on increasing transactional activity of our clients. As a result, DAU increased by 23.8% on the back of this increased number and volume of transactions through our platform. Next slide, please. Corporate loans increased by 13.3% year to date.
Penetration among the largest taxpayers remained strong and was 84%. Halyk is the largest provider of financing to the economy with a market share of 51.8%. Product penetration metrics improved during the year. On the next slide, we show an SME banking update. SME loans increased by 25.1%, as well as the volume of new loans issued, which increased by 42.1%. Product penetration metrics significantly improved during this year. On the next slide, we provide a digital update on SMEs. Digital loans for LLP showed strong momentum since launch in April 2022.
Loan portfolios surged significantly by six times year to date. In January 2022, we introduced a groundbreaking product for the market, digital blank bid bonds. The number of digital bid bonds increased by 3.7 times year-over-year, with volume increasing by 4.6 times.
The number of borrowers of digital loans, retained related to non-government programs grew by 35.2%. However, the number of borrowers enrolled in government programs decreased due to the downscale of such programs. I would like to hand over to Nurgul, please.
Thank you, Viktor. Now we are moving to geographical expansion, especially in Uzbekistan. Uzbekistan remains our key market and priority outside of Kazakhstan. Halyk overall exposure to Uzbekistan amounts to KZT 477.1 billion and includes direct equity investment and cross-border financing. Tenge Bank generated KZT 92.5 billion of interest and fee and commission income over three years. Halyk is creating an important channel for payments between Kazakhstan and Uzbekistan. More than KZT 1.1 trillion were transferred between two countries in 2023.
The retail segment has strong dynamics, with an increased number of clients and loans and deposits growth. Tenge is developing its digital proposition through Tenge24 app. The corporate business line is also performing well. Loans, deposits, and the number of clients increased during the year. On this slide, we put together loans provided by Tenge Bank and Halyk Bank.
As a result, Halyk Group takes the fourth position among the 10 largest private banks in Uzbekistan. And now, we would like to switch to the overview of Halyk Group's consolidated financial results for the 12 months and fourth quarter of 2023. During our semi-annual results call in August last year, we provided our updated financial guidance for 2023. Despite a volatile operating environment and quite an upbeat outlook, we delivered all key target metrics. Growth of our net loan portfolio amounted to 18.2% with 23.1% growth in the retail segment and 16% in corporate and SME.
Net fee and commission income grew by 19.5%, and the cost of risk was at 1%. The next four metrics were impacted by one-off negative effects from the accelerated amortization of discount on the deposit of Kazakhstan Sustainability Fund, which was partially prepaid by the bank in December 2023 for the amount of KZT 40 billion. Therefore, we are showing here the adjusted numbers. Thus, excluding this effect, our net income would have amounted to KZT 718.2 billion. Return on equity would have reached 33.6%, and NIM would be 6.5%.
Cost of risk, cost to income, would have equaled 18.7%. Let us remind you that starting from 1 January 2022, Halyk Group's financial statements have been transitioned to IFRS 17 for insurance contracts from IFRS 4. Moreover, in preparing the consolidated financial statements for the year ended 31 December 2023, the group carried out an inventory of its financial instruments.
The inventory process identified financial instruments measured at fair values through the profit and loss that were previously restricted in use and, accordingly, were measured at historical cost. As a result, the group revalued these financial instruments and recognized prior period adjustments. All above mentioned results in recalculation of certain balance sheet items as of 31 December 2022 and 1 January 2022, and P&L items for 12 months 2022 and retained earnings of prior years. All of the ratios were also recalculated accordingly.
For more detailed information, please refer to Halyk Group's consolidated financial statements and independent auditors' report for the year ended 31 December 2023, note 4B. During 12 months, the bank generated KZT 693 billion of net income.
The year-on-year increase of 21.8% was mainly due to a significant increase in lending and transactional business despite the earlier mentioned one-off negative effect from accelerated amortization discount on the deposit of Kazakhstan Sustainability Fund, which was partially prepaid by the bank in December 2023. Other non-interest income decreased by 17.3% for the 12 months of 2023 versus 12 months of 2022, mainly due to lower net foreign exchange gain amid high volatility of exchange rate and interest rates in 12 months of 2022.
Net insurance income for 12 months of 2023 improved by 89.2% versus 12 months of 2022 due to overall life and general insurance business growth. In the 12 months, we demonstrated 32.5% return on average equity and 4.8% return on assets. Total assets of the group increased by 7.6% year to date due to an increase in amounts due to customers and debt securities issued.
Customer deposits increased by 4%. We will discuss this in more detail later in the presentation. Our bank continues to perform well in terms of net interest income. Despite its decrease by 8.7% year-on-year for the 12 months of 2023 due to the decline in net dealing income, we should mention the notable increase in net insurance income and net fee and commission income. In the 12 months, the Bank's interest income increased by 33.8% year-on-year, mainly due to an increase in the average rate and balances of loans to customers.
While interest expense for 12 months 2023 increased by 48.6% versus 12 months 2022, mainly as a result of growth in average rate on amounts due to customers and an increase in the share of tenge amounts due to customers, as well as one-off negative effects from accelerated amortization of discount on the deposit of Kazakhstan Sustainability Fund, which was partially prepaid by the bank in December 2023 for the amount of KZT 40 billion. Consequently, net interest income for 12 months 2023 grew by 21.1% versus 12 months of 2022.
In 12 months 2023, net interest margin was affected by the increase in average rate on both loans to customers and amounts due to customers following the significant increase in the interest rates. Furthermore, the share of loans to customers in total interest earning assets increased substantially.
Moreover, there was an increase in the average rate of FX amounts due to credit institutions and FX interest earning cash and cash equivalents following the global increase of USD interest rates. As a result, net interest margin increased to 6.2% for 12 months 2023 compared to 5.6% for 12 months 2022. Net interest margin for 12 months 2023 and fourth quarter 2023 was negatively affected by the above-mentioned accelerated amortization of discount on the deposit of Kazakhstan Sustainability Fund.
Excluding this effect, net interest margin would have amounted to 6.5% for 12 months 2023 and 7% for fourth quarter 2023. In 12 months compared to the year before, the overall dynamics of fee and commission income and expense were driven by the increased number of clients and increased clients' transactional activity.
Net fee and commission income for 12 months increased by 19.5% year-on-year due to an increase in net transactional income of legal entities and individuals, as well as in fee on letters of credit and guarantees issued. Net fee and commission income for fourth quarter 2023 decreased by 20.3% versus fourth quarter 2022 due to increased expenses on loyalty program bonuses and deposit insurance fee payable to Kazakhstan Deposit Insurance Fund.
Operating expenses for 12 months increased by 14.5% year-on-year, mainly due to indexation of salaries and other employees' benefits starting from 1 March 2023, as well as an increase in IT investments and expenses for card business development. The bank's cost to income ratio equaled 19.2% in 12 months of 2023 compared with the 19% in 12 months of 2022 due to high operating expenses.
On the balance sheet, loans to customers increased by 18% on a gross basis and 18.2% on a net basis year to date. The increase in the gross loan portfolio was attributable to a rise of 13.4% in corporate, 25.1% in SME, and 22.7% in retail loans. Cost of risk on loans to customers for 12 months was at a normalized level within the scope of our full-year guidance and was at the level of 1%. Despite some increase in absolute terms, Stage 3 ratio decreased to 7.5% at the end of fourth quarter due to loan portfolio growth.
Compared with the year-end of last year, the deposits of legal entities and deposits of individuals were 11.2% and 9.3% respectively due to fund inflow from the bank's clients. At the end of 2023, the share of tenge deposits in total corporate deposit was 72.9% compared to 60.6% at the end of last year, while the share of total retail deposits was 63.4% versus 52.6%. On a consolidated basis, capital and equity ratio of the bank increased in the fourth quarter of 2023 as a result of net profit earned by the bank during 2023.
And I am pleased to present our outlook for the financial year of 2024. Retail net loan portfolio growth is expected to be in the area of 15%. 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 in the area of 17%. Growth of net fee and commission income is expected to be in the area of 20%. Cost of risk is expected to be circa 1.2%.
Consolidated net income is to be more than KZT 800 billion. Return on average equity is to be more than 30%. Net interest margin is expected to be in the area of 6.5%. Cost to income ratio is expected to be in the area of 20%. Dear ladies and gentlemen, this completes our presentation. Now we would like to open the floor for your questions. Please, just quick instruction: to state a question, you can raise your hand in Zoom, or if you joined via cell phone, please press star nine to raise your hand. You can also enter your questions in the written form via chat. While starting your question, please also mention your name and company. The first question comes from Ronak Gadhia. Please go ahead.
Good afternoon. Just a couple of questions. Firstly, when I look at your guidance, specifically the net interest margin guidance, it's 6.5% increasing from last year. Could you just help us understand how that would be achieved given that the NBK has reduced rates at least a couple of times already, and it seems like interest rates are on a downward trend? So maybe just some thoughts around that.
And the second question is with regards to the early redemption of the special funds in December. What brought that about? Why did the bank decide to redeem some of a portion of that earlier, and what impact does that have on the dividend policy of the bank, if any?
Hello, Ronak. Thank you for your questions. Regarding the question on the net interest margin, we, first of all, see that both tenge rates as well as USD rates have an effect on net interest margin. With regards to USD rates, we get a note from higher for a longer approach taken by Fed. So that is probably helpful to sustain NIM at a higher level for a longer period of time than it was initially anticipated last year, for example.
And with regards to tenge, we are also hearing recent remarks from the National Bank, which expect that the reduction of rates would be taking or easing cycle would be taking probably a longer period of time after a recent series of reduction in rates. So, from that perspective, we see that the pace of reduction would be slower until the end of this year.
We see that we continue to grow faster on retail and especially SME business, which have higher rates compared to corporates. The third element is that we still have repricing upwards on longer-term instruments, which was originated by the bank five, six years ago. Those are still at maturity, are repriced at high rates. Even currently, current rates are relatively high compared to historic averages. Taking all these into account, we see that we have the opportunity to maintain a high net interest margin this year.
Regarding your second question on partial redemption of state support, which was taking place in December, we saw that the bank was showing strong profitability last year compared to our initial guidance. From that perspective, we saw the opportunity to start partially prepay state support because we had such a possibility.
Secondly, we believe that such early amortization might be helpful in terms of vision from all stakeholders, if we talk about all the stakeholders for the bank. That initially might benefit the business in the longer run. That was our consideration.
Okay. Could that potentially translate to a higher effective dividend payout ratio for ordinary shareholders because the proportion of capital contribution from the state is now lower?
Basically, the state contribution is already lower even after our first repayment. So technically, we are at a 10% threshold. So, from that perspective, we might definitely, in case the banks pay dividends, we need to make a pro-rata repayment of state support in the same manner as we did during the first half of last year. But we potentially also might consider some of the cycle repayments in the same manner as we did last year.
Okay. Thank you.
The next question comes from Olga Naydenova. Please go ahead.
Hi. I actually was also wondering about the early redemption and the pace. How much of the state support do you have left, and how quickly are you looking to redeem that funding? And also, with regards to potential dividend payments, are you planning to do interim payments, introduce interim payments already this year? And if the 17% threshold for equity tier one, capital adequacy is still intact for the dividend policy, is that what you will be looking at when making decisions?
Olga, thank you very much for your questions. Just a moment, please.
Yes. Hello, everybody. Thank you, Olga, for the question. This is CEO Umut Shayakhmetova. And I would like just to say that we are considering to pay out this year the dividends twice a year. So, this year will be the transition year to go for the dividend payments twice a year. And we expect that our advice was to the board of directors that the first payment will be based on the decision of the annual meeting of the shareholders. And the total amount would be the total amount would be not less as an absolute amount, not less than the last year payment, which means it will be around 40% of the net profit of last year.
And the second payment will be in the second half of this year. And the expectation is that it will be around 10% of the net profit of the last year. On the state debt payments, definitely, it will be paid according to the regulation. But we also can consider to pay out extra as we did last year.
This is not a prerequisite to pay dividends in the amount of at least 40%?
Let me probably clarify here. So, as Umut said, that's the management's proposal to the board of directors to consider paying the dividends in the first half of this year, which would be in the amount not less than or close to the amount which was paid last year, which is translated into 40% of the net profit of last year. So, in case the board of directors would take that decision and subject to approval of the general shareholders' meeting, we would need first to proportionately prepay the state support, so the 10% of that amount.
In case of the second payment, again, we'll need to make the same exercise. So, the state support should be prepaid before we make any dividend payment. On top of that, we might consider some additional payments of the cycle in the same manner as we did last year.
Prepayments do not count for the ability to pay for your ability to pay dividend. The amount you prepaid is not included somehow in.
No, no, no. It's like we made KZT 40 billion payments last December, so we cannot take that into account while making dividend payments this year. So, we need to make, let's say, these mandatory payments.
Okay. And is that included in your net interest margin guidance?
It is included in Net Interest Margin, ROE, net income, basically in all profitability metrics which you see in our outlook.
Okay. Thank you very much. And if I may, where is the discussion on possible tightening of the regulation, possible extra taxes on the banking sector? Could you please provide some broad overview where you are now?
There were a few discussions last year on the taxation, which might affect the financial sector. One was concerning the state securities. That is introduced from March this year on the National Bank notes. Taxes on treasury instruments issued by the Minister of Finance are postponed for a few years. I cannot recall the exact year, but I think it's 2030 or 2027 or 2030. It's for a number of years it's postponed. The second element is concerning the rates on the corporate income tax. The statutory rates for the banking sector, as for any other corporate in Kazakhstan, are 20%.
There was discussion to increase corporate income tax for a few sectors. That would include the banking sector among those sectors. However, there were a number of other proposals on taxation, like increasing the VAT tax, introducing not the flat, but the proportional scale for taxes for private individuals. When the new government was changed early this year, there was an order from the president to look again at the proposals. Currently, it's probably a bit earlier what particular proposals would end up in the new revision of the tax code. Probably we'll have that a bit later during this year.
Thank you very much.
Potentially, what was discussed is increasing corporate tax for the banking sector from 20% to 25%. But again, we don't know what the particular suggestions would be advanced further.
Thank you.
The next question comes from Mikhail Butkov. Please go ahead.
Good day. Thank you very much for the presentation. I just have a few clarification questions on capital allocation and dividend. Firstly, on dividend, maybe could you provide a little bit more color? Why will you propose to split it into two payments? And also, can you consider in your second payment, when you pay 10%, to include also the profits from the first half of the year, or it will be 10% of the profits from 2023?
On capital, we can see that it started to build up again quite strongly. Can you consider some other capital allocation opportunities on top of dividends? What could that be? Do you look at some maybe inorganic areas of growth? You mentioned, in particular, Uzbekistan as the new geographical expansion there. Can you allocate more capital there, or maybe you could consider buybacks or something else? else? Thank you.
Mikhail, thank you for your questions. Regarding the dividend payments, I think that was a long suggestion from the investor community to consider a more frequent dividend payment. As many investors noticed last year, we put that possibility in our charter. According to the charter from last year, the bank has the possibility to pay up to two years the dividend. But the dividend policy was not changed at that time because we were still having internal discussions to moving from one year to potentially a two-year payment.
This year, we're making a proposal as the management. Along with the decision on dividend payments, the changes in dividend policy are also introduced where it will be aligned with the frequency which was already incorporated in our charter. From that perspective, we are moving from one year to two years.
I believe we believe that it is addressing the view from many of the investors. Regarding what will be the sources of repayment, according to Kazakhstan legislation, dividends can be paid from either retained earnings or profit which was audited. So from that perspective, the second payment should go from results which already went through audit procedures. So technically, that would be from retained earnings. But as a reference, we will take the net profit of last year.
So if we take that into perspective, the reference if we take as a reference the net profit of last year, so basically, for the whole year, the dividends are anticipated to be in the area of 50%. Again, this is subject first to the board of directors' approval, annual shareholders' meeting approval for the first payment, as well as the recommendation from the board of directors and the second approval of the shareholders' meeting in the second half of this year. Regarding capital allocation, you see that the bank is growing. It's growing relatively high given the size and scale of the bank.
So even if you take the outlook into perspective, we see that overall, the net profit we anticipated would be growing close to last year in the area of 17%. So from that perspective, we see that the capital is also needed to support the organic growth of the bank. First of all, focusing on the organic growth, both in Kazakhstan and Uzbekistan, we see a lot of opportunities to do that on the large corporate side, on SME, on retail. We, however, are also looking at some inorganic, but that is not at the large scale in the first place. Secondly, it is focused on expanding our ecosystem.
These inorganic opportunities, they are local, or they are both in Kazakhstan and Uzbekistan?
At this point in time, we're focusing on Kazakhstan. If there will be opportunities in Uzbekistan, we might also consider. The first priority in terms of the ecosystem, that will be in Kazakhstan. We are open for our key markets to which Uzbekistan belongs.
Okay. Okay. Thank you. Thank you very much for the answers. Very helpful. Thank you.
The next question comes from Can Demir. Please go ahead.
Yes. Good afternoon. Thank you, everyone, for the presentation. I just wanted to clarify one thing that Murat said, actually. And I didn't write it down very precisely, but you said something along the lines of, "We may pay dividends off cycle as we did before." But I don't recall Halyk paying two dividends in a year. So, did you mean buybacks, Murat, when you said off cycle?
No. Regarding the off cycle, I was talking about the state support repayment. We did SPO legislation when we made the decision to pay dividends. That was in the first half of last year. By off cycle, I mean that we made some voluntary partial repayment of state support back in December last year that was not triggered by a dividend decision. That's what I meant by off cycle.
Okay. Okay. And I don't want to put words into your mouth, but given where the stock is trading, would a buyback be out of question? Or do you think, given you're reforming your capital returns a bit, do you think that would come back on the table given where the stock is trading?
Technically, we have such an instrument in our arsenal. Historically, we made share buybacks. To recall, we did a big one in the end of 2021. At this point in time, we are focusing on dividend payment. Because of the change of legislation, that also needs to be accompanied by a partial return of state support. Any buybacks would also trigger the partial return of state support.
Technically, we might consider some buybacks in the future. That cannot be fully ruled out. Our, let's say, short-term priority is dividend policy. That's why we are also amending that, developing that. That's why we are also moving into two dividend payments.
Understood. And maybe one last question on the fee growth. I mean, it's been a bit erratic given that the growth in the first nine months was much higher than the full-year growth figure. And I know this is related to the insurance fund and loyalty expenses. But I mean, especially in terms of loyalty expenses, why do they come in in a specific quarter? And I don't know. I mean, is there a chance that the growth is going to be more smooth going forward? I guess that's the question.
Yeah. In the fourth quarter last year, our fees and commission were affected exactly by two items which you mentioned. The increased payment to the deposit insurance fund. This is because we saw some strong increase in retail deposits in the second half of last year, but primarily because of the loyalty program. We did this big loyalty promotion the second year in a row. Last year, that was particularly aimed at promoting the QR payments which we introduced as a Halyk QR.
And that was very successful in terms of getting more clients on board, which is witnessed by an increased number of monthly active users on our platform. We see a great engagement of our clients with our platform. We see quite a strong response from our clients to Halyk QR, which we introduced recently.
So, these promotions, as we saw from the past, are having a longer-lasting effect. So that might have, let's say, an impact on the fees and commission in a particular quarter. But we expect a longer positive impact, which is translated in our guidance for net fees and commission, again, at the 20% for this year.
Okay. That's helpful. Thanks very much, Murat.
The next question comes from Simon Nellis. Please go ahead.
Hi. Thanks for the opportunity. Most of my questions have been answered. I just kind of have follow-up questions on the guidance. Can you confirm that the guidance then does not it assumes that the current tax regime remains unchanged. That's number one. And also, the guidance, just to confirm, it doesn't take into account any further one-off extraordinary repayments of the state support. And then, sorry, I joined the call a bit late, but I'd be interested in any guidance or kind of if you could tell us how insurance income and other non-interest income is likely to look like going forward this year. Thank you.
Simon, thank you for your question. As I said, the profitability guidance which we are providing for 2024 is incorporating our projections on state support money return. So that is our view. It's probably a bit not narrow in terms of certain items. We hope that we would be able to provide more, let's say, narrow guidance when we'll be reporting six-month results. But so far, it's reflecting our expectations. In terms of the...
Sorry. Is that just paying down the required amount, or you have penciled in or you have some kind of extraordinary repayments also in that guidance? It's not clear to me.
That includes at least the statutory payments or payments according to legislation. But also, there are certain cushions that are, let's say, allocated by us. But we do not have the specific amount at this point in time.
Now it's clear. Thank you.
Well, in terms of the taxation, the bigger changes, as I said, are not introduced yet. The one which is introduced concerns only taxation on the national bank notes. And for us, it's a very minimal impact. If any, it is, again, incorporated in the profitability guidance.
The corporate tax rate of 20% is still the base case?
Yes. Yes. Yes. Yes. Because this is the rate which is for this year. Regarding your other questions, like on dealing with insurance, I probably cannot provide specific guidance on the insurance portion. On dealing, we saw that after, let's say, coming to new normal last year, after extremely successful 2022, they think that we are coming to a certain, let's say, new normal in terms of dealing. And we expect that from that, we'll start growing at some normalized levels, basically. Yeah. It's normalized, but it will start growing from the base in line with clients' activity.
Okay. Actually, sorry, one more. Can you update us on the proposed regulation to maybe lower the consumer loan rate cap? Is that still a topic of debate?
We have not seen or heard recently what the regulator is going to do in that particular aspect.
Okay. Thank you.
The next question comes from Al Tayer. Please go ahead.
Yeah. Hi, guys. Can you hear me, okay?
Yes.
Okay. Excellent. Thanks for the call. I just wanted a quick clarification, if I could, on the dividends. So, if I understand you correctly, you're anticipating essentially paying a 40% final dividend and then a 10% interim payment for a total payout of 50%. But it sounds as though the interim payment you're introducing is going to be in respect of the profits of the prior year.
And if I have understood that correctly, I mean, I think the reason why investors were sort of clamoring or pressuring for an interim dividend is that they didn't want to wait till the end of the year to get the profits. They wanted to get a dividend payment in respect of the first half six months earlier. But if I've understood what you're saying correctly, it would actually mean that investors actually have to wait longer, right?
Because they're only getting the 40%, and then they have to wait for the interim payment. So have I understood that correctly? And why would you not consider paying an interim dividend in respect to the profits earned in the actual first six months of the period? Thanks.
Yeah. Well, thank you for your question. Yeah. You understood correctly. However, we are not only looking at dividends as a percentage of the profit. We're also looking at dividend per share. And we also want to have a bit more profitability, predictability in terms of dividend payment, and avoid any, let's say, big movements. So this is one of the considerations which we're looking at.
On the technical legislation level, as I mentioned during the response to one of the previous questions, we, according to legislation, can pay dividends basically either from retained earnings or net profit which went through audit checks, basically, to say it in simple words. The results only for the full year are audited. The interim results, like quarterly, they're reviewed. So, in our opinion, technically, we cannot make interim payments. That's why we're also not, let's say, naming that payment as an interim.
Still, as a reference, we'll be taking net profit of last year. In terms of why we are not increasing the amounts, you have to appreciate that when we're talking from the capital as well as liquidity perspective, actually, we're not only paying dividends, but on top of that, we're also making some repayment of state support money. From the bank perspective, actually, last year, we made a bigger distribution to our shareholders as well as a part of state support return. That would also be the case for this year. If you take that into account, then the impact for the bank is higher than simply 50% of the net profit.
Yeah. Okay. Understood. I mean, I think 50%, certainly in my opinion, is about the right number. It's not too high, not too low. But wouldn't it? I know this is not that important in the grand scheme of things. But yeah, technically, it has to be paid out of audited profit. But in respect of prior periods, why could you not tap into the retained earnings, technically, the retained earnings that have been earned and audited in prior periods, and use that to pay effectively and substantially profit out of the first half earnings? I don't want to spend too much time on this, but I'm not sure if that's possible.
But I think if it's ultimately leading to a deferral of the dividends compared to what would otherwise have been the situation, I suspect that investors would actually have preferred that you kept it at the prior 50% payouts. Yeah. Anyway.
Do you want me to respond, or it was just comments from your side?
Oh, look. I mean, I don't want to take up too much time. Maybe just one other one on the insurance.
Okay. We can look from a different perspective. But I think paying dividends in the same amount in nominal terms or dividend per share, if you like, in the same manner as last year and leaving an opportunity to make a second payment, I think in itself should be accretive to the shareholders. And definitely, as I said, we are moving.
So, for us, it's a transition. I do understand that probably shareholders want to have 50% for last year and then 50% again for the first half. In our opinion, it's a bit too stretchy, again, taking into account the need to make partial repayment of state support money in one particular year in the first place.
Secondly, we have to look at the opportunities because we definitely see opportunities to allocate capital and do that in the most profitable way because our return on equity during the last few periods, as you see, is exceeding 30%. So from that perspective, retaining a certain amount of net profit and reinvesting it into the business, we think it is accretive to shareholders, which would allow the bank to maintain growth of our net profit and ultimately grow dividends on a dividend-per-share basis.
Okay. Understood. Thanks. Just one very quick one on insurance, if we have time. The insurance contribution has been very volatile in the last couple of years, partly associated with the accounting policy changes. Without asking you to provide any kind of fixed guidance because I know it's volatile, could you just give us an indication of where you think the sort of, I guess, normalized or average run rate of that insurance net income line should be over time based on where it is kind of smoothing out the volatility elements? That would be very helpful. Thanks.
Thank you for your question. With regards to insurance, it will be probably quite difficult to give you some normalized level due to a few reasons. The introduction of IFRS 17 is probably one of the biggest reasons because it's a new policy document. I think many insurance companies globally are still kind of introduced but trying to, let's say, properly incorporate that into their projections and budgeting. I think we are not different from other insurance companies in that regard.
Secondly, we have a relatively new insurance sector in Kazakhstan where new products are introduced. Certain products get modified. There are elements of mandatory insurance as well as voluntary insurance. And on top of that, we have life insurance and non-life insurance. So, the scale and evolution of insurance is probably making us a bit difficult to give you specific guidance in terms of insurance. Overall, we see that insurance business is profitable in Kazakhstan. It is growing. Our insurance companies are among leaders in their respective segments.
All right. Thanks very much. Appreciate your time and great results. Well done.
The next question comes from Olga Naydenova. Please go ahead.
Hi. Thank you very much for taking my question again. Just had a follow-up. If you could please remind us regarding the rules of how much you need to repay each time you decide to pay dividends and whether it's related whether at this point, it depends on how much dividend you pay? And also, if you could briefly tell us, there are initiatives to restrict collectors' activity also in Kazakhstan. If you could tell us whether you expect any effect on your business? Thank you.
Olga, thank you again for your questions. Regarding your first question, just to remind the investors and analysts who probably missed the discussions last year, intensive discussions, actually, according to new regulation, the banks who received or have state support instruments on their balance sheet would fall under this regulation. With regards to Halyk Bank, actually, we fall under that regulation because the state support funds, which was received by Kazkommertsb ank, by Kazkom, back in 2015, was migrated to Halyk Bank as a part of acquisition and further merger between Kazkom and Halyk Bank.
That's why we also fall under that regulation. According to that regulation, basically, the banks need to look at what is the proportion of state support, the capital component of state support, in overall capital. Last year, we have a higher proportion because the nominal amount of state support was KZT 250 billion compared to our equity around KZT 2 trillion. So that was above 10% proportion. Because we made repayments in two tranches last year, KZT 28 billion as a part of dividend payment and KZT 40 billion, the additional payments, December last year.
The notional amount of state support reduced to roughly KZT 182 billion. Because our capital end of last year is exceeding KZT 2.4 trillion, the proportion of state support capital component is below 10%. So, from that perspective, the floor, which is incorporated in legislation, applies to us. So, with any dividend payments or any buybacks which the bank is doing or potentially might do, the 10% of that amount needs to be on the it will be used as early partial prepayments of the state deposit.
Okay. So, like KZT 18 billion for the coming payment? And how you feel?
Yeah. Yeah. As our CEO says...
KZT 16 billion?
As our CEO mentioned, we are looking at roughly 40% of last year's payment for this year. It's roughly translated into KZT 277 billion. So basically, around KZT 28 billion. So basically, 10% of that amount needs to be prepaid by the bank on a mandatory basis.
Okay. Thank you so much. Collectors?
And on the collection side, indeed, there is intention from the regulator to limit activity of collection companies in Kazakhstan. As I understood, that would be active for a number of years. We think that from the market perspective, that is probably not a decision which is welcomed by the financial sector. We think that any potential irregularities with any particular collection company might be solved by working with a particular company. There might be, let's say, some changes to the regulation, but not such a drastic change.
But yeah, we have to deal with that. So, we're looking at some other initiatives internally, like strengthening our internal hard collection so the bank would not have, let's say, been impacted by such decisions.
Okay. What is the proportion of how much do you sell to collectors? If you disclose. How big of an impact the business with collectors is?
It will not be a big impact for us because we have strong internal soft collection. We also have some hard collection which is focusing on some products. But there are some products which we prefer to sell to collectors because it's more efficient in terms of internal processes. It's not a big amount. It's a small fraction of the NPL book of our retail portfolio.
Thank you.
Now we'll take the questions from the Q&A chat. The first question is, according to the comps trading calculations, Halyk Bank, in comparison with Kaspi.kz, in terms of PE, PBV, PS, as well as EPS, the share price multipliers look greatly undervalued. What does the bank's management intend to do to minimize this undervaluation? What specific steps are planned to be taken, especially in digital development?
The second question is, why doesn't Halyk Bank practice buyback following the example of Kaspi.kz if management sees the company is undervalued? And the third question is, is a scenario of non-payment of dividends based on the results of 2023 being considered as a part of our return of the state aid?
Daniyar, thank you for your questions. I think you placed the question at the beginning of the call. That's why I believe your second and third question regarding the buyback as well as the potential payment or non-payment dividends is being extensively covered during the first part of our Q&A. So I will respond to your first question, which is a really good question. I think Halyk Bank is doing a lot in terms of becoming a more modern digitalized financial institution. We are a universal financial services group. That's why we have a much broader scope of products and services on which we had to work.
Obviously, we started from retail because that is probably the most obvious choice for any financial services group. I think we did a lot in previous periods as well as lately. Specifically, if we take 2023 alone, we substantially increased the engagement of our Halyk Super App, which is aimed on our retail clients. Our monthly active users increased by 46%, daily active users increased by 35%, and volumes of payments and transfers increased by 48%. Again, it's in one year alone. We continue to improve the proposition of our Super App.
We are incorporating a number of lifestyle services. We think that we and we'll continue to further leverage and expand the proposition of our services to retail clients. Secondly, what we did to retail clients in terms of digitalization, we started moving to our corporate segments. We started from individual entrepreneurs. Lately, we started digitalization of our client journey of limited liability partnerships. We're also having strong results from that perspective.
Again, in terms of the activities, we increased daily active users of our Online bank by 24% last year. We increased the number of payments by 22%. So again, it's a rapidly increasing platform for legal entities. And we think that it's a leading platform. We're also doing a lot in terms of other products. Like, for example, in our presentation, we also mentioned that last year, we came with innovative products on issuing guarantees. And Halyk Bank was not the largest bank in terms of issuing tender guarantees, for example.
But due to strong digitalization efforts, we clearly, by far, became number one. And we increased the volume of that guarantee's payment by many margins. We're also making some advances in digitalization areas where other bigger competitors are not present, like on brokerage. I hope that your audience is familiar with what we're doing in terms of the brokerage.
So we have a proposition with our subsidiary, Halyk Finance. We, in the end of 2022, introduced Halyk Invest solution for our retail investors on Halyk Super App platform. These two platforms were instrumental in recent successful IPOs like KazMunayGas. In 2022, that was the first digital retail IPO, KEGOC, and lately, Air Astana, where a significant portion of the orders was placed through Halyk Bank platform. Again, it's a good example where we can leverage our different parts of the business, like retail and investment banking, for example.
The example which we posted on auto loans, which was launched in the second half of last year, but already for December, the bank managed to reach almost a quarter of the market share. This is the synergy between retail and corporate business where we team up with our top corporate clients in the auto segment. I can continue. I think we're doing a lot. Hopefully, sooner or later, investors would start noticing that the bank is also actively developing digitalization in many products. We're already a digital bank.
The fourth question from Daniyar Temirbayev: Halyk Bank has an absolute advantage in the financial system of Kazakhstan: corporate lending. Will this advantage be used, or does Halyk Bank intend to focus on the retail segment where Kaspi.kz dominates?
Yeah. I probably partially asked this question, but probably I can continue. Indeed, we have a very strong large corporate banking platform in Kazakhstan. Lately, we also engage with large blue-chip companies in Uzbekistan. Actually, Halyk Bank is one of the biggest foreign banks which are present on the syndicated market in Uzbekistan, along with the largest US, European, and Asian banks. We're probably the only bank in the region who do that. With regards to Kazakhstan, we're looking at synergies between large corporates and SME segments.
We're looking at the supply chain solutions. We look at SME from the perspective of B2G, B2C, and B2B. So historically, we're strong in the B2B segment where our large corporate segments were interacting with SME business. That was historically strong.
In terms of B2G, the product which I mentioned, the issuing of guarantees, substantially put Halyk in the front position with regards to providing solutions to our SME clients. Our latest focus is on SME clients in the B2C segments where we're actively trying to look at different solutions, including acquiring the Halyk QR, which we also discussed is one of the instruments. We continue to leverage all those segments.
The next question from Sipacharagol: retail loan growth guidance seems low. Is there a specific reason?
Sipachar, thank you for your question. Historically, in the beginning of this year, we're providing probably a bit more cautious guidance, which is typically fine-tuned in the middle of the year. So, we'll see. There might be the case that, again, we're taking a bit cautious approach. But we're just in the beginning of the year, so it's a bit difficult to provide probably more specific guidance from that perspective. But we also can note that retail was showing quite strong growth during the last few years. So, one of the reasons for initial guidance, at least, is the higher base rate.
The next question from our Q&A chat is from Harry Savikhin: Was the increased income from Russian immigration in 2022 mostly gone in 2023? How much excess income was still attributable to maybe temporary residents of Kazakhstan?
Harry, thank you for your question. Actually, Halyk Bank, immediately from February 2022, took a conservative approach in terms of opening accounts to non-residents. That concerns both retail and corporate SME segments. We don't think that it has any meaningful impact on our results. We are definitely not the largest, not the second, probably not the third bank in terms of opening accounts to non-residents. I'm talking about the nominal, not the relative volumes.
The next question comes from Andrey Krasnov: what kind of M&A opportunities are you looking for? What would you consider a good fit for Halyk?
Andrey, thank you for your question. We are not considering M&A opportunities in the banking. We think that we have all the ingredients in place in terms of the capital, in terms of the team, competencies, instruments to leverage our strength on the clients and products to further grow our ecosystem and our traditional banking. We might, as I said, occasionally look at some ecosystem elements. And that not necessarily needs to be done in the form of M&A. Like in this presentation alone, we provided two examples.
One is leveraging our retail with investment banking, our retail with the large corporates in terms of auto loans. On top of that, I can mention our strategic partnership with Kundalik, which is the educational platform.
So, when we talk about exceeding the business, we are the first place, or we should not look only from the M&A angle because the sector can offer a lot of different opportunities. But as I said, we are looking also open to M&A. And that, in the first place, probably would be around some ecosystem solutions. There was one question. It's done in Russian from local investor. I'll probably try to briefly translate. There's a clarifying question on dividends that the bank is not oriented on the dividend payout ratio, but on the dividend per share.
And the second clarification is whether the bank is aiming to recommend to the board of directors 40% and 10% subsequently. So, the second question, I think it was covered extensively. Yes, it's 40% plus 10%. And in terms of the first question, we are looking at both.
So, our dividend policy says that we are looking at a dividend payout ratio, which is set between 50% to 100% of the net profit of the last year. But also, we are looking at other factors, like, for example, capitalization level. We're looking at prospects in terms of the business opportunities. We're looking at potential risk and stress scenarios.
And we're also looking at dividend per share. We see that this is one of the instruments which shareholders are also looking at when we're collecting the feedback from the shareholders. So, it's not from one to another. It's basically both aspects are taken into account by the bank.
The last two questions come from Abdigaulimers. The questions are following: regarding your deposit base, NBK still maintains cap on USD deposits at 1%. Have you had discussions with NBK on that matter? BCC is issuing short-term notes paying around 5%. Do you plan to follow the course? And the last question is: you have mentioned your progress in ESG. Kaspi.kz is the most modern bank employing artificial intelligence solutions to their business processes. Do you plan to follow suit?
Actually, yes. NBK, indeed, is maintaining a cap of USD deposits at 1%. We understood that banks were approaching the regulators last year to probably revise that cap, but it retained as is. That's why a number of banks started issuing some securities mostly dedicated to retail clients. We did the same. If you see in our balance sheets, the securities on the liability sides increased somewhat. And that is the notes which we're issuing for our retail clients. And the rates which we're offering are 3.5%. And the last question on ESG and AI: I think we provided extensive information on what we're doing as ESG.
I think the bank, given its massive scale, presence in many regions, interacting with different client segments, has a wider role in the country. That's why we understand our responsibility from that perspective.
Even during the previous strategy, our current strategy, I should say, we incorporated SDG goals in our strategy. That is acknowledged by different respectful organizations, as you see on this slide. We do a lot in ESG in terms of our own impact. We do, however, understand that the bank can play a role through indirect impact. That's why we're revising our policies. We're doing a lot in terms of providing sustainable finance. We do a lot in terms of gender equality, supporting our female clients through different instruments.
We're supporting clients in remote areas. So, we play a bigger role. With regards specifically to AI, definitely, we're also a modern financial institution. In some aspects, we do certain solutions where we have not seen examples not only in Kazakhstan but in other markets as well, like, for example, on issuing digital guarantee, which is done based just on the unique number of state tenders and decisions and issues guarantee is happening within four minutes. We witnessed that by introducing the auto loans where time to yes is less than one minute, is actually around 50 seconds.
So that is also, I think, one of the greatest examples. And definitely, we're looking at AI. We're looking at different solutions, but we want to keep it a bit low-profile because AI still needs to be looked at carefully. There are different vendors who are offering. Some of them are fitting, some are not. There are a lot of issues with regards to cybersecurity, stability, etc. Definitely, we are looking at a number of use cases.
Dear ladies and gentlemen, it seems that there are 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.