Akbank TAS
IST:AKBNK.E
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
33.64
69.8
|
| Price Target |
|
We'll email you a reminder when the closing price reaches TRY.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Akbank TAS
You don't have any saved screeners yet
Dear friends, this is Hakan speaking. Thank you all for joining our first Q 2022 earnings call. I hope you are all well, and I'd like to start by expressing my deepest sympathies to all those affected by the conflict in the region. I sincerely hope that there is some resolution in the immediate future.
Today, I have Turker and Ebru with me. And before leaving the floor to Ebru to share our strong first Q performance, I'd like to say a few words about the operating environment. Obviously, this is another challenging year, both for the world and Turkey. World is going through a very high inflationary period. We already had supply-related issues after COVID.
And now on top of this, we have the war further fueling this inflationary environment. And set on the other side, there will be some potential several rate hikes, which will bring additional challenges. And of course, that will be especially very challenging for the EMs. Turkey, on the other side, we had a very good growth, actually. Growth was quite positive. There's a lot of activity in the country, especially on the commercial side.
We were actually aiming current account surplus this year. However, this is, I think, is a little bit unlikely because of the high commodity and energy prices. But having said this, we are very optimistic about the tourism season this year. Of course, we will be losing some Russian and Ukrainian tourists, but there is quite a lot of demand from European and Middle Eastern destinations.
So I think Turkey will be able to achieve around USD 35 billion tourism revenue this year. And high inflationary environment still continues. And of course, this high energy and commodity prices were not really very helpful like the rest of the world. The banking sector -- the banks actually, quite healthy and quite profitable, more profitable compared to the past. And as you know, we have a new deposit scheme that reached around roughly speaking TRY 750 billion. That was really very helpful in stabilizing the currency.
And when you look at the local currency LDRs in the system, there is a significant improvement. And when you look at the local currency deposit maturities, there is also some extension, so which is also quite healthy. On the loan side, the loans were up like roughly speaking 22%, and the main contribution came from the business banking loans, which were up like 28%.
FX loans on the other side was flat. And if you look at the operating environment that we are in, obviously, there is this constant change environment that we are operating in. First of all, there is a significant change in customer needs and behavior. They are more digital, more demanding. There's a lot of revolutionary change. Now digital onboarding, digital banking, open banking, these are all available in the country. So competition is evolving. We have banks and nonbanks as competitors. And last but not the least, sustainability is actually on the rise. So these are some of the factors that we are operating in.
So banks are actually well positioned to meet such challenges. They were embedding themselves in customers' lives. And their key strength is actually trust-based established relationship with their customers. So that is a big plus for the banks. However, having said this, I think there will be big divergence of performance between banks, the ones who do their homework and adapt well and the ones slowing -- at a slow -- adapting themselves to this new changing environment.
Akbank is actually -- is for sure one of the best-positioned banks in this environment. Our several years of consistent investments in technology and our people were critical in this. And as I have shared with you earlier this year, now we have a new organization structure in the bank. We do not have a digital banking division anymore because the whole bank is now digital.
So we don't have a channel-based organization anymore, but we have a customer-based organization with a holistic approach. And I think we are the first bank to do this because we were digitally ready to do this big transformation. And now we have consumer banking, SME banking, commercial banking, corporate banking and private banking, these are like different business units. And my colleagues there are in charge of the whole customer business, and they are fully responsible and they have a 360-degree view of the customer.
And I think this will bring us great competitive advantage in the coming months, in the coming years, and we have already started seeing the results. We are also the first bank to invest in e-money company, which is called AkÖde, which has been operational for some time. Actually, in a way, this is our own challenger bank. And this company already has 2 million customers. And what is really more important, these are young customers. These are the future Akbank clients. So I think this is a beautiful positioning looking forward. We have been investing in blockchain technologies, new technologies for quite a while. And recently, we took a significant step in the digitalization of our foreign trade. And we are the first Turkish bank to join the we.trade blockchain platform, and we have just recently successfully completed our first transaction.
Another very important development, which I have been sharing with you is the digitalization of our SME banking. So this is an area which has been actually overlooked by many, many banks, not only in Turkey, but globally. And we have been actually spending tremendous effort in this over the last couple of years. And we launched this SME digital banking at the beginning of this year, and I have high expectations, and I am very optimistic about this looking forward.
So all these have already been reflected into our solid numbers, which Ebru will share with us shortly. There's a lot of dynamism, motivation at the bank at every level. There is significant customer acquisition. There is significant market share gains. Our number of customers increased roughly by 1 million. And this 1 million is a net figure in the last 2 quarters, in only 2 quarters. And I think this is a very significant customer gain and also an indication of Akbank's actually marketing capabilities. There is obviously a very significant contribution coming from the digital. And I am especially very happy about it since we have been investing so heavily in this area for the last several years.
Our subsidiaries also did very well. And I think this high momentum across the board will likely to continue. And now to our digital playbook. We have 4 strategic pillars to digital onboarding. Actually, this became available in May last year, and Akbank does extremely well in this because of the seamless design, seamless processes and maybe more important, the advanced analytics behind this. Secondly, open banking. Banking as a service is a key focus area for us. We have been increasing our digital footprint in the ecosystem. We very recently relaunched our Akbank API portal. So we will be continuing with this BaaS, Banking as a Service, vision in the coming months, in the coming years.
As you know, we have been continuously stressing this mobile banking, our mobile experience, which we have been investing significantly. This mobile 3.0 transformation started in year 2019, still continuing, delivering the best -- one of the best experiences here not, only in here maybe, maybe globally. And we have a page in our presentation. So the growth, the numbers, I think these are all very phenomenal on the digital side.
So we basically try to digitize every product, every service that we have. So our goal is to increase mobile's share to 95% in financial transactions, and we are not really too far from that ambition. So as a result, I'm very happy to say that, we excellently position the bank. Despite all the volatility and the challenging market conditions, our strategic priorities have always remained intact and positioned Akbank to generate long-term stakeholder value.
First of all, we have superior capital buffers, which is 17.7%, the highest among the peers. Therefore, we have more ammunition for further growth in the coming months, in the coming years. We have robust FX liquidity. We are very proactive on the ALM side, maturity mismatch management, et cetera. So we have an excellent positioning on the treasury, and we have one of the largest CPI linked portfolio in the country. And more maybe important than this are core business development. The growth is actually extremely well. Revenue growth is also extremely well. So no matter how you look at it, and from which angle you look at it, the fee generation, NII generation, subsidiary income, when you look at all those developments to growth, these are all well above inflation levels, which is actually already high in the country. So this is, I think, something that I'm very happy about looking forward. So the number seems to be actually quite sustainable, the numbers that we will be sharing with you looking forward, will continue. So this is my actually basic message here.
Prudent risk management. So with all the advanced technologies that we have, advanced analytics, we continue to do this in a more actually advanced fashion, optimized portfolios. There is a significant cost benefit analysis. So the bank is actually very advanced in those areas. When you look at the cost base, our cost income ratio this period is -- this quarter is 23.5%, 23.5%, and this is a record goal number. We have always been extremely well in this, but 23.5%, I repeat this. And this is because of the income contribution and also because of the relatively low cost base that we have and which is actually the lowest among the peers. And I think this is particularly very important in a high global inflation environment. And thanks to our sophistication in digital transformation.
And last digital capabilities. I have already stressed this. So this contributes not only on the risk side, but also on the revenue generation side, customer acquisition side, cross-sell side, new sales. So there is a significant contribution from digital capabilities.
This cutting-edge infrastructure, we have very recently designed the bank's operation center, which will further support our growth and efficiency. Last, but certainly not the least, our more important pillar is our outstanding talent. We have been nonstop investing into our future through up-skilling our people. After all, without them none of this would be possible, and I'd like to extend my sincere gratitude for all their hard work.
I also would like to reiterate our strong gender diversity culture. And I'm very proud to say that 50% of the direct reports to me are women. So I'm really very proud of this. Before I pass it to Ebru, I also would like to mention an important development, which I'm sure you are all aware, which is the sale of Turk Telekom. Aside from the one-off gains, this deal also frees up 1% to 1.5% of ROE on a sustainable basis.
Ebru, now the floor is yours.
Thank you, Hakan Bey. Hi, everybody. I'm very happy to be with you again today for our first quarter results. Let's start with, first of all, a summary page. We had a remarkable start to the year, as Hakan Bey just mentioned. Our quarterly net income of above TRY 8 billion is almost 4x of first quarter last year. As a result, we achieved an eye-catching 4% ROA and around 39% ROE well ahead of our guidance. We have further built capital during the quarter, reaching a robust figure of 17.7%. Contributors to the outstanding performance were across the board as we had guided. Our strong performance at the start of the year makes us even more confident in beating our guidance in general, especially for the bottom line. So let's dive a little deeper into the solid performance.
Starting with the loan growth. Our TL loan growth was -- has been quite stellar during the quarter, up by 19% year-to-date, indicating a run rate that will beat our full year guidance of 30%. On top of last year's 60 bps market share gain in TL loans among private banks, we further added 70 bps in first quarter. The main contributor year-to-date was business banking up by 28%.
In Business Banking, once again, I would especially like to highlight our success in the SME segment, where we actually gained close to 60 bps market share among private banks. This segment's first quarter volume growth is equal to all of last year, thanks to our ongoing momentum in customer acquisition and new product offerings.
Our 360 degrees customer-focused organization structure and comprehensive SME Moment Package designed to empower SMEs, which Hakan Bey just mentioned about, have definitely been among the supportive factors in the success. Following our consecutive market share gains in consumer loans of 160 bps last year, we started the year more flattish, up only 2.9% on this side, which is actually in line with both sectors and private banks.
Due to the global uncertainties, while growing, we have been very careful in our maturity mismatch. To that extent, we have been active in variable loans such as CGF. TRY 6 billion of CGF loans have been granted in first quarter. These are all small ticket loans, which are all variable.
On to the foreign currency side, over the last few several years, we have been already taking several actions to mitigate the FX risk, and we feel comfortable with our delevered foreign currency book. Also, most importantly, as Hakan bey just mentioned, with Turk Telekom sale, we will now be able to generate 1% to 1.5% sustainable ROE going forward. Our net FX loans grew by 4% year-on-year versus our low base of last year. We still observe muted demand for investment loans and also given the volatile currency environment, we do not expect any change to this trend. And this is in line with our flattish foreign currency loan growth guidance of the year.
Moving on to the securities. Our treasury once again did a phenomenal job last quarter. Our fixed portion of the TL securities has declined to only 14% and 1/4 of that with low yields will be maturing this quarter -- second quarter. Year-to-date increase in TL securities took place due to CPI linkers, which are now 75% of the total. This portfolio now equates to TRY 73 billion, reaching 80% of total equity. Our main purchases in CPI linkers took place in January, after which we maintained our market share. As you may remember, our October to October CPI linker valuation estimate was at 30% during our guidance. Taking into consideration the recent trends, we have revised it to 35%. Every additional 1% CPI will have around TRY 430 million net income, 7 bps NIM and 45 bps ROE impact on -- based on this year's expected average equity. Therefore, along with our customer base revenue growth, CPI linkers will also be a supportive factor for NII. As for our foreign currency securities, we are hedged against global rate hikes.
Now on to the funding side. We have maintained our well-diversified and disciplined funding mix. Deposits continue to be our main source of funding equating to 61% of total liabilities. Our TL deposits were up strongly by 31%, increasing its share in our total deposits and resulting in an eye-catching 9 percentage points improvement in our TL LDR to 133%.
Our solid customer franchise, customer acquisition, along with the new deposit schemes were actually supportive factors in this improvement. The new deposit scheme amounted around 35% of our TL time deposits. And of this, 40% have 6-month maturity. The renewal of the ones that have been maturing recently continue to be very strong. Worth to mention that our sticky low-cost TL deposits and 0 cost demand deposits were also up by 25% and 26% year-to-date.
Our foreign currency deposits on the other hand were down by 4% in dollar terms, which is, again, a result of the new deposit scheme. However, our solid foreign currency liquidity with an FX LDR of 53% remains as one of our strong muscles.
Now on to the wholesale funding side. We kept our balanced funding profile along with our robust foreign currency liquidity. Our first quarter average foreign currency LCR was solid at 300%. And our foreign currency liquidity buffer was noteworthy at around $11 billion versus our next 12 months rollover of only $3 billion. And on this $655 million has already been repaid and refinanced with an ESG-linked $700 million loan in April. Please note that we have also paid back our prefunded $500 million Tier 2 in March. Due to our ample FX liquidity and low FX loan demand, we will continue to be opportunistic in our borrowing strategies, prioritizing sustainable funding while extending overall maturity.
Our dynamic asset liability management, benign funding costs and ongoing asset repricing as well as our strategic and timely positioning in CPI linkers have all contributed actually to our 182 basis year-to-date NIM improvement. Even excluding the 40 bps CPI adjustment coming from our 35% CPI estimate versus the 30% that we had shared in our guidance, I am very happy to share that we have almost reached our full year guidance for NIM. Going forward, assuming current interest rates environments prevail, we have confidence in beating our guidance.
And now on to the fee income. On the commission revenue side, we had an outstanding performance across the board, up 40% year-on-year. As you can recall, last year in the first quarter, we had a one-off commission gain from our LYY. And adjusted for that, our year-on-year fee income was even more eye catching at 52%. As you can see on this slide, all businesses have positively contributed to the revenue base, indicating the sustainability of our fee generation. Reasons behind this accomplishment were customer-oriented solutions leading to customer acquisition, product innovation and diversity, increased transactions, pricing due to either currency or inflation and the success of our digital channels have all played a role. Going forward, we believe fee income will be another area where we will beat our guidance.
On the digital side, we continue to leverage our capabilities with 6.9 million active digital customers. Our digital strategy, which is based on our customers' journey has enabled us to gain record-breaking net customer growth for 2 consecutive quarters of close to 1 million. And close to 1/4 of new-to-bank customer acquisition is utilized through digital onboarding.
Customer growth has been reflected into our numbers. There has been solid growth in the number of broad based customer deposits. We reached around 3x the net growth level of last year in only one quarter. Also multi number of customers from which we collect commissions is at all-time high, which once again solidifies our fee performance for the upcoming periods.
On this slide, please notice the digital interaction is also at the highest level. There was a 40% year-on-year growth in daily financial transactions and 26% year-on-year increase in the number of mobile customers conducting financial transactions.
During the quarter, we further enriched our digital channel sales and service capabilities and these efforts are delivering promising results. For example, automatic billing order performance for mobile increased throughout the quarter, setting a new all-time high. This is obviously quite important for demand deposits. We also broke new ground in commercial credit cards with our digital-first commercial credit cards. SMEs can now start to use their cards instantly for Internet spending and mobile payments without physical cards.
To sum up, we will continue nonstop to invest in our digital customer experience and our mobile NPS being up by 11 percentage points since the beginning of 2020 also underlines the success of this commitment.
And now on to the OpEx side. This year will be a challenging year as we all know, due to, obviously, the high global inflationary pressure, as well as the pass-through of the weaker currency of last quarter. We have a very low cost base, but still cost discipline remains in focus. Our -- with our significantly high revenue generation, cost income further improved to historical low level of 23.5%. This level is obviously not sustainable in the long term. However, we feel very confident that our cost-to-income ratio will remain well below our full year guidance this year.
And now on to the asset quality. This quarter, there were no net inflows into Stage 2 when excluding currency impact for which obviously provisions are hedged. As a result, our Stage 2 declined to 8.7%. Also, across the board, collection performance remains to be strong. As for Stage 3, the inflows were broad based. Since we have taken necessary actions on all major files until now, we have believe there will not be a material increase in NPL inflows, therefore, expect our NPL ratio to be around 4% this year.
On to cost of credit. Our cost of credit evolution underlines our proactive provisioning. We had a model update in the first quarter, which had around 30 bps impact. Also, improved collateral values and ongoing strong collection performance contributed positively to our cost of credit evolution. As a result, our net cost of credit, excluding currency has remained at low 72 bps, thanks to our strong risk discipline through the cycle. Including currency impact, our net cost of credit would be at 107 bps, flat versus end of last year. Our coverage ratios for all 3 stages remained at their year-end levels, which is in line with our guidance. We believe our significant provision build and solid increases in collateral values will limit the need for additional provisions.
And now on to our capital. Record high profitability also reflected on the capital position as our internal capital generation added 136 bps to our total capital. Excluding BRSA forbearances, our total capital further improved versus year-end by 50 bps to 17.7%. And please note that this improvement was despite repayment of Tier 2 during first quarter, significant growth and operational risk, which is a sectoral implementation during first quarter of every year. Also, I would like to underline that 150 bps quarter-on-quarter improvement in our Tier 1 and core equity Tier 2 ratios took place to 14.4%. Our sound capital buffers serve as the shield against unprecedented challenges and volatility and also creates significant ammunition for sustainable profitable growth. Our important competitive advantage on the capital side continues at full pace.
And on this slide, you may find the summary of our financial performance. We have almost outperformed in every metric and believe there is material upside to our full year ROE guidance.
Before moving on to Q&A, I would like to also share a few words on the sustainability side. In line with our long-term strategy, we continue to work on mitigating our environmental footprint while increasing our positive impact. We are well on track for delivering our sustainability targets across the board. In first quarter, we provided TRY 10 billion sustainable finance. Since the commitment at the beginning of last year, total sustainable loans have reached TRY 37 billion. This performance was driven by our market expertise in offering our clients products and services for a transition to low-carbon economy.
The progress so far indicates that we are likely to exceed our 10-year target of TRY 200 billion. On sustainable investment side, our subsidiary Ak Asset Management introduced yet another product, electric and self-driving vehicle fund in first quarter. There has been good demand for this fund so far. The total AUM of our ESG themed funds have reached TRY 3.3 billion, up from TRY 2.5 billion at the year-end.
And now on to the next slide. On the SME side, our impressive performance actually was also supported by our tailor-made solutions we offered to women-owned businesses, which actually has significant untapped potential. We supported women entrepreneurs, both through access to financial and nonfinancial resources. We granted close to TRY 500 million loans to women entrepreneurs in first quarter with the fund provided by EBRD. We observed strong demand. And this is a testament to our foresight in tapping the potential of this underserved but critical group of businesses. In collaboration with EBRD and Frankfurt School, we also provided women business owners with nonfinancial resources such as support to gain critical skills, networking opportunities and also one-on-one mentoring and so forth.
In addition to these, we support our SMEs by strengthening our SME ecosystem. And in line with this holistic approach, we continue to collaborate with e-commerce companies.
And now on to our people and communities. Hakan Bey already mentioned our focus on gender balance and how we continue to invest in our people. I'd like to also add that we continue to invest in our communities. And this quarter, we actually up-skilled 4,000 young people for the future of work. Last year, in total, we had up-skilled 40,000.
And now on to our last slide. As some of you remember, we had already planned to decrease the impact of our portfolio on climate change by 2030. Today, we are happy to announce our commitment to become a carbon net-zero bank by 2050. We will update you regarding the developments on our decarbonization road map and journey in the near future. As for climate-related risk exposures in our portfolio, we are finalizing a bank-wide project, which will enable us to better assess and manage climate-related risks, such as TCFD-aligned sectoral heat map for physical and transition risks, a comprehensive update on our environmental and social management system.
And with that, we conclude our presentation. We can now move on to the Q&A. Please do raise your hand or type in the Q&A box, your question. And for those of you who are joining us by telephone, please send your questions by e-mail to investor.relations@akbank.com. Thank you.
So the first question comes from Sam Goodacre.
I just got a couple of questions. You touched very briefly on LYY. Obviously, I haven't had a chance to go through in detail the numbers yet. But could you give a very sort of high-level snapshot of the impact in the quarter? And if that is now sort of a done deal given it was signed in the 1Q? Or is there any way it will impact the financials going forward?
And the second one was on your market share because, of course, you have been using your best-in-class capital position to improve your retail and consumer market share. I believe this quarter, you potentially were lagging in retail and consumer. And indeed, it was business banking, as you've said, that led to the overall share gain. So perhaps you could talk to us a little bit about your appetite in the current environment for consumer -- sort of underwriting consumer loans and that strategy more broadly.
Sam, thank you very much. These are great questions. Turker, would you like to answer the first question?
Yes. Sure. Hakan Bey, actually, yes, the transaction has been closed by the end of the first quarter for LYY. The impact -- the P&L impact for the first quarter was actually limited like a few hundred million Turkish lira in this quarter, like TRY 300 million post impact we had this quarter. And until the end of the year, once the official write-off of the loan -- of the remaining exposure takes place and then the liquidation of the company takes place, we will also have another income coming from the tax benefit, it will be roughly TRY 1 billion, which will be reflected to our P&L till the end of the year. But more important than that actually now for the coming periods, as Ebru has also mentioned, this LYY was actually a noninterest earning assets. Now it has been replaced by interest earning assets. Therefore actually going forward, we will have roughly 1% to 1.5% additional positive ROE into our financials.
Let me answer the second question, retail question. So Sam, actually, the bank is doing extremely well across all segments. And there is actually even a greater momentum on the retail side, consumer banking, actually affluent banking, SME banking. There is a beautiful growth actually on that area. But the numbers are -- the growth this quarter, especially on the lending side is relatively small, but the whole sector, when you look at the whole sector, that there was a limited growth. So still, Akbank was gaining market share across the board.
As I said, because of the digital capabilities, analytical capabilities and this new organizational change further focus on the customers and so on, there was a significant customer acquisition. So last year, for example, on consumer banking, like a very typical product, general purpose loans, if I recall correctly, we have gained something like 170 to 175 basis points in terms of market share. So still this growth -- this upside trend still continuing. And in the last 2 quarters, as I said, in net, we have gained something like 1 million customers. This is a very phenomenal growth, and this is a very significant indication of the power of the bank, digital capabilities, marketing sales capabilities. So we will continue to increase our presence in the market and continue to gain customers and continue to generate additional revenue. So that is what we have in mind.
The next question comes from Alan Webborn.
And I guess what -- where I'm interested in is clearly in line with your peers and perhaps better than your peers, you've had extremely strong business banking volumes in the first quarter. And I guess, with reasonable loan rates, we can understand in a highly inflationary environment working capital demands and so on, that's quite understandable. But clearly, at the moment, consumers are under pressure. I appreciate what you say about gaining market share, that's clear. But you've got a 60% plus inflation and your consumer loan book has grown a couple of percent. And I just wonder how you see the trajectory as we go through 2022. And hopefully, by the end of the year, inflation could start coming down assuming that policy rates stay where they are.
And I just wondered how you see the dynamic? Are your retail customers sort of holding off? Do you think they're getting used to the higher prices? Do you think there will be a changing dynamic as we go through the year because presumably, nearly 30% growth in business banking lending, it is related to the high level of inflation? And just to give us an idea of how you view and how you strategize towards dealing with this very abnormal situation in the short term and then hopefully a gradual normalization as we go through. And that was the first question.
And the second question, I guess, in line with consumers who clearly at the mass market level, even with the salary increases must be suffering. I mean are you adjusting prices at all? Are you supporting customers that may have maybe more difficulties. I just wondered how you see that? And how you see the asset quality, specifically on the retail side and on the unsecured side there?
Okay. Alan, these are also great questions. First of all, the growth in consumer banking, I think still there is a great potential in the country. So when you look at the actual consumer loans to GDP, it is a very limited number. So I think it is now -- nowadays it is around 17%, something like this, plus or minus. So it is still -- I mean, still very low. So there is this untapped potential. Why the growth rate was relatively limited in the first quarter, I think there are a couple of reasons for this.
So we make -- I mean, when I say we, not only Akbank, but the whole system, there are significant salary adjustments at the beginning of the year based on the inflation in the country. So at the beginning of this quarter, there were significant salary increases in the country. And this is true for the private sector. And this is also true for the public sector. So when you look at our portfolio, consumer customers, of course, we are gaining customers from all different places. But some of these customers, and this is a very significant growth -- this is a very significant actually portion in our portfolio. These are like payroll customers.
So they had actually significant raises at the beginning of the year. So -- and we were all running big portfolios in our institution. So there were certain repayments, and there was actually less need for initial consumer loan at the beginning of the year. But with inflation going relatively high in the coming months, so I think there will be more demand in the second quarter, third quarter towards the end of the year. And again, at the end of the year, there will be another salary adjustments based on the inflation. So between the quarters, we may see different levels of growth in consumer lending.
So I'm not -- in terms of asset quality, actually, I'm not really too much worried about it because as we said, we are using very advanced systems, machine learning capabilities and so on. We constantly adjust our parameters, our expectations about the inflation, the growth, unemployment rate, et cetera, et cetera. So, so far, so good.
And also given the potential of the bank, given the lower leverage of the banks, so I've been talking about this market share gains. Yes, we have been gaining market shares. But still, we are below the potential of the bank. So therefore, still, there is a lot of room for us like cherry-picking the best clients and so on. So I think we will continue with that strategy. So that is the reason for the low loan growth, which will probably pick up in the coming months. And I think the asset quality is okay.
Okay. And on the flip side of that, on the business banking side, would you expect over time that this very, very strong level of growth will calm down? I mean clearly, you're going to do far better than your 30% guidance. I mean that's pretty clear. But presumably, it would be excessive to expect that the rate of business banking growth will continue at that level throughout the year.
I would imagine so because you rightly pointed out the reason for this, this working capital needs in a high inflation environment. But I think we shouldn't be really too much worried about this growth and the potential actually cost of credit issues in the system. And the reason is when you look at the level of inflation versus the level of interest rates in the country, if you have a decent business, if there is enough demand for your products and services, it can be a large company, medium-sized company or you can be an SME, I think it is a very advantageous situation to borrow at a rate like, I don't know, 20%, 25%, something like -- it's depending on the actually -- I mean maximum maybe 30%. So you are borrowing at that rate. But you adjust your prices much higher than this because of the level of inflation. And I think this is a very profitable situation for decent SMEs, decent companies and so on. So therefore, I think this as long as the inflation continues for a while, I think this demand will -- working capital demand will continue.
Okay. That's very clear. So my -- what I'm hearing is that you're relatively confident about monetary policy effectively staying where it is that sort of -- you've had a few months of seeing how the deposit guarantee scheme or the deposit protected scheme is working. Are we right to assume that you feel reasonably confident that the parameters that you have to work with at the moment can probably stay in place?
So far, so good, less volatility in the exchange rate and so on. So it was helpful to stabilize the system. But of course, I mean, eventually, what was the objective? The objective was to produce current account surplus, more FX income into the country. So this is actually the ultimate goal of the country, so that is -- that is what I can say at this stage. So...
The next question comes from Simon Nellis.
Yes, I was just hoping you could outline the impact of these new reserve requirement restrictions that are being imposed. And how does that going to impact the bank? I'm not exactly sure of all the mechanics, if you could explain what they're doing and the logic behind it? And how it might impact your business? That would be helpful.
Turker, would you like to take this question?
Yes, sure, Hakan Bey. Simon, as you know, since the beginning of the year, there have been some legislation changes on that front. The interest -- CBT has started paying interest on TL reserves. Then there is this commission charge for FX deposits if you don't -- if your portfolio, the switch from FX to TL is below certain percentage points. And also, there is also the late -- finally, there was another change with regard to increasing FX reserve requirements. So all in all, what I can say is actually, these changes will have some P&L impact for us, similar to other banks. But what I can say, actually, it will be in low single digits in terms of profitability. And on top of it, as you know also corporate tax rate has been increased by 2 percentage points, which will be better for full year as well. So all in all, with these regulation changes, actually, currently, we expect like 5% impact on our expected net income. So like I can say, maybe 2%, 3% ROE impact, I can say. But with the strong profitability we are achieving, actually, we are confident with our full year guidance despite these regulation changes.
And am I mistaken that they're not also imposing some restriction on TL working capital lending growth?
Actually, not imposing, in fact, actually, if your TL working capital loan growth is above a certain threshold, you have to held TL reserves and also for marginal growth again on the TL commercial loan side, except for SMEs and some other subtypes. There is some additional reserve requirements as well. But surely, we will make necessary pricing adjustments in our -- for our loan portfolio to reflect these higher costs going forward.
And what's the logic? Are they just -- why are they so worried about the growth?
I can't say that's -- probably they want to come down the -- slow down the growth pace in this corporate commercial loan segments. That's what I can say.
And the next question comes from Mikhail Butkov.
Maybe I can add 1 or 2 sentences, Simon. I think the logic is there are some targeted areas for lending, like export-oriented companies, like SME business, new investments in the country for future growth of the country. So what the regulator, I guess, is trying to do, make the banks to channel their resources and give a priority to those areas versus regular lending. So I think this is the basic logic, I guess, behind this.
And the next question comes from Mikhail Butkov.
This is Mikhail Butkov from Goldman Sachs. Yes. So one of my questions is related to trends on loan pricing and competitive trends in the market. Could you comment on that? And the second question is also related to changes in the regulatory environment, basically. Can you maybe add some color on the changes with regards to reserve requirements, ratio for various loan categories.
Let me take the first question and then maybe Turker, you can help me on the second one. What kind of pricing that we have in the system? When you look at the deposit side, I think it is somewhere like depending on the size of the deposits, somewhere like 15% to 17%. So this is more or less where we are on the deposit side.
And on the lending side, again, depending on the product and the customer segment, I think it is somewhere like 18% to, let's say, 25%, I think this is more or less the range that we have today.
And for long-term lending, I mean, banks are pretty careful with maturity mismatch management, and now we tend to, for longer-term loans, use variable rates, which we index the interest rates to be actually policy rates. We put the spread on top of this and try to avoid maturity mismatch.
Turker, would you like to answer the second question?
Sure, Hakan Bey. With regards to the regulatory change, actually, as I also tried to explain a few minutes ago, CBT has announced a few changes since the beginning of the year. One of them actually is commission charges for FX deposits. The other one is actually -- which is actually quite new, TL reserve requirements for specific TL commercial loans. And also finally, CBT has [ cash ] paying interest for TL reserves. So when we look at cumulative impacts of these changes for this year's profitability, this will have roughly low single digits, low single to mid-single-digit impact on to our profitability. But if you ask me whether it pose a risk onto our guidance, since we have strong profitable trends so far this year, this can be absorbed within our current guidance and still we see an upside risk to our guidance.
And the next question comes from Gabor Kemeny.
A couple of quick questions from me. First one is on trading income, which was, I think, pretty strong in the first quarter, you show at TRY 3.7 billion other trading income. If you could explain a bit what drove that and what shall we model on this trading line going forward?
And the other one is on capital. You are showing positive securities mark-to-market impact which is one reason why you had this impressive cost -- impressive capital build in Q1, what drove this, just given that I think lira yields were creeping up, which is, I think, generally negative for capital. And the second one is on the FX impact. I think you are mentioning a significant negative FX impact in general from TL depreciation, yet, there is not much from that in the Q1 capital waterfall. A bit more color on that would be useful.
Maybe a couple of -- thank you, Gabor, first of all. Again, great questions. This trading income, yes, it's a significant figure. And I think this is driven basically because of the strong customer business that we have and the strong treasury operations that we have. So this is basically customer business. So this -- in practical life, this type of business will continue. The magnitude might be different depending on the market situation. But this is an ongoing business for the bank. So I think the banks must be extremely strong on the treasury side and also on the customer relationship side. So that's what I can say.
Turker, maybe you can answer the second...
Yes. Gabor, with regard to the evolution of the cost capital ratio in the first quarter, this positive securities mark-to-market impact is actually -- I think your question was with regard to the source of that MTM impact. It's mainly coming from CPI linkers because in the market, the real spreads have come to quite low levels as the portfolio we have had more than 1% real spreads. Therefore, actually for some of the CPI linkers which we are classifying in this [ so called ] AFS portfolio, we are booking this positive mark-to-market impact.
With regard to the currency depreciation impact, we have Tier 2s in our portfolio, therefore actually in this credit risk impact of minus 21%, actually, these are shown in a net basis. Because this negative impact is mainly offset where our Tier 2 borrowing. And on top of it, also, we are always -- also continuously looking at optimization opportunities in our portfolio.
Understood. A small follow-up to what Hakan Bey mentioned. What's the nature of this treasury income under other trading? Is it like FX conversions of clients, commissions or something else?
I mean, it is widespread, Gabor. So some hedging products. So it's not just 1 or 2 companies, actually. There is actually -- on the other side, this is basically business banking, corporate commercial clients, aging products, other treasury instruments. So I cannot say that a single product and a few number of customers. So it's a diversified, let me say, treasury products. Turker, would you like to add anything to this or...
No, actually, you are right, Hakan Bey. Actually also, it includes daily FX transaction income we are generating from our whole customer base. It's also included in that. And also as Hakan Bey has mentioned, different derivative products for different needs of our customers are contributing to these strong results.
Yes. It sounds like we should expect this to be elevated when the currency is volatile.
The next question comes from Konstantin Rozantsev.
The first question that I wanted to ask, could you please provide the guidance, as specific as you could do at this stage, with respect to intention to call the subordinated bond next year. So the bank has a bond with a call option in April '23. So please provide guidance on your current thinking whether it's going to be called or not?
The second question, could you please comment with respect to the FX protected deposit scheme for retail specifically, what fraction of the deposits which mature within that scheme in retail is being rolled within that scheme as opposed to leave the scheme and goes into conventional deposits based on this recent record of the past couple of months?
And the last question, as well in terms of the FX protected deposit scheme for both retail and corporates, could you please confirm that the funds invested into this scheme they continue to grow at this stage across both segments, retail and corporate and if, in your view, it's going to remain the case, this growth would remain there in the coming, say, couple of months?
Thank you very much, Konstantin. This -- your Tier 2 question. So what I can say at this stage, our preference was to this -- use the call option. So when you look at our past experience track record, so you can see Akbank's preference. So that is all I can say at this stage. So that is our preference. And also we have to take and also a permission from the regulator. So -- that I also have to state, but that's what I can say at this stage. So when you look at the track record, you can clearly see our preference.
Regarding the actually these new deposit products, this -- when you look at the -- again, the -- our experience, so some of these deposits have already just started maturing. So when you look at the customer behavior, and these are actually consumer customers, the rollovers are extremely successful. So people continue with the existing product. So I don't see actually any deviation from this on these consumer products. That is our experience in the last several weeks, so I'm confident on that side. This is TL to TL side.
From FX to TL, so -- as you know, these were basically corporate customers. There are also some retail customers, but there was quite a lot of demand from the corporate side with excess FX liquidity. So they will be actually -- the minimum maturity was like 6 months. So that will be maturing in mid-summer this year. So I'm not expecting actually something very different because some of these companies already had this excess FX liquidity because when you look at the actual FX mismatches actually, of the corporate sector, there was a significant improvement over the last several years.
So in the old days, actually, there was some shortage of FX, but the corporations cover themselves actually extremely well. So when you look at the FX positions at the aggregate level in the country, there is the surplus, roughly USD 50 billion to USD 60 billion. So that was actually a surplus in the short term. So that is what I can say at this stage. So, so far, the renewals are quite successful.
That's very clear. And just a quick clarification. In terms of the FX protected deposits in retail, so based on the evidence from the recent month or so, so when these FX protected deposits in retail started maturing, so do you have some percentage number in mind? So what percent of those maturing actually stays within the scheme as opposed to leave the scheme? So you said that it's healthy, it's high. Do you have some number in mind in percent?
Consumers -- when you look at total local currency deposits, roughly 1/3 converted to that new scheme. So when you look at the rollovers, I mean, it is almost close to 100% because there is this free option. So it makes a lot of sense from the consumers' point of view to continue with the product. So that they are getting the actually local currency interest rates. In case there is some actually depreciation of the local currency, they get the difference. So therefore, unless they need some liquidity because of their needs and so on, they are very likely to stick to the products. So that is our experience with the existing portfolio. So I can say almost 100%.
The next question comes from Mehmet Sevim.
Just 2 follow-ups, please. So first of all, on the Turk Telekom transaction, you mentioned that the transaction will unlock 1% to 1.5% of sustainable ROE in the medium term. Could you please just explain how that works mechanically? And I'm sorry if I missed that in the presentation. And my second question is Hakan Bey, in your opening remarks, where you mentioned the threat from increasing digital competition as a result of this e-banking licenses and digital onboarding, which have now been introduced in Turkey, are you seeing any visible pressure from any players at this point? Or is this something that you're just watching and preparing yourself for the future?
And secondly, if there is competition that has emerged, can you give us a taste of where these new players are actually finding any competitive advantage in what's already a very advanced and digitalized banking market? So what are these new digital-only players offering to customers that you as Akbank aren't offering already?
Turker, would you like to...
Yes. Sure, Hakan Bey. I can briefly explain. Mehmet Bey, previous to this transaction, as you know when LYY was in our book as an FX loan, actually, we were also booking provisions for the interest income of that loan. But now it has been replaced with a [ nice array ] assets and FX assets. Therefore, actually, we will be able to gain interest income from that asset and is supposed to contribute to our P&L, as I said, roughly 1% to 1.5% ROE impact we'll see going forward.
And now the digital question, and I think that was a very important question as well. So what I can say, Mehmet Bey, Turkish banks are actually, from the digital point of view, are quite advanced compared to some of the countries. So when you look at all those open banking competition in other countries, I think there was a significant difference between the bank's infrastructure and the customer experience that they were providing versus these new fintech, big tech or neo banks in those markets. And I think here in Turkey from the bank's point of view, I think it's a more comfortable situation. Because actually, from the digital point of view and from the customer experience point of view, I think we have actually remarkable systems that is something that I would like to say.
But having said this, we have changed our definition of competition about several years ago. So we were asking ourselves as the management team, who is our competitor. So I think that would be a very short vision if we only say bank A, B, C. So that be changed over the last several years. So that's why we have been investing so much on the digital front. So that is why we changed our organization structure. So that is why we don't have a digital banking division anymore. Because now we are saying that, we are claiming that the whole bank is digital. I think this is a very visionary change that we did. And we have started seeing the benefits of this.
But having said this, we don't look at all those new potential players coming into the system as pure competitors. So that is why at the beginning of my speech, I mentioned about this Banking as a Service model. I think this is absolutely critical for us in our future vision. So we think that as the management team, there are certain things that we do extremely well. And there are also certain other things that we can do extremely well with our business partners. We don't have to compete on everything. So we can share.
So that is what we are doing today. So that is why we have developed all those API systems. That is why we hook our banks to different platforms in the country. So I think -- we think that this is a very powerful vision and that is a very powerful strategy. So what these other players can deliver that the banks cannot deliver? Of course, if you had a significant customer base, if you are already generating a lot of traffic, I think that is, of course, valuable. So this is something -- this is an advantage. But it doesn't mean that it is enough by itself. So there are certain competencies, there are certain things that you have to learn by experience, by analytical digital infrastructure building up, which we have been doing for years.
So what we are trying to do in short is to merge these 2 through this Banking as a Service vision that we have. So do we have a strong competition until today? I think this is something very new. So we haven't really heard about too many banking, digital banking licenses so far. And I think there is one on the semi banking side until now. And we shouldn't also forget that, once you have this digital banking license, then you enter a zone of a regulated marketplace. So this is also, I think, some of the potential competition. This is also, I think -- this is evaluating what the pluses and minuses. So this is a very important topic that I like a lot also personally and that we also spend a lot of time internally with my -- with the strong team that we have. But we are ready, that I can tell.
And the last live question comes from [ John Demish ].
I actually have 2 questions. Maybe can you talk a bit about how you see the deposit market evolving? So why should the average deposit holder be okay with a 17% deposit rate when the trading inflation is around 60% because that's probably pushing the expectations up as well? Maybe you can tell us your best guess on this. Do you think this will stay on for a while, or do you think this is a temporary situation? And my second question is on loan rates, which is also displaying a strange market dynamic. Because -- you also mentioned the companies can borrow at around 20% rate. So essentially cheaper than the Turkish Treasury. Can you also talk a bit about the reasons behind this? And why such market dynamic is happening?
On the local currency deposit side, as I've shared with you, the conversion rate is like almost 40% in the system. So this 40% of the customers, that number is increasing actually. So I think that is a beneficial product if you are in TL. So because when you look at the exchange rates over the last couple of months, it's been more or less stable. I mean, of course, there was a big volatility like a couple of months ago. But recently, though, there is some stability. So if you are in that product, you are getting 17%. It's not a huge number. Yes, it's not a huge number. I mean, that is very clear. It is well below inflation. That is also very clear.
But if something happens to the currency, you get the difference. So it seems logical from the consumer point of view. So what are the options? You can invest your -- you can convert your TL to FX. But if FX stays like this, then you will be losing this 17%. So I mean having the best of 2 worlds, I think, makes some sense from the local currency deposit holder.
And Hakan Bey, when you say 40%, that means 40% of your lira deposits are FX protected?
Yes. Well, this is the system more or less and Akbank is more or less in line with this. And your second question, the lending rates. So now because of this cost of funding on the local currency side, so we are getting deposits by 15%, 16%, 17%. And there is also some actually funding from the Central Bank as well. So that is a quite reasonable funding for the banks. So of course, we would like to use that funds, and it is a competitive environment.
So if you increase your margins beyond a certain level, then you won't be able to compete. You won't be able to sell. So I think the long pricing actually stems from the cost of funding in the system. We put a reasonable margin. Of course, banks are actually trying to be profitable but above a certain level, then there is no demand for your loan. So it is all market driven.
And just as a follow-up maybe, why do you think the same thing doesn't push down the treasury rates? Like the cheapness of funding, why doesn't it -- why does it push down the corporate loan rates or business loan rates, but not treasury rates? Do you think that's a legitimate question or...
No, no. I think this is a very good question. On the treasury side, I'm looking at the screen now. So when you look at the treasury side, so 10 year, it's like 21%; 5-year, 23%; 2 years, it's like 22% now. It's not really too different than the lending rates as of today. And also in those treasury products, you take also a certain maturity mismatch risk. So I think that's what I can say.
Last question from Valentina.
I have one question on the subs. You mentioned that Akbank preference to call the [ sure-dated ] the Tier 2s remain intact. But I was wondering whether you still would like to call the bonds even if it's not economical to do so closer to the date? And of course, that leads to my next question, which is about your refinancing plans of the Tier 2s that are callable next year and also your senior issuance plan for this year?
So to be frank, you're correct, call that Tier 2 -- yes, when we call that Tier 2, we did not look at it from the economic point of view because our -- the interest that we were paying on the existing was reasonable. But we decided the call. So that's what I can say based on historical data. Looking forward about our new issuance, the bank is very strong on the liquidity side and also on the capital side. So there is no actually need for this. But the way that we look at the wholesale markets, we look at this opportunistically. So if there is a good pricing, a good demand, of course, this is something that we will always continue to look at. So it depends on the market conditions at that time.
Ebru or Turker, would you like to answer the other question?
Actually, Hakan Bey, the other question was also in regard to the Eurobond rollover this year. Again, [indiscernible], actually, our FI team is always looking for opportunity in the markets. And also with the help of our strong liquidity, we will assess all opportunities when the time comes. And there's always also -- some windows are always giving some opportunities, which we have also seen in the past. So we will always be active in the market looking for opportunities.
Valentina, any further questions?
So my question on -- with regards to whether you will still like to call the bonds if it's not economical was regarding the ones that are callable next year, actually not those that you already called.
Yes. And that's actually a year from now. That's in 2023 April. So there's still a long time to go, but Hakan Bey already mentioned, I think, already answered the question regarding our intention and our track record. And as always, Valentina, the BRSA obviously has a last resort to approve.
So that completes all the live questions. I think there are 1 or 2 questions left, Burcu, that you'd like to ask to Turker and then we can close the call.
Yes. Many of the written questions have already been answered, but few are remaining. [ Osman ] asked for feedback on inflation accounting and potential time line. And Thomas asked regarding model adjustment driving 30 basis points cost of credit impact in the first quarter and what changes it includes?
Let me start from the first question with regard to inflation accounting. Yes, now it's a topic on the table, which is actually not only bank specific. It may impact all companies in Turkey, which are reporting according to IFRS. We are currently following developments. We are in close contact with our auditors, which are friends in other banks as well as with governing bodies. So currently, that's what I can say actually. Once there is more clarity with regard to potential switch to IAS 29 and when it will happen, once there is more clarity, we will share this as well. But currently, there is nothing -- there isn't something very concrete on the tables.
With regard to model updates, actually, when needed we are continuously looking at the assumptions in our IFRS 9 model, and the model includes growth assumptions, interest rate assumptions. And we did last update at the end of the year -- towards the end of the year. But in the first quarter of this year because of latest changes globally, we wanted to revisit our assumptions. And in that regard, we have taken some -- so we have made some assumption changes on the conservative side. That's why we had this roughly 30 basis points model impacts onto our cost of credit.
It looks like there are no further questions. Thank you, everyone, for your kind attention, and we're always here as Akbank Investor Relations team to answer further questions, should you have any after the call. Hakan Bey, I'll leave it to you for the final comments.
Ebru, thank you very much. So I mean, obviously, we started the year extremely well. So there is a lot of momentum across all businesses and also the subsidiaries. We are significantly gaining customers. There is very good growth. More importantly, core revenue generation. So we have one of the largest CPI linkers portfolio in the system. But in the long term, we cannot rely on this. So this core revenue part is something that we are very proud of that when you look at the growth and so on, the growth is extremely well, well above inflation. So this core business side is something that we will continue to stress in the coming months, in coming years.
So Akbank as I said is exceptionally well positioned for strong financial results, not only this year, but in the coming years as well. We have an excellent balance sheet management, extremely well capital, which is the highest among our peers, solid liquidity, highest level of efficiency, digital capabilities, outstanding talent, technology, which I am very proud of. And on the ESG side, Ebru as you always keep on mentioning and very importantly, we will continue to support our ecosystem on that transformation to be a part of a greener, more inclusive economy. And having been through many cycles, as I always say, I have full faith in our people's capacity, experience, wisdom, execution.
And last but not the least, I would like to thank all of our stakeholders for their consistent trust and confidence in us. Keep well, and see you all, again, soon. Thank you very much.
Bye-bye.