Today, ladies and gentlemen, thank you for joining us on this conference call to review Halyk Bank's financial results for the first quarter of 2025. My name is Mira Tiyanak, and I am Head of FI and IR. We have our executive team joining us on the call today, including Ms. Umut Shayakhmetova, Chief Executive Officer; Mr. Dorian Sartaev, First Deputy CEO for B2B Banking, Marketing, PR and Acquiring; Mr. Murat Koshenov, CFO and Deputy CEO for Finance, Subsidiaries, Compliance and International Activities; Mr. Roman Maschyk, Deputy CEO for Risk Management, Data Science and Collateral; Ms. Olga Vores, Deputy CEO for Corporate Banking; Mr. Nuriman Mukhurchev, Deputy CEO for B2C Banking, Digital and Digital Governance Services; Mr. Andrey Zavarzin, Deputy CEO for IT and Ecosystem; Mr. Viktor Skryl, Strategy Director; Mr. Almas Makhanov, Finance Director; and Nurgul Mukhadi and Rustam Telish from the IR team.
The format for the call today is as follows: we will start with a presentation by the Halyk team covering our B2C and B2B business segments and the Q1 financial results. Then we will open the floor for questions and answers. Please note that this call is being recorded. We'll begin today with an update on the B2C segment. Let us remind you that our B2C platform, the Halyk Super App, forms the core of our digital ecosystem and gives consumers access to our banking and finance services, as well as a broad array of lifestyle solutions that help them manage their daily lives. In the first quarter, we saw both the number and volume of transactions carried out through the Halyk Super App grow by more than 30% year-on-year.
The Super App now has 7.7 million monthly active users, including 5.4 million who carried out transactions and 2.4 million daily active users. Halyk Bank has a total of 11.1 million active clients as of the end of Q1, and we account for 43% of active salary cards in Kazakhstan. Next slide, please. 96% of the consumer loans we issue are arranged through the Super App. Our gross retail loan rose by 2.3% year-to-date to KZT 4.2 trillion, though on the back of lower loan issuance. NPL slightly increased and remained well covered. We have just under a 20% market share for retail loans in Kazakhstan. Next slide, please. In terms of deposits, Halyk Bank has a 28.8% market share in Kazakhstan, and 67.6% comprise the deposits in tenge. A full 94% of deposits are now opened digitally through the Super App.
Q1 saw a large increase in the number of deposits opened to 224,000. Compared with the year-end 2024, the overall dynamics of amounts due to customers were impacted by the appreciation of KZT versus USD, where the retail deposits were down 0.7%. Taking a look at some of the value-added services in our digital ecosystem, you can see remarkable growth in our auto insurance offering, with a 50% year-on-year increase in the number of clients and more than double the value of premiums. We sold slightly fewer movie tickets on Kino.kz, but for a higher gross merchandise value, which rose 10% year-on-year. Travel bookings were stable as compared to Q1 of last year. Next slide, please. Halyk Marketplace and Halyk Market both saw GMV growth by more than 34% and 37%, respectively.
We have substantially more partners working with us versus a year ago, thereby increasing product choice for our consumers. Halyk Market has now almost three times as many SKUs as it did just one year ago. We'll wrap up the B2C segment with a look at our two strong brokerage platforms, Halyk Invest and Halyk Finance. The number of active clients rose by 54.5% as compared to Q1 2024. Given recent market volatility globally, we did see a drop in transactional volume. Assets under management and total brokerage assets were both substantially higher year-on-year at the end of the quarter. I should note that Halyk has a 68.9% share of pension assets under management and 66.1% market share among private asset managers. Next slide, please. Now we'll move and take a look at our B2B segment.
Let me again remind you that Online Bank is our platform for the B2B segment, offering a range of tools to help our commercial clients, and particularly small and medium-sized enterprises, with banking, lending, insurance, payroll solutions, and more, as well as access to Halyk Marketplace. Monthly active users for Online Bank stand at just under 300,000, including 217,000 monthly transactional users during the first quarter. Daily active users stand at 102,000. The number of payments processed through the platform rose by over 29% year-on-year, and the volume of transactions was 24.3% higher at KZT 31.7 trillion. Next slide, please. 65% of our corporate loan portfolio are in local currency. As you can see from the industry breakdown on the right side, we finance clients across a range of sectors, from trade businesses to industrial enterprises in every industry.
Our corporate loan book has grown by 22.4% since Q1 of the last year. Even with the increase in portfolio size, our portfolio quality remains strong, with little movement in NPLs during the quarter. Halyk Bank works with 86% of Kazakhstan's largest taxpayers and accounts for 52% of lending of real economy, along with 32% of their deposits. We have strong product penetration among our 3,000 active commercial clients, who carried out more than two million transactions during the first quarter. In past calls, we have spoken about how our Online Bank platform makes banking easy for B2B, particularly through quick and easy loan origination. You can see here that our gross SME loan portfolio is up 16.5% year-on-year, while digital loans, in particular, are up over 38% year-on-year. We also arranged KZT 27.8 billion in digital bonds during the first quarter, almost 34% more than the year ago.
Next slide, please. Online Bank's ease of use for SME borrowers: we account for 96% of digital loans issued. In Q1, we did see a small increase in NPLs for SME borrowers, but the coverage is more than adequate. Now I would like to pass the floor to my colleague Nurgul Mukhadi from IR team. Thank you.
Thank you, Mira, and good day, everyone. Now I will take you through the financial results for the first quarter 2025. We are glad to note that Halyk had another strong quarter. Here you can see the decomposition of the net income growth in the first quarter 2025 versus the first quarter 2024. It was primarily driven by the increase of net interest income by 30.1% year-on-year and other expenses non-interest income line, which was impacted by the base effect of one-off recognized loss in view of expected early repayment of the deposit of TSF in accordance with the IFRS in the first quarter 2024. Net income growth adjusted to this base effect of one-off recognized loss in the first quarter 2024 would be 19.1%. Here's a quick look at the balance sheet. Total assets of the group increased by 1.7% year-to-date.
Total interest-earning assets in the same period also grew by 1.7%. Its share in total assets was up from 91.8% a year ago to 93.4%. The share of loans to customers in total interest-earning assets increased from 63.7% to 65%. Total deposits to total liabilities ratio was at the level of 83.3%. The total equity of the bank increased by 7% compared to the year-end, mainly due to net profit earned by the bank during the first quarter 2025. Loans-to-deposit ratio was at 88.2% versus 82.9% a year ago. Interest income for the first quarter 2025 grew by 26.8% year-on-year, mainly due to the increase of balances of loans to customers. Interest expense increased by 23.4%, mainly as a result of the increase in average balances of amounts due to customers, as well as the growth in the share of KZT amounts to customers.
Despite the slight increase in average rates on amounts due to customers in the first quarter 2025, it was positively impacted by the increase in the share of loans to customers in total interest-earning assets, as well as the increase in the share of KZT interest-earning cash and cash equivalents. As a result, net interest margin had grown to 7.5% for the first quarter 2025 compared to the 7% for the first quarter 2024. In the first quarter 2025, the average rate of total interest-earning assets had grown to 14.4%. The average rate on securities grew to 7.9% in the first quarter 2025, mainly due to the increase in the share of KZT securities and growth in the rates of FX securities.
The growth of the rate of amounts due to credit institutions and interest-earning cash and cash equivalents from 9.9% in the first quarter 2024 to 13.5% in the first quarter 2025 was due to an increase in the short-term KZT deposits with NBRKA. The average rate of total interest-bearing liabilities has increased from 8% in the first quarter 2024 to 8.2% in the first quarter 2025. In the first quarter 2025, compared to the first quarter 2024, 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 2025 increased by 13.4% year-on-year due to an increase in the transactional income of legal entities, as well as in fee on letters of credit and guarantees issued.
Net transactional income of individuals slightly increased and was offset by the growth of an amount of bonuses from the bank's loyalty program. Here is an overview of operating expenses, which increased by 22.2% versus the first quarter 2024, mainly due to the indexation of salaries starting from February 2025 and other employee benefits, including the cost of the long-term incentive program, while the salaries' indexation in 2024 was made in May. The cost-to-income ratio decreased to 16.5% compared to the 9.9% for the first quarter 2024, amid higher operating income for the first quarter 2025. Compared with the year of 2024, due to seasonal effects, loans to customers were up 0.1% on gross and were down 0.2% on net basis, with retail loans growing by 2.3%, while the loan portfolio of legal entities decreased by 1% on gross basis.
The share of fixed loans in total net loans was 21%. Cost of risk in the first quarter was at normalized level within the scope of our full-year guidance, and was at the level 1.2%. At the end of the first quarter, stage three loans increased from the level of 6.3% to 6.8% year-to-date, as a result of the moratorium on sales of problem retail loans to collection agencies till May 2026. As I mentioned earlier, compared with the year 2024, the overall dynamics of amounts due to customers was impacted by appreciation of tenge versus U.S. dollar, where the deposits of legal entities were up by 0.6% and the deposits of individuals were down 0.7%. At the end of the first quarter, the share of tenge deposits in total deposits was 68.8% compared to 69.1% at the year-end 2024.
In corporate deposits, the share was 70.3% versus 70.9% at the year-end 2024, while the share in total retail deposits stayed almost flat. On a consolidated basis, capital adequacy ratio of the bank increased to 19.3% in the first quarter 2025 due to net profit earned by the bank during the first quarter 2025. Dear ladies and gentlemen, that's a quick look through the financials. We will now open the floor for your questions. Just a quick instruction: to state the questions, you can raise your hand in the Zoom, or if you joined via cell phone, please press star nine. 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 questions come from Miloš, Paps. Please go ahead.
Yes, hi. Thank you for taking my questions. I'm Miloš Paps at the Sun Group. I have three questions, if I may. Firstly, maybe can you give us a sense of what do you expect? What kind of impact do you expect from the new tax code, assuming it will be implemented, on your SME loan book growth quality? Secondly, as you've highlighted, you increased the share of stage three loans in the retail and SME book increase in the quarter, and you also had a higher provisioning rate. Maybe you can give us some background to this and if it affects your cost of risk expectations for this year.
Finally, can you also give us a sense of what the run rate of your investments in the digital ecosystem was in the first quarter, if it's broadly consistent with what you expect in the next couple of quarters? Thank you.
Thank you for your questions. Let's take them one by one. Regarding the new tax code, the discussions are currently taking place at the parliament level. When we talk about the changes in the tax code, there are some changes which would be affecting, might be affecting results for 2025, but the majority of changes would be impacting results starting from 2026 because they would be part of the new tax code. Those which might affect results for 2025 is the new concept which is currently being discussed. We can call it the tax on excess profits. Presumably, certain profits from certain lines might be included. First one is related to state securities. Secondly, the report transactions might fall under this category. The third one is swap transactions. At this point of time, the discussion is not finalized.
If you would be asking what the impact we might expect, probably it's a bit premature to give the exact figure, but the size of the rate which is being discussed is 10%. Presumably, not, let's say, a material figure in the context of overall bank results. With regards to tax changes in the new tax code, which again would be implemented from 1st January 2026, firstly, it's increased corporate income tax for the banks from 20% to 25%, with potential exclusion of profit related to lending to so-called real economy, which presumably would include most of the corporate and SME transactions lending. The corporate income tax would also include profit from state securities with some potential benefits to be incorporated. Again, not everything clear yet. Presumably, the statutory rate for state securities might be lower than 25%.
The VAT tax would also incorporate certain banking operations, presumably fees and commissions. Also, potentially, the personal income tax would have some elements of progressive scale from certain portion of profits. Individual profit would be still at 10%, and above a certain threshold, it will go to 15%. Regarding the stage tthree loans, the most of the increase was attributed to growth in our retail book, as we disclose in our results. As my colleagues mentioned, one of the key elements was the moratorium which was imposed last year by a regulator on sales of retail loans to collection agencies. That means that we still, as a bank, are in position to walk out these loans from our balance sheet, but the timing obviously would be somewhat extended compared to sales of that portfolio to third parties.
Regarding the investments on ecosystem, we continue to work on the expansion of our ecosystem. I think broadly, expenses which we had on that side comprised from investing in our business, in our staff, which works in certain tribes in agile mode. That was probably a logical response to what we did in previous quarters. Nothing one-offs which happened in that space in the first quarter.
Okay. Excellent. Thank you very much for the detailed explanation.
The next question comes from Simon Ellis. Please go ahead.
Oh, hi. Thanks for the opportunity and congratulations on the strong result. I guess my question, though, is going forward, do you see a need to revise your guidance for this year given the changes to the tax regime? If I understood correctly, if you could just clarify, the government is talking about some kind of 10% tax from this windfall or excess profit tax hit on banking earnings. Is that what you were saying? On top of that, you could potentially see another 5% increase to the corporate tax rate next year. It is a quite material impact. I know it is early days, but if you could just provide any clarifying commentary around that.
If you could also just clarify as well when that regulation came in terms of being able to sell bad loans on the retail books to third parties, and when do you think that will be lifted? Any other impacts that you expect from the changing taxation regime on customer behavior? How do you see, and maybe your asset liability management? Will you divest from government securities in favor of more real lending, or what is your plan there? Thank you.
Simon, thank you very much for your questions. We have a practice when we provide updated guidance after we publish six-month results. We think that current discussions on tax code and on some other regulations, which I'll briefly touch upon a bit later, at this point of time, we do not have the final wording, and the discussions are continuing. During that discussions, we see that certain elements are still in the process of clarifying and amendment. That's why we are not in position, or we think that updating of the guidance is somewhat premature. Again, let me reiterate that on the tax code, we're talking about the two changes. The broader changes in the tax code would be implemented from January 1st, 2026. It will be applicable to the bank's operations starting from 2026. They will not be impacting guidance for 2025.
The results of 2025, when it comes to the regulation, might be coming from two regulatory changes. One is on the excess profit tax, as I already mentioned before. Secondly, the Central Bank, the National Bank of Kazakhstan, is coming with the idea of amending the minimum reserve requirements, basically increasing them from the current level. Again, the final decision is not made yet. There are still discussions going on on exact wording, on the exact levels, and the timing of implementation. We hope that by the time we would be publishing six-month results and have the next call, we would be able to provide updated guidance, which would incorporate not only the discussed changes in the legislation and regulation, but also our overall normal course of business dynamics because we already will have six-month results behind us.
On the ability to work out retail loans through sales, when will that be lifted, do you think, those restrictions?
At the moment, the ban is until May 2026, so it's still 12 months ahead of us. This is what is currently written in the regulation.
Is the excess profit tax time-based, or is it kind of into perpetuity? Is it every year?
It's only for one year.
One year.
It's for the results of 2025.
Understood. Okay. And then just one.
Again, mechanics is still to be clarified. Again, when we talk about the different components, it's not about only the gains from the state securities, but also when we talk about the repo, it takes asset side, liability side. It has some netting. Again, we really need to look at what the final wording, what the final formula would be in order to provide the exact guidance because otherwise, we might be in a position that we announce certain estimations now only to find out that in a week's time, it's changing because the regulation is not, or the law is not finally adopted yet. That is why we think that it's a bit premature to provide the exact figure at this point of time.
Understood. Thanks for the clarification. That's all for me. Thank you.
The next questions come from Sergey Belazerov. Please go ahead. Sergey, please go ahead.
Hi. Sorry. Can you hear me now?
Yes, we can.
Okay. Perfect. I have two or three questions, if I may. Firstly, USAN Bank has recently changed the owner, and I was wondering whether this might create more competition for you in some part of your business. That's firstly. Secondly, on the NPLs, I see they started to rise. Obviously, the economy is going through some challenges. I was wondering where we are there in terms of economical challenges as well as NPLs. Are they still lagging behind, and can we expect them to go up a bit further? Maybe you can share your thoughts on the economy and NPL prospects for the coming quarters. That would be great. Thank you.
Yeah, thank you for your question. I think when it comes to competition, we've always been experiencing the competition on the market. Obviously, the shape or form of competition was evolving. Sometimes we were facing the similar-sized competitor where we would be facing the same bank or same name across a number of clients and product segments. Sometimes we were facing competition in particular niches. This time is no different. There are a number of banks which are developing their own model, their own focus. The life continues, competition continues. I think it's always good. We always welcome competition, especially if it's done in a proper way, because it's also stimulating us in terms of coming with products and services to our clients. It's normal. The banking should be a competitive segment.
When it comes to the state of the economy and NPLs, we already have preliminary four-month results on the economy. The GDP is actually increasing significantly if you are comparing with the same period of last year. For four months, the GDP grew by preliminary results by 6% compared to 3.4% for last year. There are a number of contributors in terms of the sectors. We see that transportation, construction increased materially. We partially attribute that to the completion of the TCO project, which is increasing not only oil production but also transportation. On transportation, we see an increase not only in the pipeline but also on the railway transportation. Construction, we attribute largely to an increase in investments into capital, which is materially driven by state-related sources. On the flip side, the increased fiscal stimulus or continuing fiscal stimulus is increasing inflation.
Inflation for the first month is standing at 10.7% year-over-year basis. Actually, the National Bank increased the expectation for the full-year inflation in the range from 10%-12%. That is probably one of the reasons why the Central Bank, the National Bank of Kazakhstan, is also increasing the base rate. Our investment banking, Aramkhalik Finance, expects that the rates would largely stay at the current level. Obviously, higher rates and higher inflation are having an impact on the credit portfolio. First of all, higher rates we see are starting to impact the credit demand on the SME side. The inflation side is probably also impacting the demand on the retail side. That is why our first-quarter result growth on the retail portfolio is somewhat lower than the last year.
However, we have to admit that partially it is attributed to the base effect because our retail portfolio was growing materially year-over-year basis during the last three years' time. When it comes to NPL, I think partially it is a reflection of, as I mentioned, the inflation side, but also we have to say that there has been rotation in our credit portfolio. If we take the three-month horizon, the portion of the retail portfolio and small businesses was increasing. These are particular segments which, on one hand, provide a high return in terms of high rates, but also they are naturally having somewhat higher cost of risk compared to a corporate portfolio, for example. Overall, we reflected our expectation in the cost of risk guidance for this year.
The first-quarter results, in our opinion, are largely in line with what we provided in our guidance earlier this year.
Thank you.
The next questions come from the tunder. Please go ahead. Tunder, could you please? Okay. We will switch to the Q&A chat. First questions come from Arun Gelband. The NIM has risen nicely from 7% last year to 7.5% for the past two quarters. Does the company think it is sustainable at 7.5% in the current interest rate environment? Is there potential for further expansion? The second question is, marketplace GMV grew by 34% year-on-year. Kasper mentioned that he believes that a recent crackdown on country-fit smartphones in March lowered the GMV by 7% in the first quarter of 2025. Was the Halyk's marketplace GMV also materially impacted by the crackdown on country-fit smartphones in Kazakhstan implemented at the end of March?
Thank you for your question. When it comes to net interest margin, it is affected by several drivers. First of all, we have two-thirds of our balance sheet in local currency in tenge and one-third of our balance sheet in U.S. dollars. The interest rate changes in either of these currencies are having an impact on net interest margin. Secondly, as I mentioned before, we have had certain rotation in our assets. We were increasing the share of loan book in our total assets, which is typically positive to NIM. Secondly, during last year, we saw a high increase in retail and small businesses compared to medium-sized and corporate. Again, that was positive to NIM. Typically, naturally, that was supportive to the NIM starting from the second half of last year.
At the same time, the National Bank of Kazakhstan started increasing rates starting from December last year. Historically, that's having a negative effect on NIM during the next couple of quarters until the assets start repricing again. We have not seen a material impact from all these trends on a combined basis in the first quarter. However, we might expect some headwinds due to the rates, which were increased in the second quarter, potentially some portion of the third quarter until the asset side would start repricing. Overall, as I said, we are not changing our guidance, which is exactly standing at 7.5%. Again, on the guidance, we might come with some updates once we'll be publishing six-month results. When it comes to our marketplace, we saw positive trends in our marketplace.
That was attributed to several activities which we implemented last year and continue to do this year. First of all, we substantially increased the number of our partners. Actually, we more than doubled them within 12 months. We almost increased three times in terms of the SKUs. Obviously, we continue to work with our categories. There might be some rotations, but overall, the result was positive because of the activities which I mentioned. Simply, we continue to scale our marketplace.
The next question comes from Simeon Nellis. Please go ahead.
Hi. Thanks, Mira, again. Just one quick one on the balance sheet. Could you explain why the cash went up 34% over the quarter and why amounts due to credit institutions went up 40%? Quite large moves.
Simon, thank you for your question.
Yeah. There's nothing specific. I think the same question was asked during our full-year results, and the basic answer was that we started from the second half of last year, started actively managing our liquidity, actually using different instruments, like more actively swapping between repo instruments, overnight instruments. It's more proactive asset liability management.
Will this new regulation on repos somehow hinder your ability to do this activity and generate high margin? I guess it will, no?
Maybe to a certain extent. I think the minimum reserve requirements would be definitely impacting the overall asset liability situation. Again, we are in discussion with the Central Bank in terms of in what shape or form and timing these amendments to minimum reserve requirement regulation would come.
Okay. Thank you.
The next question comes from Dan Mikhaylov. Please go ahead.
Hello. This is Dan Mikhaylov from Virgin Asset Management. First of all, congratulations on yet another set of great results. I just wanted to follow up on the two matters that have been raised in the Q&A hitherto. Firstly, I just wanted to clarify one thing about the windfall tax anticipated for this year. You mentioned that you'll likely see a 10% tax rate on state securities and maybe repo transactions or swap transactions, but at the same time, you said it would be relatively immaterial in the context of overall bank results. Would it be fair to assume, therefore, that the effective tax rate would stay in that mid-teens range for this year? The second question I had on the reserve requirements was, obviously, this is still subject to discussion.
Does this discussion revolve mostly around sort of bringing Kazakhstan in line to the CIS average, or is the regulator looking to create a whole new regime, perhaps looking at the European banks as a proxy? What does the regulator think about the differential between foreign currency and local currency reserve requirements? Like, have they articulated anything on that front?
Dan, thank you very much. Let me start from responding regarding the minimum reserve requirements. Currently, reserve requirements for Kazakh banks are indeed at a relatively low level compared to other countries. Like a local currency, it's 0%-2%. On foreign currency, it's up to 3%. They're referring to different countries in the region, including Georgia, Armenia, Azerbaijan, and some other countries. They're also looking at some Eastern European examples. Based on that, they're obviously saying that the minimum reserve requirements should be increased. In the draft, we saw a proposal of bringing reserve requirements for tenge up to 5% and on the foreign currency up to 15% with some potential step increases, not as one goal, and with certain exclusions. These details have been in discussion.
Again, that's why we probably cannot give you the exact impact because these details, which liabilities would be included or excluded, and what would be the timing and steps for that increase, are still not fully clarified. That's why we prefer to wait until we get much more clarity with that regard.
On the effective tax rate for this year, do you think it will still stay in the mid-teens despite the 10% windfall on state securities and potentially repo and swaps? Will it go up to high teens?
Good question on which probably I have no answer right now. Again, because it really would incorporate a few things. First of all, what would be the exact formula? Like, for example, on repo, as I said, what we saw is the difference between repo income and repo expenses and things like that. On state securities, it might incorporate, let's say, profit of realization. Again, the rates are increasing, and if the banks, in order to meet the new reserve requirements, would need to sell certain positions or state securities, that might create loss that might, again, impact the whole calculation. It's many things which are impacting. That's why we prefer not to provide, in the area of uncertainty, provide this specific guidance because they might materially change when we'll be coming with our six-month results. We'll have greater visibility in terms of the calculations.
We'll have greater visibility in terms of our run rates on our normal operations for the six months of the year.
We will switch to the Q&A chat. The next questions come from Zipi Tobon. Congratulations on another great set of results. Is there any discussion of withholding tax on corporate or bank dividends? If so, could this impact how to distribute earnings in the future? For example, share buybacks versus cash dividends?
We have not heard anything regarding the withholding tax. Overall, Halyk Bank is a listed entity on Kazakhstan Stock Exchange and the LSE. From that perspective, we are not seeing changes on the taxation of dividends related, which might be related to withholding tax. However, there are some changes related to Kazakh residents in terms of dividend income. Within certain thresholds, they would be still exempted, but at that level, there will be additional taxes which will be implemented. We do not expect that it will impact our view with regards to dividend vis-à-vis cash buyback. We have both of them. We have a buyback program which is ongoing, and we have our dividend policy, which was amended last year.
As I mentioned during our first call this year, we said that we are looking to stick to our dividend policy, meaning to make payments twice a year.
The next questions come from Georgeladze. Can you please provide additional details on KZT 60 billion loss reported in comprehensive income statement?
That relates to our securities portfolio, which has certain negative markers due to the increase of the rates. Because most of our portfolio is held to maturity, so that at maturity level would be reversed. Unless we will decide for certain reasons to sell certain portions of the portfolio, but so far, we do not see a big necessity in that. It is unrealized loss due to changes in the rates.
The next questions comes from Dan Mikhaylov. Please go ahead.
Hi. It's me, again. Just wanted to follow up on one thing. In a scenario where capital requirements are increased and increased, so at least in line with the proposal, would you consider issuing AT1s or additional Tier 2 debt? Because I'm conscious that I think the Tier 2 subordinate debt that you had was redeemed this quarter. I'd love to get some clarity on whether you would consider AT1s or Tier 2 issuances to bolster your capital position.
We are not considering that because we have materially higher capital compared to regulatory requirements. The only changes in the capital requirements are the introduction of a countercyclical buffer in the amount of 2% of the retail portfolio. It's part of macroprudential regulation, which was decided to be implemented by the Central Bank. Typically, it takes 12 months until that requirement is kicked in. The decision was taken in April of this year. That requirement will be kicked in starting from April 2026. Because we have only 30% of our portfolio in retail on one hand, and secondly, because we have materially higher capital adequacy ratio above the minimum requirements, we do not expect that would trigger any decision in terms of issuing additional capital instruments.
The next questions come from Tundra Audio. Please go ahead.
Hi. I hope you can hear me now. Sorry about the audio earlier.
Yes. Thank you.
Sorry about that. I just wanted to go back to the point on asset quality and just understand the backdrop of this. The ban on selling retail NPLs to collection agencies, why did the regulator decide to do that? What's the motivation behind that? When was this ban implemented? When was this initiated? Just broadly for me, what does that mean for you in terms of the kind of NPL ratio we should expect for the retail and SME segment? Those are the ones that have kind of risen in the first quarter. Your cost of risk guidance for the year, is that already factored into it, or should we expect some kind of deviation from that level of cost of risk guidance that you've provided earlier in the year?
Hello. Roman Maszczyk. I'm going to take that question. The moratorium was implemented on the 1st of April 2024, and originally was planned for two years, so it will last until the 1st of April 2026. This, unfortunately, has affected our way we manage our retail portfolio because prior to that moratorium, we could sell NPLs and realize all expected future cash flows from those NPLs at the moment of sale. Definitely, the moratorium complicated the way how we manage the NPL ratio because right now we have to wait longer to realize those future expected cash flows. That, unfortunately, impacted the NPL ratio, especially that at the end of last year, we tightened our credit policies in response to this moratorium. Therefore, you see slightly higher NPL ratios. On the cost of risk side, we are following the same provisioning standards and rules.
We do not see any deterioration of the quality of the portfolio. This is only the effect of not realizing those future cash flows through the sales of NPLs. What we expect is up to speculation, but there are also opinions that the AFR can expand that moratorium for another period of time. We do not know for sure at the moment what could happen next year. As far as trends are concerned, as I said, we tightened. We expect that our new generations of retail loans are going to come with higher quality, and future generations will default at a lower rate than we used to generate those loans for older generations prior to that tightening. Overall, we do not see any significant impact on our profitability of retail portfolios. Still, net interest margin after operational costs and after cost of risk are around 10%.
We will try to reduce NPL ratio through internal channels of collections rather than sales. That may affect in the medium-term perspective of NPL ratios, but not significantly the quality of the credit portfolio.
Yeah. Thank you. Can I just follow up on that last point? I appreciate the call you provided because I'm not aware of this earlier. If this ban has been around for like a year already, right, is it fair to say that you're seeing a higher level of NPL formation? If this is not new, why are we seeing the increasing formation in terms of stage two, stage three loans on the retail and SME segment then? Is there more going on? I mean, just from the fact that this is not a new ban, if you've had this for a year already, why is it just reflected?
I can address that. In over the last year, even after the introduction of moratorium, the portfolio was growing faster than it was growing in the first quarter of this year. There are two, I would say, contradictory factors impacting the NPL ratio. The growth of portfolio reduces NPL ratio, which was lower in the first quarter of this year. Last year, we had a higher growth rate in retail portfolio. Second is that all retail loans take some time to mature and default. You always see the defaulting loans with a lag. Because we had more originations last year, we only see at the beginning of this year those generations maturing and defaulting. With a lower growth rate in our retail portfolio, that unfortunately is going to increase NPL ratio because of the moratorium.
There are at least three factors that are influencing those ratios. As I said, we do not see any deterioration in the quality of the portfolio overall. This is only a time lag in the collections time profile.
Got it. Very clear. Thank you.
Thank you.
The next question comes from Ronak Garya. Please go ahead. Ronak?
Hi. Good afternoon, team, and congratulations for the results. Mine, maybe just a follow-up from the questions from the previous call from Tundra. Given the tightening standards that we have seen on the retail segment, as you mentioned, you've tightened your credit standards, and that should lead to lower cost of risk NPLs going forward. Does that have any impact on the growth trajectory of the retail segment as well? That is a portfolio that's been growing quite rapidly the last two or three years. That is one. Sort of related to that, maybe even shifting focus to the corporate side. Given all the global and local uncertainties that we're seeing, plus the increase in interest rates by the NBRKA, what sort of appetite are you seeing from the corporate segment in terms of borrowing?
Yeah. Ronak, thank you very much for your question. Yeah. If you would compare the first quarter growth for retail this year compared to last year, yeah, you probably notice the slowdown in terms of the growth. We see somewhat probably better demands in the month of April. However, it's quite realistic to assume that probably retail would probably show a slower growth compared to last year, as I already mentioned, due to continued high inflation, but also due to base effect because we have some repayments from loans which were originated in previous years. With regards to corporate portfolio, we believe the situation is obviously the high rates are overall impacting the demand, but also this is an area which is the focus of the government in terms of stimulating the growth, in terms of the investments.
The government is looking into ways to stimulate investment not only on the government-driven side, but also on the private side. With the bank being the largest corporate lender, we see the government activity. We have a pipeline. We think that would be enough to continue our growth in the large corporate area space. In terms of the particular guidance, percentage-wise, again, I can reiterate that we would come back with any updates, if any, when we will be publishing six-month results.
Okay. Noted. Just one last follow-up on the retail loan growth. Like you mentioned, it was weak in Q1. One of your peers indicated that retail growth moderated because there are some regulations around smartphone registration of imported smartphones. Was that a factor for you as well? Do you think as that situation normalizes, maybe you should see a bit more of a stronger growth later in the year?
Yeah. As I mentioned, actually, we saw growth in the first quarter on our select markets, including our EPOM business. There might be some impact on certain categories. Overall, as I said, we continue to grow the number of partners and SKUs. Overall, that is a positive effect. Potentially, if we might see some slowdown, if any, this year, that might be for overall slowdown in retail credit because in Kazakhstan, the marketplaces are substantially supported by credit products, including BMPLs and secured credits. In terms of the supply side, I think we are working hard in terms of bringing more supply to our clients on our marketplace.
Great. Thank you so much.
The next question comes from Olga Naydenova. Please go ahead.
Hi. Thank you very much. Congrats with strong results. Just have a small question relating to the duration of your held to maturity portfolio. Also, is it similarly accounted for in your national standards for the capital base that you show? Thank you.
Olga, thank you very much. The duration, because the most impact was coming from our securities portfolio in 10 years, the average duration is around two and a half years.
We will switch to the Q&A. The next question comes from Zaharie Sokin. When you talk about the excess profit state securities taxation, do you mean both Kazakh treasuries and NBK securities or just NBK?
It includes both, I think. Currently, treasuries, which is issued by NBRKA, is the dominant state security instrument.
The last question is from Anton Berg. Hi, and thanks to the great results. Are you experiencing more competition for retail deposits today compared to a year ago?
Yeah, we think so because we see that banks have started competing more on the retail deposits, which is translated in the series of interest rate increases by a number of banks. It is partially attributed to a change in approach from the National Bank to remove the hard limits set by the deposit insurance fund on the KZT-denominated deposits. As you see from our results, we continue to perform well in terms of retail deposits. The minor reduction in the portfolio level is attributed mostly due to appreciation of KZT versus the U.S. dollar because still around 30% of our retail portfolio is dollar-denominated. Except for these facts, we think that on an organic basis, our retail deposits grew in the first quarter.
The next questions come from Lily Taylor. Do you currently receive remuneration on your mandatory reserves? If so, will a material increase in mandatory reserve requirements meaningfully impact interest earning on central bank deposits?
Minimum reserve requirements are zero interest rate, so we are not getting any remuneration. We expect that approach would not be changed, and increasing minimum reserve requirements might impact the net interest income to be received by the bank. Again, in terms of the timing and exact impacts, we hope we will provide better clarity during our next investor call.
Dear ladies and gentlemen, it seems 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.