Akbank TAS
IST:AKBNK.E
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Akbank TAS
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Ladies and gentlemen, thank you for standing by. I'm Merdo, your Chorus Call operator. Welcome, and thank you for joining Akbank conference call and live webcast to present and discuss the second quarter 2020 financial results.
At this time, I would like to turn the conference over to Ms. Ebru GÜVENIR, Head of Investor Relations and Sustainability. You may now proceed.
Thank you. Thank you. Dear friends, welcome to our second quarter 2020 financial results webcast and conference call. This is Ebru speaking. Today, I have with me Türker, our CFO; and Nazli Çelem from our IR team.
I hope you, your families, your colleagues and all your loved ones are doing well. The health and wellbeing of our people, customers and community remain our top priority this quarter as we took the necessary actions to maintain our business continuity and service quality. To that end, we observed a gradual normalization in economic activity. We adapted the way we provide services and do business accordingly. Last quarter, we were able to demonstrate our agile way of adapting to remote working. In second quarter, our employees started to go back to their offices and branches in a cautious and gradual schedule manner. As of today, 75% of our headquarter and operations center staff and 40% of our corporate and commercial branch staff are still working remotely. Around 70% of our retail branch staff provide services to our customers on site. The working hours of our branches are back to pre-pandemic schedule with almost 100% of our branch network now active. We continuously observe and analyze the working experience of our employees, and adapt our organization in a proactive manner to ensure business continuity and service quality, while keeping employee motivation high.
As you know, Turkish economy started the year well on track for growth, with pickup in business activity and consumer demand. However, activity began to slowdown in March as the first COVID case was announced in Turkey. Since then, a comprehensive set of measures have been taken by the Government to ensure the health and safety of our citizens. It is encouraging to see that following the reopening of the economy, thanks to the proactive and timely measure taken by the Government as well as our strong health care system, new positive cases have declined from their peaks in April to below 1,000 a day lately. Also, total active cases have declined significantly and stand around 11,000.
On the economic front, policymakers have taken numerous monetary, fiscal and regulatory actions to support businesses and households in this challenging environment. And additional measures may be introduced if and when needed.
Our best case expectation is a gradual recovery in the second half of the year. Economic data indicates that we have entered a period of recovery and expect second half performance to partially offset the negative trend of second quarter. As for inflation, the May-June period, we witnessed an increase to 12.6%. This was mainly due to the increase in unit costs caused by COVID-19 developments. However, starting from June, we expect inflation to start declining to below 12%. This inflation trend will continue in the second half, though, from a higher level, and we may end the year slightly higher than what we were previously expecting, closer to a double digit figure. Therefore, policy rates may remain around current levels.
On the fiscal front, depending on the recovery process, some additional supportive measures can be undertaken, most probably in the labor markets. The operating environment during the quarter continued to be impacted by COVID pandemic, resulting in deceleration in global activity and elevated market volatility. However, as I mentioned, Turkey has managed to take the virus under control relatively much better than any other countries globally. This has dropped the bottoming out of the economic activity from April onwards. Economic activity recovered even more pronounced in July. In leading indicators such as PMI, Real Sector Confidence, Sectoral Confidence Indices, we are observing a V-shaped recovery. On the Sectoral Indices, the recovery is led by construction and retail sectors, where other service sector indicators are still lagging, which is not a surprising event as the current COVID-19 situation is mostly impacting the sector.
On the external trade indicators, we see a marked improvement in exports in June. We will continue to monitor the sustainability of this development as the duration of the current slowdown in our export markets will also be a very critical element in our recovery.
In this heat map, you may find the monthly performance of the various economic indicators. Generally, an improvement is witnessed as the quarter progressed following the deep level declines in April. On the economic activity, we observed a pronounced improvement in industrial production on a monthly basis. As far as industrial sectors are concerned, the improvement is broad-based. There are significant improvements in home sales and automotive sales, which also started to diffuse into White Goods markets as well. These sectors are benefiting from lower-tier loan rates and relative robust credit activity. The capacity utilization has also rebalanced significantly, but still at lower levels compared to pre-crisis period, which may be a supportive factor for lower inflation going forward.
So recently, there are positive developments on macroeconomic front. However, we still face much uncertainty as evidenced globally due to the unknowns of the future path of this virus. At upfront, we are well prepared to navigate through this difficult period. We have the capability of supporting our customers and emerge from the other side strong and healthy.
So let's move on to the financials. I'd like to kick things off by going over a number of key highlights. Despite the challenging environment, we successfully managed to preserve our solid core operating performance during the quarter with a continued balance asset-liability management without changing our risk metrics. Thanks to our flexible balance sheet, solid liquidity, big customer base and wide range of product offerings, we were able to grow our balance sheet with continuous focus on risk and comfortably adapt to the new asset ratio regulations. However, fee income is an area that has been negatively impacted both due to regulatory changes and current operating environment.
Transactions were lower due to country-wide lockdown during the quarter. For the convenience of our customers, we have also provided fee waivers to -- in our digital channels, which also encouraged further migration. We are now happy to see our focus on digital capabilities for many years is paying off even further as our customers have been able to quickly adapt to our digital channels. As a result, diversification has helped, but fees still remain in negative territory. Our purchase balance sheet and solid car operating performance enables further reserve builds. We have prudently increased our loan loss provisions in accordance with IFRS 9. Also, we booked 412 million negative mark-to-market adjustment for LYY. Still, we preserved our best-in-class cost to income ratio, and our capital remains a source of strength with significant buffers. All these underline the insurance benefits of our diversified business model.
On Slide 8, you may find the details of our strong core operating performance. Our first half top line grew 25% year-on-year to TRY 11.2 billion. Our first half swap adjusted NII was up an outstanding 37% year-on-year, reaching TRY 8.9 billion. This was supported by both growth as well as solid net interest margin management while our fee income was down 6% year-on-year at TRY 2.3 billion. Adjusted cost management is one of our strong muscles. We have a very low cost base, which gives us back a lot of flexibility in this environment. Still, we are continuously looking line by line for expense control. And currently, remote working conditions have naturally created some cost savings. As a result, our OpEx was down 10% Q-on-Q.
The year-on-year increase of 15.7% was due to one-off impact of 4 percentage points related with the insurance penalty and SDIF premium increase. Adjusted for this, OpEx was actually up around 12% year-on-year. We will continue to look line by line into our expenses while still investing in our future.
Our first half net income was up 8% year-on-year and remarkable 21%, Q-on-Q, at TRY 2.885 billion. While credit cards are have weight on our year-to-date net income, most importantly, we have continued to generate strong fee provision income, which was up significantly by 29% year-on-year to TRY 8.568 billion during first half. This is a clear demonstration of financial strength and the capacity to absorb as well as navigate the challenging environment reasonably well. As a result, our cost-to-income ratio improved by 220 basis points since the end of first quarter to 31.6%, and we ended first half with an ROE of 11.4% when adjusted for the TRY 250 million free provision set aside in the first quarter.
Our swap adjusted NIM was down Q-on-Q by 44 bps to 4.42% in the second quarter and remained solid at 4.63% for the first half. Our better-than-expected 2019 exit NIM continued rate easing cycle of 375 bps year-to-date to 825. And additional liquidity measures by CBRT with supportive factors in funding costs in first half despite the on-going downward repricing in yields -- in loan yields. Accordingly, we have revised up our full year 2020 NIM guidance to between 4.2% and 4.5%. On this page, you may also find the details of our swap cost and CPI linker income. Due to our reduced swap usage as well as decline in swap yields, our total swap cost was lower in second quarter at TRY 590 million. Our average short-term and long-term swap utilization was around TRY 26 billion. Our CPI linker income for the quarter was at TRY 741 million. For 2020, the portfolio amount for CPI income calculation stands around TRY 26 billion. We maintained our 9% October-to-October inflation expectation.
Our fees were down 6% year-on-year to TRY 2.262 billion. Our fee income was mainly negatively impacted by payment systems' performance due to the regulatory changes enacted in November 2019, lower volumes due to COVID as well as lower interest rates affected in interchange and merchant business commissions. As a result, payment systems fees were down by 35% year-on-year, now making up 38% of our fees. It used to be around 50% of our fees back in 2019. Also, there were regulatory changes at the beginning of the year as well as COVID-19 related waivers in second quarter that negatively impacted money transfer fees, which were down by 40% year-on-year.
On a positive note, our wealth management business once again showed an outstanding performance as fees were up by 122% year-on-year, now contributing to 14% of our fees, and this was mainly due to at the accelerated Wealth Management acquisition -- client acquisition by utilizing all distribution channels with our product innovation and value-added services as well as end-to-end redesign of mobile investment transactions. Another positive contributor was our Bancassurance fees, up by 19% year-on-year, driven by both lending and nonlending. Digital sales continue to be very supportive in this area. Digital premiums to total premiums is up by 12 percentage points year-on-year to 1/3 of our total premiums. For fee income, we continue to actually expect a better performance in the second half of the year. And we think that the negative performance of the second quarter will be partially offset with some recovery. That being said, 2020 full year, we have revised our fee guidance from high single-digit growth to negative high single-digit contraction year-on-year.
As you know, we have been extensively leveraging our digital capabilities with our 5.3 million active digital customers. Akbank Mobile has continued to be a very versatile and resilient platform. We have been focusing on it for many years, and now it is being off even further. Our mobile banking app was totally renewed last year in September, and we've continued to update the app since then. We have introduced new services and experiences with 8 updates predominantly in 3 verticals, namely wealth management, money transfers and payments. There are currently around 300 functions of Akbank Mobile, including newly added features as well as renewed ones to enhance customer experience. As a result, not only has the mobile -- monthly mobile apps increased by 15% year-to-date, but also the Net Promoter Score has improved by 10 percentage points during the first half of the year. We also see the positive impact of the transformation program in the migration numbers as the share of number of mobile customers conducting financial transactions is up by 11% year-to-date. And the number of average daily financial transactions to Akbank Mobile has increased by 34%, while the share of mobile in our financial transactions is up by 10 percentage points year-to-date. The increased interaction also translates itself into higher sales as in the month of June the share of digital channel in credit card sales and GPLs have reached 65% and 70%, respectively.
In short, during the first half, our digital banking has sourced even further, giving us the capability of supporting our customers during this difficult time with bottom line impact.
Now on to our balance sheet. Our total assets were up by 15% year-to-date to almost TRY 444 billion. While our total net loans were up by 11% year-to-date, which was mainly led by growth in second quarter of 8.9%. Loans make up now 53.8% of our total assets. FX loans are less than 36% of our total net loans and demand remains to be muted. TL business banking loans are around 43%, while consumer loans, including credit cards, are at 21% of our total net loans. Our securities weight in total assets continue to rise, now standing around 22.6% of our total assets. Our optimized and responsible asset allocation, low leverage of 7.7x and robust capital of 19% without forbearances, will be supportive factors, creating sustainable long-term shareholder value.
Our TL loans were up by 14.7% Q-on-Q, resulting in around 100 bps Q-on-Q market share gain among private peers. The Q-on-Q steel models was mainly driven by business banking loans of 21% will be gained around 140 bps Q-on-Q market share among private banks. Our CGF utilization for the latest OpEx and check payment stood around TRY 3.5 billion, while our total outstanding CGF portfolio is at TRY 9.7 billion.
On the consumer side, we maintained our market share among private banks. For the consumer side though, the main driver continues to be GPL, up by 6.7% for the quarter, where our digital channels played an important role. 63% of GPLs are preapproved, and separately 42% are to salary customers. We believe our investment in advanced analytics will continue to be a supportive factor in retail lending.
Our FX loans continue to contract down by 4.6% quarter-on-quarter. As a result, we have revised up our guidance for tier loan growth from mid-teens to low 20s. And due to the continuous limited demand for foreign currency loans, we now expect around 10% contraction for the full year in FX loans.
We maintain a balanced loan portfolio. It is well diversified with exposures to most sectors around or below 4%. But still, in these unprecedented times, the effect will be felt across all sectors. Since there hasn't been a major change in the details of this loan book, I will skip to the next slide in the interest of time. I will like to share that how we have actually addressed the coverage ratios for the sectors that are relatively more impacted.
As mentioned earlier, the share of securities book and total assets continued to increase in second quarter. Our total securities book is up almost 12% quarter-on-quarter to TRY 100 billion. Also, since the beginning of the year, share of healthy maturity portfolio has more than doubled to around 42% of total. Within the portfolio, sales security share has further increased to 66%, with -- of which 51% are fixed rate. On the other hand, foreign currency securities are down almost 17% Q-on-Q to $4.9 billion. Trading income line was strong and bottom line supportive in the second quarter due to the profit taking in Eurobond as well as proactive positioning and trading activity in the Turkish lira bonds. We will continue to be proactive and selective in our positioning depending on the market conditions in the security side.
Now to the funding side. We continue to have a well-diversified and disciplined funding mix, where deposits are our main source of funding with 58% share. Since the beginning of the year, currency mix has remained more or less stable with 40% in Turkish lira. We have a very strong foreign currency liquidity with an FX LDR of 54%.
During the quarter, we further optimized our funding with several actions. We issued close to TRY 10 billion corporate bonds, which are actually deposit like instrument with the maturity that was longer than 6 months for affluent customers, which actually helped the shift to longer maturity versus deposits while managing the cost. Demand deposits increased by 26% quarter-on-quarter, reaching almost 1/3 of our total deposits. And sticky -- and low-cost deposits, such as SME and retail, they are sharing the TL deposits increased to 79%, up 6 percentage points Q-on-Q, while our time deposits were actually down by 11% quarter-on-quarter. So as a result, our total deposits were up 6% almost year-to-date to TRY 259 billion, and our total LDR remains to be below 100%. Our focus will remain on broadening our deposit base.
We have a well-established wholesale funding profile, which is 14% of our total liabilities. At the end of June, we returned to the international capital markets after more than 2 years with a successful $500 million long 5-year senior unsecured offering. There were strong institutional demand with 3x oversubscription at peak. The settlement was in July, so therefore, you will not see the proceeds in our second quarter numbers. We are pleased to have successfully issued the first Eurobond in the Turkish banking sector in this challenging environment. Going forward, we will continue to be opportunistic in our borrowing strategies.
And now on to asset quality. As you know, there have been new staging regulations and forbearances announced by BRSA in March. Such that Stage 2 and Stage 3 recognition have been extended to 90 and 180 days, respectively. Therefore, staging are currently not fully representative of asset quality evolution. Also, as implemented in many countries globally, in an effort to help clients manage their liquidity needs and to alleviate customers with cash flow burden, since March, there have been loan installment deferrals. We continue to support our customers while maintaining credit discipline and balance sheet strength. As a result, over 618,000 loans with a principal amount of over TRY 24 billion with the due payments amounting to around TRY 8.5 billion have been deferred. Having said that, we did not deviate from IFRS 9 as we did in the past. We have booked necessary provisions for potential problematic assets even before classifying them into Stage 2 or Stage 3.
To give you some additional insight, we have prudently increased coverage ratio to further build up reserve buffer. We have implemented sectoral overlay and revisited individual assessments. Also, our 30- to 90-day pass-through loans in Stage 1 are negligible as they were already in Stage 2 due to the model or restructuring. And as you all know, all restructured loans continue to be booked under Stage 2. These actions resulted with our Stage 2 loan coverage ratio increasing from 11.8% to 15.1%, while our Stage 3 coverage also has increased from 58.8% to 61.5%. We continue to carry TRY 900 million free provisions as additional reserve buffer. We are sharing details of the coverage increases, both on this slide and the next one for sectors that may relatively be more impacted by COVID. As a side note, 46% of Stage 2 is in FX but fully hedged with FX loan position and has no P&L impact.
Our NPL ratio has declined to 6.2%. There were no NPL sales or write-offs. For the quarter, as I mentioned in the previous slide, NPL promotion slowed down considerably Q-on-Q due to the 180-day recognition regulation as well as extension on payment holidays. And we believe the impact of COVID-19 NPL ratio may start by witness towards the end of the year. Like we did in Stage 2, for Stage 3, we increased coverage, mainly due to the reassessment of individual assessment, which understandably impacted certain sectors more as can be seen on the upper right-hand corner. On a positive note, collection performance has improved considerably towards the end of the quarter, reaching almost pre-COVID average monthly levels. We continue to expect our NPL levels to remain below 6% for the full year.
As a result of all that I've shared so far, our cost of credit for the quarter was at 317 bps, reaching 259 for the first half. The biggest impact on our quarterly cost of credit came from the reassessment of individual assessed loans at 191 bps and provision for COVID-19 forbearances at 54 bps. With our prudent reserve build, our top provisions have reached TRY 15 billion with year-to-date provision charges of TRY 2.9 billion.
Also, as I shared earlier for the quarter, we have booked a negative mark-to-market adjustment for TRY 412 for LYY, driven mainly by full depreciation, which has reached TRY 1.2 billion -- around TRY 1.2 billion year-to-date, which is not completed in our cost of credit. We have revised our full year cost of credit guidance and now expected to remain between 250 to 200 bps for the full year.
We ended this pandemic in a position of strength. Despite U.S. depreciation, our solvency ratios have increased. We reached 19% and 16.1% Tier 1 excluding forbearances since -- announced since the beginning of the year. We have an outstanding TRY 22.7 billion excess total capital and TRY 19.8 billion excess Tier 1, both above the Basel III minimum requirements. If we were to include the BRSA forbearances, our CAR would be almost 22% and our Tier 1 would be almost 19%, with an excess total capital and Tier 1 at TRY 28.8 billion and TRY 25.1 billion.
Internal capital generation continues to be one of the key drivers of our solid solvency ratios, while we grew our loan book. Proactive positioning of securities and mark-to-market improvements were also supportive. Taking all into consideration, our robust capital remains a source of strength and a significant competitive advantage to generate profitable growth going forward.
To sum up, I have shared with you the figures for second quarter on the slide throughout the presentation. Also, you may find the full details of our revised guidance for 2020. We are comfortable with our cost adjusted NII for the year as we revised up our NIM guidance while maintaining our leverage close to current levels. Therefore, we continue to expect a sound core operating performance and pre provision income. However, due to the coverage increases and prudent reserve deals as well as lower fee income are always expected to be in the low-teens area. 2020, no doubt, continues to be another challenging year, but we believe with our financial strength and operational resilience, we have the necessary ammunition to manage this effectively. And operator, you may now open the lines for Q&A.
[Operator Instructions] The first question comes from the line of Kemeny, Gabor with Autonomous Research.
A few questions from me, please. One is on the lira loan growth, you are guiding for low 20s growth over 2020, and you already grew 15% in the first half. Can you elaborate a bit on why you expect the loan growth to slow down, given that you see a gradual recovery in the Turkish economy and there's probably more CGF funding to be rolled out.
Second question, fee income. Can you give us a sense of what share of the fee decline could be driven by the regulation, which -- and the low interest rates, which I understand is recurring. And to what extent have been the fee drop driven by the COVID situation? Which I assume might reverse in the coming months.
And the last question is on the nonperforming loans. I understand that you don't have to classify the loans under NPLs before they become 180 days overdue under this new regulation. Would it be possible to give us a rough sense of to what extent are you making use of this regulation? So in other words, how much loans do you have between 90 and 180 days overdue?
Gabor, here Türker. Let me start with your first question. As you rightly mentioned, in the first half of this year, especially in the second quarter, actually, we grew TL loan book by roughly 15%, and we are guiding for full year low 20s. Actually, especially in the second quarter, also with favorable rates, we have seen an increase in the loan demand from our consumers -- from our customers as well. But as you for time being, we expect a normalization trends for the second half of this year. So which we are currently also seeing from the third quarter growth figures of -- from BRSA data as well. So there is some slowdown. And we shall not forget some portion of this growth in the second quarter has also resulted due to the long deferrals actually. As Ebru has mentioned, deferred installments in Akbank were amounting to TRY 8.5 billion, which was maybe -- some parts of which would be redeemed in a normal situation. So it has also partially positively impacted the growth in the second quarter. So all in all, maybe there is an accelerated demand from the customers. So this is why we are expecting a low 20s growth, which actually is still higher than our initial guidance, actually. But we'll observe how the demand will evolve. And if there is another trend, we will share it with you as well. That's for the TL loan side.
With regards to fee income evolution, so what portion is coming from the regulation, what part is coming from the COVID? Really it's a mixture. But what -- just recall, we were guiding our investor committee before COVID-19 actually, due to the latest fee caps announced by CBT. We were expecting a flattish growth portfolio, maybe or slightly negative. But now also bit due to the waivers we have granted during COVID, due to pandemic as well as lower business activities, now we are guiding for a high single digits on the negative side. So maybe you can face a roughly 50-50 coming from both the cap and the pandemic impact.
And thirdly, actually, we are applying this 180 days rule. So when the loan is -- becomes 180 days overdue, we classify it into NPL. Until that time, we keep it under Stage 2. Because actually, this new rule has also changed the processes in the bank side because previously, we were more active on the resolution of the overdue status maybe in the days when the loan was 60 days overdue. But now -- now there are some more delays, and we are giving more time to our customers. So what does it mean actually as a viewer, not every single loan which is overdue more than 90 days gets into NPL, which we can also see from our figures as well.
Let me share with you some statistics. Then observe the loans, which are over view more than 90 days. What has happened to these loss? Roughly 25% of these loans, either close or reduce their overuse cases, has become less than 90 days overdue. Around 45% gets restructured actually also in a normal situation, the pre-pandemic era, we were again, doing the exercise to our customers try to come to a revolution to refinancing a restructuring. So this is again the case. And roughly 30% of these loans go in NPL actually. And when we look at the latest data and when we look at the trends of the ratios, actually, we are also seeing some slight improvement as well, which is also something positive with the economic activity coming back. So this is the current situation.
And also, Gabor, regardless of the staging, as we just mentioned, we've actually -- for those loans that we believe that have a possibility of going into NPL, we've already increased their coverage ratios starting from second quarter onwards. So this is something to keep in mind. As I shared, this is the reason why we have seen a significant increase in our overall of our cost of credit evolution basically. And as you can see in the NPL slide as well, you can see the coverage ratios have gone higher. And also in Stage 2, you can see the coverage ratios have also gone higher.
The next question comes from the line of Deniz Gasimli with Goldman Sachs.
Two questions from our side and one on quality, if I may. One, regarding your NPL ratio. So you mentioned that you -- I mean, the NPL right now is the 6.2% decline due to convenience measures, I suppose, and you kept your full year NPL target the same as you know 6%, even though you -- as you mentioned, you expect kind of NPL ratio to pick up towards end of the year. So could you maybe kind of walk us through what your expectations in coming quarter regarding the NPL ratio? Do you expect like another meaningful decline in third quarter for period? And then you would expect some pick up in the fourth quarter? Or is it just we're going to see ongoing decline in the next coming quarters? And then next year, 2021, perhaps first half, we're going to see the 2 impact in terms of NPL ratio and the uptick? Do you have a -- and at this stage, then, do you have a sense of where would you anticipate to see peak NPL ratio? I know it's early, but is there any kind of -- in terms of direction you have in terms of where you would expect NPLs to peak, assuming that the situation improves from now on rather than any further deterioration.
And just a second question and a follow-up. Now that you've had the first half, now as you mentioned, situation is improving, the backlog is improving. When you look at your -- in last call, at your book, what terms do you make out of your loan book in terms of which sectors do you view as potential stress? Is there any particular sector that makes you slightly more worried than the others? Or is it rather broad-based? Looking at your Stage 2 breakdown, I can see that you increase the retailer coverage quite meaningfully. Some problem in the retailer segment, the one where you would naturally maybe expect more pressure given the environment? Or is there -- how do you think about your book and asset quality, now that you'll be had a bit more time to digest what they have.
Deniz, this is Türker. With regard to the NPL evolution, actually, this current -- the current forbearance is granted by BRSA, I'll actually reduced actual inflows into NPL. But also, actually, in the same period, actually, we are also seeing a decrease in the collections as well. But when I look at the collection performance for the end of the second quarter, we are already seeing weekly improvements -- improvement on a weekly basis and collections slowly reaching prior pandemic level. Actually, just recall, in the first quarter of this year, actually, we were observing strong collection performance from the NPL portfolio. When we mean we'll see a peak in the NPLs towards the end of the year, actually, we are much more referring to the NPLs inflow. But simultaneously, we are also expecting a partial post impact coming from collections as well.
And also keep in mind, we want to grow further our loan book. Maybe not in the pace like in the -- like in the first half, but we still want to grow. And then made that guidance, we have also assumed some write-offs similar to last year's levels and some potential NPL sales as well. If these do not occur, NPL ratio may stay slightly above 6% level. So some are 6% maybe, somewhere between 6% to 7%. But in this guidance, we have assumed right of similar to last year. But I think, again, it's really more than NPL formation, cost of credit evolution will be important. In the second quarter, we have taken proactive measures, and we have increased coverages for the mainly impacted sectors. So I think we have reached the peak in cost of credit in the second quarter. For full year, we are expecting still 250 to 300 basis points cost of credit for full year. So we are continuing to book further results. So that's with regard to your NPL ratio question.
As with regard on the second question, maybe if you can recall.
It was -- I guess with regarding the loan book. How do you see your loan book? Why did you increase your retail coverage? And which focus areas also, going forward? Right, Deniz? You're asking about the focus areas going forward on a sectoral basis because your voice wasn't that clear.
Yes, exactly right. Is there any sector in like that top of mind for you? Or is it just broad based?
Naturally, we will continue with our insurance credit lending policies. As long as it is still comfortable, we will try to grow in all areas, being consumer loans, SME commercial loans, corporate loans. There are some sectors which are more sensitive. So we will keep our cautious stance in this sector. So we don't expect a major change -- a major shifts.
If there are further CGF programs announced by the Government, I would assume -- so we will -- similar to our previous participations, we will take necessary participation in this packages as well. So that's what I can share for time being.
Yes. Just a follow-up. Is there any sector that's kind of worrying you regarding that policy?
Any sector that's what, sorry? We are…
Sorry. Worrying you regarding that policy.
Worrying. I mean, basically, all sectors that will get impacted. And if you look at the coverage ratios, obviously, there are sectors that are getting more impacted like service sector. So then what we are doing is that we are taking further coverage ratios for those particular sectors. So if there's any sector that we feel there's a higher risk, we will obviously do as we have done in the previous quarters by increasing our coverages for those sectors.
And this is main reason. Actually, maybe our exit -- provisioning -- exit provision in the second quarter we go into details, actually. We have revised individual assessments for commercial and corporate loans. As we have significantly increased the coverage in this -- for these companies, actually. Actually, when we looked -- we have really gone into detail. So we have not just looked on the motor results, more important really reassessed the individual assessed loans. There are practically increased the coverages significantly for those loans. And we are actually sharing the coverage increases for this mainly impact sectors in the relevant slide as well.
And as I mentioned earlier, when we did those assessments, actually, it's no surprise that these assessments were inserted actually piled up in certain sectors. So that actually shows that these are the areas that may actually be relatively more impacted, and that's why we have showed them in our presentation as well, Deniz.
The next question comes from the line of Ali, Dhaloomal with Bank of America.
I have just 2 quick questions. I mean, the first one in regards of all these loans that have been deferred, can you just repeat how much? I think you said TRY 24 billion of principle. So I think it compares to TRY 14 billion at the end of April. I mean, if you can remind me. And also, I mean, in terms of sectors, are these essentially SME loans or retail loans. Can you give us a little bit of sector overview in terms of loans that got deferred?
And my second question is about FX liquidity. Can you give us the breakdown of this TRY 9.7 billion that you have in FX liquidity, especially, how much you have in -- at correspondent banks abroad? How much in FX swap would -- I mean, short-term FX swap with the Central Bank? Just a little bit of color will be appreciated.
Okay. Ali, thank you very much for your question. Actually, the numbers you have given are correct. But let me again recall -- repeat. In the second quarter, starting from end of March, we have granted deferrals to slightly more than 600,000 loans, 618,000 loans. And the deferred amount was TRY 8.5 billion, and the total risk for those companies for these loans were at TRY 24 billion. The amount we shared by the end of the -- by the end of April was roughly TRY 13 billion to TRY 14 billion. And it's even distributed, coming from retail customers, general purpose loans, credit cards, SMEs, commercial, even distribution.
With regard to the FX liquidity.
But maybe before we -- maybe you can discuss the decline in the risk that we are seeing right now?
Yes. Thank you very much, Ebru. Maybe it's also worth to mention how actually, how this deferred portfolio is performing. As we said, the total unpaid principal balance for that -- the balance of this portfolio was TRY 24 billion, and the deferrals were granted till end of June. Then you look at the actual collection performance from that portfolio until today. We are seeing that roughly -- we are seeing roughly 10% risk reduction. So actually, there's a really quite healthy repayment performance, which is positive, at least for the time being. That's with regards to the deferrals.
On the FX liquidity side, the total liquidity we are hearing in this -- in the presentation, it's roughly TRY 9.7 billion. When we -- maybe I can give you some figures, which you can also see from our disclosure. Balance sitting at correspondent banks is slightly higher than USD 2 billion. Our swaps are amounting to roughly TRY 26 billion. And the remaining portion is mainly our balance sitting under reservation mechanism.
Including like unencumbered…
Yes. Some, including some on encumbered securities. Actually, this is the information actually we are sharing.
Okay. That's great. And just…
And one thing, I report that. I look at the liquidity as compared to the short-term portion of our wholesale funding of USD 2.5 billion, it is more than close to 4x of that short-term part of the wholesale funding.
Please also keep in mind that liquidity does not include the latest Eurobond issuance we made in July because it has hit our balances only in July.
Yes, that's correct. And just to come back to the 10% risk reduction that you mentioned. I mean it's starting from July 1, right?
Yes. Towards the end of June, yes.
[Operator Instructions]
Okay. I guess, are there any further -- I guess there are no further questions. So maybe we can do the final remarks.
Thank you all for joining us today. To wrap up, I'd like to underline that no matter how challenging and unprecedented these times might be, we will be getting through this with strength and together with all our stakeholders. And Akbank is undoubtedly one of the best positioned banks in this environment. And our areas of investments, obviously, that we have been doing in technology, advancing our people will definitely help us successfully navigate these challenges and going forward.
As usual, please do feel free to reach out to us for any further questions you may have. And I hope that we do get to meet face to face in the coming months, I keep on saying this every quarter. And have a great evening, and keep well, and stay safe. Bye-bye.