Akbank TAS
IST:AKBNK.E
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Akbank TAS
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Ladies and gentlemen, welcome to Akbank Fourth Quarter 2019 Consolidated Financial Results Conference Call and Webcast. Today's speakers will be Mr. Hakan Binbasgil, CEO; Türker Tunali, CFO; Ebru GÜVENIR, Head of IR and Sustainability. I'll now hand over to our CEO, Hakan Binbasgil. Sir, please go ahead.
Dear friends, welcome to our conference call. Today, I'm very happy to be with you with the solid start to the year. As I had shared with you earlier this year, I was actually expecting a relatively weak first quarter with a single digit ROE. And we have originally budgeted for sequential improvements in our profitability throughout the year, reaching our full year ROE guidance by year-end.
However, thanks to our exceptional capability in generating pre-provision income, which was significantly up by 31% year-on-year, and we have already achieved an ROE of 12.3%.
And this ROE was delivered despite setting aside TRY 100 million free provision, and almost TRY 400 million negative mark-to-market adjustment to our LYY loan. And as we all know, LYY is ex OTAS loan. Adjusted for these, ROE would have been 15.8%. This measure of profitability improvement is as a result of better than forecasted quarterly core NIM improvement, exceptional key generation and better-than-expected asset quality evolution. Therefore, our first quarter 2019 net income was TRY 1,408 billion. Given a better-than-expected first quarter results, there are maybe some upsides to our full year profitability. However, taken into consideration, the reason for
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trend in Turkish lira funding cost affecting it is too early to make any guidance revisions.
Our solvency ratios remained robust at 16.2% total capital and 13.8% Tier 1. Proactive risk management actions, which we have taken throughout the years, play a key role in our solid solvency ratios. We will continue to deploy capital effectively and maximize long-term sustainable shareholder value.
Our discipline liquidity management continues with below 100% LDR. Our best-in-class operational efficiency provides us significant flexibility and competitive advantage in a high inflation and low growth environment. Just to remind, as of 2018 year-end, our cost base was on average TRY 2.5 billion, less than our major peers. And I think, this difference is quite significant.
Going forward, we are aware of the challenges, but I have full confidence that our exceptionally talented people, strong capital, solid liquidity and investments in technology will continue to provide competitive advantage for us.
Sustainable profitability will remain at the focus of our strategies. And now Ebru will share our performance in more detail, then we will be more than happy to answer your questions.
Can you hold on. Can you hear us, operator, sorry? Operator?
Yes, we can hear you. Yes, we can hear you.
Okay, thank you. Because we just had a message on the website that they cannot hear us that's why I'm asking. Okay, thank you. So we can start with Slide 3 then right now. Thank you.
Our top line grew 17% year-on-year to TRY 4.3 billion, supported by core -- strong core operating performance.
Our top adjusted NII was at TRY 3.1 billion, while our fee income was at TRY 1.2 billion. Net income was down 17% year-on-year to TRY 1.4 billion, while it was up significantly by 38% quarter-on-quarter.
And as Hakan has just mentioned, this is despite setting aside TRY 100 million free provisions as well as our market-to-market negative adjustment of almost TRY 400 million to our ex OTAS loan, and also lower CPI linker income contribution quarter-on-quarter. Also worth to highlight that our pre-provision income continues to be robust, up by an outstanding 31% year-on-year. We will continue to implement IFRS 9 prudently, as it affect provision accordingly. We believe, this strategy will provide a buffer for sustainable profitability going forward.
Our OpEx growth was at 23% year-on-year, but only 3.8% quarter-on-quarter. Excluding our technology-related expenses, our year-on-year OpEx growth was below 19%, and a quarter-on-quarter increase was only 1%. We do not consider these expenses to technology as expensive, but as an investment for our future, which will differentiate our bank in the long-term. We expect OpEx for this year to be around rolling inflation.
That being said, our low-cost base continues to give us flexibility as our income ratio remains best among our peers at 33.4%. As Hakan mentioned earlier, our NIM evolution was better than expected, which was driven by core spreads improvement. We reached 3.74% swap-adjusted NIM in first quarter. So what supported our NIM? Despite lower CPI linker income contribution, it was a significant improvement in both TL and FX spread mainly driven by lower funding cost.
As you know, we have a disciplined approach to funding growth. We want to fund TL loan growth with TL instruments. But how do we achieve this? We almost tripled our Turkish lira domestic bond issuances from TRY 2.3 billion to around TRY 6 billion, and increased our market share significantly in this instrument. These are deposit-like instruments, which are mainly sold to our affluent and private bank customers and have a slightly longer tenor versus deposits, while we have a lower
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versus overnight Central Bank's funding. Therefore, this help to optimize our TL funding cost and support our NIM evolution.
For the FX side, due to both our cautious approach and low demand in FX loan, we have utilized some of our excess FX liquidity in purchasing higher-yielding government, bank and corporate bonds. This helps us support FX asset yield evolution and hence our NIM. Due to our low FX LDR and our expectation of slack despite negative FX loan growth for the year, FX funding cost may remain muted going forward.
However, for the TL funding cost, we have recently witnessed some increase. Having said that, so far, our TL core spreads are still at the end of March levels, due to our successful repricing efforts. We believe, first quarter's performance gives us a good buffer for the first half profitability. Taking all into consideration, we are confident on our full year NIM guidance of equal to or greater than 3.5%.
On this page, you may also find details of our swap cost and CPI linker income. Our swap cost includes both short- and long-term swaps, which was at TRY 530 million.
Our average total swap book utilization in the first quarter was around TRY 17 billion, down 10% quarter-on-quarter mainly due to reduction in short-term swaps.
TRY 11.5 billion is our short-term swap utilization rate on average for the first quarter. As for CPI linker portfolio, we used 14% inflation expectation for our TRY 19.5 billion CPI linker portfolio. Every 1 percentage point inflation has around 5 to 6 bps NIM impact. Our total CPI linker income was at TRY 740 million in first quarter. During the year, we will we revisit our CPI assumption for 2019. If our CPI swap
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[ October ] changes, we will make these adjustments accordingly.
Now onto our fee income. Our fee income was up by a superior 47% year-on-year at TRY 1.2 billion, which is well above our 20% full year guidance. It is worth to mention that last year's first quarter was a low base. However, taking into consideration, our fee income trend so far and last year's 26% fee growth performance was despite only 1% loan growth, we believe, there could be some upside to our fee guidance due to diversification efforts, digitization, increased transaction, loan growth and also repricing.
Once again, payment systems, which make up 52% of our fees has performed very strongly, up by 59% year-on-year, thanks to both issuing and acquiring.
For the issuing side, it was affected positively from the increase interchange fees and 14% year-on-year volume growth, thanks to our solid customer portfolio. As for the acquiring side, pricing strategy is managed accordingly to fast-changing market dynamics and resulted with a 64% increase in net fees and commissions.
We had a strong performance in business loan fees, which were up by 88% year-on-year, supported by both cash and noncash loans. Our money transfer fees, which are 9% of our total fees were up by 28% due to currency impact, repricing as well as 12% year-on-year increase the number of transactions.
Our bancassurance fees were up by 12% year-on-year. We have a strong cooperation with our partners, AvivaSA and AkSigorta. As you know, the insurance fees are very much linked to loan growth. However, we have an increase in our stand-alone non-credit linked insurance products, which have been supporting our insurance fees. Non-credit linked insurance premium to total premium are at 74%, which is around 6 percentage points year-to-date.
Our direct customer base is around TRY 4.8 million. For sustainable fee generation, we have been continuously investing in our digital channels and [ diversifying ] our fee-based to non-lending related areas. Direct banking fees, which are all transactions out of the branch are almost half of the non-lending related fees. 68% of our general purpose-consumer loans and 55% of our credit card are sold through direct channels. Every 1 out of 2 general-purpose consumer loans are now sold through our mobile app.
By leveraging our new technologies, which will create future competitive advantage
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[ 421 ] branches have been transformed and we plan to transform further 75 to 80 branches in 2019. In order to realize the benefit of this new branch model quicker, we opened up new screens and analytical models to all of our existing branches as of third quarter 2018.
For our digital branches that have been operational over 1 month, migration of cash transactions to E-tellers is further up by 3 percentage points to 63% year-to-date. This has enabled our customers to spend less of their valuable time in cash transactions and also increases the time and focus of our relationship managers in new customer acquisition, value-added products and tailor-made product sales. As a result, income generation in these transformed branches is up by 30% year-on-year, while fee generation is up by 51%. As for customer satisfaction, year-to-date Net Promoter Score of these transformed branches has even further improved.
Now onto our balance sheet. There has been a change in the presentation of the loans and leasing receivables in the financial statements according to BRSA Legislation. Previously, both loans and lease receivables were presented under the main heading of loans.
Now there are 3 separate lines under the heading of financial assets measured at amortized cost consisting of loans, leased receivables and bonds. Also, there is only a single loan line, which includes both performing and nonperforming loans. Our loans measured at fair value are now included under financial assets rather than under loan. Accordingly, for comparability purposes, we have adjusted our 2018 year-end loan number and related ratios in our presentation.
Our optimized asset composition has created a unique growth opportunity with risk and return in focus.
Our total assets were up by almost 9% to TRY 386 billion. Total net loans, which are up by 4.7% year-to-date, are now 54.6% of our total assets. FX loans are only 41% of our total loans. TL business banking loans, which have been the key driver of our loan growth are now 40% of our total loans, while consumer loans, including credit card are 19%. Also, we have been selectively increasing our securities book, which is now 16.6% of our total assets, while liquid assets are at 9.4%.
Sustainable long-term shareholder value is the key focus of our capital deployment strategy. Our TL loans were up by 5% year-to-date. Business banking loans at TRY 83.4 billion, which include corporate, commercial, SME, are 68% of our total TL loans. Main driver of the loan growth among these subsegments was corporate loan, which are the blue-chip companies.
According to weekly bank-only BRSA data, year-to-date, we gained market share in TL corporate profit loans versus both the sector and private and foreign banks. More than 85% of our corporate loans are short-term working capital related or overnight. Therefore, while growing, we have not increased our TL maturity mismatch, which still remains below 2 months, while our FX maturity mismatch is -- remains at 0. We have loss in our market share in commercial and SME loans due to our modest utilization of credit guaranteed funds new disbursements in 2019. Our 2019 utilization of the CGF is at TRY 2.2 billion. Our total CGF portfolio now stands at TRY 12 billion, with an average duration of 12 months.
As for consumer lending, 43% of our general purpose consumer loans were preapproved to our current customers, while separately 37% are to our salary customers, both metrics underline our prudent risk approach in the current environment.
Our FX loans were down by 2.5% year-to-date, both due to lower demand and our cautious approach. 55% of our FX loans are to project finance, while 20% are to export companies. The balance is to multinational and corporate, which generate FX cash flow. For the full year, we will continue to expect loan growth to be TL driven, while FX loans demand should remain muted.
Now onto the loan portfolio. We maintained a balanced loan portfolio as you all know. Energy generation makes up 6% of our total loan -- gross loans. Since 2016, 100% of our new loan originations in energy generation have been to new renewable projects. As of today, 80% of our energy generation loans are renewables and about 50% are government guaranteed.
Real estate makes up around 10% of our total gross loans. Our real estate portfolio is predominantly project finance and repayments are linked to project stable cash flow generation.
LTV of our real estate book is around 60% to 80%, with the most up-to-date valuation as of the first quarter. It is also worth to highlight that 15% of the real estate book is FX cash collateralized. As for construction, it is only 4% of our total gross loans. 58% of construction book is in FX and 70% of the FX part is government guaranteed on debt assumption.
Year-to-date, our total securities book was up by 13% to TRY 64 billion, mainly led by FX security, which were up 21% year-to-date, while our [ sales executive ] book was actually down by 1%.
In 2018, we had taken some proactive measures and reduced our foreign currency securities book from $9 billion to $5 billion. As of first quarter due to lower FX demand, we have utilized some of expense FX liquidity in purchasing high-yielding securities, which have supported our NIM expansion.
53% of our securities are PL, of which 62% is in CPI linkers, with an average maturity of over 3 years. We achieved a net trading income of around TRY 200 million, thanks to our effective treasury management.
And now onto the funding side. We have a well-diversified and disciplined funding mix. Deposits, which make up 59% of our total liabilities were up by 9% year-to-date, of which 35% is in TL and 65% is FX.
Deposits continue to be the main source of our funding. Our demand deposits have increased from 20% to 22% of our total deposits. While 77% of TL deposit base is SME and retail, which is less price sensitive and stickier in nature.
We will continue to broaden our deposit base and increase our share in demand deposits. Our new retail banking model, where we have merged our -- the consumer and SME business units, will continue to be an important driver for this.
As I mentioned earlier, we have optimized our TL funding base in the first quarter by issuing TL bonds, which are by nature deposit-like instruments mainly to our affluent and private banking customers. Our total LDR remains flat at 95%. We have a well-diversified borrowing mix, which is less than 17% of our total liabilities.
Our total wholesale borrowing has come down from around $10 billion at year-end to around $9 billion, with an average maturity of around 3 years. Our first indication rollover in 2019 was a big success with 1.6x oversubscription and 8 new lender banks. Due to our strong FX liquidity and muted FX loan growth expectation, we rolled over only $100 million of the $900 million redemption, with 25 bps lower cost versus last year September. All cost in, the cost was at LIBOR plus 250 for our U.S. dollar tranche and Euribor plus 240 for the euro tranche.
For the remaining of the year, we have $2.4 billion worth of redemption, of which $1.2 billion is our syndication maturing in October. The balance is mostly trade finance. We do not have any capital market redemptions, like covered bonds or Eurobonds until first quarter of 2020.
Plus, we have ample FX liquidity to serve more than 3 years of wholesale funding without borrowing $0.01 from the market. However, we will be opportunistic in our wholesale funding strategies depending on pricing.
And now onto asset quality. Our stage 2 loans of TRY 30.9 billion make up 14% of our total loan. 33% is in FX and provisions are fully hedged with FX loan position. We increased our coverage ratio for stage 2 from 9.5% at year-end to 10.1%. Only 11% of stage 2 are past due 30 days, while 76% are nondelinquent. Please note that we follow all of our restructured loans under stage 2. Comparability among banks is difficult due to different macro and modeled parameters.
Our stage 3 coverage remains at 58% with very strong collateralization. We have set aside TRY 100 million free provisions in the first quarter, reaching a total of TRY 650 million free provision. Our total coverage, excluding free provision, is at 101%.
Inflows into stage 2 were widespread among sectors and also segments. We do not expect a significant change in the share of stage 2 to total loans for the rest of the year.
Our NPL ratio stood at 4.1% at the end of the first quarter, better than our private and foreign banks average of 5.1%. So far, asset quality evolution has been better than expected. Collection performance continues to be strong. Both inflows and collections have been diversified among corporates, SMEs and retail as well as sectors.
Looking at previous cycles of loan growth and NPL formation, we can say that NPL is a lagging indicator. As a result, we expect NPL to continue trending higher throughout the year, but we may have been overly cautious with our 6% NPL guidance for the full year. However, we believe, it is too early to do any revision regarding the guidance.
Rather than NPL ratio, we believe [indiscernible] credit is better metric for asset quality evolution. NPL can be skewed due to denominator effect or to NPL sales.
Our total cost of credit evolution was better than we expected at 197 bps, of which 17 bps is due to currency impact and fully hedged, therefore, has no impact on P&L. So excluding the currency impact, the net cost credit was at 180 bps. There was no change in conservative macro assumption and we will continue to prudently apply IFRS 9 provisioning. We can conclude that asset quality evolution has supported our profitability in the first quarter.
And now onto our capital. Our total capital is at 16.2%, while our Q1 is at 13.8%, both well above the regulatory requirements. Our capital increase in 2019 -- our capital increase, which was reported prudently in 2019 along with income capital generation, were the key drivers of solvency ratio. According to 2019 Basel III requirements, we have TRY 12.2 billion excess total capital and TRY 10.9 billion excess Tier 1.
We will continue to optimize capital deployment to achieve high sustainable returns for our shareholders, and also ensure sustainable long-term dividend payment.
And now to sum up. I have shared with you throughout the presentation the actual figures from the slides. So far, we are well on track with the full year guidance. 2019 continues to be a year of the balance, which we believe healthy. And we are actively provisioned in the market as we have full capital, strong liquidity, robust infrastructure, best-in-class efficiency and other utilization efforts. All these will give us significant competitive advantage to capture sustainable profitable growth going forward.
This ends our presentation. And operator, you may open the line for Q&A.
[Operator Instructions] Our first question is from Deniz Gasimli from Goldman Sachs.
I have two questions from my side. One will be regarding the margin and funding trends during the quarter. This quarter, you had positive core spread improvement on the back of the normalization deposit cost. I see around 70 -- more than 70 basis point improvement in deposit cost. Just want to get your view on future quarters, given that for effected date, it was seed deposit cost to go 20% at the moment versus benchmark rate of 24%, and given that we see ongoing dollarization in the sector, it was -- and occupancy saw as well, there was an increase in foreign currency deposits, while Turkish lira deposits are declining. So do you expect an increase in TL deposit rates to offset this dollarization? And in that case, would that impact your spread and margin expectations for future quarters? That would be my first question. And my second question would be just on the -- for hiring new mark-to-market adjustment for the previously non-OTAS exposure, could you give more color on what drove the TRY 400 million in mark-to-market adjustment? And if there is any kind future adjustment expected on that front?
Okay. Deniz, thank you very much for the questions. Regarding the margin, what we can say, as we have shared with you, we did better than our expectations. But looking at this quarter, especially local currency deposit costs will likely to increase in the market, so that may have some margin impact. But having said this, actually Ebru mentioned that we have roughly 2 months of measure to mismatch on the local currency side, and basically 0 on the FX side. So therefore even if there is some increase on the cost of funding side, the bank will be able to adjust that relatively quickly. So although, there was some increase in our deposit costs until now, so there's roughly a month -- past after 31st of March. So we are operating with more or less the same NIM as of today. But it doesn't mean that we will be able to continue with the same NIM in the next couple of weeks, couple of months. But we are not very pessimistic about this actually. So probably we will be able to deliver our full year guidance, which was like 3.5. So we are already operating about that. Even if you lose some margin on the local currency side, I think the bank will be able to recover it because of its relatively minimum measure to mismatch.
Regarding this ex OTAS loan. As you know, we are now categorizing this loan under different accounts, which is financial assets measured at fair value. So according to this accounting principles, we have to periodically evaluate the asset, so that there is a independent company actually doing the valuation periodically. If there is a negative GAAP, then we have to provision more. And if there is a surplus actually, the reverse can also be true. So therefore, we can also take some of our provision specs. So we have to adjust according to that valuation report. So if you look at the Turk Telekom cases, specifically, the main reason behind this the extra provisioning is the currency because the asset is in local currency, the loan is in FX and because of this actually, there was this extra provisioning, so that is the basic reason. But as you know, after we took over the company, the board has changed, so now we have some new people sitting on the boards on behalf of the banks, so they are supervising the company very closely and they are also trying to create some additional value.
And also what I can say about Turk Telekom. I've always stated this in the investor community meetings. I have a full confidence about the potential of that company. It's a very strategic asset. It's a very valuable asset. And the financial performance of the company is also pretty good. So I think they will be also announcing their results in the next couple of weeks. So it's a good company. But based on this accounting principles, we have to do that valuation. So we roughly provision like TRY 400 million. But the good news is, the bank has the muscles to provision such high numbers and still could come up with some reasonable profitability.
Our next question is from Gabor Kemeny from Autonomous Research.
I have a couple of questions. Firstly on capital, please. Can you help us understand the capital moves in the first quarter? It seems that the negative impacts, you showing the presentation, more than offset the capital increase. And in particular, it would be useful to understand the impact of the liquid assets. It shows, I think, minus 40 basis points roughly, operational risk and the impact from the currency on RWAs. You showed it was about 50 basis points minus while we had a 5% evaluation of the lira? So it would be useful to get an update on your capital sensitivity to FX as well? And then I will have another question.
Okay, thank you, Gabor. Türker, our CFO will answer this question. Okay, go ahead.
This is Türker. As you know, we started the year because they're low base hence -- then we made our capital increase. Our main aim was to utilize this capital as much as we can. And in this regard, we also see our loan growth, our loan growth as well as our proactive growth in securities. So volume-driven growth impact on capital liquidity was roughly 45 basis points both from loss and securities. And plus, we also grew our liquid assets and some portion of it was also held at the Central Bank with 100% risk ratings. So as a result of that, we had an impact of 37 basis points. And with regard to operational risk. As you know, per legislation, banks have updated their operational risk amount at the beginning of the year based on the last 3 years growth income. That's actually a one-off impact to be -- which we have to reflect at the beginning of the year. So as a result of that, we have 31 -- minus 31 basis points impact. With regards to the currency depreciation, currency impact on our RWA was minus 48 basis points. But at the same time, we had a plus 9 basis points post impact coming from Q2. Actually, we should think about them all together. So all in all, 37 basis points currency impacts, coming from currency depreciation in the first quarter. But having all said that, also we had, again, a good contribution from our internal capital generation of 42 basis points. So our aim for full year risk, again, to operate the bank is around 16% capital adequacy ratio and about 12% Tier 1. And as you can see, actually, as of today, we have almost TRY 11 billion excess Tier 1 capital and more than TRY 12 billion excess total capital.
Okay. And a quick follow up on this. Under the liquid assets, you mentioned this 100% risk-weighted exposures to the CBRT. What sort of exposure are these?
It's our short-term money market placements, roughly USD 1.3 billion, which you can also see under our -- in the disclosure. There's a detailed breakdown of our balance at Central Bank, breakdown with the requirements and free amount that you will see on the foreign currency column, roughly USD 1.3 billion amount [ we can get ]. This is overnight placement at Central Bank.
And is a short-term derivative?
No, not short term. This is -- it's pure money...
Cash.
Cash placement at Central Bank, not derivative instrument, so not linked to [ any slot ].
Okay. Understood. And just another thing on the dollarization trend. What do you think would need to happen for the dollarization to reverse? So what sort of increase would you expect in lira deposit rate -- in lira deposit cost going forward? That's how I'm repricing your book these days.
As you know that there was a downward trend in local currency deposits over the last couple of months. So there was a period where with the inflation expectation -- lower inflation expectation, the deposit costs in the country was -- costs were also coming down. So even for large deposits, the banks were paying like a maximum of, let's say, 19% and 20%. So that was more or less the ongoing rate about a month ago. But after the volatility in the currency, that has started to change a little. So now local currency deposit taking on a marginal basis for large deposits increased around 20% to 22.5%, around that range.
And nowadays, now there's even more competition on the local currency deposit taking and -- but there was a period where there was some dollarization in the country when there was this downward trend in local currency deposits interest rates. But we have started seeing just the opposite actually signals nowadays since the banks are now paying a little bit more than what we used to pay before. So we have started seeing the early signs. So it's just a matter of real interest rates. So we may start some flow in the other direction as well, so it depends on the interest rate.
Sure. And just to confirm, you mentioned that the lira deposit cost came down to 19%, 20% and recently went up to about 22% and now you see signs of normalization. Is that correct?
Yes, that is true. And when I say 22%, so it is for large deposits. So of course, a bank like us, we have many millions of retail clients. So it's not that level of interest rate that we are paying for everybody, but these are like for larger deposits. So if you look at the deposit cost on a blended basis, it is still much less than that. So it is below, of course, 20%. But for large deposits, we also pay around 22% nowadays.
Our next question is from Tais Corre from Morgan Stanley.
I have 2 questions actually, mostly on asset quality and provisioning. The first one, I would like to have, if possible, a little bit of color on why you're setting aside free provisions again this quarter. So what's the rationale? What could be really driving that? And into the remainder of the year, what should we expect on that front?
The second one would be in terms of the NPL developments. On the inflow side, where are those NPLs coming from? And if you could give us a little bit more color in terms of how to really moderate that from our side of the equation, meaning how much should we expect to see potentially big tickets versus smaller tickets going forward and how should it be trending from here. Those are my 2 questions.
Tais, thank you very much, first of all. And regarding the free provision, it's only like TRY 100 million. So there is no one specific reason for this, to be frank with you. But we are living in an emerging market and that there are -- as you know, there are lots of uncertainties and we would like to put as much as possible aside in case there's a need for it. So it's the same principle as -- like IFRS 9, we keep on provisioning. So we also felt more comfortable with putting this extra TRY 100 million on the free provision side, but there's no one specific reason for this.
Regarding the NPL, as Ebru mentioned in her presentation, our full year guidance for NPL is less than 6% and for cost of credit, it is less than 300 basis. So the bank will stick to this. So we are confident about this. And just to give you an idea about the NPL formation, from stage 2 to stage 3, the conversion rate last year was like around 18% from stage 2 to stage 3. So when we look at the first quarter results, that trend is more or less the same, so somewhere like 18% to 20% from stage 2 to stage 3 over a long period of time. So I think this is a rough guidance that we can give in this conference call.
And so when you look at the mix, it is across all segments actually. It's not like only corporate, and it's not like commercial retail. But it's a blended, let me say, portfolio, having different segments in it. But we are pretty comfortable with our, especially, cost of credit guidance. There may be an upside on this. But again, we are at the beginning of the year so it is too early to revise anything. But I think the bank will be able to finish the year hopefully below 300 basis. So when you look at the first quarter results, I think this is like the early indication of this.
Regarding the inflows [ are high ] every year, they were diversified, as we mentioned, in terms of like segments. There wasn't like any particular segment that led to the inflows. And also, regarding the sectors as well, it was also diversified.
Yes. And when you look at the portfolio, we have a relatively low portfolio as the bank was quite cautious in asset creation. So therefore, we are relatively comfortable with this.
Our next question is from Alan Webborn from Societe Generale.
A few questions if I may. In the terms of looking at the shift back towards more demand on the TL side of deposits. I mean as I understand this, in the first quarter of the year, there was a certain amount of people looking for somewhere to hide in terms of buying FX deposits and not on a particularly price-sensitive basis. It's simply on the basis of they were concerned about the preelection period. Do you think that you'll actually -- even if demand is less, do you think you'll be paying more for FX deposits as we go through the rest of the year than you were in the first quarter? That was one question.
The second question was I think Ebru referred to high interchange fees. And could you just put a little bit of color on what that was and how important it was in terms of your fee income? The third question was, I'm sorry if I missed this, but what was the actual contribution to Q1 corporate lending from the CGF funds? That would be the third question?
And I guess fourth question, slightly more general. Given the sort of statements of the Finance Minister of the -- on the continuation of the economic plans and so on after the elections and questions about setting up, it's not clear to me whether they were -- their bank is going to be set up or assets being transferred. Do you see this as something that is entirely within the state banking sector and related to the recapitalization that has just happened for a number of the state banks? Or do you think it's something that you were likely to get involved with as presumably maybe lenders to some of these companies and some of these sectors? I mean do you have any clarity on how will you expect this to move forward?
Alan, thank you very much. Your first question was about FX deposit rates. So I'm not expecting higher interest rates for FX deposits. And the reason is actually is when you look at the LDR in the system, we clearly see that there is abundance in FX liquidity and there is shortage in TL liquidity. And asset creation is also relatively difficult for banks on the FX side versus the TL side. So just basic theory, supply and demand. And I think that the banks will continue to pay whatever we are paying more or less today. So I'm not really expecting an interest rate increase in marginal FX deposit taking.
Regarding this interchange, interchange is the -- as you know, there is this company called [ BKM ], and there is this credit card acquiring interchange commissions. And as you know, banks have issuing business as well as acquiring business, and we have also reasonable acquiring business where we have like 12% market share. And the interchange -- because of the rising cost of funding in the system, there was an increase in the interchange fees. But I don't remember the exact figure, around 2%, 2 point -- 2.1% or something. So we can give you the exact figure later on. And this increase in the interchange resulted in some additional acquiring commissions for the bank. So the issuing side, the card fees that we are getting from the interchange increased. So that is actually the reason, and that also had some impact on the merchants acquiring commissions in the market.
This CGF, your third question, so we had actually limited exposure to this new CGF lending. So there was like 2 additional CGF programs. So when you look at Akbank's new lending -- CGF lending, it is only limited around TRY 2.2 billion. So it is a relatively very small figure for us. So it is basically SME business and small commercial, let me say. But the total volume of our bank is very marginal, to be frank with you.
If we're to add the previous packages as well by the way, Alan, the total amount is TRY 12 billion. So we -- as you know, it was down to around TRY 10 billion. And now with the new TRY 2.2 billion, we're around total of TRY 12 billion.
And your last question was more about the structural reforms. So this capital injection is actually for the state banks. So it will be at the magnitude of roughly TRY 28 billion. And I think this is something quite positive, and the perception was also quite positive in the market. So that will be helpful for the banking system. But when you look at the total capital adequacy ratio of the banking system, it is actually quite high. So it is around, roughly speaking, around 16%. So overall, there is no capital issue in the system, so the banks are quite well capitalized. But because of this relatively high growth in the state banks, so government announced that capital injection, and I think that was something positive for the system.
And on the flip side, the -- what else was talked about which was possible transfers of assets to bank investment funds, nonbank investment funds? Do you have any clarity at this moment as to what that actually is going to mean?
That still needs to be clarified. So this is something work in progress, so that is all I can say at this stage. So there are 2 areas: energy and real estate. But as announced at the beginning, it is not actually related to state-owned banks. It is basically for the whole system, and it is -- I think it will be on a voluntary actually basis. But again, the details is still yet to come. So this is kind of work-in-progress type of idea -- initiative.
Our next question is from Bob Kommers from UBS.
I have 2 questions. One on the NIM is how should we look at the -- at your total lira loan portfolio? I reckon a part of it is on the higher yields that was seen over the last, say, 6 months, but probably still on the lower yields that we saw before, say, August, September last year. So I was just wondering how much of the repricing -- how much of your book is still in the lower rates before the August, September, say, mini crisis.
And my second question is a technical question is regarding the LYY. Could you indicate what the current valuation is of the 55% stake in Turk Telekom? And also, where -- which line of the P&L is the TRY 400 million mark-to-market adjustments recognized?
So this NIM side -- but thank you, again, for the questions. This NIM side, we are relatively comfortable because of our relatively low metric mismatch, which is like 2 months. And we had some growth in the local currency lending in the last quarter. But if you look at the decomposition of our loan growth, it is basically majority of it is actually corporate and large commercial, and these are like short-term working capital type of loans, and majority of them are overnight and all very short period, which is a matter of months, maybe 1-month, 2-month, 3-month. So therefore, we are relatively comfortable with this. So like, as I said, the CGF lending and so on, our exposure was relatively less. So therefore, even if there is some -- a margin decrease in the next 1 or 2 months, this is something I think that the bank can be able to adjust very easily. Turker, would you like to...
As both with regard to this valuation adjustment of the SPV, this provision charge is shown in P&L, there's a line called other provision expenses. It is booked under provisional expenses, it's amounted to TRY 495 million. It also includes the pre-provision amount of TRY 100 million.
Bob, you can find in our presentation on Page 21, if you go to the income statement highlights, we have the details there for you.
Okay. All right. Other provisions, right. Other provisions. And the valuations of the stake, what's the current valuation?
Actually, we don't share the results of that valuation report. But according to that valuation report, the amount of roughly TRY 400 million valuation adjustment is the result of that valuation report. It is roughly 5% of our -- of the carrying value of Turk Telekom are receivables including equity interest.
[Operator Instructions] Our next question is from Hadrien De Belle from KBW.
I had 2 quick questions. One is what is your appetite to grow the loan book in the consumer and SME sectors, like in the next couple of months? Or is it already growing? And the second is, on the provisions, you speak to the below 300 basis points provision, although it could be better. Q1 was below 200. Would you expect Q2 to see a jump versus Q1? And have you done any model updates or would you plan any model updates during the next couple of quarters or into the year-end, given probably like the weaker GDP that you had expected or the model parameters? And that's my 2 questions.
So our guidance for the full year was like 10% growth in local currency lending and roughly flat on the FX. So we are still sticking to it. So, so far, our growth was more on the corporate side, corporate and commercial side. So when you look at the consumer side, year-to-date number was like minus 3%. So the demand is relatively less actually on the consumer side. But having said this, we have a low base. So when you look at our market share in consumer lending, general purpose loans and so on, we are talking about like 7%, 8%. So these are like relatively low numbers for our clients. So we may see some growth, but the impact would be something low. Regarding the cost of credit, it will be probably -- as I said, again, it is too early. So still there are some uncertainties, but I think it will be less than 300. So my assumption would be somewhere between 200 and 300. So 250 and something, I think that would be more reasonable to expect for the coming quarters, but plus or minus, yes.
And Hadrien, as I mentioned during the call, we have not updated our model as of yet obviously. So there has -- once -- if and when we do, we will obviously share with you.
The model update?
Yes. We haven't done it yet. There has been no model update. So we already did on model -- the currency on a standard basis was done according to the end of the year, and it just -- it's too soon to make any model update in the first quarter basically, our budget was done according to the end of the year forecast for this year. So sure.
Securely, we don't see any need for any model update as of today.
Exactly. Exactly.
Okay. Can you share with us what is your GDP expectation that you would have inputted for the model?
When we do our -- Hadrien, when we do our modeling, we don't just take only the 1 GDP, we take variable GDPs and we give a negative/positive difference probability. So it's not just based on 1 number you plug in and something comes out. So it's very difficult to give the details and say this is -- the sensitivity and analysis regarding the GDPs and so forth. It's a very complex model that takes a lot of numbers and inputs as well. So that's why right now, we have incorporated this year's expectations on a base case and worst case assumptions, and there's no need for within the current market to change that. So we will keep you posted if there's new change, obviously.
Our next question is from Yulia Di Mambro from Federated Investors.
I have a follow-up question regarding your voluntary overnight deposits at the Central Bank. Can I just ask how much the Central Bank is paying you on these deposits now? And how does it compare to end of last year? And in addition to this exposure, do you have any other voluntary exposure to the Central Bank, like for example, through swaps, i.e., you give them dollars and they give you Turkish lira?
So the Central Bank rate is in line with the international market rate, so it's not really different than this, so it is more or less the like. Yes. It's the same for dollars, it's the same for euro. So it's not really too much difference.
Okay. Got it. And on swaps, do you have any right way swaps with the Central Bank?
Yes. We have some limited amount, and the rate is very similar to the policy rate, so -- but that is very small in our case, very negligible.
[Operator Instructions] Our next question is from Simon Nellis from Citibank.
I'm just trying to reconcile the numbers on Slide 21 with the P&L that you've sent us in an Excel spreadsheet. And I guess my question is in that Excel spreadsheet on line 42, if you have it in front you, you have this other operating expense item that wasn't there in the past, TRY 494 million. Is that the provision for the OTAS valuation adjustments, that's where it's showing up on these -- the formula?
You mean, the other provisions at TRY 538 million that you are seeing in the first quarter?
Yes. I mean, where is that shift showing up in the BRSA accounts that...
We can give you the details of that after the call, Simon. We can do a separate call. We can give you -- I can give you the details on that first thing.
Okay. But on Page 21, that TRY 538 million is this ex OTAS loan, which is roughly TRY 400, and there's another TRY 100 million on pre-provisions. So that would be explanation of the slide. But the other...
I will get back to you on that one. I will get back to those exactly, okay?
Yes, it seems to be showing up in other operating expense lines, yes. And then my other question, which is the -- on the competitive environment, I mean how are you -- how do you see the outlook, given that state banks are getting a lot of very cheap AT1 capital? And how are you defending yourselves against that?
So I think we will be continuing with our long-term strategies. So our bank is also, as you know, very well capitalized. So we are looking at this on a long-term perspective. So if there are good reasonable -- good yield and reasonable risk assets and we will be more than happy to take those opportunities. And the ones, which is like marginal in terms of yield and in terms of risk, of course, Akbank's overall approach will continue. But the markets I think will give us opportunities for some growth. As you can see in the first quarter, the bank did actually pretty well on the lending side as well despite the heavy competition. So therefore, if the macro is recovering, I think there will be room for everybody. So depending on the different segments, different clients. So we have our own client base and we have growth opportunities.
You don't see a risk that the state banks use this extra capital to kind of steel away clients from the bank?
So I think each bank has its own client base, so therefore -- I feel comfortable. So I don't think that there will be a significant change looking forward.
And I guess the government was also talking about doing things to support the banks -- banking sector in terms of taking out some NPLs? Is there any development there that might also positively affect these private banks? Or all the actions just helping the state banks predominantly?
I think this -- as I said, this TRY 28 billion is more related to state banks. So the overall level of capital for the banking system is actually quite high. So it is a very well capitalized banking system, so there are no issues, major issues on the private bank side. So I think that, that capital injection was targeted to state-owned banks because of the high growth. So there was this big growth and that is basically the reason for this.
[Operator Instructions]
There's a question coming on the web and it says, can you please share the details of your FX liquidity in the first quarter and the breakdown if possible?
This is Turker again. Actually, as we have emphasized quite often, we have a strong -- we have a very strong FX liquidity. And we kind of look at assets from different angles. First of all, if you look at our balance sheet, we have rough -- at the end of the first quarter, we have roughly USD 4.1 billion FX liquidity at correspondent banks, that's foreign banks and around 75% of that balance is actually, it's free, so not to have as collateral or as any guarantees, so free cash. Plus, as I have mentioned before, we have roughly USD 1.3 billion overnights placement at Central Bank and, this also adds up to our liquidity. So we have roughly in total USD 5.4 billion FX liquidity shown in the balance sheet. But we can also look at it from a risk management perspective. So what I mean is liquidity coverage ratio -- our FX liquidity coverage ratio by the end of the first quarter was almost 200 bps -- 200%. And when you look at the trend in the first quarter on a multi-basis LCR -- our LCR was it's been 118% and 205% in the first quarter. And finally, when you look at our money market instruments at redemptions from our swaps, our liquidity is actually goes up to USD 10 billion -- more than USD 10 billion, as this -- so with that amount actually, we have more than 3 years of survival horizon for our wholesale funding.
There are no more questions on the line. Are there any more questions?
There's no further audio questions. Back to you for the conclusion.
Thank you. Hakan, comments.
Dear friends, once again, thank you very much for your kind attention. As usual, we are fully committed to transparency and we'll continue to be on the road again to meet many of you in person. And I want to once again, thank all our people as well for their contribution in achieving such solid results. We are all aligned in our ambition to maximize substantial shareholder value, so we are, as usual, on the same track on that front. And I have full confidence that our exceptionally talented people will be delivering on our promise. Thank you very much and have a good evening. Bye-bye.
This concludes today's conference call. Thank you all for your participation. You may now disconnect.