Akbank TAS
IST:AKBNK.E
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Akbank TAS
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Ladies and gentlemen, welcome to Akbank's Third Quarter 2018 Consolidated Financial Results Conference Call and Webcast. Today's speakers will be Mr. Hakan Binbasgil, Mr. Turker Tunali, and Ms. Ebru Guvenir. I will now hand over to our CEO, Hakan Binbasgil. Sir, please go ahead.
Thank you very much. Dear friends, welcome to our third quarter financial results webcast and conference call. As you know, so far 2018 has been quite a challenging year for all of us. But Akbank's current management for so many years have been through many cycles in Turkey and remained well equipped with the necessary experience to weather the current volatility. Our priority has always been maintaining strong liquidity, asset quality and capital and focusing on profitability if, and only if, it is sustainable. We were also very cautious in managing our metric in this match. And this prudent approach is helping us tremendously to endure the current challenges. Our successful 104% September's indication loan rollover is also proof of the financial community's trust in Akbank's execution capability. And this indication was also a door opener, a benchmark, a motivating factor for others to come.
This quarter, with sustainable profitability in focus, and in the best interest of our shareholders, we took a few important risk management actions. Not only did we continue to deleverage our FX loan book, but have also significantly reduced our FX securities book. Simultaneously, we have also reduced our FX variable funding. The reduction in our FX securities book has led to one-off trading loss for the quarter. And these actions have had to reduce the FX risks-weighted assets and our capital sensitivity to FX moves going forward. Despite our consolidated approach, thanks to our strong core operating performance, we were able to achieve a net income of TRY 4,688,000,000 with an ROE of 15%.
Both our net interest income and fee income continued to be robust. Our solvency ratios excluding the recent 4 variances with capital adequacy ratio at 14.2% and Tier 1 ratio at 11.8% remain healthy and well above the regulatory limits. Including the 4 variances, our capital adequacy ratio and Tier 1 ratio would be at 17.2% and 14.6%, respectively. We maintained our disciplined approach in LDR management with the total LDR at 93%.
Our swap-adjusted NIM remains flat at 3.8%, which continues to be well ahead of our guidance of 3.5% for the full year. And even excluding the CPI adjustment from 11% to 17%, our swap-adjusted NIM would have been in line with our guidance at 3.5%. And this was achieved in a deleveraging and rising interest rate environment. Our proactive asset and liability management where we have further decreased our maturity mismatch at around 2 months on the TL side creates an upside potential for NIM. We also continue to have no maturity mismatch on the FX side. And 17% of October total inflation estimate still provides a buffer for fourth quarter at every 1 percentage inflation equates to an additional flat basis NIM and roughly TRY 120 million net income for the year. Our 32.9% cost to income ratio and low OpEx base give the bank flexibility as well as competitive advantage in a higher inflation backdrop.
Our branch restructuring, our new branch model along with our investments in digital are paying off on the cost and revenue sides. All of these are a result of our solid banking model.
Before I hand over to Ebru for further details, I also would like to say a few words about the macro. I'm happy to say that we have started seeing much more stability in recent weeks. Now, CGF premiums are down, there is some appreciation of Turkish lira and interest rates are coming down from its peak levels on the deposit as well as the lending side. This is basically because of the successful steps taken by the economy management. First, there was a substantial rate hike of 6.25% by the Central Bank in September, then came the 3-year new economy program of the government. I think the program is realistic and tackles some of our fundamental issues. Growth targets are below what we used to have before. Inflation assumptions are realistic. There is a big will to decrease current account deficit implying structural changes and budget discipline also remains.
Following these recent positive developments, lastly, as we all know, Turkey completed a successful $2 billion eurobond issuance, which was 3x oversubscribed. This also further supported the positive sentiment.
And now, Ebru will share our performance in detail, then we will be more than happy to answer the questions.
Thank you, Hakan Binbasgil. Onto the next slide. As of 9 months, our top line grew 31% year-on-year to TRY 12.5 billion due to strong core operating income. Our sub-adjusted NII reached TRY 9.8 billion, up by 34%. Even excluding the increase in CPI assumptions from 11% to 17%, our growth was still very strong at 24%. Despite our conservative balance sheet approach, our fee income growth continued to be robust, reaching TRY 2.7 billion, up by 24%, which is significantly above our full year guidance of 15%. Our FX growth was at 18.8%, well ahead of our guidance, significantly below the 24.5% September inflation. For the full year, we expect year-on-year OpEx growth to be slightly from the current level. Our 2017 nominal OpEx base was at TRY 4.9 million versus peers average of TRY 1.2 billion. This low cost base gives us the flexibility in the high inflation backdrop. As proof, we delivered a superior cost income ratio at 32.9% significantly below our 35% full year guidance. Excluding the CPI estimation, our cost income ratio would still be at a respectable 34.8%.
Despite the rising funding cost and low lending pace, our quarterly swap-adjusted NIM remains flat versus second quarter at 4%, while accumulative 9-month swap-adjusted NIM was at 3.8%, well ahead of our guidance of 3.5%. Even excluding the 6 percentage points CPI impact, our accumulative swap-adjusted NIM was still in line with our full year guidance. We are using 17% inflation in our CPI linker portfolio calculation and every 1 percentage point inflation affects NIM by 5 bps, TRY 120 million net income for the full year. Our top utilization came down from around TRY 3.5 billion on average from second quarter to TRY 2.4 billion on average for the third quarter. Below you may find the quarterly cost of the short-term swap.
Funding costs have started to come down since end of September and also taking into account additional CPI contribution from above 17%, we believe we may end the year around the current NIM level.
Our fees grew by 24%, thanks to our diversification efforts. We are well ahead of our guidance of 15%. Payment system, which make up 51% of our fees, continued to have strong performance up 33% year-on-year, thanks to both issuing and acquiring.
On the issuing side, it was affected positively from the increase in interchange fees and 15% year-on-year evolving growth, thanks to our solid customer portfolio. IHR manage acquiring side resulted in steady price adjustment along with 18% volume increase in our well-managed structure. We had a strong performance in noncash loan where fees were up by 45% year-on-year. As for [ VAT ] insurance, we have a well-established cooperation with our insurance partners AvivaSA and Aksigorta and organizational focus within the bank. Our annual policy sales are at TRY 4 million with 30% penetration in total customer base. Standalone insurance sales, i.e. non-credit linked sales, make up 66% of our total insurance premium.
Wealth management fees were up 46%, thanks to our strong cooperation with our subsidiaries [ Akiserum ] and [ Akportfoy ] as well as the leveraging on our digital platform in our consolidated organization. Direct banking fees, which are all transaction parts of the branch, are 51% of non-lending fees. Our direct customer base has reached TRY 4.5 million, up by 20% year-on-year. 69% of our general purpose loans and 55% of our credit cards are sold through direct channels. We expect to keep a strong performance in fees in the fourth quarter and end the year above our guidance.
We have transformed 162 branches to our new branch model as of third quarter. As of last week, we have reached about 190 branches. We aim to reach around 230 by year-end. For the branches that have been operational with the new model over 1 month, migration of cash transactions to E-tellers has reached 47%, while product sales are up by 25% and income generation is up by 30%. We can say that results are quite promising. In order to realize the benefit of this new branch model quicker, we have opened up the new screens and analytical models to all of our existing branches as of end of third quarter.
Now onto our balance sheet. With the focus on liquidity and asset quality, we continued with our balance sheet optimization in third quarter. On a consolidated basis, total loans now make up 56% of total assets, down from almost 61%, while liquid assets have almost doubled from 6.5% to 11.7%. On a full year basis, our loans to assets have declined from 58% to 52%. On the liability side, we have also had a repo funding from TRY 4.9 billion to TRY 2.5 billion. And this has simultaneously lead for the FX securities book reduction as you will see on the next slide.
Our sound and stable deposit base on 58% of our assets. We continued to lower the maturity net for the TL, which now stands around 2 months, down from 3 months at the end of second quarter. On the FX side, we continue to have 0 maturity mismatch. Our total LDR improved to 93% on a bank only basis, significantly below the sector's 117%, while our FX LDR is at 68% versus sectors 101% and our TL LDR is at 137% versus sectors 142%.
This quarter we have taken some further proactive mismanagement actions and we have made a significant reduction in FX securities book from TRY 7 billion to TRY 5 billion. Since the beginning of the year, our FX securities book has actually declined by TRY 4 billion. While decreasing our FX securities book, we have also realized some trading loss, which has impacted this quarter's [ kin ] negatively as of now. The securities trading loss of TRY 1 billion mainly stems from this action. However, as a side benefit, the impact of lower volume FX securities has contributed plus 28 bps to our capital adequacy ratio. Our total securities book has declined at 7% year-to-date to TRY 57 billion.
We have a balanced portfolio. While we are frequently asked about energy, real estate and construction loans, we wanted to share some insight. Energy generation makes up 6% of total gross loans. Since 2016, 100% of our new loan originations in energy generation has been to renewable projects. As of today, 80% of our energy generation loans are renewable and 60% are government guarantees. Real estate makes up around 10% of our total gross loans. The LTV of our real estate book is up 50% to 70% with most up-to-date valuation and also taking into account the recent decree 32 as if it would be implemented perpetually. As you all know, this decree was put in place for only 2 years, which indicates that our LTVs are calculated on worst case.
Only 15% to 20% of our total real estate books is impacted by this decree. It is also worth to highlight that 16% of the real estate book is FX cash collateralized.
As for construction, which is only 4% of our total gross loans, around 50% loan book is in FX and more than half of the FX part is government guarantees.
We continued in third quarter with our selective and prudent money strategy. We've further reduced our FX loan book. Our FX loans are down by 13% in U.S. dollar terms. Our TL loans are down by 5% year-to-date. As a result, we delivered a loss of market share in both TL and FX loans. Our main focus remains to preserve the quality of our loan book. Also, on the TL side, in the third quarter, we have taken a cautious approach where we focused more on short-term loans in order to manage TL maturity mismatch as well as keeping asset quality intact. Since 2013, we have been preparing the bank for global rising interest rate and tightening liquidity environment. As you can see in this slide, we have been deleveraging our FX loan book while maintaining FX deposit base. We have actually gained market share FX deposits since the beginning of the year, reaching 12.3% as of 9 months.
We have a well-diversified funding base. Since 2013, we have kept our wholesale funding at TRY 11 billion while extending the average maturity from 1.6 years to 3.2 years. As a result, funds borrowed are only 16% of our total liabilities. As you know, we successfully completed our syndication with 100% -- 104% rollover in September. We do not have any capital market redemptions until 2020. Plus, we have ample FX liquidity to serve 2 years of wholesale funding without borrowing one penny from the market. Our total deposits, which make up 58% of our liabilities, grew 21.6% year-to-date. 64% of our deposit base is FX, while 36% is TL. 77% of the TL deposit base is SME and retail. Our main focus is to expand our time deposit customer base in that segment since this segment is a less price sensitive and more sticky in nature.
Now onto asset quality. Our Stage 2 loans of TRY 32.6 billion make up 13.5% of our performing loans. These are up from 10.7% in second quarter. 54% of Stage 2 loans are in FX. To break this down, OTAS makes up the biggest component of Stage 2 with 33% share while an additional 25% is coming from quantitative staging rules of IFRS 9. Actually, these loans are not past due 30 days. We increased our coverage for Stage 2 loans from 14.7% to 15.9%. For well [ collateralized ] Stage 3 loans, we have set aside 57.9% provisions. Total provisions to NPL ratio stands at a solid 135%. Aside from all this, we have TRY 450 million free provisions. As we have been deleveraging in second and third quarter, NPL on cost of risk ratios have been inflated to some extent due to the denominator effect. Our total NPLs reached 3.1% of which 25 to 30 bps is due to the denominator effect, i.e., our slower loan growth year-to-date versus peers.
Our total cost of risk reached 246 bps at the end of 9 months. Our Stage 3 provisioning was 78 bps due to a couple corporate files where we have strong collaterals. Of the remaining, 54% of Stage 2 loans are in FX, so 72 bps, which is the biggest component due to currency depreciation. This is 100% offset with our loan U.S. dollar position. Therefore, no impact on net income. 26 bp was due to the macro parameters update. 22 bps was due to additional coverage for OTAS exposure, which we had increased in second quarter. The remaining 48 bps is due to other Stage 1 and 2 provisions. We will continue to prudently impact our [Audio Gap] by provisioning, hence our current cost of risk of 240 to 250 bps can be taken as a proxy for the full year.
Despite the volatility and currency depreciation, we ended the quarter with healthy solvency ratios. Our CAR is at 14.2% and our Tier 1 is at 11.8%, both well above regulatory requirements. Please note that these ratios do not include the recent forbearance rules of BRSA. Including these forbearance rules, our CAR in Tier 1 would be at 17.2% and 14.6%, respectively. Healthy internal capital generation as well as lower volume impact of FX securities and FX loan book, supported our solvency ratios despite the TL depreciation and mark-to-market losses.
Now to sum up. We have shared with you throughout the presentation the actual figures of the slides. To share some insight on our full year guidance. For loan growth, we expect deleveraging and FX loans to continue at a slower pace in third quarter. On the TL side, there may be a slight increase compared to the third quarter. But year-on-year change will still be negative. As for NIM, due to some easing in funding cost in September, and taking into account additional CPR contribution of '17, we believe that we may end the year around the current 3.8% level.
On the fee side, we expect to keep the current strong performance for the full year and significantly beat guidance. As for OpEx, no material change is expected compared to the first 3 quarters. There may be a slight decrease on a year-on-year basis from the current level, 18.8%; however, our cost to income ratio will remain below 35%. Regarding cost of risk, as I mentioned earlier, we will continue to prudently apply our effort at provisioning and therefore, the 240 to 250 bps of total cost of risk can be taken as a proxy for the full year. As for ROE, we expect to end the year at current levels. Therefore, our EPS growth may be below our guidance of 12%. We will continue to focus on liquidity, capitalization and asset quality and thus will stay cautious on growth. As many of you have been asking, all that to underline that our pre-provision growth income so far this year has been very, very strong and we expect to end the year around plus 30%, which is a similar pace in the first 9 months.
Operator, you may now open the line for Q&A.
[Operator Instructions] We have a question from Gabor Kemeny from Autonomous Research.
Can you -- firstly, on asset quality. Can you talk a bit about the drop in the Stage 3 provision coverage, the Stage 3 coverage came off quite a bit in the third quarter. And when you guide for a 240, 250 basis point provisioning, did you expect coverage to drop further from the current levels? And secondly, if you could give us a quick view on how you see the recent government measure requiring the conversion of the FX denominated rental contract to lira impacting your exposures? You show that 11% of your loan book is related to real estate exposures. And then, I will have another question on the net interest margin.
Okay. So let me start with the coverage ratios. Okay. So you mentioned about this NPL coverage. And the reason is actually 1 or 2 loans from Stage 2 to Stage 3 that we booked in this quarter were collateralized. So that is the reason actually. So that is the reason why it seems we a lower number. But when you look at the total actually coverage, it is still around 135%, but the specific before the NPL, this is because of the 1 or 2 loans, which we have a lot of collaterals. That is the reason. And your second question regarding this Decree 32, as you said we have a real estate portfolio, which is roughly 10.7% of our portfolio. So when we further analyze this portfolio, it is only roughly 20% of that, which is -- which gets affected out of this. But as Ebru mentioned in her presentation, we still -- if we look at the LTVs of that portfolio, despite all those -- because there was a loss in value in some of that property. And we estimate this loss of value around 20% to 25% because of this decrease in rentals. So even if we adjust our LTV, the previous LTV with that FX -- with that negative FX, still our LTV seems to be around 52% to 70% in that portfolio. So we are relatively comfortable with this because of our collateral and so on.
Maybe an additional thing you haven't measured is our full year guidance of 250 basis points for full year whether you're expecting drop in coverage for NPS? No, we are not. We are not expecting coverage decrease for fourth quarter.
And your other question about NIM?
Yes, just finally, on the NIM. I think if we exclude the CPI linker adjustment, your margin was around 3.3% in the third quarter. How much of the funding pressure, I mean, the increase in the funding cost has yet to come through in the coming quarters? And how do you think about the margin outlook going into 2019?
Actually, upfront because of its maturity mismatch management, actually we are in a relatively -- we have a relatively strong position because our local currency maturity mismatch is only 2 months. So actually it should take -- for Akbank to adjust to a new level of interest rates, it will take only 2 months. But this is what the mathematics actually dictate. On the other side, there is one thing that we have to keep in mind because this is in the normal M1 because when you look at our growth in lending because of our cautious approach, so as you have seen actually, the bank has been deleveraging. So when you look at the lending margins, the interest rates, actually we have reasonable margins. So if we continue like business as usual, it would take only 2 months. But it is taking longer and the reason is as I said, because of our relatively low loan growth. My personal expectation would be this year, we will end up the year again with something more or less 380 basis for the full year. But of course, the CPI linker has some contribution to this. So every 1% inflation, as we mentioned before, has an impact our around 5 basis on NIM. So if we start -- if we look at the next year, so we will be disclosing our of course our functions, our guidance for the next year towards the end of the year at the beginning of next year, actually. But what I can tell you as an indication, in the first quarter of next year because of the assumptions and CPI linkers, of course, there will be a drop in the NIM. So I think roughly, I would say, if it take inflation into account like, let's say, 14%, 15% automatically this will have roughly 50 basis impact on the NIM. The good news is, actually, nowadays deposit costs are also stabilizing a little compared to a month ago. So we have seen higher deposits interest rates in the system like at the beginning of October, like September. Nowadays, it's easing a little. So I think that this is good news looking forward. So that's all I can say at this stage. So there be some drop, some reasonable drop. And hopefully, starting from the second quarter next year again, the system will pick up. If we have higher growth, of course, that pickup will be much shorter than what I am actually anticipating. But the growth is less. And this is a deliberate action, actually. And the demand is there, I have to say.
And just a follow-up on this, where are you pricing your lira deposits these days? And what is the average on your back books?
So the average, I would say around 21% or so, roughly speaking.
This is only for time deposits.
Yes, this is only for time deposits. So I'm not actually including the dilution impact of demand deposits where we emphasize a lot demand deposits. And actually these are very profitable. So ignoring this, it's around 21%. It is around 21%. But it is coming down, it is coming down. So that's good.
Yes, and the back book for the average on the existing book?
This is the existing book.
Oh, sorry, and the new deposits?
For new deposits, again, on a blended basis, it is more or less equal to the back book. So hopefully looking forward, it will be coming down. So that is what we are predicting now.
[Operator Instructions] We have a question from Yulia Di Mambro from Federated Investors.
I have 3 questions, please. My first question is on your FX liquidity. In your prepared remarks, you mentioned that you have enough liquidity to cover 2 years of FX maturities. Can you please give us a bit more detail on the breakdown of that liquidity? I.e. how much is in Rome, how much is on balance sheet et cetera? Secondly, my question is on the trading gain on derivative financial transactions of TRY 5 billion TLs that you have in your P&L. How much of that is your hedging of provisions that you mentioned earlier? And how much is gains on FX swaps? And my last question is on your Stage 2 loans and the new restructuring framework. Do you expect any change to your Stage 2 loans following the adoption of the framework? And what percentage of your Stage 1 loans are restructured now, if any, or are they all in Stage 2?
Let me start with the last question. Because it's relatively easy to say. So in Stage 1, we don't have any restructured loans at all. So this is not the policy in the bank. So this is also looking forward to what you should expect from Akbank. And regarding the other questions, maybe, Türker, you can help.
Our FX liquidity, our cash and cash equivalents on our balance sheet as of end of September, we can composite actually to our FX cash, and cash in hand and our balance in [ north ] rate accounts of roughly USD 1.5 billion, plus around USD 3.8 billion in the correspondent bank plus around USD 600 million from reverse repo transaction.
So it's Stage 3 real cash so that's central bank Rome is relatively small. So we are talking about a lot of liquidity here, actually.
And secondly, with regard to our long position taking to hedge our FX provisions for Stage 1 and Stage 2, we have taken a long position of roughly USD 650 million in our balance sheet, so this is our long position in the balance sheet.
Got it. And there is a trading gain in the P&L, the TRY 5 billion gain?
The trading gain.
It's around TRY 1.2 billion is coming from this long position taken.
So they have half of the P&L. This trading income actually nets up with the provision expense. So there is no P&L impact of this trading line.
Our next question is from Ksenia Mishankina with UBS.
I have a few questions. First of all, could you indicate what your expectations are for the developing your loan portfolio in terms of volumes? So how long do you expect the shrinkage in your loan portfolio to continue? My second question is related to that. What is your current loan production if you compare it or measured in a percentage of what it was, say, in the first quarter or second quarter of this year? And finally, regarding the plan of -- or of the possibility providing 6 months interest holiday for borrowers. Is that something that you are considering to adopt and if so, what percentage of your Stage 2 and Stage 3 portfolio would that be affecting?
So let's start with the first question.
Regards to FX loan book.
The deleveraging, the speed of deleveraging, I think, what I can say is the speed of course has to slow down. So when you look at the first couple of months, I mean, the first 3 months, especially on the FX side, it was a double-digit decline. So looking forward, I think, there will be some stability in this. So it will not probably continue like this forever. So the speed will come down. And that is also the case, I guess, on the local currency side. It's not only because of the bank. And also actually the demand is less in the system as well. Because the interest rates are higher than what we used to have before. And regarding this new loan generation, I can say this is like 1/3 -- approximately 1/3 loan generation, what we used to have like in the old days, in those days. So this is, I think, that would be more or less the ratio that we have. And the second question?
6 months.
This 6-month, actually, period. So it is basically targeted to relatively small businesses. And when you look at our small business portfolio, again, Akbank's share is not really huge. So I think based on the small business loan definition, I think, Akbank's share is something like around 6%, 7%. So therefore, we have a relatively solid portfolio on that type of customers as well. So therefore, we are relatively fine. I mean, so this was actually announced and until today, we don't really have much activity in the bank in that area. And the demand is also at this time is not really that huge. So this is what I have for the time being.
One follow-up question, if I may, regarding the outlook for the year -- for the size of the loan portfolio. If you were making estimates right now for the size of your loan portfolio in the middle of 2019, would you say that, that loan portfolio will be larger or smaller than it is today?
So we will come up with our guidance, as I said, at the beginning of the year. So I do not want to mislead you. But my personal estimation would be that the growth rate for the system next year, I don't think that it will be a huge number. So on the FX side, I think, it will be either a slight negative or maybe 0% or something for the system. So we should not really expect a huge demand in that area. On the TL side, I think it will be, I guess, a little bit less than the level of inflation or something. So in real terms, still I think the number will be more or less either close to the inflation or less than the inflation. So this is for the system. And I don't think that Akbank will deviate too much from that.
Our next question is from Alan Webborn from Societe Generale.
Could you talk a little bit about what you're seeing in terms of customer behavior? And then clearly, we're at the early stages in a big adjustment to the economic outlook. I mean, the medium-term plan, yes, is suggesting growth of something over 2% next year. But I think internationally, people think that the growth is going to be probably a bit lower than that. And certainly, in the first half of next year very little growth, if any. And so outside of the restructurings that you've already done, in the corporate sector, how do you feel the corporates are behaving? How active are you in terms of loan restructuring? How much dialogue are you having with corporates on the basis that we are entering a much more difficult period? Clearly, unemployment is going to go up. And clearly, things are going to get more difficult before they get easier. So it would be interesting after you had a few months of the uncertainty. And so some idea of how you feel: one, Akbank is managing the corporate issue; and two, what the reaction of corporates are that you've seen up until now in terms of, are they trying to restructure balance sheets? Are they trying to get out of FX lending where they can? Give us a feel of how you think the corporates sector in particular is behaving. That would be helpful. Secondly, in terms of your capital ratios. The x forbearance, I mean, clearly they are fine, but they are somewhat less than you've been running the bank at before. And how do you feel about that level of capital in terms of whether you can grow or not grow? So what would you be targeting? Do you target what the government, the regulator tells you you're making? Or are you targeting what you are actually making? And do you think that will have any impact on your dividend for this year? Because I think earlier on, I think you've been quite positive about dividends, but clearly, you wouldn't think that your ratio was going to get any better in the short term. So that would be another point. And I guess, the sort of another question would be there I think we're going to see strong fee income from a lot of the banks across the third quarter. And it is frankly counterintuitive that your economies is hitting the buffers at least in the short-term. And yet, you're producing record levels of fee income. But when does that stop? Because clearly, people are going to be -- you can't keep increasing fees. And there's going be an awful lot less volume. So I wondered when do you think that sort of starts to become a little bit more realistic? And the last question would be are you comfortable with a TL loan-to-deposit ratio of 137%, I mean, slightly below the market, but not much? Do you think you should get that down? Or do you think you can maintain that sort of level and do business happily around that level?
Okay. Thank you very much. Let me start with the corporate sector question first. Actually, I'm very happy to see how the corporates are behaving in the country. So what they are trying to do, they are trying to actually protect themselves as much as possible. So how do they do that? First of all, they try to hedge themselves as much as possible. So this is actually good news for the system in general. And they are trying to refrain from FX borrowing. So this is also good news. And they are also trying to use their own resources rather than coming to the banks and lend -- borrowing more. So these are all, I think, good behavior on the corporate side. So when you look at the, for example, FX deleveraging in the country, it's not only the bank behavior, it is also the behavior of our customers. So they just wanted to actually reduce their FX exposures, borrowings. So some of them accumulated FX deposits. Then they used those FX deposits to repay their loans. So I think the overall behavior is good. So they are trying to tackle the challenges in the system. So I think this is good news. You had a question about fee generation. Yes? I think we did a very good job on the fee side. And what I am more happy about the fee generation. So when you analyze that page, you will clearly see that these are non-lending related type of fees. So the bank did not take any additional risk to generate those fees. So we emphasize those areas like wealth management, insurance, bank insurance, digital banking, transaction banking and so on, money transfers and so on. So I guess this will likely to continue. So we are in the process of actually making our budget for the coming year. And we will still be having some aspirational targets for the bank. So as I said, I will not be disclosing any numbers in today's conference call. But still you will see some hopefully good fee generation in the coming years as well.
I'm sorry to interrupt you. But clearly, those fee areas may not be directly related to loan growth, but they still are related to the growth in the economy. And you've had a first half of '18 where you had exceptionally strong growth in a high inflationary environment. And you're going to have much weaker growth in hopefully a lower inflation environment. So I mean, it's surely not rational to think that the level of fee income growth that we have been seeing across 2018 is even slightly achievable in 2019 and beyond? So that's really what I see. I don't dispute that you had an extremely strong performance in fees. But surely most of those elements are related to the economic growth of the economy. And that is going to be a lot lower than it's been up until now. That was really what I was interested in.
I understand this. And I appreciate the question as well. But the bank is also trying to diversify its fee base. Yes, maybe some numbers are becoming less. But on the other side, some of the numbers are offsetting some of these losses. So this, for example, hedging fees is a really typical example to this. So in the old days, when you look at our hedging fees, for example, it was something which we could easily ignore. So I mentioned about the corporate customer behavior in the system. So that also generates some opportunities for the bank. So looking forward, I am not clearly that much pessimistic about fee generation, quite frankly. And again, even this year we were able to do this in a very -- where the bank was deleveraging significantly. I mean, the bank was getting smaller, but still we were able to do this. So I think we will be able to manage this. So again, I mean, we will come up with exact figures at the beginning of the year. But I am optimistic about this actually looking forward to transaction banking and so on. LDR, as you know, Akbank has always been very carefully LDR management. I think we were the first bank consistently telling about the LDR limits year-after-year. So I remember myself talking about this about almost 4 years ago, where this was not an issue on the table at all. So the bank's still focusing on this rigorously, quite frankly. And now as I said, our LDR is down to 93%. So now it is even lower nowadays. So you may remember that it is like 137 on the TL part, you are right. But also, please also keep in mind that we are also having some similar instruments to deposits like bond issuances and so on. So again, we are selling those bonds to the same customer segments. And actually, maybe it is even better than a deposited cell. Because usually it has a lower cost and it has a longer maturity. So when you take those into consideration, then the bank is reaching even a lower number. So still this LDR discipline will be much, much more compared to probably anybody else in the system. And you also had a question about the dividend. We have actually... sorry?
I said I'm interested in ...
The forbearances, we have done some structuring on that side regarding -- looking at, for example, like 20% depreciation from last quarter like what we were doing the touch asset from the end of the quarter, adding -- let's say doubling the NPS above 6% and so forth. And still at that level we're actually above the regulatory requirement significantly. We were above the 12% for CAR and we were above the 9.5% for the Tier 1.
Yes, I mean, the bank still, even at severe stress testing, still we have good capital ratios. So we don't have a concern on this. Regarding the dividend though, we haven't really made our -- made up our actual decision on this. So it's a little bit early. We have to first of all close the year, see the stability in the market. And then we decide about it. And also as always as I have been sharing, again we have to -- this is something also we have to take permission from the BRSA. But I think it's too early to make a judgment and give you an indication about the dividends for this year.
Okay. And then just sort of finally, in terms of how you manage the bank, will you be looking at the capital level of excluding the forbearance in terms of what you think is acceptable?
This is always how we -- this is always -- we have never actually detached ourselves from the old way of measuring capital adequacy ratio. This is how we put our internal limits. This is how we manage the bank. So this is something we are very actually strict on. So this is very clear on our side.
Our next question is from [indiscernible] with [indiscernible].
I have a question on the cost of risk side. I understand that your year-end guidance is around 250 basis points. Should we take the run rate for the next year as at least for the first half of next year?
Again, we will give you the guidance later on. But I think that would be a reasonable assumption. So I don't think at that point we'll be deviating too much from this, quite frankly. But again, we will give you the official guidance later on.
Our next question is from Michelle [ Eah ] from JPMorgan.
3 questions from me, please. The first one, new Stage 2 disclosure on Slide 13, you mentioned that 25% is not 30 days past due and is just because of IFRS 9. Does that imply that the remaining 75% is more than 30 days past due? Secondly, on performing loans. If I look at the breakdown, I see that there has been a 55% increase in the share of performing loans with 1x or 2x extension. Could you explain that a bit more? And then finally, I missed the bit on the breakdown of FX liquidity. If you could repeat that as well, please?
Okay, if we go to our FX liquidity at the bank, we have around USD 5.56 billion effectively comprising from our balances and correspondent tax at raw cash in hand and not through our balances, yes. And money market placing.
Regarding the Stage 2 loans breakdown that you're asking around 33% is coming in from cash, around 40% is nondelinquent, around 19% is 30 days plus overdue and around 8% is between 1- to 30-day overdue. The numbers that we shared with you was regarding qualitative versus quantitative and that's what I wanted to show you, is that on the quantitative side around 25% was coming in from the model, basically.
Okay, and just on the performing loans bit?
On the performing loans, sorry, can you repeat your question?
Sure. So when I look at the footnotes on the performing loans, I see that those performing loans, which have been extended 1x or 2x have increased by 55% quarter-on-quarter?
Come back.
We can come back to you on that one.
We have no other audio questions. Please, speakers, we can switch to our written Q&A.
Okay. Maybe we can start with one of these questions. Where FX deposit change of nearly TRY 3 billion over the quarter, what percent of the decrease was from retail and what percent from corporate deposits? What trends do you expect for FX deposits for this quarter? Second question comes, what does the FX deposit cost you offer now on new retail and for new large ticket corporate deposits? And can you clarify where you are on Rome FX announce at the end of the quarter and at the end of this quarter? We've already shared the liquidity part so we can go to the FX deposit part.
Yes, actually with regards to this FX deposit change of around TRY 3 billion, around 2/3 is coming from bank deposits. And remaining 1.1 -- 1/3 is coming from our customer deposits diversified between the segments. But please note that when we are disclosing our FX LDR, we are not including this as deposits. We are just including customer deposits. So actually as you may recall, our FX LDR has improved from 73% to 68% in the third quarter. So -- since we are not off including bank deposits. As with regards to the FX deposits trend in the third quarter, it was flattish so far. So there hasn't been any change in the customer deposit base. And with the new cost, we are offering for new retail and large tickets for retail around 3% levels and for large customers 5%. Levels are related to prices we are seeing in the market.
Okay. Another question on the web is will the bank consider repurchasing its eurobond?
So this is not what we are actually focusing on for the time being. But over time, we can evaluate this internally.
What is the current provisioning ratio for all types of loans? It's 30%. This was 30% as of basically second quarter. So we've maintained our 30% coverage in all that. Any further questions?
We have no further audio questions.
If we have no further questions...
I hand over back to you for conclusion.
Okay, thank you very much. Maybe a few closing remarks. Despite the challenges at the macro, I think now we have much more stability in the market. So this is relatively good news. The economy management, as I said before, has taken some major steps, so that is also positive. And at Akbank, we acknowledge some of the challenges in the market and as you see, we take actions accordingly. We always play the pioneering roles in times of challenging times. So this is part of our DNA in Akbank. And this is very natural because of our prudent, disciplined, responsible and sustainable approach to banking. And our healthy and stable performance will continue. So I have full confidence in this. And I again would like to once again take this opportunity to extend my deepest gratitude to our customers, and shareholders and for the trust they place in us. And once again, thank you all for joining us today. And have a good evening. Bye-bye now.
This concludes today's conference call. Thank you all for your participation. You may now disconnect.