Good evening, ladies and gentlemen. Welcome to Halyk Bank's conference call and the presentation of results for the first half and second quarter of 2024. 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 today's call on Halyk Bank side are Miss Umut Shayakhmetova, Chief Executive Officer, Mr. Murat Koshenov, Deputy CEO, Finance, Subsidiaries, Compliance, and International Activities, Ms. Olga Vuros, Deputy CEO, Corporate Banking, Mr. Dauren Sartayev, Deputy CEO, SME Banking, Transactional Banking, PR, and Marketing, Mr. Nariman Mukushev, Deputy CEO, Digital Government Services, Ecosystem, and Customer Experience, and Mr. Viktor Skryl, Strategy Director, and 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 retail business update. Halyk Super App added 35% in monthly active users and 28% in daily active users, year-on-year. The significant portion of additional monthly active users was one-off due to a number of promotional campaigns. Our active client base showed a 10% growth year-on-year, and we managed to boost our Super App penetration from 63% to 77% year-on-year. The client's transactional activity continues to demonstrate an impressive growth, with volume and number of payments boosted by 43% and 27% year-on-year, respectively. Halyk remains a trusted partner for our salary project clients. 38% of country's employed population choose Halyk Salary Card. Next slide, please.
We continue to develop our retail ecosystem by introducing such new value-adding solution as a tracker of bonuses earned from the bank's partners in collaboration with one of the country's biggest appliance store, the largest restaurant chain, and family shop. Retail loan portfolio increased by 15.3% year-to-date, with a strong market share of 19% and 1.8 million of borrowers. In the first half of 2024, the volume of issued loans increased by 67% year-on-year, while maintaining a good portfolio quality. 90% of our loans by count were issued digitally. Next slide, please. Retail deposits increased by 9.4% year-to-date, with a strong market share of 28.8%, where an impressive 90% of our deposits in the first half of 2024 were opened online.
Our ecosystem is fully accessible through our Halyk Super App, and it delivered a solid performance during the second quarter. Auto insurance is continuing to deliver strong GMV and number of clients growth, both of which have almost tripled year-on-year. Halyk Travel GMV grew by 17.6%. The Kino.kz entertainment tickets platform showed an impressive growth of 33% in monthly active users, while the number of tickets sold increased by 23%. Next slide, please. As a result of our continuous focus and effort, we see strong year-on-year dynamics in marketplace GMV and a number of sales pick- up, and we are attracting more partners and improve SKU base to provide a better end-client experience. In our brokerage services, we are also noticing an impressive growth in our client base and the transactions volume.
The assets under management and brokerage assets grew by more than 2x and 11%, respectively. In 2023, Halyk Finance entered the market of pension assets management, and by the end of the second quarter of 2024, we have captured an impressive 31% of market share. Moreover, the pension assets under management has surged by almost 14 times. Now, we are moving to an update on corporate and SME banking. In the second quarter, we continued our focus to boost the transactional activity of our corporate and SME clients. This led to a 50% year-on-year increase in daily active users and resulted in a notable growth, both in terms of number and volume of payments through online platform for legal entities. Corporate loans increased by 15.6% year-on-year, while maintaining a good portfolio quality.
The penetration rate among the largest taxpayers remained solid, standing at 84%. Halyk maintained its position as the leading provider of financing to the economy, with market share of 50%. The legal entities deposits market share reached 32%. Product penetration metrics remain consistently high. Next slide, please. SME loans increased by 18.2% year-on-year, while a volume of loans issuance in the first half of 2024 was up 27%. 95% of our loans by count were issued digitally. In the first half, the digital bonds issuance dynamics continues to demonstrate an impressive growth, and the total volume of digital bonds increased by almost two times, year-on-year. Now, let me hand over the call to my colleague, Rustam Telish, 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 six months ended June 30, 2024. In preparing the consolidated financial information for the year ended on December 31, 2023, 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 and were incorrectly measured at cost. The group revalued these financial instruments and recognized prior period adjustments. The consolidated statement of profit or loss for the six months ended June 30, 2023, has been reclassified to conform to the presentation for the year ended December 31, 2023. Because the presentation of the current year reports provides a clearer picture of the group's financial performance, although the ratios were also recalculated accordingly.
For more detailed information, please refer to Halyk Group interim condensed consolidated financial information for the six months ending June 30, 2024, note 4- B. Next slide. Net income attributable to common shareholders for the first half of 2024 is up by 2.2% year-on-year. It was negatively impacted by one-off effect for KZT 79.3 billion versus first half 2023, for KZT 14.5 billion related to accelerated repayment of Kazakhstan Sustainability Fund deposit. It was also affected by the increase in credit loss expense. As a result, in the first half, we demonstrated 29.9% return on average equity and 4.8% return on assets.
Total assets of the group increased by 8.1% year-on-year-to-date, due to increase in amounts due to customers. Customer deposit increased by 6.3% year-on-year-to-date. We will discuss this in more details later in this presentation. Interest income for the first half 2024 was up 29.7% year-on-year, mainly due to increase in average rate and balances of loans to customers. Interest expense for the first half of 2024 increased by 27.2% year-on-year, mainly as a result of the growth in average rates on amounts due to customers and growth in the share of KZT amounts due to customers.
Consequently, net interest income before credit loss expense for the first half of 2024 grew by 32.1% versus first half of 2023. In the first half of 2024, net interest margin was affected by the increase in average rates on both loans to customers and amounts due to customers. Furthermore, interest margin, net interest margin was positively impacted by the increase in the share of higher-yielding retail loans in total loan portfolio and share of loan to customers in total interest earning assets. Moreover, there was an increase in the average rate of fixed amounts due from credit institutions and fixed interest earning cash and cash equivalents, following the increase of U.S. dollars interest rate, as well as increase in the share of tenge interest earning cash and cash equivalents.
As a result, net interest margin has grown 7% per annum for the first half of 2024, compared to 6% per annum for the first half of 2023. Fee and commission income in the first half of 2024 increased by 1.1%. It was negatively impacted by base effect related to transition to amortization of tariff packages for legal entities starting from November 2023. Moreover, there was a revision of some retail tariffs in second half of 2023. On top of that, the amount of bonuses for the loyalty program almost doubled due to increased transactional activity of retail clients and growing share of QR payments.
Fee and commission expense in the first half of 2024 grew by 2.8%, mainly due to increase in service fees on payment cards and deposit insurance fee payable to the Kazakhstan Deposit Insurance Fund, following the retail deposit amount growth. As a result, despite the increased number of clients and the growth of clients' transaction activity, the net fee and commission income for the first half 2024 decreased by 0.5% year-on-year. In the first half of 2024 versus first half 2023, net fee and commission income was up 1.8%, thanks to growth of client transactional activity and growth of guarantees and letters of credit portfolio, despite decreased transactional income of individuals due to lower BNPL issuance affected by regulatory tightening of DTI calculations.
Operating expenses for the first half 2024 increased by 16.3%, mainly due to indexation of salaries and other employee benefits starting from May 1, 2024, and payments of bonuses for high grades in schools in the frame of strategic partnership with leading educational platform, Kundelik. The cost-to-income ratio equaled 18.5% in the first half 2024, compared with 17.7% in the first half 2023, due to higher operating expense for the first half 2024. Compared with the year-end of 2023, loans to customers were up 6.7% on gross and 6.6% on a net basis. The increase in the gross loan portfolio was attributable to a rise of 15.3% in retail loans, while legal entities' loan portfolio were up 2.7%.
The share of FX loans was at 19.4%. Cost of risk in the first half of 2024 increased to 1.3% versus 0.99% in the first half of last year, as a result of a greater recovery and repayment of corporate problem indebtedness in the first half of 2023, and recognition of higher provision related to some loans to legal entities in the first half of 2024. Cost of risk in the first quarter 2024 versus first quarter 2023 has grown to 1.7%, mainly as a result of one-off prepayment of impaired loans of legal entities in first quarter 2024. While in the second quarter 2024, there was a recognition of additional provision on some loans to legal entities.
At the end of second quarter 2024, Stage 3 loans decreased from the level of 7.5% to 7.2% year-to-date, as a result of workout of problem loans and loan portfolio growth. Compared with the end of first quarter 2024, the deposits of legal entities were down 2.3%, mainly due to one-off negative effect of full prepayment of KSF deposit and partial withdrawal of funds by the bank customers to finance their ongoing needs, including tax payments. The deposit of individuals were up 9% due to fund inflow from the bank's clients.
At the end of the second quarter, 2024, the share of tenge deposit in total corporate deposit was 71.8%, compared to 72.9% at the end, as at 2023 year- end, while the share in total retail deposits was 66.9% versus 63.4%. On consolidated basis, the capital adequacy ratio of the bank decreased in second quarter 2024 as a result of dividends paid by the bank for the financial year of 2023. The RWA grew by 15.7% year-to-date, due to the increase of regulatory requirements on the risk weight for SME loans and growth of SME and retail loans. Based on our six-month financial results, we have updated the outlook for the year, the full year of 2024.
Retail net loan portfolio growth is expected to be in the range of 20%-25%. Corporate and SME net loan portfolio growth is projected in the range of 10%-15%. Total net loan portfolio growth is estimated in the area of 17%. Growth of the net and commission income is expected to be in the range of 4x -5x, 10%. Cost of risk is projected to be circa 1.2%. Consolidated net income is expected to be in the area of KZT 800 billion. Return on average equity is expected to be more than 30%. Net interest margin is estimated to be in the area of 7%. Cost-to-income ratio projected 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 a quick instruction. To state the question, you can raise your hand in the Zoom, or if you joined via cell phone, please press star nine to raise your hand. You can also enter your question in the written form via chat. While stating your question, please also mention your name and company. Thank you. And the first question is goes to Mikhail Butkov. Please.
Good day. Yes, this is Mikhail Butkov from Goldman Sachs. Thank you very much for the presentation. I have a couple of questions. First one is on the cost of risk. So you mentioned that you increased provisioning for some legal entity in the second quarter. So maybe could you add a bit more color, maybe what was the sector? And do you see any other exposures in risk from maybe a migration from Stage 2 to Stage 3 at all at this stage? So that's the first question. The second question is on net fees and commissions. So you have increased bonus payments for the loyalty program to retail clients in the second quarter, if I understood it correct.
Do you expect this trend to continue into the third and fourth quarter? And finally, you revised the wording about net income guidance for the full year. So now you expect it around 800, I guess, from more than 800 before. Also, what are the key contributors to this revision? Thank you very much.
Hello, Mikhail. Thank you very much for your questions. Let me start answering them one by one. So, regarding cost of risk, as we stated in the third quarter of this year, actually, we saw some recoveries, repayment of some large loans to legal entities. So, that helped to pull cost of risk below the normalized or below the overall year-end guidance. In the second half or in the second quarter of this year, actually, we saw that performance on, largely on retail and small businesses, they kept in line what we have seen-
... in the third quarter. But we have seen some additional provision which were created on legal entities, mostly to larger corporates, but there were a couple of middle-sized companies. So that's why the cost of risk for the second quarter was somewhat higher than the year-end guidance. But we, as you've seen in our outlook, we expect that cost of risk for the whole year would be in line with previous guidance without any changes. Basically, there was no any sector-specific issues. A couple of loans were related to trade sector, but we are not taking that as a, let's say, some larger trend or tendency, either sector-wise or portfolio-wise. So we largely think that it is isolated to company-specific issues.
This is regarding cost of risk. Regarding net fees and commission, as you have seen, there are a few reasons for first half results, which affected the net fees and commission. Reason number one was the fact that we some time ago start providing packages. So basically, companies buying certain trade finance packages on... It might be three months, six month or 12 months. Subscription probably would be the better term for that. And actually, because we start selling some longer-term subscriptions, the accounting-wise, we move from cash-based receipt to accrual base. So that's made some, let's say, accounting type of effect. But in the longer run, we think that it is a positive trend.
It provides a longer-term stability to fees and commission income, and actually increases clients' engagement with us in the longer term. Secondly, we made some revision to retail tariffs. Again, that is probably a one-off effect, so we think that in the longer run, the base effect would lead to higher fees and commission due to better engagement with our clients, and the loyalty, yes, indeed, we see some high expenses on the loyalty program related to higher transactional activity, specifically on Click QR. Usually, our transactional activity and loyalty expenses are high in the second half of this year, but we have possibility to fine-tune the loyalty program, depending on the trends, depending how the overall situation with the loyalty program expenses are evolving.
So I would not make bigger decisions based on the first half development on the loyalty program per se. In terms of net income guidance, indeed, we, in the beginning of this year, provided the guidance higher than KZT 800 billion. Let me remind that after that we made a full repayments, full prepayment of the state support, which had some effect on the second quarter results. So that is probably one of the contributor of the more fine-tuned guidance on net income. I don't think that it's a material diversion from which we have stated previously. It's more fine-tuning. And also that probably reflects some abundance on the net fees and commission.
Overall, we expect that in the second half we will become a more normalized growth in fees and commission income, but the effect which we had in the third quarter, in the first half of this year, would have still overall effect for the full- year results.
Okay. Okay, thank you very much.
But we will hope that we'd be able to do at least 800 , as we stated before, but it's more fine-tuned.
Okay. So just it is mostly driven by that one-off repayment of.
It is partly affected because we made the full repayment in the second quarter, as I said.
Mm-hmm.
And that it's had certain effects on net profit for the second quarter.
Okay. Yeah. Thank you. Thank you very much for answers.
Next question from Mr. Simon Nellis, please.
Oh, hi, it's Simon from Citibank. Thanks, thanks for the opportunity. Just following up on risk costs, I was wondering if you could comment on where you think the kind of through the cycle average risk cost is. Is it more towards the 120 basis point that you're guiding for this year, or is it some higher or lower level? My second question would be on the tax outlook. I think in the past, you've warned that the tax regime might change and the tax rate will go up, but I think your effective tax rate has stayed pretty much unchanged. So an update on that and any other regulatory issues that you see in the future. And then just on the NIM outlook, I mean, it's been quite healthy.
What are the dynamics going into 2025? I mean, if you can give us any steer on what would impact the NIM, kind of, longer term out to 2025, 2026. Thank you. Especially in light of, you know, expected rate cuts in the U.S.
. Simon, I think that was somewhat dead line while you were speaking, so I'm-
Ah, sorry.
Not sure that I get fully correct. I think your first question is regarding the cost of risk?
Correct. Yeah, I was wondering-
One by one.
Yes.
Yeah.
Mm-hmm.
Could you please specify your question, please, on the cost of risk?
Yeah. What is the normalized cost of risk? Is it closer to 120 basis points you're guiding for this year?
Okay. Well, in my opinion, normalization is not something constant. It really depends on the way economy is standing, what the overall macro situation picture, including the rates, interest rate environment. And also, I think it's dynamic in a sense that it reflect the overall change in the credit portfolio. So the higher the proportion, for example, small businesses unsecured, definitely it might be affecting the cost of risk. Overall, I think 120 basis points, which we're experiencing during last probably couple of years to three years time, it's somewhat in our opinion normalized, given the overall condition. The economy is growing on one hand, at the same time, we had certain stress on the inflation side.
We had certain higher interest rate environment, and we have certain dynamic in terms of the change in the portfolio. But whether that would be normalized cost of risk, let's say, in three years or five years' time, I think it's yet to be seen. But, in current situation, we think that it's close to normalized level.
Second question was on tax. Can you give us an update on the tax outlook?
On taxes, we, as the country, still work on the draft of the tax code. We expect that it will be presented to the Parliament in the autumn. At this point of time, we have not seen, let's say, the final draft. There are still some discussions, there are different opinions. I suggest probably we would wait for a month or two until there'll be more clarity in terms of what would be final proposal, which would be brought to the attention of MPs.
Okay. And just on the NIM outlook, the margin outlook going into next year, is there any color you can provide?
I think it's a bit premature. You've seen that we somewhat improved the NIM guidance for the whole year. It's a reflection of what we had experienced in the first half of this year. Probably to help you with some view on NIM, it's a factor of, let's say, separate spread on USD part of the balance sheet, on tenge part of the balance sheet, because rates in U.S. remains at higher level than we initially anticipated, or continue to stay at higher level. So that is helping NIM to stay at the higher range of our previous expectations. So it really would depends, not only what is happening with rates on tenge side, but also what would be happening to the U.S. dollar rates.
And can you give us a sensitivity of your net interest income to, I don't know, a 25 basis point move in U.S. rates?
I think we had presented that figure in our full- year results, so probably I can refer you to our financial year results. But that, in any case, would be static one. As we commented a number of time previously, we think that it's better to look more in dynamic situation, because if you historically work our dynamics on the NIM, typically, irrespective of the fact whether the rates are going up or down, normally, we see that within two to three quarters, NIM start normalizing. So, the static, let's say, sensitivity might not be the proper reflection of how our balance sheet is developing in, let's say, a half year time.
Okay. Thank you.
Tom Jakobi, please go ahead.
Yes, this is Tom Jakobi for Doppelanalyse Wikifolio. Thanks for having my questions. I have three of them as well. The first one is a follow-up about the tax question. I do understand, of course, that there is no final draft, but can you tell us what direction the changes is going to be? How big will be the influence roundabout? Can you hear me?
Yeah. I think it's still suggesting that the question is still on the taxes, what the possible changes might be?
Yes.
Yeah, again, I think it's a bit premature to discuss them in a more proper way, but there were different areas which initially were put under discussion. One of them is introducing higher corporate income tax for the banking sector from 20%-25%. But we saw that the regulators, in case of Agency for Financial Supervision, as well as National Bank, is opposing that banking sector would be having different corporate tax rates compared to other sectors. So we hope that eventually the tax code draft, which will be presented to the parliament, would have, let's say, unified corporate income tax. There were some smaller discussions, but I think that probably was the largest.
Again, I suggest for everyone to wait until the final draft enters the parliament and we will see what the real suggestions, the real proposal would be brought to the parliament.
Yeah, thank you. The numbers of 20 and 25 to see like the room of discussions was very helpful. Thank you.
Second question is about the tenge currency, which was developing quite weak since May roundabout. What cause do you see for that development? And more important, what relevance has the weakness of tenge for Halyk?
On the effects, yes, there were indeed some weakening in recent months, but if you take that into the context for the year, I think it still is moderate because we started the year at four, around 455, so we are standing something like 5.5% change since beginning of this year. So, I think it's still considered not that high, probably close to moderate. Given the interest rate differential between tenge and U.S. dollars and given the inflation level. Well, it's a bit difficult to give the exact reasons why tenge behaved that recently, but some of the factors might be, let's say, seasonality. Some of the factors might be timing in terms of transfer, which are coming from the national funds into the budget.
There might be some export dynamics, and there might be some reaction to weakening in Russian ruble. So typically, this is the normal range of potential influences on tenge. On, let's say, oil price, there was no big changes globally, so probably the one of the reasons we can mention. But I probably struggle at this point of time to say what was the exact reason which influences more.
Mm-hmm, and are there any meaningful consequences for Halyk?
No, no. As you see, typically the impact on the banks might be from asset quality on the credit portfolio. The share of USD loans in our portfolio reduced substantially, so currently standing, I think at the level of below 20%, so we do not expect any material impact. And again, the weakening is in the context of, let's say, annual change is not that high.
Okay, thank you for that one as well. Last question is about the dividend policy. You told us there's plans to pay a second dividend in 2024 for the first half year. So, we have the results here. When and how much can we expect anything?
Mm-hmm. Thank you for your question. The current dividend policy, which was amended beginning of this year, states that we shift to the possibility of make payments not more than twice. Previously it was exactly a single payments per year. To remind, we make payments first payments during our normal timing with payments decision made in May and payments starting from June, and that was in the level at 40% of the net profit of last year. And we stated that in the second half of this year, the bank might consider the second payment. The decision has not been done yet, so we still have, I think, time into the second half of this year to consider the second payment.
But as we speak now, there is no decision done at this point of time.
Is there a time when the decision will be made?
Again, I cannot probably give you exact timing, but I can refer to what also was stated, that if that discussion... if that decision would be taken, the total payment for the year would not be more than 50%.
Yeah.
For the year.
Okay. Thank you very much.
If we take the reference for the payment, the result of 2023. B ut please follow us so whenever decision, if that decision will be taken, definitely we would make announcements.
Okay, I'll stay curious. Thank you.
The next question from Sergey Belozerov. Please go ahead.
Hi, can you hear me?
Yes. Yes, Sergey, please go ahead.
Okay. Yeah, thank you. I have a question regarding sanctions and the Russia-Ukraine conflict, and how that could potentially affect you. So basically, there were recently news that the U.S. seems to be not very happy about the sanction enforcement in Kazakhstan. So, if they were to get stricter on that point, could that... How could that affect your business and the country as a whole? And then secondly, if the Russia-Ukraine conflict finally get resolved, how could that affect your business and the country as a whole? Thank you.
I'll start from the second one. I think if the conflict is resolved, this whole world I think would be relieved. I'm not saying the neighbors of conflicting countries. I think it's true, I think for any conflict which is running globally. It's my opinion.
Let me be more, perhaps more specific. Kazakhstan has surely benefited from over the last two years as a potential alternative, right? And banks in particular, or is my understanding incorrect there?
I don't think that you are correct. I think the country is not that benefiting from the conflict in the region. There might be some short-term effect, if you see historically, probably in 2022, but this is due to market inefficiency, which normally happens. Unfortunately, we are coming to a new, let's say, normal, if you can call the current situation as a normal. Again, I think that's if the conflict is finalized and the region's coming to peace, again, anywhere globally, I think it will be positive also for us as the neighbors. In terms of your-
Yeah,
... first question, I think the country is trying to act responsibly, meaning that on the one hand, the country is not introduced, is not joined any other sanctions, but we are not in position to be an instrument to avoid sanctions, which is introduced by other countries. The country is open itself. There are a lot of export-import operations. The banks are normal parts of the global financial community, so and no bank would be risking itself to fall under secondary sanction. And we see that it's not true for Kazakhstan only. We see that the countries, the banks in other countries in the region is also acting in the same manner.
So if there were stricter sanctions imposed, do you think the banking sector in Kazakhstan would suffer tremendously, or would that not affect?
I think, again, Sergey, we're talking about theoretical things. I think no one bank or any banking sector globally would be benefiting if sanctions are introduced. In that sense, any financial sector, be it in Kazakhstan or in any country, in any country in the region or globally-
Right.
... would be suffering from any sanctions. That's why I think banks in Kazakhstan are acting responsibly, in my opinion. And if you see in press reports, you might also look wider into the press, and you might see cases when there were reports that banks in Kazakhstan, banks in other countries are rejecting or slowing down payments. So it really depends on who is writing these press reports. I'm talking to you from the perspective of being participants in the Kazakhstan banking sector.
Okay, fair enough. Thanks a lot for addressing this, tough question.
Next question from Olga Naydenova. Please go ahead.
Yeah. Hi. Thank you very much for taking the question. If I may follow up on the dividend policy. I understand the split you offered this year was heavily affected by the need to repay state support, the decision to repay state support funding. In following years, what is your vision on how you will split your dividend in two payments or, and, or how you will follow for next year's payments? Thank you.
Olga, thank you for your question. As I mentioned during this call, we from this year moved from, let's say, dividend policy, which states that we are making payments a maximum once a year to the policy, which allows payment up to two years per year. At the same time, we cannot give you, let's say, the exact figures or exact percentage, because we as the bank are looking at the our business prospects, the possibility to invest capital profitably internally. We look at the level of capitalization, we look at the macro picture. There are a number of issues which, or a number of aspects we are looking into when we, as a bank, make decision in terms of making the exact dividend payments. So I can probably state only like that.
So we have possibility to make either once or twice payment, if that decision is taken, or probably not to pay altogether if the situation warrants. But hopefully, the situation would allow to make that payments going forward as well. But probably I cannot give you more specific in terms of, exact percentage or exact, amount of payment, because it really depends on, many, many, many factors when that decision is, taken.
Thank you very much for that, and if I may also ask about the National Bank policy with regard to macroprudential regulation. Do you expect further increases in risk weights? Do you expect any additional pressure on your capital adequacy ratio, apart from strong growth, your great growth outlook?
Yeah. At this point of time, there is no, let's say, regulatory proposal, which might be affecting, material, our risk weighting.
Okay, thank you.
On our trade portfolio.
I also have a couple of questions which we received online. I just will stop on those which is not addressed during this call. So one question is regarding Stage 3 coverage, which is 71%. According to this question, do you rely on collateral? Could you talk about the level of collateral coverage as a percentage of gross loans portfolio?
Typically, the provision coverage depends not only on the collateral, but also on the cash flow from the business, which we expect on the impaired loans, and it's really based on the IFRS requirement, and based on that, we calculate what the provision coverage is required for impaired, in that case, Stage 3 loans.
In terms of the overall coverage, we publish that on annual basis, so I would refer to annual results, where we provide the loans, which is covered by different type of collateral. Overall, I think the coverage is probably around 70%. The uncovered portion might be a large corporate loans to largest companies in Kazakhstan, which warrants providing loans on unsecured basis, and also retail portfolio, typical unsecured retail portfolio. Yeah, I also refer to the question probably, which Olga mentioned in terms of regulation change. I'll probably elaborate a bit on what has recently been amended. I think it will be put into force in coming weeks or days, is reduction of the maximum rate on the loans.
Currently it's 56%, but I guess from end of August or beginning September, it will be a change to the level of 46%. We do not expect any material impact on Halyk Bank because our average rate is below that threshold. There is another question coming online regarding the 1Q note that related to repayment of state support deposit, where it is reported in P&L. Well, if you look in the P&L, it is reported in other income expenses line. The question is regarding the retail loans in terms of the trends. What are the trends driving the growth?
We think that there are few drivers of growth. One of them is that we obviously inflation has a two-edged sword effect. One is affecting the disposable income population, but also it's triggering increase of nominal salaries. So this is what might be one of the reasons. Secondly, we see that there is increase in the employed population due to demographic trends. So this might be a couple of reasons behind the recent trends in growth loans portfolio. If you look on the inflation-adjusted growth, then the growth is probably somewhat slower than you can see in the nominal terms. Yeah, and I think I missed one question regarding the market share in the corporate lending and how it has developed in the last five years.
I think the overall share if you take, like corporate and SME is probably somewhat close to 40%. It is probably above 40, probably close to 50%. We think it's more or less likely to stay at the same level. That, however, is not including the loans which is provided to the corporate segment from state institutions, from development institutions, and, and from the debt capital markets. So this is the percentage if you take purely the banking sector, the commercial banking sector.
Next question from Ramzi Sidani. Please, go ahead.
Hello. Hi, Murat. Hi, everyone. Just on the risk-weighted asset density, we've been seeing an increase in the ratio. So do you expect further increase going forward from change in mix or possible change in currencies, or can it stabilize around this percentage of assets? And then just on the capital, in the past, we used to say you want to maintain a capital adequacy of around 17%. Does this still hold?
Yes. Hello, Ramzi. Thank you for your question. The risk-weighted asset is really functional change in the structure of our balance sheet. Largely would be correlated with the growth in corporates, in corporate and retail portfolio. Probably the higher growth in retail might trigger somewhat higher growth in risk-weighted assets, because according to regulatory policy has higher risk weighting compared probably, for example, if compared with, for example, SME loans. But typically, we are not expecting some, let's say, big one-off changes. To an extent, it will be correlated with loan portfolio growth, with some variation, depending which parts of the portfolio is growing quicker compared to another one. Regarding your question on the capital adequacy, yes, we stated that typically we would like to see our capital adequacy strong.
We mentioned a few times previously that we see that it should not be below 17%, and I think currently we are standing at a quite comfortable level in terms of capital adequacy.
Thank you.