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 Konstantin, your Chorus Call operator. Welcome and thank you for joining the Akbank conference call and live webcast to present and discuss the third quarter 2020 financial results.
At this time, I would like to turn the conference over to Ms. Ebru GÜVENIR, SVP, IR and Sustainability. Mr. Ebru, you may now proceed.
Thank you. Dear friends, welcome to our third quarter 2020 financial results webcast and conference call. This is Ebru speaking. Today, I have with me Türker, our CFO; and Nazli 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 remains our top priority throughout the year as we took necessary actions to maintain our business continuity and service quality. To that end, as we observed a gradual normalization in economic activity, we adjusted the way we provide services and do business accordingly. We have been able to demonstrate our agile way of adopting to remote working. We continually observe and analyze the working experience of our employees and adopt the organization in a proactive manner to ensure our business continuity and service quality, while keeping employee motivation high.
Turkish economy has started the year well on track for growth, with pickup in business activity and consumer demand. However, activity began to slow down in March as the first COVID-19 case was announced in Turkey, along with the rest of the world. Since then, a comprehensive set of measures continue to be taken by the government to ensure the health and safety of our citizens.
On the economic front, policymakers have taken numerous monetary fiscal and regulatory actions to support businesses and households in this challenging environment. As a result, both soft as well as real activity data such as foreign trade, industrial production point to an accelerating activity from low level. As an example, data states our real sector confidence indices and capacity utilization of yesterday continues to confirm this recovery trend.
Yes, the pace of recovery is likely to be gradual, especially in service sectors, and additional measures may be introduced if when needed. Our base case expectation is for a gradual recovery in the second half of this year to continue throughout 2021. We expect recovery in the second half to be partially offset the negative chart of the second quarter, ending the year with flattish growth. We are currently in budgeting process, yet for 2021, a growth rate of around 3.5% to 4% seems achievable.
As you see on this heat map slide, the recovery is robust in most areas, yet capacity utilization remains still at relatively low levels and unemployment rate is high. Also worth to note that tourist revenues are so far off from pre-COVID levels, which continues to weigh on the external balances.
Following the comprehensive set of measures taken during the first half of the year, there have been several normalization initiatives during the third quarter. Normalization steps have been designed to reduce the risks arising from higher credit growth, cost of goods, [ credit account deficits ] and inflationary pressures. We do expect current account deficit to improve from about 4% level to 3% to 3.5% in 2021, led by some partial recovery in tourism revenues as well as exports and returning to normal gold import levels.
The duration of the economic slowdown in our export market will also be a very critical element in our recoveries. On the inflation front, we expect to end the year around 11%, 12%, and we expect a gradual decline in inflation during 2021 towards a 10% level.
As a result of the normalization initiatives in the third quarter, market rates have increased and loan growth rates have slowed down remarkably. Despite only 200 bps policy rate hike from 8.25% to 10.25%, effective tax rate has been much more significant. The weighted average cost of the Central Bank has increased from around 7% levels back in July to almost 13% levels as of October. 13-week average TL loan growth is likely to go below 10% level towards the end of the year, an additional tightening in weighted average cost of funding could take pace depending on the inflation outlook.
To sum up, there are positive developments on the macroeconomic front. However, we still face much uncertainty as evidenced globally due to the unknowns of the future path of the virus. At Akbank, we remain well prepared to navigate through this difficult period. We have the capabilities to support our customers and emerge from the other side strong and healthy.
So let's move on to our financials. I'd like to start off by going over a number of key highlights of the quarter. Despite the challenging environment, along with rising funding costs, we successfully managed to preserve our solid core operating performance during the quarter with a continued balanced asset liability management and without changing our risk metrics. We also continued our clear focus on maintaining a low maturity mismatch. Our fee income improved significantly quarter-on-quarter and almost reached pre-pandemic levels. We are happy to see our focus on digital capabilities for many years is paying off even further as our customers' quick adaptation to our digital channels and diversification have been supportive factors in our fee generation.
Our fortress balance sheet and solid core operating performance enables further reserve build, therefore, cost of credit remains to be elevated. Also, we have set aside TRY 250 million free provisions. Our total free provision have now reached TRY 1,150 million as further buffer for unseen -- unforeseen risks. Still, we were able to preserve our best-in-class cost-to-income ratio.
One of the key actions taken during the quarter was a hedge for our LYY loan currency impact. As you know, the loan being in foreign currency, while the asset being in TL, was creating a mark-to-market losses when the lira weakened. In third quarter, we have almost fully hedged this loan against TL volatility, and therefore, currency volatility impacting mark-to-market calculations will be offset with foreign currency income.
Obviously, TL valuation changes will continue to be reflected if when necessary as this is being applied by an independent third party. As always, our robust capital with solid buffers remains a significant source of strength. All of these underline the inherent benefits of our diversified business model.
On Slide 9, you may find the details of our strong core operating performance. Our 9-month top line grew by 19% year-on-year to TRY 16.3 billion. Our 9-month swap-adjusted NII was up significantly by 27% year-on-year, reaching TRY 12.8 billion. This was supported by both growth as well as solid net interest margin management. Our 9-month fee income was down by 4% year-on-year to TRY 3.5 billion.
Effective cost management is one of our strong muscles. We have a very low cost base, which gives Akbank a lot of flexibility in this environment. Still, we continue to look line-by-line on expense control. Our OpEx is up by 4% quarter-on-quarter and 13% year-on-year when adjusted for one-off of BRSA and insurance penalties. We will continue with our disciplined cost management approach while still investing in our future.
Our third quarter net income was at TRY 1,524 million, taking the 9-month cumulative to TRY 4,409 million. Adjusted for pre-provision, our 9-month year-on-year net income was up by 19% year-on-year. While credit costs weighed on our year-to-date net income, most importantly, we have continued to generate a solid pre-provision income, which was up by 15% quarter-on-quarter, with the year-on-year increase being even more pronounced at 40%. 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 remained around 32%, and our 9-month ROE reached 11.6% when adjusted for the TRY 500 million free provisions set aside this year.
Our swap-adjusted NIM was down 75 bps quarter-on-quarter to 3.67 in third quarter, reaching 4.28 for 9 months, which is at the lower end of our NIM guidance. Funding costs increased, higher swap utilization as well as higher-yielding [ securities redemption ] during the quarter all pressured our quarterly NIM. Looking forward, the upward asset repricing, which started in the third quarter, is expected to continue.
With regards to asset repricing, please keep in mind that a significant amount of our TL loan book, excluding overnight loans and credit cards, as well as TL fixed securities, will be repriced within the next 7 to 8 months. The difference between the back bank and margin rate is in favor of our loan book, which is why we expect our NIM to start improving within the next few months.
Also, we have not revised our October-to-October 9% CPI estimation for our CPI linkers, which stands at TRY 29.4 billion. Latest inflation reading was at 11.75% in September. Every 1% has around 5 bps full year NIM impact, which will be reflected to our fourth quarter NIM.
On this page, you may also find the details of our swap costs and CPI interest income. Due to our increased swap usage, although quarter-on-quarter swap rates remained flattish around 9%, our total swap cost was higher in the third quarter at TRY 976 million. Our average short-term and long-term swap utilization was around TRY 43 billion, up by TRY 11 billion quarter-on-quarter. Our CPI linker income for the quarter stood at TRY 784 million.
Our fee performance was up a solid 22% quarter-on-quarter to TRY 1,213 million for the quarter, reaching almost pre-pandemic levels. The sound performance was broad-based. Wealth management was up 10% quarter-on-quarter; bancassurance, 22%; consumer loans, 13%. Payment systems, after 3 sequential quarters of negative performance impacted by the regulatory changes, lower volumes due to COVID as well as lower interest rates reflected on interchange and merchant business commissions have also grown quarter-on-quarter by 21%, with the increase in issuing and acquiring volumes.
Our wealth management business once again showed an outstanding performance, up by 118% year-on-year, now calculated to 14% of our fees. This was around 6% at the end of 2019. Our efforts in client acquisition by utilizing all distribution channels, along with our product innovation, value-added services as well as end-to-end redesign of mobile investment transactions, continue to be supportive factors in this area.
On a cumulative basis, our fees reached TRY 3.475 billion, down by 4% year-on-year. We can comfortably say that our fees have bottomed out in second quarter. We had guided for a high single-digit decline in our fees. Looks like we could be slightly better, but still in the negative territory for the full year.
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. The current period has been an important test of how truly organizations have digitized their businesses. We think banks' digital capabilities have proven to be a key differentiator in maintaining business continuity and ensuring excellent customer experience during the COVID -- during this period.
At Akbank, we have shared in several occasions the transformation road map of our operating model covering 3 main pillars, namely an integrated multichannel customer interaction model; redesigned digital processes; and smart systems, behind all. We can comfortably say that this transformation road map has been validated by COVID-19 period. So I want to walk you briefly on our mobile transformation and its results so far.
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, predominantly in 3 verticals, namely wealth management, money transfers and payments, to enhance customer engagement with significant bottom line impact.
For example, in wealth management, a key contributor to our fee income, as you can see in the previous quarters, was the release -- was its first update in January. We don't just show information in the most convenient way, but we facilitate through their investment journey and decision-making processes.
Our efforts in payments and money transfer verticals are also paying off. In September, we were the first to launch a digital-first credit card in Turkey and third bank globally. Via end-to-end digital processes, it's now possible to download and use the credit card in e-commerce and mobile payment transactions once the application is approved without having to wait for the card to arrive.
The new design of Axess card is very simple and innovative. It has no card number, expiry date or CVV security code. This information can be securely viewed in your Axess or Akbank Mobile application. It's early days, but since its launch in September, our digital-first credit card increased digital applications month-on-month by 40% and digital sales by 58%. The [ remaining percent ] of the application came from new card customers.
We will continue to focus not only on boosting our number of digital customers or the number of interactions, but also increasing the value driven from each interaction. So we can confidently say that as a result of our continuous efforts in upgrading our mobile channels, our customers' engagement with Akbank Mobile has rapidly changed. We have seen great improvements in digital engagement, especially in mobile financial transactions and overall migration, number of mobile customers and their interaction and the value driven from each interaction picked up remarkably by -- since last year. For those of you who are interested to hear more about our efforts in this area, we can all arrange a follow-up call.
Now on to the balance sheet. Our total assets were up by 26% year-to-date and around 10% quarter-on-quarter to TRY 486 billion, while our total net loans were up by 21% year-to-date, 8.5% quarter-on-quarter to TRY 259 billion. Loans now make up 53% of our total assets. FX loans are less than 38% of our total net loans. As expected, demand remains to be muted.
TL business banking loans are around 41%, while consumer loans, including credit cards, are at 22% of our total net loans. Our securities' weight in total assets came down 2% quarter-on-quarter, now standing around 21% of our total assets. It's important to mention that while growing, we maintain our prudence and asset liability management and kept a low maturity mismatch at around 2 months. Our optimized asset allocation, well-structured maturity mismatch as well as our robust capital of 17.6% without any forbearances will also no doubt be a supportive factor in creating sustainable long-term shareholder value.
Our TL loans were up by 5% quarter-on-quarter and 21% year-to-date. Quarter-on-quarter, our TL loan market share remains flattish around 7%. Although, our year-to-date TL loan growth was broad-based among business banking, consumer and consumer credit cards, for the quarter, loan growth was mainly driven by consumer loans as a result of the pickup in consumer spending.
As I mentioned earlier, our digital channel played an important role in this area. 60% of our credit cards and 70% of our GPLs are sold through our digital channels. Almost 60% of our GPL originations are preapproved, and separately around 40% are to salary customers. We believe our methods and advanced analytics will continue to be a supportive factor in retail lending.
As for TL business banking loans, growth was mainly short term. Our CGF utilization of this year for the latest OpEx and check payment program as of 9 months stood at TRY 3.7 billion, while our outstanding total CGF portfolio is at TRY 8.9 billion. Our FX loans were almost flattish Q-on-Q but down 8% year-to-date at $12.6 billion. We expect the demand to remain muted. As a result, our loan performance of 9 months confirms our full year guidance for TL loans at low 20s and FX loans around negative 10%.
We maintain a balanced loan portfolio. It is well diversified with exposures to most sectors around or below 4%. But still, in this unprecedented times, the effect will be felt across all sectors. We continue to share some additional details on certain areas, which we believe may be relatively more impacted.
Since there hasn't been a major change in these details, I will just get to the next slide in the interest of time. However, it's worth to underline that we have taken necessary actions to increase coverage ratios for the sectors that are relatively more impacted, which is why we have revised our cost of credit guidance back in July to 250 to 300 basis points from 200 basis points.
We continue to be proactive in our securities strategy. Our total securities booked is flat quarter-on-quarter but up 20% year-to-date at TRY 100 billion. TL securities share has decreased to 62% of total due to maturing of some of the fixed rate securities. Starting on second quarter, we have a more balanced fair value through OCI and amortized cost composition in our TL securities book. Therefore, in a rising interest rate environment, the impact from our mark-to-market of our securities book on equity is relatively now more limited.
Our TL securities were down 6% quarter-on-quarter to TRY 63 billion, and fixed rate bond share has declined from 51% in the second quarter to 47% as of 9 months. We've also reduced the average maturity of the fixed rate bonds to around 1 year, with a good portion that will be maturing during the first half of next year.
Also, as a result of our proactive positioning, we have increased our CPI linker share in total, which will be supportive for NIM in a higher inflation environment. As a reminder, every 1% CPI is 5% NIM accretive. So we may expect a significant contribution in our fourth quarter figures as the effect of 12 months inflation to be around 11% level.
Foreign securities remained flat Q-on-Q, down 18% year-to-date at $4.9 billion. Going forward, we will continue to be proactive and selective in positioning depending on the market conditions.
We continue to have a well-diversified and disciplined funding mix where deposits are our main source of funding of our -- with funding around 61% of our total funding. Our total deposits are up by 14% quarter-on-quarter and 20% year-to-date at TRY 294 billion. We have a very strong FX liquidity with FX LDR of 50%. Our TL LDR stands at -- our total LDR, sorry, stands at 93%, significantly below the sector's 103%.
Demand deposits increased by 18% quarter-on-quarter and 76% year-to-date, reaching 32% of our total deposits. Sticky low deposit -- sticky low-cost deposits, such as retail and SME, are 75% of total TL deposits. Our focus remains on broadening our deposit base.
We have a well-established wholesale funding profile, which is 15% of our total liabilities. On 30th of June, we had returned to the international capital markets after more than 2 years with a successful $500 million long 5-year senior unsecured offering. These proceeds entered our accounts in July. During the quarter, we also completed a $50 million green bond issuance with more -- with an average maturity of over 4 years. Foreign currency LCR is robust at 246%, and our foreign currency liquidity buffer is noteworthy at $13.4 billion, of which $3.2 billion of that [ corresponded banks ].
Over the next 1 year, our wholesale redemption schedule is only 2.8 billion, of which, actually, we have already rolled over 800 million with our recent syndication loan in October. Due to our ample FX liquidity and lower [ FX ] loan demand, going forward, we will continue to be opportunistic in our borrowing strategies.
And now onto asset quality. This quarter, we have provided more details regarding the new staging regulations and forbearances' impact on performances. As you know, per BRSA forbearances, Stage 2 and Stage 3 recognitions have been extended in March to 90 and 180 days, respectively. We did not deviate from IFRS 9 as we did in the past, and we booked the third provisions for potential problematic assets, even before classifying them to Stage 2 or Stage 3.
90% of our 30 to 90 days files are in Stage 2 with 22% coverage, while the remaining 10% are on Stage 1 with a solid 7% coverage. 90 to 180 days files amounting to TRY 1.9 billion have solid coverage with strong collateralization. As a result, our prudent approach in Stage 1, Stage 2 and Stage 3 coverages have increased further to 0.6%, 16.8% and 62.9%, respectively.
Provisions of foreign currency loans under Stage 2 are hedged with foreign currency loan provisions. Also, we have set aside TRY 250 million free provisions in the third quarter, which have reached TRY 1,150 million in total as an additional buffer.
As we saw in many countries, in an effort to help clients manage their liquidity needs and alleviate customers with cash flow burden, since March, there's been a loan installment deferral. We continue to support our customers while maintaining credit discipline and balance sheet strength. As a result, TRY 8.5 billion of installments with principal amount of TRY 24 billion have been deferred. The total coverage for these loans is around 5%. 45% of these deferred loans are on Stage 2 with 10% coverage.
To give some idea about the performances, 55% of the deferred loans had matured installments during the quarter, and the repayment performance is quite strong with around 90% without any delinquency. Currently, we expect NPLs to be very limited from this portfolio.
Our NPL ratio has declined to 5.8%, while coverage has increased to 62.9%. There were no NPL sales or write-offs during the quarter. NPL formation continues to be slow due to the 180-day recognition regulation as well as the extension of the payment holidays. We believe the impact of COVID-19 on NPL ratio may start to be witnessed towards the end of the year.
If all of our 90-day files would have been booked in Stage 3, the impact would be 60 bps. But looking at the past performance of the -- all of these files, obviously, we do not expect such recognition.
On a positive note, collection performance has improved considerably, which is broad-based and almost back to pre-COVID levels on an average monthly basis. We continue to expect our NPL ratio to remain below 6% for the full year.
We're expecting to see some improvement in our cost of credit evolution. When adjusted for currency impact, which is hedged, the quarter-on-quarter impact was even more pronounced. Our 9-month cost of credit reached 271 bps, while adjusted for currency was at 227 bps. Business as usual flow was at 76.
With our prudent reserve build, our total provisions have now reached TRY 17 billion with year-to-date provision charges of TRY 4.8 billion. Also, as I stated earlier, our LYY loan has almost been fully hedged in the third quarter. Therefore, the month-to-month adjustment has been almost fully offset with the currency gain. LYY is not included in our cost of credit calculation. We expect cost of credit to remain between 250 to 300 bps for the full year of 2020.
We entered this pandemic in a significant position of strength. Despite U.S. depreciation, our solvency ratios remain well above regulatory limits at 17% CAR, 16% Tier 1 and core equity Tier 1, excluding the forbearances announced at the beginning of the year. A few remarks on our capital evolution is that internal capital generation continues to be a key driver of our solid solvency ratio, whilst, as expected, currency depreciation and growth had a negative impact on capital through RWA.
All that aside, we have an outstanding TRY 20 billion excess total capital and TRY 22.5 billion excess core equity Tier 1, both according to Basel III minimum requirements without any forbearances. And including the forbearances, excess total capital and core equity Tier 1 would be at TRY 29.7 billion and TRY 30.5 billion. I would like to underline 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 the third quarter on the slide throughout the presentation. We are comfortable with our revised guidance of July. 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 effectively. And operator, you may now open the lines for Q&A.
The first question comes from the line of Nellis, Simon with Citibank.
Ebru, it's Simon from Citi. I was hoping you could just run through all of the guidance. You kind of gave some hints through the presentation. I've actually been trying to listen to 2 presentations and realize I haven't actually absorbed everything. So if you wouldn't mind just going through the key items and sharing your outlook following this quarter would be very helpful.
Okay. Sure, Simon.
Simon, this is Türker. Actually, as you know, as we are presenting on Page 27, actually, our TL loan growth in the first 9 months of this year was at 21 -- was at almost 21%, and our guidance for full year was low 20s. I think so, we'll stay in this range because, as you know, in the fourth quarter, there's a slowdown in the -- in new loan generation. So maybe a few percentage points higher than initial revised guidance but -- so somewhere maybe between 20% to 25% levels is reasonable.
On FX loan side, in the first 9 months are -- stands at about 8%, and we are guiding for minus 10%. So I think it's -- that will be the case. Leverage was 8.2, so guidance was at 8x. So we don't see any big deviation from that guidance.
As you know, our ROE was -- reported ROE was at 10.5%. Adjust for free provisions, it was at 11.6% for the first 9 months. I think, again, for full year, the low teens ROE guidance stays in that, so no change.
Maybe one of the many important items, swap-adjusted NIM. In the first 9 months, the cumulative NIM, net interest margin, was at 4.3%. Guidance was in the range of 4.2% to 4.5%. Because of the lower quarter NIM in the third quarter, we may see a further upward trend, downward trend in the cumulative NIM in the fourth quarter. But with the expected asset repricing as well as with our expected sizable contribution from CPI adjustments, we believe we will stick to that guidance, maybe towards the lower end of our guidance.
So NIM was minus 4% year-on-year growth. So we were guiding something similar towards that, so high -- negative high single digits. Maybe it's slightly a bit better than that, but still in negative territory. OpEx growth, adjusted for one-off BRSA [ penalty ] was at 13% year-on-year. We were guiding for mid-teens, so we are sticking to that guidance as well.
Cost-to-income at 32%. So guidance was, anyway, below 34%. So again, no change. NPL, we were guiding for less than 6%. So based on the 9 months' actual results, we don't expect any deviation from that guidance.
So -- and finally, full year cost of credit, we are again sticking to our revised guidance. So we don't expect a negative surprise in this -- in all the line items of the guidance. I think it was that.
That's very helpful. And just maybe 2 follow-ups, one on the margin. So you're saying that you'll see some added pressure on the core NIM in the fourth quarter, I guess, with higher rates, but then CPI linkers will offset. But what's the outlook? How long will it take you to kind of fight off the higher deposit rates and see your NIM stabilized going into next year?
And then just on the cost of risk, what's the outlook for next year? Do you think next year will be a better year than this year for cost of risk? Or it's still too soon to say anything.
Simon, actually, we are still in the budgeting process. And as you know, we will share our guidance for next year in the first week of January. But as we are have shared from time to time with you and with investors, we expect next year to be a better year. So we are expecting a major -- expect a major improvement in cost of risk. But let's wait and see how it will look like in the guidance.
In terms of core spreads, actually, as you know, because of the increase in the funding cost mainly led by the tightening of Central Bank, actually, there was a sizable core spread compression in the third quarter. But nowadays, when I look at the front book and back book of our TL deposits actually, front book and back book are at similar levels like 11% to 11.5% levels.
So if you don't see a further increase on the TL deposit side, probably, we have reached the top. But overall, TRY funding actually -- cost of TRY funding is actually increasing, as we can also follow from the daily weighted average cost of funding of Central Bank. It has reached almost 13%. So probably we will have a further impact coming from that wholesale funding side. But also depending on the evolution, we may see a further increase on the deposit cost as well. So we have to see.
Repricing on the [ whole ] side is still going on. So there's a big gap between back book and front book, so -- which is -- actually which will create some upside in the coming months. So maybe just to give you -- share some figures like GPL, our currency price at close to 18% level spread, back book was at 15%. Our commercial loans are priced at around 14% or 15% levels, so back book is at around 11% levels. So that's the situation.
As you rightly mentioned, we are expecting a sizable contribution from the CPI linkers. We are using 9% for the time being. Probably October-to-October inflation, we'll be at around 11.5%. So every additional 1 percentage point will positively support our full year NIM by 5 basis points. If you say 2.5%, it makes up -- that makes roughly 13 basis points, that full impact. Quarterly impact will be at 50 basis points.
So all in all, actually, we are expecting an upward trend in net interest margins, except for CPI linkers, probably towards the end of the quarter. Just to, again, keep in mind, as Ebru has mentioned during the call, a material portion of our TL fixed rate securities as well as TL loans will be repriced within 7 to 8 months so -- where we will be able to gradually reflect new prices into our loan book.
I think there's a question from the line.
Yes. There's actually a question from the web. Maybe we can move on to that and then you can give one last reminder, operator?
We still have a question.
Oh, okay. Sorry. Go ahead, please. Go ahead. Go ahead.
From the audio participant, Mr. Rozantsev, Konstantin with JPMorgan.
I guess, 2 questions to confirm. The first one is with respect to the bank's subordinated bonds in USD, in particular, the one which has the call option in 2022. I appreciate there's still quite some time before you need to make the decision, whether to call or not at that point. But what's your thinking process at this stage? How likely is the call, assuming the capital position is pretty much close to the current level, which means market conditions do not change much. Are you more inclined to call or to extend in these conditions?
And the second question is with respect to FX deposits. Have you observed in the recent days or weeks any volatility in a sense of -- with flows of FX deposits by the population? Could you comment on these trends? So these are the 2 questions from my side.
Konstantin, it's Ebru here. On the subordinated, basically, I mean the normal practice is for the call. But as you know, the final decision is for the BRSA. And as you mentioned, there's still a lot of time, so it would be early for me to comment. But the normal -- but normally, we go by normal market practice. But as -- regulatory-wise, we have to get approval from the BRSA. And on the deposit side of the dollar, I'm leaving the floor to our CFO, Türker.
Actually, when I look at the late BRSA, the latest BRSA data actually, we don't see -- we are observing that [ FX trend ] were stable at roughly USD 216 billion, so that was the end-of-quarter figure. And the latest figure was again the same. So there wasn't a new dollarization trend till 16th of October. But we have to see how that trend will evolve in coming weeks.
But actually, what I can say, in the last 2, 3 [ days ], actually, during this relative tough currency, we haven't seen a shift from TL's FX. That's what I can share for the time being.
And have you seen any volatility in respect of actual withdrawals of dollars from the banking system, maybe in recent weeks or months? Not dollarization specifically in terms of switching from lira to dollars, but...
Withdrawals? No, no, no.
The next question is from the line of Kemeny, Gabor with Autonomous Research.
I joined a little late, so sorry if you already talked about this. On the loan growth outlook, how do you think about the growth from here? I mean we've seen a quite significant interest rate increases, which I understand reduce the demand. And we also saw quite a few easings in the asset ratio calculation lately. I wondered how you see the growth outlook when the environment seems to be pointing towards slower lending.
Gabor, this is Türker. Actually, as you know, in the first 6 months, there was a sizable growth in -- on TL loan side. Also, we grew in that period by 15%. Third quarter growth was more limited. So in Akbank's case, roughly 5%. So year-to-date growth was at 21%.
But in the third quarter, actually, we had begun to see a downward trend in loan demand from our customers, maybe because of higher rates as well as because of the front-loaded loan demand in the first 2 months -- in the first 2 quarters. I think in the coming periods, there will be a normalization in terms of new TL loan generation. So this is why actually currently, as you know, first 9 months, actual growth is 21%. Probably it may end up maybe a few percentage points on top of it for full year, but -- so we don't expect a big deviation from our low 20s guidance on TL loan side.
But all in all, when I look at the BRSA data, actually, in the first 2, 3 months, weeks of October, growth was quite [ impressive ].
Sure. And do you see yourself maintaining, gaining, losing market share in the coming period?
Actually, no. We have a strong capital base, so in terms of volume -- in terms of total CAR as well as Tier 1. So we have adequate capacity to grow as long as we feel comfortable with rate, with the asset quality. So we would like to protect our market share and add on top of it in a controlled fashion in order to utilize that capital as well. But our approach -- so we want to have -- sustain profitability. So we would not like to grow just in the sake of growth. So asset quality, profitability will always matter.
Apologies, ladies and gentlemen, there are no further audio questions at this time. I will now turn the conference over to Ms. Ebru GÜVENIR for the web questions.
Yes, there is -- okay. Thank you very much. There's one question from the line. It's regarding the data on the deferred loans and their performance. Could you give some details on that again?
Actually, as we are a group -- as we had presented in our -- on Page 22, actually, the majority of deferrals is the month -- the second quarter. And also -- in the third quarter, also, there was a limited additional deferral as well. But in total, we had -- so we had a grant deferred portfolio of [ TRY 27 billion ]. So roughly 10% of our total loan book.
TRY 3.3 billion OpEx has been already paid, so actually because roughly 55% of that portfolio has [ mature ] installments in the third quarter. So we were able to observe how the actual performance was. And -- so far, it was positive because roughly 90% of the customers paid without any delinquencies. That's something positive. So we expect that positive performance going forward, hopefully, if we don't see a negative trend in the economy, et cetera, et cetera.
So all in all, so far, more than 10% has been already repaid. So current existing balance is at TRY 24 billion, with a coverage of 5%. So roughly 45% is in Stage 2 with 10% coverage, and the remaining 55% is still in Stage 1 with [ 1.5% ] coverage.
So far, we feel comfortable with the portfolio, but we are cautious and we are closely monitoring the performance.
And I guess it's important to highlight that on a quarter-on-quarter basis, especially the application, the loan applications have come down by 90%. So there -- the pace has come down significantly as the deferrals are scheduled to be ending by the end of this year. So that's probably one of the reasons why as well.
And then -- are there any further questions? Or should we be closing? Yes. There's one more question, I think, on the line, we should be taking, please. Operator?
Yes. The next question is from the line of Goodacre, Sam with JPMorgan.
You provided some very helpful data on the digital transformation in your pack. And I just wanted to have a bit more color on some of the data you're presenting. So firstly, you're talking about the increase you've seen in terms of interaction, both monthly login and also customers conducting financial transactions digitally. Is there any way that you can talk to us about the impact of COVID on that? I mean is this basically the pandemic and lockdown has accelerated that trend. And is it one that you would expect to continue?
The other one is -- the question I had is related to the [ trends ] of sales that you're doing digitally. Obviously, a very high number of credit cards and GPLs are sold through digital channels. But where ultimately might that go in the future, do you think? Is there much upside to those already very high numbers? And then could you just give us a bit of color on the cross-sell that you're doing and the sort of products that you're cross-selling digitally? That would be great.
Sam, thanks for the questions. First of all, obviously, the pandemic did have an impact. But actually, because of the fact that the bank had already -- last year, in September -- a year ago, before the pandemic actually, we had already upgraded our app, and we have been continuously upgrading our app since then, as you know, with many features. And actually, the investment app, for example, in wealth management, was actually -- end-to-end done -- we launched in January. And this is why I was comparing the numbers of wealth management back in 2019, within the overall fee, is around 6%. Now it's on 14% of the total fees. So yes, payment systems has come down, but also the year-on-year increase in wealth management fees have been significant.
So obviously, digital channels are a way of -- for the current -- for the consumer to be reaching out to banking services currently because of what's happening with the branch network, et cetera. But I also think that additional features and the interaction points that we are providing within the features and the simple usage, et cetera, I think that these are also increasing the overall interaction of the customer as well. So that's what I like to mention.
And then obviously, on the digital customer, I think what's important is also the more that they're -- I mean currently, for example, in active mobile customers, this is using Akbank Mobile almost every day. So every time, this -- the person enters the app, there is an offering that we can do because we have a lot of personalized services. So we have personalized services on the main screen as well for them regarding their financials, regarding their spending and so forth. So there's a lot of personalized services that are being applied.
So I think that where this is going, I think that going forward, you will see more and more digitized services. For example, we did the digital-first card, as I mentioned as well, in Turkey. This is the first digital card in Turkey.
And maybe I can just reshare some numbers that I haven't -- that are not on the presentation there. What we did this September is that we launched digital-first credit card. This is the first in Turkey and actually third bank globally. And it's early days, but since its launch, our digital-first credit cards has increased the digital applications month-on-month by 40% and digital sales by 58%. And 77% of the applications came from the new card customers basically. So this is something that is quite promising for us.
And actually, they can -- this personalized digital card when you go onto the app, you apply for it. Within minutes, you actually get your digital card and you're able to personalize it according to whether you want to be -- use it in e-commerce, you are able to personalize the limit and so forth. So it's actually very secure and safe as well. So that's something that is very important.
Regarding the GPLs and credit cards, yes, 60%, 70% of them, as I already mentioned. But it's -- rather than the percent itself, we are looking to increase the customer base as well. So the percent may remain, but as the customer base increases, it also adds on to, obviously, the overall bottom line.
Okay. And the other question I had is related to the contribution from subsidiaries. It's clear that there's been a very sharp increase in net income from Ak Investment. So can you talk to us about some of the underlying reasons there and the trends that you're seeing at that subsidiary?
Actually, Sam, during this year, because of the low interest rate environment, so some customers have actually preferred to switch to alternative investment vehicles, like funds, stock. Actually, you've seen many new customers coming into -- [ started stock ] exchange, which actually has positively contributed to the net income of Ak Investment, which is our brokerage company. We had a similar picture, trend -- positive trend in our asset management company as well, actually. So there, during this year, it positively contributed to our bottom line.
I believe there's one more question on the line, operator?
Yes. The next question is from the line of Stoykova, Valentina with Barclays Investment Bank.
I have a very quick follow-up on the Tier 2s. I was just wondering, will it be the reputational risk or the economics the leading factor, which will take into account when making the decision to call these bonds?
Sorry, Valentina, I didn't hear your -- I didn't understand your question. The line is a bit muffled. Can you repeat, please?
Yes. It's on the Tier 2s and your decision to call it or extend. What will be the leading factor when making the decision? Will it be the economics or the reputational risk?
I mean, as I mentioned earlier, the bank's main sort of strategy is to go with market practices. So that's all that I can say right now. But then, obviously, there's a regulatory factor, BRSA, which has to approve this as well. So this is all that I can share for the time being.
And as I mentioned, I mean, it's in 2022. So I mean there's still some time for that. But this is what I can share.
The next question is from the line of Poghosyan, Arthur with EBRD.
Hello? Sorry, I was muted. Question is roughly what portion of new nonconsumer lending was extended under KGF guarantees? If you can respond to that question.
We actually have it in our presentation as well, and we can show you on the presentation as well. The CGF, the OpEx and check utilization rate which is -- this year, as of 9 months, is at TRY 3.7 billion. And the total CGF exposure, including this amount, is at TRY 8.9 billion.
Ladies and gentlemen, there are no further audio questions at this time. I will now turn the conference over to Ms. Ebru GÜVENIR for any further webcast questions. Thank you.
Just maybe one last question is on the line as well regarding LYY. Could you please explain the mark-to-market adjustment and the hedge details, please?
As you know, we have this loan to LYY, which is effectively denominated. And we have to mark-to-market this according to the valuation of our -- of Turk Telekom and the valuation is done in Turkish lira. And because of that, while Turkish lira depreciates, we had a mark-to-market impact coming from this Turkish depreciation impact. And this quarter, again, we had to book close to TRY 1.1 billion negative mark-to-mark adjustment for LYY.
But in the second quarter, we had begun to hedge that risk -- hedge that FX risk, actually. And in third quarter, we have almost fully hedged the FX risk of LYY loan. So this is why actually we were able to book currency FX income on the trading income line, which was almost a similar level to this negative mark-to-market loss. So we were able to offset -- to almost fully offset that negative mark-to-mark adjustment, so bringing bottom line impact to almost 0. And going forward, actually, this hedge position will enable us to protect us from any FX volatility in LYY loan. This is something positive actually going forward.
Yes. So this is a question that we kept on getting before as well about the hedge position there.
So I guess there are -- are there any more questions? I guess there are no more questions. Okay. So thank you, everyone, for joining us today. Do feel free to reach out to us for any further questions you may have. I keep on saying, I hope we get to meet face-to-face, but I really do hope we get to meet face-to-face in the coming months. Have a great evening and keep well. Bye-bye.