Good evening, ladies and gentlemen. Welcome to Halyk Bank's conference call on the presentation of the 1Q 2024 results. Thanks, everyone, for joining us today, and the session will start with a presentation by Halyk team and will be followed by the Q&A session. Please note that the call is being recorded. The participants to the today's call on Halyk Bank side are Mr. Mukhit Akhmetov, Chief Executive Officer; Mr. Murat Koshenov, Deputy CEO, Finance, Subsidiaries, Compliance and International Activities; Mr. Roman Maszczyk, Deputy CEO, Risk Management, Data Science and Collateral; Ms. Olga Vulf, Deputy CEO, Corporate Banking; Mr. Dauren Sartayev, Deputy CEO, SME Banking, Transactional Banking, PR, and Marketing; Mr. Zhumabek Mamutov, Deputy CEO, Retail Banking and Soft Collection; Mr. Nariman Mukushov, Deputy CEO, IT, Digital Government Services, Ecosystem and Customer Experience; Mr.
Viktor Skryl, Strategy Director, Nurgul Mukhadi and Rustam Telish from IR team, and myself, Mira Tiyanak, Head of FI and IR. We would like to start our presentation with a closer look at the retail business results. Halyk Super App added +19.4% in MAU and DAU in the first quarter of 2024. Our active client base showed a 10% growth year-on-year, and we managed to boost our Super App penetration from 62% in 1Q 2023 to 68% in 1Q 2024. The volume of payments surged by 43.5% and reached KZT 3.3 trillion tenge, while the number of payments climbed by 25.3%.
Halyk is the go-to choice for salary project clients, with 42% of employees in Kazakhstan opting for the Halyk salary card. Next slide, please. Retail loan portfolio increased by 7.9% year to date, with strong market share of 19.5%. Volume of issued loans more than doubled in the first quarter while maintaining good portfolio quality. 92% of our loans by count were issued digitally. Retail deposits increased by 0.4% year to date, with strong market share of 27.8%, where an impressive 89% of our deposits were opened online.
Important to mention that our ecosystem is fully accessible through our Halyk Super App, and it delivered a solid performance during one quarter of 2024, showcasing the following achievements: Auto insurance is continuing to deliver strong GMV and number of clients growth, both of which have more than doubled year-over-year. Halyk Travel GMV increased by almost 47%. The Kino.kz entertainment tickets platform showed remarkable growth in MAU and GMV. As a result, its market share further improved to almost 42%. Next slide, please. As a result of our continuous focus and effort, we see strong dynamics in marketplace GMV and number of sales pick up. We're attracting more partners and improve SKU base to provide a better client experience. In our brokerage service, we are also noticing an impressive growth in our client base and the transactions volume.
In 2023, Halyk Finance entered the market of pension assets management, and by the end of first quarter of 2024, we have captured an impressive 71.3% market share. Moreover, pension assets under management has surged by 11 times. Additionally, the assets under management and brokerage assets increased by more than two n times and 17%, respectively. During 1Q of 2024, we added 5 new government digital services into our Super App, making us the market leader, and our clients use government service more than 3.5 million times. Now, we are moving to an update on corporate and SME banking.
In the first quarter, we continued our focus to boost the transactional activity of our corporate and SME clients, and this led to a noteworthy 36% increase in DAU and resulted in notable growth, both in terms of number and volume of payments, through our online platform for legal entities. Corporate loans increased by 11.4% year-on-year. The penetration among the largest taxpayers remains solid, standing at forty-eight, at 84%. Halyk continues to maintain its position as a leading provider of financing to the economy, with market share of 51%. Product penetration metrics remains consistently high. SME loans increased by 20.7% year-on-year, while a volume of loans issuance increased by 31.4%. In January 2024, we introduced a new product to the market, digital performance bond.
The total number and volume of digital bonds increased by almost two times year-on-year. In March 2024, the first digital secured loans for LLPs were launched on the market, with long terms ranging from 2-5 years and loan amounts up to KZT 1 billion. Now let me hand over the call to my colleague, Nurgul Mukhadi, for financial results presentation. Thank you for your attention.
Thank you, Mira. Now we would like to switch to the overview of Halyk Group consolidated financial results for the three months ended 31st March 2024. In preparing the interim condensed consolidated financial information for the three months ended 31st March 2024, the group carried out an inventory of its financial instruments. The inventory process identified financial instruments measured at fair value through profit or loss that were previously restricted in use were measured at cost. The group reevaluated these financial instruments and recognized the prior period adjustments. The consolidated statement of profit or loss for the three months and at 31st March 2023, and certain balance sheet items as at 31st March 2023, have been reclassified to conform to the presentation for the year ended 31st December 2023.
Because the presentation of the current year report provides a clearer picture of the group's financial performance. All of the ratios were recalculated accordingly. For more detailed information, please refer to Halyk Group's financial statements for first quarter 2024, note 4B. Net profit attributable to common shareholders decreased by 7.5% to KZT 178 billion in first quarter 2024 versus first quarter 2023. Despite increase in lending and transactional businesses, due to a one-off recognized loss for KZT 66.1 billion on pre-tax basis. In view of expected early repayment of the deposit of joint stock company, Kazakhstan Sustainability Fund, in accordance with the IFRS. For the same reason, other expense non-interest income decreased by 2.4 times year-on-year.
As a result, in the first quarter, we demonstrated 27.7% return on average equity and 4.6% return on assets. Total assets of the group increased by 2.7% year-to-date, as a result of increase in amounts due to customers. Customer deposit increased by 2.6%. We'll discuss this in more details later in this presentation. Despite year-on-year decrease of net non-interest income by 9.6% due to decline in net insurance income, we should mention the increase in net dealing income and net fee and commission income. In first quarter, the bank's interest income increased by 30.5% year-on-year, mainly due to increase in average rate and balances of loans to customers.
While the interest expense increased by 28.6%, mainly as a result of the growth in average rate on amounts due to customers and increase in the share of tenge amounts due to customers. Consequently, net interest income increased by 32.4% year-on-year. In first quarter 2024, net interest margin was affected by the increase in average rates on both loans to customers and amounts due to customers. Furthermore, the share of loans to customers in total interest-earning assets has increased. Moreover, there was an increase in the average rate on FX amounts due to credit institutions and FX interest earning cash and cash equivalents, following the increase in USD interest rates, as well as increase in the share of tenge interest earning cash and cash equivalents.
As a result, net interest margin increased to 7.1% per annum for first quarter 2024, compared to 6% first quarter 2023. In first quarter of 2024, compared to previous year, the overall dynamics of fee and commission income and expense was driven by the increased number of clients and the growth of clients' transactional activity. Net fee and commission income for the first quarter increased by 2.3%, year-on-year, due to increase in the transactional income of individual, as well as, fee on letters and credit guarantees issued. Operating expenses for the first quarter increased by 21.8% year-on-year, mainly due to indexation of salaries and other employee benefits starting from 1st March 2023.
The bank's cost-to-income ratio increased to 19.9% compared to 16.2%, due to higher operating expenses for the first quarter, 2024. The loans to customer increased by 0.4% on a gross and 0.2 on a net basis year-to-date. The increase in the gross loan portfolio was attributable to a rise of 7.9% in retail, while corporate were down by 2.6% and 4.7% respectively, due to seasonality effect. The share of affected loans was 17.3%. As at the end of the first quarter, the 90-day NPL ratio remained almost flat at the level 2.5%. Cost of risk, loans to customer equaled 0.9% and was normalized level within the scope of our full year guidance.
Despite some increase in absolute terms, stage three ratio remained at the level of 7.5%. Compared with the end of last year, the deposits of legal entities and deposit of individuals were up 5.1% and 0.4% respectively, due to fund inflow from the bank's clients. As at the end of the first quarter, the share of tenge deposits in total corporate deposits was 69.9%, compared to 72.8% as at the end of the last year. While the share of total retail deposit was 65.2% versus 63.4%. On consolidated basis, the capital adequacy ratio of the bank slightly increased. The RWA grew by 7.1% year-to-date, due to increase of regulatory requirement on risk weight for SME loans and growth of retail loans....
Dear ladies and gentlemen, this completes our presentation. Now, we would like to open the floor for your questions. Just a 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 question in a written form via chat. While starting your question, please also mention your name and company. The first question come from Simon Nellis. Please, go ahead.
Hi, thank you very much for the opportunity. Simon Nellis from Citi. My first question would be on the early repayment of the KSF deposit, the KZT 66.1 million negative that you showed in other income. Is that the entire negative impact from the full early repayment, or is that gonna be a higher number over the course of the year? That would be my first question. I guess my second question would be on the corporate loan book. It seemed that the dynamics were relatively weak in the quarter, if you could elaborate on what was behind weaker corporate loan growth. And it seems that the retail loan growth is running a bit ahead of your expectations, versus your full year guidance.
If you could, elaborate on the outlook, on the retail side, given the very strong first quarter. Thank you.
Yes, hello, Simon, this is Murat. Regarding the impact from early amortization of state support in form of deposit. Actually, it has been repaid in full in April this year. Actually, some portion of effect was booked in the fourth quarter. So if you remember, there was a negative impact on other income, other expenses in the fourth quarter. The larger impact was in the first quarter of this year, in the amount equal to KZT 66 billion on pre-tax from the pre-tax point of view. There is still smaller portion, which we had to book at the time of full repayment, so meaning that there will be some portion still having a negative impact in the fourth quarter.
But it's substantially less. It's in the area of small teens, probably 13 or 14 billion on the pre-tax basis. So the bigger impact was already taken in the fourth quarter last year and first quarter this year.
Understood. Very clear.
Mm-hmm. Regarding your question on the loan book dynamics. On the corporate NSME area, this is a typically seasonal effect, so you can track through first quarter reports of previous years. We think that we have pipeline to work both on the corporate and SME. Actually, small business continued to increase throughout the first quarter, so it's mostly the decrease was mostly seasonal on the large and medium type of clients. As I said, we have a pipeline to work on, so that's why we keep the guidance intact. Regarding your question on retail, if you remember, in the fourth quarter last year, we specifically focused on substantial amendment in one of our retail products, auto loans, in cooperation with our large corporate clients.
That product continued to contribute into the retail dynamics. That's why those particular strong dynamics on retail gross loans. At the moment, we are not revising the targets, but we might come back later through the year once we'll be publishing the six-month results.
Okay, understood. Oh, and just on the early repayment of the deposit impact, will you have to transfer that to net interest income? Because I think the negative impact was shown in net interest income in the fourth quarter.
Yeah, look, it's a bit complicated because we really have to look how the FRS was dictating. Actually, what happens, for example, in the fourth quarter last year, the amounts which we didn't previously anticipated through our projections, we had to book it as a interest expense. However, portion of amounts in the fourth quarter as well as the first quarter, it went through other expenses, and the reason was that we were able to to book it as a modification of liabilities. Because once we decided to make early repayments, we also looked at our dividend policy, we also looked at our general intention to accelerate the payment. That's why we modified the expected repayment schedule....
This is what also happens in the first quarter. So when you do amendments through this particular manner, you are able to book that expenses not through interest expense line, but through operating expenses.
I guess my question would really be around your margin-
So sorry, not the operating expenses, other expenses. Yeah.
So 'cause I guess it, you have a margin guidance this year of, I think, 7%. Correct me if I'm wrong. Just wondering, does that include any negative from the early repayment, or is it excluding any impacts? You see what I'm saying? 'Cause it used to be shown in net interest income, now it's shown not in the net interest income line.
Yeah, yeah.
Just wondering on what basis your guidance is?
I think if we come to the impact on the guidance, actually, we are guiding net profits above KZT 800 billion. So that was, let's say, one element of the guidance. And second, on the NIM, let me check quickly. I think it was 6.5%. Both items were actually taking into account the anticipated acceleration of repayment. And if you saw, there was almost no impact on the net interest income from acceleration of deposit in the third quarter. And we showed the net interest income at 7%. So six and, area of six and a half was actually, was put with conservative, and if the impact would be went through interest expense line.
Okay, so the 6.5% assume that the impact would go through the interest expense line?
Yes.
Okay.
The run rate, you can look at the first quarter. So the first quarter was non-impacted into if the net interest margin is concerned.
Okay, understood. Thank you.
The next question comes from Tom Jacoby. Please go ahead.
Yes, thank you very much for taking my question. This is Tom Jacoby for Doppel Analyse. I've got two questions, actually. The first one is on your second dividend you're planning to pay this year. Maybe you can give us an outlook there. And second question is also about the net interest income. Maybe I'm a bit confused as well. It has risen a lot in the last quarter compared to fourth quarter 2023, like more than 20%. And if I understood right, then there's like a special effect, due to well, related to that, repayment of the government credit. So maybe you can clean up the numbers of KZT 205 billion tenge and KZT 254 billion tenge. How would that look like without any special effects? Thank you.
Yeah. Tom, hello. Thank you for your questions. Regarding the second dividend, as we mentioned during our last call, we amended our dividend policy. Now it allows to pay dividends not more than twice. As we said, it's open the possibility to make that second payment in the second half of this year, subject to additional proposal from board of directors and approval at shareholders' meeting. We said that if that will go through, then the reference would be taken as 10% of the net profit of 2023.
Okay, thank you.
Mm-hmm. Regarding your second question, I'm not quite sure if I understood all your all the, let's say, details of your question, but I understood that you want to see how the interest income or interest expense line is affected by the state support repayment. We can refer to the slides where we're showing net interest income, and actually, for exactly the benefits of investors, we are showing what the reported net interest margin is in particular quarter and what is the adjusted.
So if you see that, the reported net interest margin for the fourth quarter was 6.1%, but the adjusted, which would exclude the impact from early repayments of state deposits, would be at the level of 7%, seven percent. And as I just said before, the first quarter of this year has no impact on the net interest margin. So that's why you can see that on two consecutive quarters, we are showing net interest margin at the level of 7%-7.5%.
Yeah, I get that. Well, my question was exactly about that page. When you look to the upper right corner, the net interest income in absolute numbers. So you see that jump from KZT 205 billion to KZT 254 billion within one quarter, right? So this is without adjustments. And can you give us adjustments for those absolute numbers as well?
Tom, just a moment, please.
[Foreign language]
Yeah. Sorry, I was a bit confused. Yeah, we are looking at the net interest income. Indeed, the fourth quarter, as I mentioned, that we made early repayments equal to $40 billion back in December last year. And that particular had an impact, not in amount one-to-one, but with some conversion ratio. It actually had an impact on the interest expenses. That's why net interest income, the line, let's say, the graph at which you are referring to, was impacted. So, on 205, you should act, let's say, the negative impact of early repayment of dividends. So the actual growth would be less than quarter-over-quarter.
But you can't give us a number?
Well, the repayment was KZT 40 billion, and the conversion was... I probably cannot say the exact number, but it was close to 75%.
Mm-hmm.
So that roughly gives you around KZT 30 billion, 30-ish.
Okay, that's great. Thank you very much.
Yeah. Mm-hmm.
The next question comes from Ron Agaria. Please go ahead. [Foreign language] Yes. Roner? So, Ronak, please, go ahead.
Sorry, can you hear me now?
Yes.
Okay. Sorry about that. I'm not sure what was going on. Thanks for taking my questions. I guess maybe just a couple of follow-up questions from the two previous callers. With regards to this early repayment of government funds, can you maybe elaborate on what the motivation for the repayment is? As things stand, you know, you took a pretty significant loss in Q4, Q1, and potentially into Q. So what's the motivation? Why has the bank decided to take such a big hit just for the sake of the early redemption? Does it make a material difference in terms of the operation of, for the bank, going forward? Second question is on the margin equation.
So obviously, on a Q&Q basis, I get, you know, you know, it's the, the net interest income has improved because of, there's this, the repayment, is included in the other loss for, in Q1, as opposed to, interest expense in Q4. But what I also noticed is the asset yield on a Q&Q basis was actually quite, a bit higher compared to Q4. Given that, you know, the NBK has been reducing rates and also global rates seem to have peaked maybe slightly lower, can you maybe talk about what was driving the Q&Q improvement in asset yields?
And then final, or final one, just on the regulatory environment, if you could just provide us with an update on where the regulations that we were speaking of last year, you know, has there been any update in terms of reducing the ceiling on consumer loans or introduction of a higher corporate tax rate? Has there been any updates from Parliament? Thank you.
Hello, Ronak. Thank you for your questions. Just one moment, please. Yes, hello, Ronak. Let me answer your question one by one. Regarding the motivation, we thought that, given our intention to move to the second time, two times payment of dividends, we thought that it, it's, makes sense probably to turn the page and to make acceleration of repayments. And, once we start doing that, we understood that, we have, probably, a better idea to make the full repayments. And, we initially, we're looking into full repayments, within this year. But you probably, if you're following, you probably heard that there was a devastating situation in some regions, and that was transpired in the month of April.
So we decided probably once, we want to make full repayments this year anyway, and the most amortization already took place from P&L perspective, then we can probably make the full repayments in one go. So that was the motivation. On the asset yields, quarter-over-quarter, I think this is the dynamic of credit portfolio. As we discussed, we saw a high increase in our retail portfolio. That's why I think that was one of the main reason of increase in rates. And regarding the regulatory environments, well, the regulator continues to look into preventing heating up on retail part.
That's why certain tightening of calculation of retail income, customer income when calculating the debt service capacity was amended, but I think this is done by regulator from time to time. Also, there is renewed discussions on reducing the rates. I think there are few levels which is introduced. I think that will be reduced if it's finally approved, it will go from 56 to lower 40s, so it depends on the certain products. And, on taxes, we are now waiting for the government to come up with new proposal on the tax code. It is expected to be provided shortly, so I do not have the, let's say, exact figures at this point of time.
Okay, thank you.
We'll go to the Q&A chat. The first question was, are the expense non-interest income KZT 15.9? Please, can you provide explanation on this item for the first quarter 2024? Thank you, Thomas. It was previously answered. The next one was by Bolan Telepov. Good day. Do you have plans to move the DGRs listing from LSE to NYSE, following Kaspi? Are you already doing this kind of work?
Bolan, thank you for your question. No, we are not looking into what you have written. So we are listed on LSE, Kazakh Stock Exchange, and AIX, and there is no plans to make any changes.
Dear ladies and gentlemen, it seems that there is no questions remaining, so 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.