Good evening, ladies and gentlemen. Welcome to Halig Bank Conference Call on Presentation of Financial Results for the Six Months of twenty twenty one. The session will start with the presentation by our team and will be followed up by Q and A session. Please note that the call is being recorded. Participants to today's call on Halig Bank side are Mr.
Muchayev Metova, Chief Executive Officer mister Anton Mussian, first deputy CEO, digital banking transactional business and IT miss Alia Karpikova, deputy CEO, chief financial officer mister Murat Kasenov, deputy CEO, corporate banking international activities Mr. Dorien Sartaev, Deputy CEO of SME Banking, PR and Marketing Mr. Zmodek Momotov, Deputy CEO of Retail Banking Mr. Viktor Skrill, Financial Director of Finance and Subsidiaries Mr. Omos Mohanov, Chief Risk Officer Mira Kasenov, Head of FI and IR and myself, Margo Anthanisteiv from IR team.
Now let me start with overview of Kali Group consolidated financial results for the first half of and 2021. During the first half, the bank generated billion dollars of net income. The increase by 44.5% compared to the first half of the last year was due to the overall business growth across all segments and recovery of credit loss expense, which reflect the economy rebound and bank's leading position on the financial markets. In the first half of this year, we demonstrated 29.9% return on average equity and 4.3% return on assets. Next slide, please.
Total assets of the group increased by 5.9% versus the 2021 as a result of growth in amounts due to customers, both individuals and legal entities. Customer deposits increased by 7.5% versus the end of first quarter due to fund inflow from the bank's clients. Next slide, please. Interest expense for the first half of this year increased by 12.1% versus the 2020, mainly due to the increase of average balance and share of KVT deposits in the amounts due to customers, which was partially offset by the decrease in interest expense on debt securities as a result of a redemption of bank's high yielding euro bonds. Interest income for the 2021 increased by 13.3% versus the 2020, mainly due to increase in average balances of loans to customers.
Net interest margin decreased to 5% per annum for the 2021 compared to 5.2% per annum for the 2020, mainly due to transfers in placement from high yielding NBK notes into low yielding FX deposits within NBK following the repayment of swap agreement. Net interest margin decreased to 5.4% per annum for the 2021 compared to 4.7% per annum for the 2021, mainly due to improved structure of placement of interest bearing liabilities into interest earning assets and due to savings on coupon payments as a result of an early redemptions of bank high yielding euro bonds. Net interest margin in the 2021 was negatively affected by the accelerated amortization of discount in the amount of USD 5,000,000,000 on bank's euro bonds due to its full prepayment in the first quarter of this year. Next slide, please. Compared to the first half of the last year, our gross fee and commission income increased by 17% as a result of growing volumes of transactional banking, mainly in plastic card operations, bank transfer settlements and cash operations.
The increase in fees derived from bank transfer settlements for the first half of this year by 36.4% versus the first half of the last year, most mainly due to increase in merchant fees as a result of growing volume of online installment loans issued. The increase in fee and commission expense for the 2021 by 4.8% versus the 2020 was mainly due to the increase in payment card expenses as a result of growing volumes of transactional banking and non cash transactions, which was partially offset by the decrease in deposit insurance fees payable to the Kazakhstan deposit insurance fund due to lower rates for the bank on the back of increase of capital adequacy ratios. Next slide, please. Operating expenses for the first half of this year increased by 12% versus the first half of the last year, mainly due to the indexation of salaries and other employee benefits starting from the first March of this year, increase in charity expenses as a result of onetime contribution to Charity's Anhelix and increase in IT investments. The bank's cost to income ratio decreased to 23.5% compared to 25.8% for the 2020 due to higher operating income for the first half of this year.
Next slide, please. On the balance sheet compared with the end of the 2021, loans to customers increased by 11.9% on a gross basis and 13.3% on a net basis, while corporate loans increased by 12.8% on a gross basis, and SME and retail loans increased by 7.313% on a gross basis, respectively. Next slide. Ninety day plus NPL ratio decreased to 4% from 4.4%, and cost of risk decreased to minus 0.8% from 0.4% as at the end of the 2021, mainly due to repayments of large ticket problem and previously impaired corporate loans. The provisioning rate decreased to 6.8%.
The NPL ninety day plus coverage ratio was at 175.2%. Next slide. As of the end of the 2021, Stage three ratio decreased to 10.4% from twelve point two percent as of the end of the first quarter of this year, mainly due to repayments of large ticket problem and previously impaired corporate loans. We are additionally showing here how well the workout of problem loans collateral was done by the bank's SPVs during the first half of this year. Next slide, please.
On liability side, the corporate and retail deposit increased by 5.89.2%, respectively, compared to the end of the first quarter of this year due to fund inflow from the bank's clients. As of the end of the second quarter of this year, the share of corporate KZT deposits in total corporate deposits was 57.3% compared to 56.6% as of the end of the first quarter of this year, whereas the share of retail KZT deposits in total retail deposits was 49.2% compared to 47.5% as of the end of the 2021. Next slide, please. Compared with the year end of 2020, total equity increased by 1.1% as a result of net profit earned by the bank during the 2021, which was partially offset by the payment of dividends for 2020. The bank's capital adequacy ratio decreased as a result of risk weighted assets growth by 11.1% versus the end of 2021 and payment of dividends for 2020 with CET1 and total capital adequacy ratio standing at 21.1% and the 22.1%.
Next slide, please. Based on our six month financial results and following the revision of the overall business growth prospects, we have updated the outlook for the financial year of 2021. Retail net loan portfolio growth is expected to be in the area of 27%. Corporate and SME net loan portfolio growth is expected to be in the area of 19%. Total net loan portfolio growth is expected to be in the area of 21%.
Growth of net fee and commission income is expected to be in the area of 29%. Cost of risk is expected to be in the area of 30 basis points. Consolidated net income is to be around $450,000,000,000. Return on average equity is to be in the area of 28%. Net interest margin outlook remains unchanged and expected to be in the area of 5%.
Cost to income ratio also remains unchanged and expected to be in the area of 27%. Now I would like to hand over to Mira Kasenova, Head of Ophaya and Dia.
Good evening, Ophaya. Now I would like to provide you with digital and business segment update. Customer engagement within our core online platforms, HomeBank and online bank, has continued to grow nicely in 2Q twenty twenty one. The number of monthly and daily active users of HomeBank app, our key retail digital channels, has improved by 7490% year over year, respectively. Monthly active users reached 3,300,000 during 2Q twenty twenty one, and we are well on track to reach our 4,000,000 target by 2021 end.
We see a strong growth in our mobile platform for businesses online bank app. Notably, number of its monthly active users has increased by over five times year on year. The app is ranked number one within the respective category in Galaxy and is highly scored by both Android and iOS users reflecting seamless experience and service we offer to our clients. At the same time, the web platform of Orion Bank remains a key digital channel where we see 37% growth in monthly active users. In the past six months, we launched majority of services and functions that we plan for 2021 within our platforms.
This includes a number of innovative services such as online loan refinance or easy power registration, home bank, and BINOGLAS and HALEX POS within online bank. Next slide, please. The integration of customers to our digital platform supported strong growth in credit and non credit products for retail clients and businesses. Online sales were the key driver of retail loan growth as we now issue over 55% of loans digitally, plus 20 percentage points year on year. For online retail deposit share, in spite of the fact that we stay on the same level, but the number of online deposits has grown by 45%.
We see continuous shift in cashless transactions. Over 52% of the prepaid volumes were represented by noncash card transactions in Q2 this year and a notable increase from 32% a year ago. For SME business, we are well on track with our annual plan, reaching reaching 6,100 digital loans issued in the 2021. We started new relationships with almost 20,000 business clients entirely via online bank in the first half, and we see strong growth in online KBC payments number and volumes have grown by 4033% year on year in Q2 twenty twenty one respectively. In Q3, we expect to increase online onboarding of new businesses with the launch of additional functionalities and benefit from seasonal ramp up in online lending supported by both standard products and state subsidized programs.
Next slide, please. We see a substantial progress across our retail ecosystem vertical. Premiums within our online auto insurance platform increased five times year on year, while GMV of CarlyTravel and Kinote dot has improved by three and six times year on year, respectively. We'll almost hit the number of customers in HALIC Invest, we're targeted for 2021 as our investment platform expands quickly. Development of our marketplace platform, HALIC Market, remains a key priority for us.
Our network expanded for 224 partners, offering over 88,000 SKUs nationwide as of June 2021, and the focus to expand our footprint further. Hallmark is fully integrated with HomeWeb app, and we offer full range of checkout and financing options as well as additional features such as phone tracking. Our marketplace GMV reached 600,000,000.0 in 2Q two thousand twenty one. At the same time, we are expanding our ecosystem, introducing new services in home bank app, which are convenient for our clients and support high customizations and cost in our software app. For example, we launched Halikri remote service, which enables our customers to ease the pay and be sold at the gas station without getting out of the car.
Next slide, please. Turning to retail segment, we would like to highlight solid performance across key dimensions. We see increasing digital footprint with our home bank app and growing transactional activity. The transaction volumes have increased by 31% year on year, and we processed over $600,000,000,000 of transactions in the first half this year. More importantly, product per customer increased to 3% versus 2.5% a year ago, reflecting strong customer engagement.
Retail loans and deposits have shown strong growth at 17.312.5% year to date, and our market share by retailers reached 18.2% as of 2021. Next slide. As mentioned, we have shown a very robust growth in retail lending, Notably, loan portfolio growth for the 2021 is more than 2x higher versus the first half twenty twenty dynamics. Our retail portfolio has grown by 16.6% on stand alone basis year to date, while the loan issuance loans have increased by almost 2x year on year in the first half of this year. At the same time, asset quality has improved with retail NPL ratio decreasing from 6.2% in Q1 to 5.5% in Q2, while we retain conservative provisional levels.
We see continuous demand for retail financing across products and continue to grow our market issuance volumes, reaching record high loan disbursements in June 2021. The growth has been primarily driven by digital sales, which increased 10x year on year and reached 22% of total retail loan sales in the 2021. With the recovery of tariffs and economy. Corporate portfolio remains well diversified because industries were affected compared to 32% of the loan book and the primarily issue for the borrowers with respect to income. Corporate NPL ratio decreased to 2.5%, while we maintained conservative provisioning coverage of over 235% as of Q2 twenty twenty one.
This reflects solid asset quality and our prudent risk management. We're glad to see increasing cost of further strengthening customer engagement and growing transactional activity with $1.8 active corporate price, dollars 5.52 per barrel and 169.7 monthly transactions per active transaction, 25% year on year. Next slide, please. We continue to develop Progliem Bank as a powerful platform for our SME and corporate customers. Over the last month, we added a number of services such as PolyPure, FinoGlass, Alstocashbox, and Apple Pay for legal entities.
We also introduced simple tariff packages and online loans for individual suppliers via app. Most of our customers are actively using online bank either in app or via web interface, investing and 99% of payments and transactions online. The convenient video performance has been a strong catalyst for our client base growth as well 60% of new clients were on 109 in the 2031. Next slide please. We are proud of the performance we achieved in the senior banking recently, supported by the implementation of our digital initiatives, which we mentioned previously.
We currently have over 353,000 consumer customers and continue to focus on offering a wide range of daily banking and transaction services online to meet our clients' needs. As a result, number of added services has increased by 30% to almost 90,000. As New Year one, portfolio grew by 26, while the number of borrowers have doubled year on year in the 2021. New Year one, portfolio is well diversified within service, trade, agriculture and other sectors and demonstrate healthy asset quality. The segment NPL ratio has decreased to 7.3% as of the end of Q2 period.
Next slide please. In the 2021, we achieved 45% increase in loan issuance loans versus the 2020. We continue our strategy to digital with 92% of loans to small enterprises issued online. Our convenient for online onboarding supports full influx of new customers. In the first half, we onboarded over 68% of new clients online.
The number of smaller enterprise borrowers have increased by 70% year to date with 68% share of digital loans, while the loan portfolio has grown by more than 20%.
Dear, ladies and gentlemen, this completes our presentation. Now we would like to open the floor for your questions, please, and just a quick instruction. To state the question, you can raise your hand in Zoom. Or if you joined via the cell phone, please press 9 to raise your hand. You can also enter your question in the written form via chat.
And while stating your question, please also mention your name and company. And And the first question comes from Elena Toreva. Elena, please go ahead.
Good afternoon. Thank you very much for the presentation and congratulations with the record results. I have several questions. So maybe it's the first one on your cost of risk guidance for this year. So it assumes that more or less you guide for to the second half of this year 0.8 cost of risk more or less in this area.
That was previously the guidance for the full year. So this is normalized cost of risk. Can you see going forward for the next year as well? And if any guidance, like how all these big releases, maybe any expectations for another one off provision release the same size or different size going forward? Just maybe some sectors you see can recover some bad exposures or something else.
That will be helpful. This will be my first question.
Hello, Yunan. This is Ahmad Mohanov. Yes. For the second half of the year, we expect cost of risk to come back to normal levels. So the guidance for entire year incorporates that.
In terms of the 2022 and going forward, it's hard to provide any guidance because we see that the factors that impact the quality also come from a change in economy. But overall, you can say that for the years going forward, we will keep on track on based on our historical levels.
And on one off provision releases, is there any understanding how sectors evolve? What's just any potential for big reversal going forward? Maybe some particular area that you cover stronger, you see some, like, exposures to cover for them.
Yes. No. No. No specific areas that we see that might recover in big numbers. But as you as you know, we have been working on legacy portfolio that came from the purchase of KTB.
So that legacy portfolio keeps decreasing. So I think going forward, we should see in terms of recoveries, we should see our normal numbers. And mainly, maybe we should look at agricultural sector that might recover. And but the most specific guidance for any specific sectors. Yeah.
Did I answer your question?
Yes. So I just just a quick follow-up. If any, like, understanding of the amount of this legacy portfolio from KKB, if you can disclose it?
Yes. I think if you look at NPL levels and Phase III levels, you could say that relatively small half of that amount maybe still attributed to legacy portfolio, but it's been decreasing and amortizing pretty well for the past three years. So it's about half of our Stage three loans.
Understood. Thank you. The next question is on your capital position and actually upgraded guidance. So given that higher ROE and, yes, it's accompanied by stronger growth expectations, I still feel that, like, car is running at CET1 ratio, running above what you guided for '21, '22 guidance in CMD, above 70. So if any idea for any guidance for possible payouts for this year given such a robust dynamics would be helpful.
Oysteiner, this is Murat. Actually, yes, we upgraded guidance for return on average equity from 27 to 28%, which is also higher than the figure which we recorded for last year. But we also upgrading the growth of our credit portfolio from net portfolio from 16% to 21%. So if you see, actually, the risk weighted assets growth is also quite significant. It's probably a bit premature as normally we are not discussing the exact dividend payout, which is normally decision which is done in the first quarter of next year.
By that time, probably, we again would be looking what are the prospects of growth, what the expected profitability of that growth would be. And also, we'd be looking what the current capital position would be at that point of time. So, so far, probably, it's a bit premature. But, yeah, we're upgrading both the return on equity, but also we're upgrading the guidance for growth as well.
Understood. Thank you very much. And on digital ecosystem projects, if you can disclose what kind of investments you already did, you plan to do within midterm horizon, like percentage of equity in absolute terms, would
be helpful.
I think this is probably not a big figure from the capital position. So all so far, all the proprietary ecosystem investments, which are showing in our presentation on the slide 19, is is actually done organically through developing our own solutions. So I don't think that we'll be spending big in terms of the capital position, but definitely, we we determined to continue developing our ecosystem services going forward as well.
Understood. Thank you very much. And just a quick follow-up what what we discussed on dividends about. So given, like yes. It's too early to say about next year growth in loans.
But given that, like, this year growth is quite spectacular and typical what we see before, it was quite subdued on corporate side. May we see the same strong of course, it's will be from a higher base, but still can be the same strong demand next year. There is something structural shift in long demand from corporate SMEs or maybe some ideas that's in terms of growth expectations beyond this year.
Yeah. Probably, I will not give the specific figures, but probably let's give me answer from directional perspective. So the growth which we are seeing now is actually coming from various sources. It's on the large corporate side. We see demand from SME, also from small business for which we developed the which for which we developed actually digital lending platform.
And the retail, it's the growth coming from our regular installment loans, which are given to people who receive salaries, but also related to buy now, pay later type types of loans. At the same time, we saw that the portion which which which attributed, for example, mortgages actually shrinked because of because of additional money which was allowed for people to be disbursed from their pension accounts. And part of that actually used in
the first quarter to
repay mortgages. And also our auto loan portfolio is is quite slow. So next to all the sources which I mentioned, there is also potential to to growth in terms of the mortgages and and Alta loans as well. So it's it's it's quite, I would say, broadly based demand which we are seeing now in legal entities, which which is both for large corporate and and SME. We also saw demand coming for working capital loans as well as for capital expenditures.
It seems like that there were some periods during which businesses were underinvesting, and so now the time also comes to catch up with with their plans.
Understood. Thank you very much for the details. This is from my side. Thank you.
Next question comes from Andrew Kelly. Andrew, please go ahead.
Hello. Can you hear me?
Yes, yes.
Okay, great. Well, answered some of the questions. I guess just to follow-up on the lending. I mean, incredibly strong second quarter, particularly relative on the kind of corporate side relative to the first quarter. I mean, any kind of color on why kind of that's kind of such kind of lumpy quarter in terms of the growth?
And I guess you're kind of expecting that, that will kind of slow down to kind of low mid single digits over the next kind of couple of quarters. But just interested to know why there was such strong growth in the second quarter. And then on the retail side, it's interesting what you said about the releasing pension funds early, so people were kind of paying down mortgages. But it's still pretty striking that the difference in the growth between the consumer lending and the mortgages. And I'm just wondering, given how kind of low the penetration of mortgages is in Kazakhstan, whether you kind of think that there's when do you see the chances of this kind of market picking up and the growth kind of returning there?
And in terms of the unsecured loans, could you tell us a little any detail you can give us on the relative shares of cash loans and buy now, pay later or anything on the kind of duration or size of the loans would be great? Thank you.
Thank you very much, Andre, for your questions. Well, regarding the spike in lending to large corporates in the second quarter, Actually, this is due due to the fact that we're working on pipeline and on large corporate segment. It it takes quite some time, actually. Most of the loans which was disbursed in the second quarter, we start working on them even in the last quarter last in the fourth quarter last year as well as beginning of this year. So it seems like it's simply like part of this loan where, actually, the transactions was closed not in the first quarter, but in the second quarter.
So there's no more specific reasons for that. And we continue to have a strong pipeline also remaining, which we think is one of the driver why we upgrading the guidance for the second half of this year. But when it will be realized, particularly smoothly in the third or fourth quarter or it will be more realized in one of these quarters. It's it's it's, again, for large corporates, it's a bit difficult to say because it's you can appreciate that transaction working transactions, yeah, can take quite some time. Well, in terms of mortgages, actually, the mortgages in in the market were growing quite significantly.
I do not have specific statistics for early years, but if you look for 2019 sector wise, mortgages grew by 32%. And in 02/2020, they again grew by 32%. So cumulatively, actually, mortgages grew in these two years something like by 80%. And, actually, they were flat in the first quarter, but simply because there were some repayments of mortgages, which was done from pension fund proceeds. But already in the second quarter this year, mortgages resumed their growth by 11%.
So it is actually growing quite quite fast. And, frankly, I don't think that the growth can be any any quicker given that it's already taking place for quite some time. Obviously, one of the main drivers for that growth are the government programs. So I think that the continuation of that growth partially would be subject to how long these government incentives, government programs would last. But even apart from that, there is some commercial mortgages available on the market as well, and that also might support the growth in the mortgages, but probably to to less extent.
And regarding your question, the split between salary loans and buy now pay later loans, I guess we are not providing that statistics. So I say that at this point of time, I'm not able to to provide figures on that question.
Okay. Fair enough. Thank you. I guess it's
just interesting, your point on
the mortgages, during that time of very strong market growth, I think HALIC's overall mortgage book has basically been flat, which is so it's been quite a long period of time when your mortgage book hasn't really been growing and it's all the growth has been in consumer. And I guess, sorry, just a final follow-up. I mean, obviously, you're talking about the consumer growth coming through the expansion of digital loans and tapping into your payroll base. Can you give us any sense of kind of how much further potential you have in terms of consumer lending to your payroll base? I mean, you kind of in terms and you're probably not going to tell us what share of that number you've kind of lent to, but just generally, is there quite a long way to go still to run-in terms of tapping into your payroll base?
Thank you.
Yeah. Again, probably I'm not talking about from specific figures, but we think that the current penetration allow us to further grow in terms of the number of customers. And, also, if you see there's a continuation of increase in salaries, Actually, already for three years, there is increase in in salaries. And, actually, the salary increase became more broad broadly based because also people who actually work in the area of education, health care. They're also seeing increase actually from the start of pandemics, and that is also growing in real terms.
And as we discussed in our previous calls, these are one of the main components of our target clients and one of the main share of our current salaried customers. So the growth might be coming from further penetration as well as from increased base from existing customers.
Okay. Thank you very much. Thank you.
Next question comes from Leonid Bess. Leonid, please go ahead. Yanit, you may unmute yourself and ask your question, please.
Oh, okay. Thank you. Congratulations with outstanding results for the second quarter. I have a couple of questions. What is the impact of a new COVID wave starting in July?
What what do you think what could be the impact on the certain fourth quarters?
Well, Lenit, good question. Indeed, we are seeing a spike probably for last one and a half months. And, actually, in terms of the numbers, the figures are higher than we witnessed during the previous waves. Yeah. What what what we are seeing is, first of all, the number of people who vaccinated actually has increased.
And if you saw in our presentation on slide 40, currently, there are six million people who already received the first component and close to 5,000,000 of people who received the second component. From from that perspective, actually, Kazakhstan suppressed Russia in terms of percentage of people who received either full vaccination or at least the first component. What areas are still impacted? On educational, like, not all universities would be open again this autumn. So students most of or part of the students would continue to study online.
But schools, at least it was it was pledged that schools would be reopened and will start working online. In terms of the businesses, it seems like the government finds some formula which actually have, let's say, three components. Component number one is vaccination. So the businesses, especially those which involves a lot of interaction with customers. There's increased demands for workers to have to be vaccinated.
This is one component. The second one, the government, actually, there was digital platform called, means open, was developed where actually each person can see its status. Right? It can be if if you if the person is infected, it has a a right status until he get cleared. It can be yellow if the person is considered as as a contacted.
It can be blue if there is no specific status. And if the person is actually vaccinated or if he has three months past his infection, he had he has a green status. And, actually, most of shops, especially bigger ones, like shopping malls, all restaurants, they are required to check the people status through that system. And, actually, there are many cases where people with, for example, red status was actually detected through the systems, they get get penalized. So this is kind of the third element how the government wants to make sure that business stay open, but with some some control over over the over affected affected people.
And the fourth one is so called the weekend lockdowns. So for example, restaurants, cafes, restaurants, hairdressers, shops in locations which has a red status is actually closed. So they can work on weekdays, but they're closed on the weekends. Obviously, this affected certain companies who operates only offline and who has not changed business model into online online mode. But it seems like many businesses, at least in large cities, they they they kind of adapted to the situation, which which we are witnessing now.
Thank you. It's it's helpful. So you expect the impact will there is no big impact on your business in this year as opposed to the last year. Yeah?
I think it will be as related to certain businesses. Again, if we talk, for example, restaurants, there are many restaurants who already adapted themselves, and they see a big sales done through through deliveries. And so these deliveries firms, I think they're increasing their businesses. And interestingly, in Kazakhstan, we have such, let's say, delivery startups from Europe like Glova and Volt. I think they they they're expanding their business in Kazakhstan quite quite rapidly, not only in Almaty, in Asana, but also in in some other cities across the country as well.
Okay. Okay. And second question, given your outstanding results in the second quarter, your guidance for the full year, it seems quite quite conservative. So am I right? So so yes.
The reason you you you you expect about $4.45 of 450,000,000,000 in net income compared with almost 130,000,000,000 in second quarter alone. Even we if we deducted one time gain, so it's it's about $10,420,000,000,000 for second quarter alone. And as I understand, you expected you expect continued growth of all credits and so on. So so could could you give some more more comment about your guidance for for for full year?
I think there are probably one or two reasons for that. One is on the cost of risk because in the first half, there was a release of provisions. And in the second half of this year, we're expecting kind of normalization of cost of risk. So the pre provision figures would be somewhat different. And secondly, we have expansion in our retail, not only on the credit side, but also on the fees and commission.
And there are further plans to grow our active client base, and that would involve some expenses related to to loyalty programs. But the bigger one, I think, would be cost of risk impact.
Okay. Thank you.
And the next question comes from Can you
hear me?
Yes, come.
Yes. Hi. So and thanks for taking my questions. I wanted to ask you about SME. So if I look at the SME borrower as as a percentage of total SME clients, only a small portion of your SME client base actually borrow from the bank.
So I was going to ask you how do you plan to strengthen your foothold further in this field? And is it is then accurate prediction to say that SMEs will be the next battleground in the sector? So that's my first question. The second question is, could you also tell us your definition of your of corporate and SMEs in the bank? And the third question, and this is not really related to the second quarter results, but just to get a general idea of what's going on.
On the retail side, can you talk a bit about regulation risk there? How does the regulator regulate interest rates and APIs on unsecured lending? It would be great to know that. Thanks. Thanks a lot.
Yes. Well, thank you very much for your question. I think it's a good point to discuss on SME because we're not regularly discuss that particular segment, which I think it's not becoming the battleground. I think it's it's already the full battleground. And this is a segment on which we probably increased our focus during last couple of years.
If you look at the slide 27 where we are seeing the shift to digital on SME side. This is exactly the showcase how we are tackling that that segment. Because if if we start program for example, from segmentation, there is no kind of the hard segmentation. So we look at the revenues per group of customers. The the difference between small business and large business is in the area of 10,000,000,000, which is the annual revenue of for the group.
And there's an analysis between small business and medium business. And within small business, we have another category which is called individual entrepreneurs. And, actually, last year, we launched a big digitalization project where we did two things. One thing, we introduced solution which allows digital onboarding of these individual entrepreneurs. So for that, they do not need to come to the bank.
It's actually a matter of minutes during which we would be onboarding these these customers. And if you see from this slide, actually, in the first half of this year, 68% of new accounts opened for individual entrepreneurs were done through this digital platform. Next thing, we introduced digital lending to these individual entrepreneurs. Actually, again, for getting these credits, they do not need to come to the bank because they have already the account opens digitally. They also can apply through their mobile application for these loans, and there is a very quick time to use and time to money.
It's up to four years up to four hours in time to money. And, again, if you look for this slide, actually, 92% of loans which was granted to small businesses in the first half of this year were digital loans. So again, this is the area of interest because it's quite fast. We by doing that, we expanding number of our customers. And secondly, we making these customers we we allow these customers to get credits in more quicker and more convenient way.
Another point, I think it it was a good question from your side. Indeed, the penetration for entire SME segment is not that high. And for us, I think it's it's the next area on which we should focus is actually to penetrate in our transactional banking system. And to do that, we launched another project, which is called Data Factory. This project which we launched beginning of this year, which aims one hand on retail customers and secondly on SME customers.
And so through these projects, we also want to expand transactional activities of our client base. And secondly, also to expand to expand our lending products into our transactional client base. So this is a good catch. It's important segment for us. It's it's became tight in terms of competition because few banks are focused on that.
But we think that we we are good placed to to to perform well and to outperform the market in in that segment.
Okay. Got it, man.
And regarding your question, regarding the regulation, yes, there is a regulation in place which governs the maximum rates. It is calculated in in effective rates terminology. So it's not only nominal rates, but also all the fees which are attached. And so the maximum cap is 56% in effective rates annual effective rates.
Okay. And do you I mean, it's obviously impossible to foresee that, but do you feel that the regulator is a bit worried about where the rates are in this market because these are very high margin products and probably very profitable for the banks
as well, I mean, and as well
as your peers. So do you see anything there, any risks emerging possibly?
I don't think there is some near term risks on that side because the competition, I think, is driving the rates at the first place. So this is number one. Reason number two, except banks, there are nonbanking financial institutions, like microfinance organizations, which are also actually targeting more or less same client base. And some of them are also developing digital solutions. For them, the maximum allowed rate is 100%.
So from that perspective, I think they are a bit more under pressure. And I think first, the rates for that category would start reducing before there might reduction come on the bank side. But again, what we see now, actually, the market is making its own job, and competition is driving the driving the pricing. And another reason is for SME, in general, there is quite a number of governmental programs which allows many SME customers to get credits even lower, even lower than inflation. So there are many government programs on which SME can get loans at 6%.
There is specific conditions which are applied for that category.
Okay, got it. This is very helpful. Thank you very much.
The next question comes from Tunde Oya. Tunde, please go ahead.
Hello? Can you hear me?
Yes. Yes. We can.
Okay. Sorry. I was I think I was on mute. Thanks for the presentation. So my question is on your super app.
So it's authorization. I'm curious to get an update on the progress of that front. In Q1, you mentioned you made about 1,700,000,000.0 of tenure in fees from buy now pay loans loans. Do you mind giving an update on the first half number for that in terms of the contribution to your fee income? That's my first question.
Tundra, hello. This is Victor Skrill. Let me answer your questions. With respect to super app development, we are adding a number of services. As Murat mentioned earlier, we include a number of services.
For example, government service called Ashrik, which is open. It means open, and they it also allows us to attract new customers. We also added another service, which is called remote gas application where driver can go to gas station and load and fill the tank with fuel without need to existing a car. You can you can use this service in application. And, also, we continue to add more and more merchants to our application, and we also built HomeBank as a window to other services within our group, like insurance, travel, invest.
So this all this all services are available at, and you can access that through our super app. With respect to your second question of how much fees we generate from this buy now, pay later product and other ecosystem products. I would say for, like, for this year, we target around 50% of net fee commission growth coming from that services.
Thanks. The thanks for that, Scott. The question I have on the and I'm fully focused on this Slide number 19 now is, you've had a big, huge growth in your number of merchants and partners. You went 47 to two forty four. I recall you have said you have two nineteen target for the year, so you're making progress on that.
But when I look at the GMV, quote unquote, it doesn't seem to have moved that much. I'm wondering, is it because you're moving towards a smaller size merchants now? What are the dynamics going on there?
One second, please. So this because these merchants were attracted only during the most of them were attracted during last month. So we are due to see increase in GMV for these newly added merchants.
Okay. Understood. Thanks. And just last last question for me on this on this particular point is, can you give a sense of how profitable this whole marketplace venture has been for you? I know it's still quite meaningful for how is that?
You started mostly last year. But is it loss making? Is it profitable? And it's profitable in terms terms? Is it similar to the overall bank?
Or is it still fairly significant? Just any color on that would be helpful there. Thanks.
Yes, Sundar. Thank you for this question. We see that our applications are generally profitable because they first of all, they generate leads, which create sales. On the other hand and secondly, we are able to eliminate staff costs because those those leads are created during these channels. This stage, we do not, like, provide exact numbers, but our analysis shows that this channel and this application is personal.
Okay. Alright. Thanks.
We have several questions from our chat. So the first comes from Ivan Kral. In which areas of digital banking are you lagging behind Kaspi, and what are you doing to catch up with them?
Hi, Juan. It's. Good question. Frankly speaking, I would I would like to say that we are not lagging. In my opinion, we are we are trying to be closer to them.
In concrete direction, let me mark the marketplace. This is a sign. I'm sure that you are very interested in that in in that area of business. Why I'm saying that they are not lagging? Why I'm saying that we are catching them?
Because I'm looking in this business line through number of years on the market. If you look at us, we are just on the initial stage. We are only six to eight months time that we are we have presented our business line as a marketplace on the market. And according to our results that were presented, you see that we are going on quarter to quarter, and we have and we have still very strong potential to go further. During so across if you compare us across our main computer computer, you, of course, understand that the business that you're trying to compare compare us with with us, If you look at number of years on the market, they are not, I think, comparable to this to this figures.
But it's better if you compare us with the on the market. So if you if I do finish my answer to your question, I would like to say that in marketplace business line, we are trying to catch up our competitors, and we are trying to grow much further than than our main players on the market. Of course, we understand that being successful in this direction, we will be also very quite efficient, and we will have strong growth in acquiring business at all. I hope you
Next question comes from Simon Prose. So the first question is fantastic results. Well done. Do you have an aspirational target for the net fee and commission income as a percent of total net income?
Yes. We currently do not have such targets. I think we would get back to that once we announce our next strategy. But at this stage, I must say that around one third of our operating income are coming from non interest income sources.
The next question from Simon is how does Halicpost compare to other incumbent competitors in terms of customer ease of use, setup and pricing?
Can you repeat my question on the line, please?
Next question from Simon. How does HalipOS compare to the other incumbent competitors in terms of customer ease of use, setup and pricing?
Thank you, Simon, for your question. Regarding the compare comparing of our product post to other the same decision in the market. First of all, I would like to say that we have a very a very simple onboarding process. When when any merchants would like to get this payment decision, they can do it truly online 100%. This is one of the main features that we have in our product.
And and if you compare it to tariffs that we offer, that tariffs is my very comfortable for our potential customers. So we think that what our offer that we call is very competitive right now in the market. So we have also introduced Pinot Glass as a decision in our Halipos payment offer that can give more opportunities when you compare our decision to our competitors. It means that you can make transaction more than certain amount to this electronic cost that being that can be used through any smartphone of our customer of our merchant. So this is the new service that we have introduced.
Still you cannot find the same decision decision on the market at current time.
The next question from the chat comes from anonymous participant. There is actually three questions. First of them, how much of the provision reversal is due to macro assumption changes? How much due to actual NPL upgrades? Second question, can you elaborate the source of retail loan growth, salary loans, buy now pay later, secured or unsecured, and etcetera?
And the last question, can you comment on outlook for risk weighted asset density given higher retail loan growth?
Just answer the first and the third question.
Well, let me answer the first
and the third question. In the second quarter, reversal of provisions was mainly due to recoveries on problem loans and impaired loans. No impact from macro assumption changes. For the third question, we do not expect rapid change in RWA structure, but given the growth levels for retail loans, we expect some changes increase of retail loans in loans loan portfolio structure. And for the second question, like Paurat mentioned earlier, we do not provide this type of specific details.
But as you've seen from statutory reports, the growth was coming from unsecured loans for third quarter.
And the last question from the chat comes from Patrick Pastoni. Congrats for the spectacular set of results. Net interest margin at 5.4% was a very positive surprise. Could you talk about the positivenegatives that led you to not change 2021 guidance above 5%? Was the sequentially higher average interest rate amongst the customers in second quarter mostly driven by a change in a mix eBNPL installment type of products?
Yes. Let's answer this question. Yes. For thousand twenty one, we expect 5% net interest margin, which, of course, include results for the first quarter when we have negative impact from repayment of the Eurobond. Secondly, we see that share of QDP deposits is increasing because of stable exchange rate.
And on that, source of finding, we bear high interest expense. And, also, we see that corporate loans are also increasing, and they typically yielding lower rate compared to retail and SME book. Thus, overall, this lead us to net interest margin of 5%.
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 further questions. Have a great rest of the day, and