Akbank TAS
IST:AKBNK.E
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Akbank TAS
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Ladies and gentlemen, welcome to Akbank Q3 2019 Consolidated Financial Results Conference Call and Webcast. I now hand over to Ebru GÜVENIR, Head of IR and Sustainability. Madam, please go ahead.
Thank you, and hello, everybody. Welcome to our third Quarter 2019 financial results webcast and conference call. This is Ebru. You are also familiar with my colleagues, who are with me today, Türker, our CFO; Levent Çelebioglu, our EVP for Corporate and Investment Banking; and Ilknur from our Investor Relations team.
I'd like to kick things off by going over a number of key highlights of the third quarter. Our solid core operating performance continues. Our NIM expanded further despite fully reflecting the downward 2 percentage point adjustment in our CPI linkers. Once again, we recorded a superior fee generation and preserved our best-in-class cost-to-income ratio. We executed proactive security strategy. We sustained better than guidance cost of credit evolution, and this was despite a proactive approach in NPL recognition. As a result, we have further reinforced our capital strength, while leverage remains low at 7.4x. All this was achieved in a muted loan growth environment, resulting in significant competitive advantage for healthy and profitable growth in the coming period.
On Slide 3, you may find the details to our strong core operating performance. Our 9-month top line grew 11% year-on-year to TRY 13.7 billion. Our 9-month swap adjusted NII reached TRY 10.1 billion. In third quarter, our fee income continued its strong pace of first half, reaching TRY 3.6 billion. Our 9-month net income was down 14% year-on-year to TRY 4.028 billion, while our Q-o-Q net income at TRY 1.361 billion was actually up by 8%, and this is despite muted loan growth as well as our 2 percentage points negative CPI adjustment from 12% to 10%, which negatively impacted our third quarter net income by around TRY 230 million.
As you know, banks have different methodologies for CPI linkers. We fully reflected the 2 percentage point adjustment in our third quarter numbers, indicating effectively 10% CPI for the full 9 months.
As for LYY, there was an additional negative mark-to-market adjustment of around TRY 60 million. Therefore, year-to-date cumulative adjustment for LYY has reached around TRY 690 million.
Our pre-provision income was down by 4% year-on-year. When we adjust 9-month 2018 CPI linker income was 10% to be able to do an apple-to-apple comparison PPI was actually up by 4% year-on-year.
Our OpEx growth was up by 2% Q-on-Q and 22% year-on-year for 9-month cumulative. Looking at the current run rate, we expect our OpEx growth to further improve towards the end of the year. That being said, our low-cost base continues to give the bank flexibility as our cost-to-income ratio remains best among our peers at 34% below our guidance of 35%.
NIM evolution continues to be better-than-expected despite the negative 35 bps impact of the fully reflected lower CPI adjustment. Our self-adjusted NIM was up by 22 bps to 4.13 for the quarter, reaching 4% for 9-month cumulative, well ahead of our guidance. So what supported our NIM? On the TL side, the 750 basis points cut during third quarter contributed to lower TL funding costs. This rate cut has already been reflected to our marginal deposit costs; however, mainly the positive impact of the lower TL funding costs took place during September. Therefore, the lower repricing of the back book continues in fourth quarter.
We also continue to dynamically manage our average TL funding costs by optimizing repo, swap and money market activities. And as loan growth was muted, we were once again active on the TL security side, especially on the fixed-rate bonds, gaining further market share among our peers.
Average duration and yield of these purchased securities in second and third quarter will continue to be supportive factor in our NIM evolution going forward. On the foreign currency side, due to our strong foreign currency liquidity and low foreign currency low demand, we were able to improve our foreign currency core spread with the easing in deposit side.
At the fourth quarter, we are currently operating higher than our third quarter NIM. This is due to both lower average TL funding costs as well as further support from the TL securities book. However, as I just shared, we are using 10% for our October-to-October CPI inflation. If inflation is to come lower, every 1 percentage point has around 6 bps full year NIM impact. But then again, taking all into consideration, initial trend in fourth quarter also indicates that we may end the year at a higher NIM than third quarter.
On this page, you may also find the details of our swap costs and CPI linker income. Our swap cost includes short and long-term swaps, which was at TRY 770 million. During the quarter, due to the decline in swap rates, we increased our swap utilization by around TRY 4 billion to TRY 23.7 billion as an alternative to repo funding, which had higher costs. TRY 14.5 billion is our average short-term stock utilization, while TRY 9.2 billion is our average NPLs, obviously, is our average long-term swap.
Our CPI linker portfolio is around TRY 21 billion with an income of TRY 442 million in third quarter. Our fee income was up by a superior 35% year-on-year at TRY 3.6 billion, which is well above our 20% full-year guidance. The normal run rate was similar to second quarter. Increased transactions and repricing were supportive and our digitization efforts and investments have helped diversify our fee base, providing a sustainability.
I will share some more detail on this topic in the following slides.
Strong performance was again driven by payment systems, business loans and money transfers. Payment systems, which make up 51% of our fees, have performed very strongly, up 39% year-on-year, thanks to both issuing and acquiring with a strong performance in business loan fees up by 66% year-on-year, supported by both cash and noncash loans. Our money transfer fees, which are 8% of our total fees, were up by 20% due to increased number of transactions and repricing.
On the Bancassurance side, we have a strong cooperation with our partners of AvivaSA and AkSigorta. Our stand-alone non-credit linked insurance products have been supporting our insurance fees. Non-credit linked insurance fees are up by 33 -- 36%, sorry, year-on-year and non-credit linked premiums to total premium are at 65%. Our digitalization efforts have also been supported as digital Bancassurance sales are up by 66% year-on-year and digital premiums to total Bancassurance premiums are up by 5 percentage points to 27%.
Taking all into consideration, we can conclude that we will be ending the year significantly above our full year fee growth guidance of 20%.
As you know, we continue to invest and leverage from new technologies. We invested around $200 million in 2018 in technology investments and are investing a similar amount in 2019. As a part of our investment, 296 branches have been transformed so far, and we plan to transform a further 15 to 20 branches for the remaining of the year. We have already opened up all the new screens and analytical models for all of our existing branches.
For our digital branches, migration of teller transactions to E-tellers is now at 62%. Revenue generation in these transformed branches is up by 14% year-on-year, while fee generation is up by 33%.
We have a simple, digital and customer experience focused operating model. Our digital customer base is up 5 million. Monthly mobile logins on average for a customer is at 30x, more than half of it for financial transactions and the cost of digital customers is more than 2x of nondigital.
On a separate note, the digital banking stake in non-lending-related fees is at 56%. Also 71% of general-purpose consumer loans and 54% of credit cards are sold through digital channels. All of these support the sustainability of our revenue base.
And now on to our balance sheet. Our total assets were up by 0.9% Q-on-Q to TRY 379.3 billion. Total net loans, which were down by 4.1% Q-on-Q, now make up 53.4% of our total assets. The decline comes from the decrease in FX loans due to lack of demand. FX loans are less than 40% of our total loans. TL business banking loans are 40%, while consumer loans, including credit cards, are around 20% of our total loans. As a result of our strategical asset allocation in a low loan growth environment, our proactive strategy in securities continued. We have selectively increased our securities book to about 20% of our total assets. We have implemented a similar strategy in second quarter. And as we had shared in the NIM slide, our dynamics of the treasury management continues to be supportive factor in our NIM evolution.
Our optimized and responsible asset allocation, along with our low leverage at 7.4x and robust capital at 19.5 times, -- 19.5%, sorry, all create a competitive and unique growth opportunity for the bank. Sustainable long-term shareholder value remains as a focus of our capital deployment strategy.
Our TL loans were up by 3.9% year-to-date, while almost flat Q-on-Q. Business banking loans were down by 0.9% Q-on-Q to TRY 80.8 billion, which includes corporate, commercial and SME and make up 66% of our total TL loans.
As for the retail side, we grew 2.6% Q-on-Q in consumer loans, led by around 6% Q-on-Q in higher-yielding general-purpose consumer loans, 52% of our GPLs are preapproved, separately 41% are to salaried customers. Our FX loans were down by 10% year-to-date at 8.7% Q-on-Q, of which around 2 percentage points negative impact is due to the euro-dollar parity. And also, there were some redemptions in financial institutions syndicated loans.
As you know, overall loan demand was low in the quarter for the sector and seasonal rate cuts played a role in the delay of the new loan demand, but we believe following the rate cuts of yesterday, pricing and affordable features support loan growth in the coming period.
For the full year, we continue to expect loan growth to be TL driven. While FX flow and demand should remain muted, we may expect to approach our full year of 10% TL loan guidance by around year-end.
We maintain a balanced loan portfolio. Energy Generation makes up around 6% of our total loans. Since 2016, 100% of our new loan originations in Energy Generation have been to renewable projects. As of today, 76% of our Energy Generation loans are renewables, and 52% are government guaranteed, 7% of Stage 2 and 6.5% of Stage 3 are energy generation loans.
Real Estate loans are less than 10% of our total gross loans. Our real estate portfolio is predominantly project financed and repayments are linked to project stable cash flow generations. The LTV of our real estate book is around 65% to 80%, with the most up-to-date valuation. We're also going to highlight that 16% of real estate book is FX cash collateralized. 11.2% of Stage 2 and 12.7% of Stage 3 are real estate loans.
Construction is only 4% of our gross loans. 60% of the construction book is in FX and 75% of the FX part is government-guaranteed on debt assumption. 4.8% of Stage 2 and 6.4% of Stage 3 are construction loans. Long story short, our gross loan staging breakdown is broadly similar for these most questioned segments.
And now on to our securities book. Our total securities book is up by 36% year-to-date and 19% Q-on-Q to TRY 77 billion. We have increased the TL portion of our securities book significantly, mainly through fixed securities. TL securities are now 57% of our securities book, while foreign currency securities make up 43%. As you can see on the right-hand side of the slide, there has been yield enhancements throughout our portfolio.
Our TL securities are up by 43% year-to-date and 34% Q-on-Q to TRY 44 billion. Our TL Securities book, there has been a significant shift in composition between CPI linkers and fixed-rate securities. Our fixed-rate securities portfolio is now 42% of our total TL securities, up by 12 percentage points Q-on-Q, with an average remaining maturity of 2.5 years. While CPI linkers are at 49%, down 10 percentage points Q-on-Q with an average remaining maturity of around 3 years.
Floating rate TL securities are only 9% of our total TL securities book. We have already shared in the second quarter that we had gained around 70 bps market share among private and foreign banks in TL securities. During the third quarter, we gained another 3.5 percentage point market share in TL securities among private and foreign peers. This is according to the latest weekly BRSA data as of September 27. This strategic positioning in TL Securities was taken in anticipation of the pace of the rate cut cycle by CBRT.
Average marginal yield of our newly purchased second and third quarter fixed-rate bond portfolio is above 19%, with an average maturity of around 1.5 years, which is equal to the duration by nature as these are fixed-rate bonds. This strategy supported our NIM and will continue to do so in the coming period.
Our foreign currency securities are up only by 6% Q-on-Q to TRY 6 billion. We utilized some of our excess FX liquidity to increase our foreign currency securities book.
And now on to the funding side. We have a well-diversified and disciplined funding mix. Deposits continue to be our main source of funding, making up over 62% of our total liabilities. Our total deposits were up by 13% year-to-date to TRY 236 billion, of which 37% is in TL and 63% is in FX. In the third quarter, the mix has changed in favor of TL deposits by 2 percentage points Q-on-Q. Our demand deposits are 22% of our total deposits. 77% of our TL deposit base remains to be SME and Retail, which is less price sensitive and secure in nature. Our total LDR was down to 90%, led by the improvement in our TL LDR at 138% and lower FX LDR of 51%.
We will continue to broaden our deposit base to further improve our average funding cost.
We have a well-diversified borrowing mix, which is now less than 14% of our total liabilities. We have reduced our short-term wholesale borrowings by $2 billion over the last 2 years. Our total wholesale borrowings is around $8 billion, with an average maturity of around 3 years. As you know, we completed another successful syndication rollover in October with about 1.4x oversubscription, with 31 lender banks from 19 countries. The funding cost improved by 50 basis points for the U.S. dollar tranche at LIBOR plus 225 and 55 bps for the EUR tranche with LIBOR plus 210 versus September 2018. Our first redemption is our $500 million Eurobond due in January 2020. Due to our ample FX liquidity to serve more than 4 years of wholesale funding, we will be opportunistic in our borrowing strategies, depending on the pricing.
And now onto asset quality. Our Stage 2 loans of TRY 28.9 billion make up 13.5% of our gross loans. 31% is in FX and provisions are fully hedged with long FX positions. We further increased our coverage ratio for Stage 2 for 11.5% in second quarter to 11.9%. As a reminder, our Stage 2 coverage was at 10.1% in first quarter 2019. Real estate loans are 11.2% of Stage 2 with 12% coverage. While Energy Generation makes up 7% with 31% coverage, and Construction at 4.8% of Stage 2 with 24% coverage. Only 10% of Stage 2 are past due 30 days, while around 70% are nondelinquent.
Our restructured loan amount is at TRY 17.8 billion, which is all followed under Stage 2. There was no major one-off addition into Stage 2, inflows were spread among sectors and segments, and we do not expect a significant change in the share of Stage 2 to total loans for the rest of the year.
Our Stage 2 to Stage 3 inflows have more than doubled due to our proactive NPL recognition of some corporate and commercial files with strong collateralization, and therefore, our NPL coverage is slightly down to 58.1%. As a result, we have reached our full year 6% NPL guidance in third quarter. However, it is important to underline the denominator, i.e. lack of loan growth on a Q-on-Q basis, also had an inflating factor. And we have not sold any NPLs year-to-date.
Last but not least, our collection performance was quite strong in the third quarter despite no one-offs and diversified among corporate SME and retail segments as well as various sectors. So far in fourth quarter, our collection performance continues to be robust. Net-net, we do not expect a major deviation from our 6% full year NPL guidance. Despite proactive NPL recognition and almost flattish NPL coverage, our cumulative cost of credit has only increased by 17 bps to 225 bps as of 9 months. This is also a very good indicator that these loans were already adequately provisioned in Stage 2. On the left-hand side, you may find the NPL impact of Stage 1, 2 and 3 provisions as well as recoveries for 9 months. Stage 3 recoveries for third quarter was at TRY 135 million, amounting to TRY 435 million for 9 months cumulative. As you can see, currency impact was immaterial. There was no change in our macro assumptions, and we will continue to prudently apply IFRS 9 provisioning. We will revisit our assumptions towards the end of the year.
Our capital strength has even further improved in the third quarter. Our total capital reached 19.5%, and our Tier 1, which is equal to CET, is at 16.7%. Both significantly above regulatory requirements.
A few highlights. Internal capital generation continues to be one of the key drivers of our robust solvency ratios. The improvement in interest environment has positively impacted mark-to-mark adjustment for our securities. Lower volumes in derivatives and foreign currency loans, both had a positive impact as well.
According to 2019 Basel III minimum requirements, we now have an outstanding TRY 21.3 billion excess total capital and TRY 18.9 billion excess Tier 1.
And now to sum up, I've shared with you throughout the presentation the actual figures on this slide. Our core operating performance continues to be strong. We have significantly improved our core NIM throughout the year. Lower growth than what we had anticipated, along with negative CPI adjustment as well as negative impact coming up from LYY had led to a slight deviation from our ROE guidance. We expect to end the year around current ROE levels. We will be sharing our guidance for 2020 on January 7.
To sum up, we are excellently positioned with our robust capital, strong liquidity, optimized asset composition and low leverage and have significant competitive advantage to capture sustainable profitability in the coming period.
Operator, you may now open the line for Q&A.
Operator? Operator? You may now open the line for Q&A.
[Operator Instructions] We already have a question from Samuel Goodacre from JPMorgan.
I've got a couple of questions, and thanks very much for the results. The first one is on the deposit cost evolution given the cut in rates yesterday. And we're just wondering really to what extent there is -- or what possibility you can further decline deposit costs, given that I believe they effectively are at where the policy rate is already? And perhaps with that, you can give a bit of color on core spread momentum into the 4Q? And the second question is picking up on the point you mentioned at the very beginning, which was to allude to your very low leverage of 7.4x. I'm just wondering where perhaps medium-term you think that leverage could go up. Obviously, a 1.4% ROA is very -- is decent, but ultimately if you did have higher leverage and perhaps you could allude, therefore, to potentially capital return going forward. Anything like that, that could get leverage up?
Thank you, Samuel. Now I'll pass the line to Türker Tunali.
Hi, Samuel. Thank you very much for your questions. Just to start with the core spread evolution as well as how we see the deposit cost evolution going forward. Maybe we can just to -- maybe we can start how third quarter has evolved in terms of time deposit cost as well as loan spreads. In the third quarter, we were able to bring down our time deposit cost by roughly 6 percentage points to slightly above 15% till the end of the third quarter. And till that until -- and in this fourth quarter, so far actually, we were able to bring -- we were able to bring it down further to around 14% level before yesterday's rate cut decision. So going forward, we have to see how the deposit costs will evolve there. Where it's going to be stabilized? So we have to see the coming days. But today's initial indication shows that marginals were at around 12% levels. This is for deposit side.
And on the loan side actually, just to elaborate more on core spread. So the yields on TL deposits were down by roughly 2% to 19% levels by the end of third quarter. Nowadays, we are operating at around 18.5%. Marginal rates are -- were down to 15% levels before yesterday's cut. The GPLs at around 16.5%, commercials corporates is around 14%. But we should keep in mind that the latest margin rates were already reflecting post rate cut expectation of roughly 100 basis points. So that was already priced in. So we have to see again, on the loan side, how the pricing will evolve. We have to see how competition will look like as well as for sure the moderate growth so far may also have an impact. But just to sum up, we were able to improve our core spread in the third quarter as well as in the fourth quarter so far. So we'll see, as I told you, depending on a special TL loan demand, how loan yields and deposit costs will evolve.
And with regard to your question of low leverage, as Ebru has just mentioned actually, currently we are operating at very strong capital of 19.5%, which has a low leverage of 7.4%. Going forward, where do we want to see ourselves? I would say somewhere near to 9x medium term is the desired levels we want to see ourselves. I hope it answered your question.
We have another question from Deniz Gasimli from Goldman Sachs.
I have a question on asset quality. So I mean just to understand the movement during this quarter. As you mentioned, this is because of proactive classification of corporate commercial files. NPL ratio went from 4.5% to 6%. Would you be able to discuss perhaps how much is proactive, the classification contributed to the NPL increase this quarter? And maybe also, I mean your budget was around 6% -- within 6% NPL ratio. And I guess, you mentioned that your full year expectations were 6% -- for the NPLs to remain at 6%. I just wanted to kind of clarify that. And I guess, where do you see cost of risk in that? Right now, it's running around 225 basis points, well within the guidance. Do you see it maybe trending up further from 254 you saw this quarter? Or should it stay at around these levels? And I guess, this quarter was sort of reversal on the Stage 2 side. In Stage 2 provisions, there was a reversal on the charges side, and excluding the currency impact from what I understand. So I just want to clarify what was the driver of the reversal on the Stage 2 side?
Hi, Deniz. There's no reversal on our Stage 2 coverage. We actually increased our coverage Q-on-Q, but I don't know where you saw the reversal. There's no reversal on Stage 2.
Maybe Deniz, what you want to mean is actually maybe the total figure, but, of note, with this practice of NPL classification, these loans, which have been transferred from Stage 2 to Stage 3 also carry their provisions into Stage 3.
Exactly, exactly. So maybe that's what you're talking about because -- because actually, that follows -- that actually follows up to your question -- the previous question regarding the NPL inflows. If you look at our, let's say, NPL inflows over the last few quarters, you can see that it's been around, I would say, maybe around TRY 2.5 billion or so. So this quarter, I can say that maybe half of it probably was the proactive part and half of it being the -- around half of it being [indiscernible]. Maybe Türker would like to add regarding why this proactive strategy was taken, I mean...
Hi, Deniz, maybe just also to dig into details on that proactive classification. As you know, there was an announcement of BRSA around -- by mid-September with regards to NPL classifications. Actually, we also have received a list of companies, corporates and commercials. And actually, this list wasn't a surprise for us. And a material part of that list was already taken into NPL before BRSA's announcement at that time. And we have taken a proactive approach for the majority portion of the remaining loans as we have plus 5x into NPLs by the end of the third quarter. But as Ebru has also mentioned probably, since these loans were strong with provisions in Stage 2, the P&L impact -- the additional P&L impact of that classification from Stage 2 to Stage 3 was limited.
Does that answer your question?
Yes. Yes, that's very clear. Just to reiterate, by year-end, you see NPL ratio around 6%.
Yes, we don't need -- we don't expect a major deviation. Obviously, denominator will be an important factor. I mean this quarter, while we actually did this proactive strategy, as I shared during the presentation as well, we had -- I mean no loan growth. So obviously, in the fourth quarter, we are expecting loan growth to pick up. So therefore, we don't expect a major deviation from our 6% NPL guidance. And as I mentioned as well, I mean year-to-date, we have not seen any NPL still as well.
[Operator Instructions] We have another question from Gabor Kemeny from Autonomous Research.
My first question is on NPLs. So you mentioned that you have been quite proactive with the NPL recognition in the third quarter. I mean if we assume that you proactively recognized a large part of the problematic exposures, can you give us a sense how your credit cost could evolve going into 2020? Could this be closer to what you consider to be a normalized cost of risk here? And the second one is on Lira loan growth. Do you actually see early signs of loan demand coming back on the back of the lower interest rates? Or is it more of an expectation for 2020?
Hello, Gabor. This is again Türker. Maybe I can start with regard to your question on cost of credit. And then Levent may answer your question on TL loan growth expectation.
Actually, till the end of the year Q4, there would be further inflows into NPLs going forward as well. And we expect cost of credit to be at around 250 basis points levels by the end of the year. But for 2020 actually, we are still in budgeting process. But just to give you some initial color, we are expecting a gradual improvement during next year from current levels. So maybe just to take a benchmark, next year maybe cost of credits of around 200 basis points can be seen as appropriate for the time being. But as I told you, we are still working on the numbers, and we'll share our guidance in the first week of January.
Hi, Gabor. This is Levent and on the loan growth side that especially on the TL side that, yes, we see an activity, especially on October. It's mainly the reason is that most of the corporates, with the expectation of the rate cuts, that they are in hold on their borrowings or they were borrowing at very short tenor. Now after the declaration of the Central Bank Governor that it's front-loaded rate cuts, now we saw certain activity on the TL loan growth, and it's an increasing trend. And that's why that during the presentation, Ebru has mentioned that we may be in line with our -- this year-end guidance around 10% loan growth.
That's helpful. Maybe just to follow-up on the cost of risk guidance, it is 200 basis points. I mean it would be still relatively high. Are there -- maybe you can comment on the segments where you still see some risks and perhaps on to what extent could lower interest rates help on the credit provisioning side?
Hi, Gabor. Türker just shared the ballpark number. We haven't finalized our numbers yet. So on July -- on Jan 7, sorry, we'll be having our Analyst and Investor Day, where we'll be sharing our guidance. The long-term cost of credit evolution of Akbank. As you know, we've shared this several times as well. We expect within the next few years to normalize around 100 to 150 basis points. So there's a normalization trend that we're expecting to take place. But it would be too early right now to give any number exactly for 2020. But definitely, in 2020, there will be an improvement from the year-end levels of where we're expecting to end around 250 basis points, let's say, for this year.
[Operator Instructions] We have another question from Klim Fedoff from Lord, Abbett.
Another question on NPL or asset quality, rather. Have you recognized all the loans from the BRSA list? Is it -- are they all of them included in the 6% number? That's one question. And then another one is on net interest margin. On Page 4, you break down the specific items. And I see the -- sorry, the drop from loan yield was higher than the deposit costs and as I understand when the rates go lower, the deposits reprice faster. So I would expect the deposit contribution to be higher than the loans. Can you comment on that?
Can you start with the NPL?
Hi, maybe I can again start with NPL. As I mentioned before, the majority portion of that -- of the list we have taken from BRSA was already put into NPL in the first, in the second and in the first half of the third quarter. And what I can say is for the remaining portion, the majority has been put into NPL by the end of the third quarter. There are a few files not in material amounts, if needed, we will also take necessary action until the end of the year. That's how it looks like.
Okay. And the net interest margin?
[Audio Gap]
We have another question from Alan Webborn, Société Générale.
I just wondered how you feel -- is it too early to get an understanding of what the competitive environment is going to be like in this sort of sudden low interest rates or lower interest rate environment? I mean clearly, when there are state banks that are talking about sacrificing profitability to save the economy. And clearly, some quite specific programs where loan rates seem to be quite low. I mean what do you think is the risk that even though, clearly, you feel happier to grow now that the competition becomes such that your ability to price effectively is more difficult because of that competitive situation. How do you feel that's going to sort of develop as we go towards the year-end, which is, I think clearly going to be a lot more generally active period than we've seen earlier in the year?
This is Levent. Thank you for the question. First of all, on the -- let's say loan growth side that I should emphasize that we are not changing our lending policies at all for the sake of growth. It's actually our still prudent approach on the lending side. But we see that even the quality companies has a certain demand on the loan side. It's actually started with the consumer loan growth, which has been already the experience on our, let's say, results that you may see. It's also the positive growth on the consumer loans. It has triggered actually a corporate loan demand as well. Because as you know, that for quite some time, there was a postponed demand in the market due to the very high interest rates. Now since the consumer interest rates are affordable that we already experienced a consumer loan growth which triggered the consumption, eventually spread over the corporate level as well. And on the corporate level, as I said, that we are not going to new clients or a lower credit quality clients in order to see a substantial loan growth. Still our existing loan policy is in place, but we also, as I said, experience a demand from quality clients on the loan side.
[Operator Instructions] We have a question from Klim Fedoff from Lord, Abbett again.
I just wanted to follow-up on the net interest margin question that I asked where the deposits contribution was -- the deposit contribution was less than the loan yield drop. As I understand, the deposits repriced faster than the loans. So I would expect that to -- the contribution from deposits to be higher as usual. Can you comment on that, please?
This is actually much more to do with the Turkish LDR actually, since Turkish LDR is higher than 100%, so roughly 135% -- 139%. So the change in the loan yield, and its weighted impact in the change in the yield from loan sides was higher than the change -- but higher than the impact coming from deposit side, that is much more mathematical calculation. But when we look at the core spread evolution actually, we see that you are able to improve the core spreads.
We constructed a mathematical calculation for the problem. I mean it's just a mathematical issue. As our CFO, Türker mentioned regarding the high LDR, that's it.
So going forward, I mean it's not -- deposits don't necessarily reprice faster than loans, because of the....
I think rather than focusing on every single line, I think the most important thing here is the sequential improvement that we have seen on the core NIM. By that we try to emphasize by actually showing the CPI linker impact basically. And as we mentioned, the currency -- obviously, core spread improvement that we mentioned in the third quarter, actually mainly came in, you are very right, from the TL funding side, which continues to be the case obviously, also in fourth quarter.
[Operator Instructions]
There is a written question coming in, basically regarding our capital guidance as of year-end.
Basically, we are not -- obviously, we're not expecting a significant decline in our capital ratio going forward. This was a guidance that we had shared at the beginning of the year, and we have not changed any of our guidance numbers throughout the whole guidance, although we are beating many of them. So this is the reason why we have maintained the guidance while we have actually been showing our outlook regarding fourth quarter and some initial outlook also for 2020.
I think there's one more question, hold on. There's also one question on fee income growth going forward?
Going forward, yes, actually the positive growth on fee side, but also purely impacted by the low base of last year. For next year, we are still working on the figures. So it's really too early to comment on how we see the fee growth for next year. But what I can say is, just to give you again a color. Due to this high base of this year and the latest legislation change on the credit acquiring side, we may see some pressure on next year's fee growth, but we'll see once we are finished with the figures. And we may also expect some additional fee income coming from the business growth in next year as well.
[Operator Instructions]
There's one more question coming in written, it is talking about -- it is asking about our LYY loan. I'm leaving the floor now to Levent.
Okay. On the LYY loan case that, as you know, that currently, LYY, the entity, holds 55% of the shares of the Turk Telekom. And very recently, that we actually asked Morgan Stanley to act as a sell-side advisor to us, and we mandated them. And they already started their activity, and we are expecting until the year-end that they will prepare necessary recommendation to go to potential buyers. We already, after declaration of mandate, that we already received a couple of requests from the potential buyers. We are working on that, but we are not planning to partial sell off any of the collateral of LYY. So it's an agreement among the banks that if there will be any sale, it will be a block sale of 55% of the shares.
Okay. And one of the questions regarding our indications for next year. Can we give any indication or indications regarding our rollovers, Levent?
It is quite early to comment on that. First, we should see the next year loan demand on the FX loan side. Currently, as Ebru has mentioned that it is an immediate demand on the FX loans and currency, our FX loan book is still contracting. So therefore, that this year, our rollover ratio is roughly around 70%. And if we will go to a similar trend that we will continue, but we will give our guidance at the beginning of the year after experiencing the third quarter demand on FX loan side.
There is another question from the line. It is regarding, can you please repeat loan and deposit rates in Q3 as evolution in Q4?
As I told you, by the end of the third quarter, time deposits cost was down to around 15% level. And just before the latest rate cuts, the back book was further down to less than 14%. So there was another deposit cost easening of roughly 100 basis points. And on TL loan side, by the end of the third quarter, back book was roughly at 19%, whereas it is at around 18.5% very recently.
And there is one more question coming out of written regarding our refinancing plan of the Akbank 2020 bonds, Levent?
Yes. We have a redemption on January, $500 million senior unsecured bond. We have currently no intention to renew that, refinance that. Simple reason is that currently the CDS levels of Turkey is not reflecting -- actually meeting the actual risk of the country. So we expect -- as you know, there are a lot of geopolitical issues. So we expect a kind of normalization when the waters are calmed down. So unless that we will see normalization on the CDS levels, we are not in a intention to tap to markets with the current levels of borrowings, because of very low demand on the FX lending side. Unless that we can augment these money into our clients, we have no intention to refinance.
Thank you, Levent. Operator, there are no more questions?
There are no more questions by phone, yes.
Okay. Thank you for your help. Thank you, everyone, for your kind attention. We are fully committed, obviously, to transparency. And as usual, we continue to be in touch with most of you, and have a great weekend, and speak soon. Cheers. Bye-bye.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.