Dear all, we are ready to kick off Helek Bank First Quarter twenty twenty one Results Call. The session will start with presentation by the management and will be followed by Q and A session. Please note that the call is being recorded. I'm now passing the word to Halik Bank team.
Good evening, ladies and gentlemen. Welcome to Halik Bank conference call on presentation of financial results for the 2021. Participants to the today's call on Halik Bank site are Mr. Mehtaj Mehtava, chief chief executive officer mister Anton Mussin, first deputy CEO, digital banking transactional business and IT miss Alia Karpukova, deputy CEO, chief financial officer mister Murat Kashanov, deputy CEO, corporate banking and international activities mister Dorin Sartaev, deputy CEO, SME banking, PR, and marketing mister Zumabiek Momotov, deputy CEO, retail banking mister Viktor Skrill, financial director, finance and subsidiaries mister Almas Mohanov, chief risk chief risk officer Mira Kasenova, head of FI and IR and myself, Margo Antonitaev from IR team. Now let me start with overview of ALLEG Group consolidated financial results for the 2021.
During the 2021, the bank generated 96,800,000,000.0 of net income. The increase by 19.4% compared to 2020 was due to increase in net insurance income, net fee and commission income, and decrease in credit loss expense. In 2021, we demonstrated 25.1 return on average equity and 3.8% return on assets. Next slide, please. Total assets remain unchanged versus the year end of 2020 despite the decrease in debt securities, which was partially offset by increase in amounts due to customers.
Customer deposits increased by 2% versus the year end of twenty twenty due to fund inflow from the bank's clients. Next slide, please. Interest expense for the 2021 increased by 14.4% versus 2020 mainly due to the increase of average balance and share of KZT deposits in the amounts due to customers and due to accelerated amortization of discount on banks euro bonds in the amount of 5,000,000,000 to its full prepayment on 03/01/2021. Interest income for the February '21 increased by 8% versus 2020 mainly due to increase in average balances of loans to customers. Net interest margin decreased to 4.7% per annum for 2021 compared to 5.3% for 2020, mainly due to transfers in placement from high yielding NBRK notes into low yielding FX deposit with NBRK following the repayment of swap agreement and due to accelerated amortization of discount on banks euro bonds in the amount of KZT 5,000,000,000 due its full prepayment on the 2021.
Excluding the effect of accelerated amortization of discount on banks euro bonds, net interest margin increased to 4.9% per annum for first quarter of twenty twenty one compared to 4.7% in the 2020, mainly due to timely and full redemption of the bank euro bonds on 01/28/2021. Next slide please. Compared to the 2020, our gross fee and commission income increased by 9.4% as a result of growing volumes of transactional banking mainly in plastic card operations as well as bank transfer settlements. The increase in fees derived from bank transfer settlements for the 2021 by 33.8 versus the 2020 was mainly due to increase in merchant fees as a result of growing volume of online installment loans issued. The decrease in fee and commission expense year on year was mainly due to the decrease in deposit insurance fees payable to the Kazakhstan Deposit Insurance Funds due to lower rates for the bank on the back of increase of capital adequacy ratios, partially offset by the increase in payment card expenses as a result of increased number of transactions of other bank cards in the acquiring network of the bank.
Next slide please. Operating expenses for the 2021 increased by seven point three percent 2021 increased by 7.3% versus 2020 mainly due to the indexation of salaries and other employee benefits started from the 2021. The bank's cost to income ratio increased to 24.4% compared to 23.8% for 2020 due to higher operating expenses for the 2021. Next slide please. On the balance sheet compared with the year end of twenty twenty, loans to customers increased by 0.8% on a gross basis and 0.8% on a net basis, while corporate loans decreased by 1.2% on a gross basis and SME and retail loans increased by 2.73.8% on a gross basis respectively.
Next slide please. Nineteen day NPL ratio increased to 4.4% from 4.1% as at the 2020, mainly due to migration of previously impaired corporate loans to NPL. The ninety day NPL coverage ratio decreased to 185.6%. The provisioning rate increased to 7.9%. Cost of risk for the 2021 was at 0.4% reflecting normalization of Cost of risk for the 2021 was at 0.4% reflecting normalization of post COVID performance along with repayment of problem loans.
Next slide, please. At the end of the 2021, stage three ratio remained almost flat at 12.2%. We are additionally showing here how well the workout of problem loans collateral was done by the bank's SPVs during the 2021. Next slide please. On liability side, the corporate and retail deposits increased by 1.13% respectively compared to the year end of 2020 due to fund inflow from the bank's clients.
As at the end of the 2021, the share of corporate KZT deposits in total corporate deposits was 56.6% compared to 59.9% as of the year end of 2020. Whereas the share of retail KZT deposits in total retail deposits was 47.5% compared to 45.9% as of the year end of 2020. Next slide please. Compared to the year end of 2020, total equity increased by 6% as a result of net profit earned by the bank during the '20 and continues to have significant capital buffers with CET1 and total capital adequacy ratio standing at 24.625.8% as of the end of the 2021. Now I would like to hand over to Mr.
Viktor Skrill, Financial Director, Finance and Subsidiaries.
Hello, everyone.
We would like to start with digital update. We see strong growth in customer engagement within our core online platforms, App and Online Bank. The number of monthly active users of Halic App has increased by 131% year over year, reaching 3,000,000 in first quarter twenty twenty one. At the same time, namely customer activity has increased significantly. We aim to reach 4,000,000 monthly active users by end of this year, integrating our ecosystem services seamlessly into Halluc app as well as adding access to government services and introducing new products and services such as online auto loans.
We have further developed our legal entities Internet banking platform, Online Bank, is a new set of functionalities including in app mobile POS terminal, online corporate card issuance, international transfers of payments amongst the others. Number of online bank clients reached 233,000 in first quarter twenty twenty one increasing by 35% year over year. On the next slide, we present some KPIs outlining rapid integration of customers to our digital platform supporting growth in credit and non credit products for retail clients and businesses. Customer engagement through digital channels has been growing rapidly as we now issue over 57% of retail loans digitally, while 47% of payment transactions are cashless and 27% of retail deposits are opened online. We opened new relationship with almost 10,000 business clients entirely via online bank in first quarter twenty twenty one alone.
And we see strong growth in number of online transactions and digital loans issued to individual entrepreneurs. We have made a substantial progress in our retail ecosystem development. We have introduced a number of proprietary lifestyle and additional services for retail customers last year, all of which have been showing strong growth and high level of customer engagements. We see more than three times growth in monthly written premiums within our online auto insurance platform since January 2021. Halic Travel, our search, compare, and buy engine for eight for air and railway tickets and hotel booking has been showing eight times growth in GMV since launch in third quarter twenty twenty.
We are building a largest ticket operator in Kazakhstan, Halik Kino. We already reached over 19,000 customers at Halik Invest, an online brokerage platform we launched at the 2020. And we are well on track to reach year end target of 30,000 new customers. Development of our marketplace platform, Halic Market remains a key priority for us in this year. We increased the number of partners to 47 as of March 2021 and now offer over 71,000 SKUs in 22 cities in Kazakhstan and focus to expand our footprint further.
Halik Market is fully integrated with Halik app and we are offering full range of checkout options be it buy now pay later installments, long term loans or card payments. As a result, our marketplace GMV has been consistently growing and reached billion in first quarter twenty twenty one. Turning to retail segment, we would like to highlight solid performance across key dimensions. We see strong customer engagement, increasing digital footprint with our HALIC app and growing transactional activity. Transaction volume has increased 18.5% year over year.
Retail loans and deposits have grown by more than 3% year over year and our retail loan market share reached 18% as of first quarter twenty twenty one. We see growth in retail products penetration by 26% year over year. Despite the pandemic, we have shown a very robust growth in retail lending. Our retail loans portfolio in 1Q twenty twenty one have increased by 3.8% compared to last year, where we achieved record high issuance volumes in March 2021. Despite the growth, our retail portfolio demonstrates good dynamics where NPL ratio decreased by 0.4% in first quarter twenty twenty one.
The growth has been primarily driven by digital sales, which reached 22% of total retail loans sales by volume. Partnerships with our open ecosystem provide access to new customer base and support high customer engagement. We had just three retail partners a year ago and now their number has grown significantly across various categories. Online installment loans issued by our ecosystem partners have shown 16 times growth since the launch of the service last year, both by volume and total count and increased by 35 in 1Q twenty twenty one compared to the 2020. Our portfolio remains well diversified across industries.
FX loans comprised only 29% of the loan book and are primarily issued to the borrowers with FX linked income. Despite challenging market conditions, we maintain strong quality of corporate loan book and payout ratio amounted to 2.7% while we maintain conservative provisioning coverage of 268% as of 2021. Also, we have good dynamics in product penetration. Banks product for client in first quarter this year was 3.08 while bank's product per borrower increased from 4.27 to 4.42. Online bank is a powerful platform for our SME and corporate customers, and we continue to develop its functionality.
In first quarter this year, we added a number of services such as deposits, payments by phone number, and conversations available online via app. We were the first bank to launch issuance of digital corporate cards. Number of online transactions increased by 14% year over year by a volume of online bank payments demonstrated growth at 12%. The convenient service of online account has been a strong catalyst for our client base growth as 60% of new clients were onboarded. Halib Bank was awarded in the SME Banking Club's list most innovative banks 2020 having number one SME Banking Club ranking position.
We are proud of the performance we achieved in SME banking recently supported by the implementation of our digital initiatives we mentioned previously. We currently have over 339,000 SME customers and continue to focus on offering combined range of daily banking and transactional services online to meet our clients' need. The growth of SME loan portfolio amounted to 2.6% compared at year end 2020, while the number of borrowers has become even bigger and increased by almost 71% year over year. At the end of first quarter twenty twenty, we have four point five percent and ten point five percent year on year growth in banks products for medium sized clients and small sized entrepreneurs, respectively. While our loan portfolio is growing at attractive rates, asset quality has been also improving with the level of NPL decreasing to 7.6% as of 2021.
Traditionally, SMEs are represented by trade and services sector companies, which comprise half of the loan portfolio. More recently, we launched special lending programs for agriculture business with the segment already comprising 13% of the loan portfolio as of end of this year. We currently issue over 84% of loans via online channels, which has been the key driver of 26% of year on year increase in loan issuance volumes, which we achieved in first quarter two thousand twenty one. Our convenient fully online onboarding support strong influx of the new customers. In first quarter this year, we onboarded 63% of new clients online.
And this completes our presentation.
Ladies and gentlemen, now we would like to open the floor for your questions.
Couple of instructions. So to ask a question, please raise your hand in Zoom. If you have joined via cell phone, please press 9 to raise your hand. You can also enter your question in a written form via chat. And once stating the question, please also state your name and the company.
We have one live question from Elena Sayora.
Yes. Good afternoon. Thank you very much for presentation. From BCS. I have several questions.
Firstly, on corporate loan dynamics first quarter, maybe some details over some subdued dynamics and what you expect compared to guidance for this year. To expect this to catch up to this 10 to 1212% growth? And my second question is on cost of risk. So partially, it was driven by some repayments. Could you please provide some details, maybe just compare what part of this cost of risk is attributed to repayments?
And can we expect more going forward next quarters? And third question is whether you can provide any update of regulation initiatives, anything on what like, compared to Russia's recent initiatives in IRB approach for its trade decrease or something about maybe unsecured lending regulation? Anything was updated recently, if any? That's it. Thank you.
Elena, hello. Thank you for your questions. Let me answer them one by one. On the corporate book dynamics, yes, we were telling when we are reporting the full year results that we have a good pipeline. So we remain to have this good pipeline on the corporate loan book.
So we think that it's just a temporary reduction, partially explained by seasonality, partially explained by some prepayments from some of corporate customers. But we think that having this strong pipeline, we would be quickly catching up with the growth and we confident in achieving the targets overall for corporate SME, which to your mind, we are saying the area of 14% for the full year. So from that perspective, still confident in achieving these figures. On the cost of risk side, this is in the end of last year for the in the fourth quarter. As you know, there was negative cost of risk because of write backs due to some workouts initiatives.
Now we are seeing the normalization of cost of risk. So we are in the process of normalizing that. So we have not seen any anything in the first quarter, which let's say, we can be considered as as a one off in either direction. So it's we in the process of normalization of cost of risk. And on regulatory initiatives, I understood you were mentioning some initiatives of Russian Central Bank on cooling down the growth on retail side.
We have not seen recently any initiatives from Kazakhstan regulatory authorities on that side. In fact, a couple of years ago, there was some tightening to limits to somewhat limit the growth on of retail book. Since then, there was no change. There are still some regulatory relaxations, which were granted as a part of anti COVID fighting package. Some of them has been returns.
Some of them will be returned probably in stages. This is probably the only regulatory initiatives, so which which might be coming which might potentially impact calculation of capital adequacy, but nothing more yet at this point of time.
Understood. Thank you very much.
Thank you. The next question is coming from Andrew Keeley.
Hi. Good afternoon. Can you hear me?
Yes. We can.
Okay. Cool. Thank you. Yes, I have a couple of questions. One on your costs and your headcount.
I mean, I see that there was, I think, a 4% drop in headcount in the first quarter. I'm just wondering if you can tell us what's kind of what drove that. And generally, what you see is the kind of outlook for your headcount, whether you'll be kind of cutting that further or need to be kind of taking on new staff such as in kind of IT areas, etcetera? And can you also just clarify what the increase in salaries was and whether that was kind of across the board for all staff? That's my first question and then I'll ask another one in a minute.
Thank you.
Andrew, thank you for your question. In fact, actually, since the whole pandemic situation started, there were some limitations in terms of new hiring. So, because there was some temporary freeze on onboarding new staff, but we have not laying staff who was working. So from that perspective, I think we didn't implement, let's say, hard measures from that perspective. I would also like to mention that in some parts of the bank, actually, we we were hiring.
It's primarily the people who was focusing on business, people who were focusing on on IT, on our digital initiatives. So in some parts of the bank actually, we were actively hiring last year and we continued to hire them. We, however, also reviewed salaries this year. This is the regular process. Normally, every eighteen months or so, we were revising the salaries to adjust them to reflect some inflationary tendencies, but also to, let's say, to look from the HR market perspective.
So that's also happens on the salary front,
if you like.
Laura, thank you. Can you tell us roughly how much salary is increased by?
It's in the area of 15%. But again, it's not, let's say, the one figure for all. It's as I said, it's reflecting the market because different parts of the bank, it requires the different corrections.
Okay. A question on your fee income. It was a little bit weaker, well, perhaps than I expected in the first quarter. Obviously, you're coming off a pretty low base from the first quarter last year, so the year on year growth still looked quite strong. And I guess there's some seasonality.
I just wonder whether with that first quarter kind of fee income number, you're still comfortable with your 25% target for this year?
Yes, Andrew. We see this as more of seasonal effects, and our target for this year remains the same.
Okay. And just a question on your marketplace GMV. Could you clarify just what exactly is included in this in store and m commerce? I'm just kind of interested that it's gone from, well, virtually $01,400,000,000.0 a year ago to nearly EUR 19,000,000,000 in the first quarter. So I'm just trying to understand exactly what's kind of in there.
Yes, it would be helpful. Thank you.
Let me comment here. This is Anton speaking. So we have the 400,000,000 GMV as of now earned purely from our ecommerce marketplace integrated into our for Supra. The rest of the story, this is the consist of two pieces, the in store and MCOM revenues coming from our integration of our firm. The MCOM is the integration of our mobile app, HomeBank, with our partners, the across across the country where we providing the pay now by later and loan products through this mobile application.
So this this is the purely purely digital product that we are that we are providing through this through this app. And in store, this is the program that we organized in some of our partners where we providing same products but inside of the inside of the inside of the stores using the same technology. So we are combining these revenues, and here you see these results.
Okay. Thank you. Can you tell us sorry, how many merchants you have you signed up with or working with on this in store and m commerce side?
Okay. I need help from and the help from Zumabek. Zumabek, you can comment on instoreandmcom.
Yeah. Yeah. Sure. It's about 21 partner as of now.
21. Okay.
But they're the biggest in Kazakhstan in electronic trading Okay. And other sectors also.
The biggest retailer.
Yeah. Here here probably I can add to what Zhamarik has said. In some sense in Kazakhstan because in some the most active markets like for example on electronics market, there are quite a big number quite a large players. So from that perspective, it's probably irrelevant to look purely at the number of merchants, because they can provide the widest range of SKUs. And I can also add that we are building the open ecosystem.
So from that perspective, the GMV, which we are showing on this slide, it shows both the open and our proprietary market. So from that perspective, we are increasing the reach to our customer base and we also increasing reach to new customers, because some of the customers of our open market open ecosystem partners, They during the process of getting our buy now pay later loans are also on boarded and became eventually customers of Halib Bank as well.
Okay. Thank you. And can you just clarify, I mean, many merchant partners do you kind of expect to sign up in maybe by the end of this year or over the next couple of years? Yeah. It would just be helpful.
If you take this year as our target, we are looking up to two fifty partners by end of this year on our Halic market platform. Okay.
But, again, we are speaking about big and medium sized companies. Yes? First of all, as the first wave.
Mhmm. Mhmm.
Just to clarify our aims, I would like to say that we are not going into the count of partners. I mean, the quant quantity of the partners. We are going we are running our strategy by inviting our partners on the market through SKUs that we would like to present to our customers. I mean, the main the main the main target is to provide to our our marketplace customers more than 100 more more than 100 offers or, let's say, SKUs on the market that should
be available. More than a 100,000? Yeah.
100,000. Right.
Yeah. This is the main goal. And then the one and the drivers, course, the we know them. It's the partners that we would like to bring on our platform.
Okay. And just a very quick final question. Your lending, I noticed that on the retail lending side, I think there was a quite strong contraction in the mortgages in the first quarter. Is that just a kind of seasonal thing? Or are you expecting that consumer lending will continue to be much stronger as a kind of retail loan growth driver than mortgages this year?
Andre, do I understand correctly the question is on the loan growth dynamic on the retail portfolio?
Yes.
As you probably know, there have been introduction of possibility to extract pension withdrawals as a one time initiative. So people are able to withdraw some excess pension savings in order to either repay their mortgages or probably to buy housing if they do not have the one. So from that perspective, we had some activity from our customers and we see that
there
were some repayments, excess repayments on mortgages, which were taken from that initiatives. So these to certain extent affected the growth dynamic on the retail portfolio. But irrespective of that, you can also see that the dynamics of new loan issuance is quite strong. It's showing on the Slide 22. And the year over year basis, the new loan issuance in the first quarter this year actually was 35% up.
And if you look within the first quarter, the during month of March, we had a historically high amounts of new loan issuance. It's reached billion, which itself is 61% higher than the figure achieved in January year.
Okay. So you're comfortable with your guidance for retail lending growth this year?
Yes.
Thank you very much.
Thank you. We have another live question from Simon Nellis.
Hello. Thanks very much. I was hoping you could give a little more color on the outlook for the net insurance results, which was growing nicely year on year. And also the other operating income, the $7,800,000,000 that you posted in the quarter, was that, again, driven mostly by recoveries? And how is that looking going forward?
Simon, hello. You for Hi. Your Yes. Our insurance business would be growing from its natural, like, operations and also supported by inflow from retail operations of the bank. At this stage, we are not able to provide you, like, exact number, but it would be supported by these two factors.
But the the result in the last several quarters, you've you've produced kind of between 7,000,000,000 to 8,000,000,000 tenge. Is that kind of run rate likely to continue? Is that expected?
Yes. And we think it would it will be even higher with the growth of retail loan portfolio.
And is that driven primarily by credit insurance? Or is it a mix of different things?
Yes. By mix. Like, by growth of retail business and also by it's like other insurance business, which we have in general and life insurance.
And on the other income?
Yes. Other income will be supported by, like, our other, like, subsidiaries, operations and also, like, some other banks operations, like treasury dealing. About run rate, it will be probably the same as the results for, say, like, first quarter. But at this stage, we're not able to provide you, like, with more precise guidance.
And can you disclose the recoveries that were included in that number for the first quarter? And foreclosed assets?
One second, please.
Simon, if we go through other questions and once we have the figure, we will announce.
Yes. I have one last question, which is maybe it's too early for this question, but what portion of your fee income is coming from buy now, pay later and marketplace kind of take rates, if there are such things?
Simon, there was 1.1 expenses other credit losses. So next to, let's say cost of risk figure, the other expenses on reserves is RUB1.1 billion.
Sorry. I'm not
If I
understood your question correctly.
No. Was asking what part of fee income.
Sorry. I I didn't get your question. Could you please repeat it again?
Yes. The question was about contribution of buy now, pay later loans to our net income, And I can answer that. It's around 1,700,000,000.0 for first quarter twenty twenty one.
Are there any other fees you charge to merchants if you facilitate transactions on the marketplace? No. I guess it's mostly yes, no. Okay. Thank you very much.
Thank you. I'm now passing the word to Murat Kasanev to take several questions that came through the chat.
Yes, there are couple of questions which we get through our online Q and A. So one question is coming from Fabian Grayman. The question is as follows. There seems to be a strong focus on digital initiatives. I'm surprised that we do not see higher costs accompanying this.
How should we think about cost to income ratio on a three year view in light of your digital initiatives? At this point of time probably we are not able to give you a three year guidance. But for full year, our guidance was cost of risk to be at the area of 27. So it's somewhat higher than what we recorded in the first quarter. This is partially probably due to the fact that first quarter normally it's low season.
We already talked about that we actually were hiring despite some salary freezes in some parts of the bank, we are actively hiring people in IT area, people who are working on our digital initiatives including ecosystems. We were adjusting salaries to the markets and you can assume that also with some focus on digital initiatives. So from that perspective, I think cost of risk would be growing, but still we think that it will remain within 30% and specifically for this year it's 27%. Another question we have from BD Gu and the question is as follows. Can you talk about your thinking on excess capital?
What would prevent you from increasing dividend payout further including special dividend? The capital ratio, which are showing here on this slide is actually not reflecting two things. One thing is actually our dividend payments. And to recap, we announced a 6% dividend payout and that would be happens in the second quarter. And we also didn't would potentially can impact the capital adequacy ratios is normalization of regulatory norms, which as I mentioned before, was partially relaxed due to COVID situation.
The level which we might expect from these two things is on the dividend payout is roughly 3%, slightly more percent impact. And on regulatory normalizations, if we assume that it will happen in two waves, the first wave might have impact of roughly 60 basis point and the second would be roughly 80 to 90 basis points. So altogether, it's from 1% to one point five percents till the end of this year. So from that perspective, we would be if you take all these, let's say, things into account and applied it as a one off as immediate impact. So that will give you probably in the area of five percentage points.
So that would already bring capital adequacy ratio at the level of 20% or so. And also you have to recap our guidance on the growth of credit portfolio. So from that perspective, we think that capital adequacy is at the level which on one hand provides us sufficient comfort and also allowed us to improve our ratings, which was recently upgraded by Fitch to investment grade. At the same time would allow us to fulfill our ambitions to grow business further. And so we have one more question came to the system from Tunde Oye.
And the question is, why did market share fees declined in Q1? What is number one bank doing that you didn't do? And is this because you haven't started charging merchant fees yet? We think that's looking one quarter versus it's probably a bit difficult to give, let's say, the exact answer, because I think you have to look at a bit longer horizon. In terms of the fees, we actually because we also introduced the buy now pay later type of loans.
So we also charging the merchant fees. So that is not obviously the reason. And because as we showed on one of our slides reflecting the Halik marketplace, the amount of financing which we're doing to support GMV growth, our merchant fees is actually increasing. Tonda, did I answer your question?
I believe we we may not hear the response now. There are no, any live questions, for the time being. So if there is anything else, someone else on the line, who would like to raise hand and ask questions, please do that now.
Dear ladies and gentlemen, this completes our conference call. Thank you very
much for your participation. Our IR team is always open for your questions and communication.