Akbank TAS
IST:AKBNK.E
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Akbank TAS
Earnings Call Analysis
Q3-2023 Analysis
Akbank TAS
The bank reported a record high net income of TRY 20.450 billion, an impressive feat given the persistent inflation and tight monetary policies affecting the global economies. The institution attributes this achievement to agile asset-liability management (ALM), strong internal capital generation, and remarkable capital buffers, ensuring competitiveness and resilience during these turbulent times.
Aiming to increase its customer base by 5 million over three years, the bank has already added 1.7 million new customers, suggesting it may surpass its target. This growth, alongside an increase in cross-selling, has contributed to meeting their 2025 market share ambitions ahead of schedule in consumer loans and Turkish lira demand deposits. Fee income surged by 52% quarter-on-quarter and 184% year-on-year, showcasing a strong fee-to-OpEx ratio direction, which at 82% in Q3, surpassed their target, underscoring a sustainable revenue model.
The bank's Turkish lira-denominated loans grew by 42% year-to-date, with consumer loans up 66% and consumer credit cards outstandingly up by 146%. These numbers demonstrate the bank's successful strategy in high-yield, small-ticket lending and robust market share gains, indicating the strength of their customer acquisition and analytic capabilities.
Turkish lira deposits increased by 77%, while sticky, low-cost TL time deposits surged by 80%, and zero-cost TL demand deposits grew by 56%. The growth in deposits is reflected in the bank's net interest margin (NIM), which stood at 5.3%, exceeding their guidance and expectations to maintain above 5%.
Non-performing loan (NPL) ratio stayed at 2%, aligned with projections of below 3%, and the robust provision buffers suggest confidence in asset quality. Coverage ratios have shown improvement across all stages: Stage 1 is now at 0.9%, Stage 2 at 17.1%, and Stage 3 at an impressive 70.7%. These figures, along with a Tier 1 capital ratio of 18.4% and a core equity Tier 1 of 15.5%, mirror a solid solvency status.
The bank is focusing on women-led business customer growth and strategic initiatives for an inclusive economy. By partnering with the Export Development Cooperation, they aim to boost SME access to green financing, aligning with their objective to increase the proportion of sustainable transactions in their funding book.
The institution remains confident in achieving a full year net interest margin above 5% and a return on equity (ROE) close to 41%. Their unwavering commitment to strategic targets, including their digital transformation efforts and customer growth, positions them well for sustained profitability and market leadership.
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Hi, everyone. Good day, friends. This is Kaan Gur speaking, CEO, Akbank. Thank you all for joining our third quarter earnings call.
This is my first presentation as CEO, Akbank. But as many of you know, I'm not new at the bank. I'm very delighted to be back and truly honored to take the leadership of this great organization as we celebrate our 75th year. This is particularly an important year as we are also celebrating the 100 year of the Republic of Turkey. May this historic milestone be celebrated with joy and the Republic of Turkey prosper for centuries to come, as you have watched amazing video telling us the story of that inspiration.
Dear friends, Akbank with its outstanding achievements, stands at the forefront of the robust banking sector. I'm proud to see that decision taken over the last few years has delivered excellent results. This can easily be seen in the significant contribution coming from our internal capital generation.
As a result, we have remarkable capital buffers, giving us important competitive advantage. This is extremely important, especially in an environment whereby global economy is still struggling with highly persistent inflation and monetary policies are due toward staying tight for longer. Thanks to our agile ALM, our balance sheet is well built. We continue to focus on keeping our balance sheet impact by avoiding maturity mismatch and keeping long-duration fixed-rate bond purchases and minimum levels.
As shown on this slide, especially 75% of our Turkish lira loans will be maturing or repricing over the next 6 months. Actually, the bulk is within 3 months. We are aware that recent geopolitical tensions also pose further uncertainties on growth and inflation outlook.
As a result, the period ahead seems to be more challenging for emerging markets. Therefore, in Turkey, the recent shift towards restoring monetary policy visibility and simplification steps are much appreciated. I believe the transition to a more market-friendly policy approach will definitely be helpful for the business environment, financial sector and also investors. For sure, we are aware of the potential cost of inflation stabilization with regards to profitability and asset quality.
Having said this, I would like to underline that we remain well positioned against weaker core business conditions as we have a well-diversified customer and product mix with prudent risk management, cautious provisioning policy and significant capital buffers. Looking forward, I can assure you that our journey ahead will continue to be one of progressive growth, collaboration and full of energy.
At the beginning of this year, we set out with the ambition to increase our customer base by 5 million in the next 3 years while expanding our footprint in the retail segment, both consumer and SME.
The performance so far has been outstanding with year-to-date net customer addition of 1.7 million. Looks like we may exceed our 5 million target. More importantly, while growing, we managed to further increase our cross-sell. I'm pleased to share that we have already met our 2025 market share ambition in consumer loans.
We will continue to grow, but obviously, the regulatory growth caps may limit further market share gains. In addition, thanks to our strong franchise, we are fully on track with our 2025 market share ambitions in Turkish lira demand and sticky, broad-based Turkish lira deposit as well, which is especially important in an environment where deposit costs continue to rise.
On top of this impressive performance, we have also gained an eye-catching 300 basis points market share among private banks in fee income. As you all know, we aim to increase our customer base revenues and to reach a fee-to-OpEx ratio of above 80% by 2025. The figures are clearly showing that we also are on track for our strategic ambition to increase the fee-to-OpEx ratio.
All these prove that the investments we have made to serve the ever-changing customer needs are paying off, ensuring sustainable profitability. Innovation and digitalization remain crucial to meet the needs of our customers and partners. We will continue to invest in our customers' journey and set industry benchmarks.
I would like to thank all my team and Hakan-bey for such a solid performance. I am excited to be a part of the next chapter, where I have full belief that we will achieve even greater heights.
Ebru, actually, this is now your turn and the floor is yours. By the way, following Ebru's presentation, Turker and myself would be more than happy to answer your questions. Thank you.
Thank you, Kaan-bey. I'd like to also start by celebrating the centenary of the Turkish Republic. May the future be full of prosperity and success.
We ended the quarter with a new record high of TRY 20.450 billion net income, resulting in a solid 5% ROA and 45.5% ROE. This takes our 9-month net income to a robust TRY 51 billion, up by 35% year-on-year with an ROA of 4.9% and ROE of 41.2%, which is well ahead of our full year guidance.
Our strong momentum in customer acquisition has continued to enhance our fee income, up by a remarkable 52% quarter-on-quarter and reaching a year-on-year growth of 184%, supporting our core revenue generation.
With the agility in balance sheet management, timely hedges, strong customer-related business, our exquisite treasury management, which is one of the [ strong results ] of Akbank, continue to be supportive for the net income evolution. Our customer-centric organization with advanced analytics capabilities, sound balance sheet management and strong capital buffers puts us in a position of strength.
Moving on to the key drivers of our solid 9-month performance in more detail. Starting with the balance sheet. Our TL loans were up by 42% year-to-date, reaching our full year guidance. Main contributor was consumer loans, up by 66% year-to-date while consumer credit cards were also up by remarkably 146%.
Our motivation in high-yielding small tickets continues at full pace. This motivation has resulted in a new record-high broad-based 320 bps market share gain year-to-date in consumer loans among private banks.
As shared by Kaan-bey earlier, already reaching our 2025 ambition. As for consumer credit cards, the market share gain year-to-date has also reached an eye-catching 230 bps as of September.
Strong customer acquisition, advanced analytics and technology at the heart of targeted marketing campaigns are also turning into sound growth in consumer credit cards. We have refrained to grow in business banking during the first half of this year due to regulatory pricing caps. However, with more favorable pricing environment in the third quarter, we grew in business banking as well, gaining market share on a quarterly basis.
Thanks to our 100% automated loan decision process with an excellence in AI-based consumer credit card models, the PD -- the retail loan portfolio still remain at low levels. Going forward, due to the rising interest rate environment, inflows from retail side may increase. However, thanks to our prudent provisioning policies as well as these loans being widespread, it should be manageable.
Our 360-degrees customer-oriented holistic organizational structure, our competitive products and advanced digital solutions will continue to support the factors, both for growth and asset quality evolution.
On the FX loan side, demand remains to be muted in the first 9 months of this year. Our net FX loans were actually down by 3.8% to $10.3 billion as of 9 months.
Moving on to the securities slide. The interest rate risk management remains in focus for our securities positioning as well. Almost half of our total securities portfolio consists of floating rates, which includes CPI linkers.
As for TL securities alone, more than 70% is floating. TL's fixed rate securities, excluding the corporate bonds classified under fair value through other comprehensive income or in other words, available for sale is limited to only 5% of total securities. Also, our treasury's proactive positioning in positive-yielding CPI linkers is helping to mitigate the negative impact of inflation.
Our CPI linker portfolio now stands at TRY 147 billion, which equates to 77% of our equity or 9% of our total assets. As shared in several occasions, our foreign currency securities, which make up around 1/3 of total, were timely hedged against Fed rate types.
Our TL securities were up by 51% year-to-date, mainly led by our strategically built CPI linker portfolio, which is around 53% of our TL securities, but these are mainly growing through internal rate of return, so IRR, high-yielding TL corporate bond purchases from primary issuances as well as our leading positioning in TLREF-indexed bonds with significant positive spreads. I would especially like to underline that our CPI linker portfolio has a positive real rate of 0.6%.
Our proactive and cautious stance in building our CPI linker portfolio with positive real rates will also be a differentiating factor when the spread between the policy rate and inflation tightens.
Having met the regulations proactively, we were able to manage the regulatory fixed rate securities portfolio of around only 2% of our assets during the first half and as you know, well below our peers back then. Similar to first half, we continue to be proactive in terms of complying with regulations.
Despite the new purchases in the third quarter, which are mostly due to eligibility criteria and with significantly higher rates, our fixed rate security portfolio, subject to the regulation is still low, around only TRY 46 billion, which is only around 3% of our assets.
Similar to first half, we maintained our leading position in corporate bond primary issuances. Our high-yielding corporate bonds, which has an average of 40% yield, stands at TRY 26 billion or around 1.5% of our total assets.
On top of this, we have a strategic positioning in TLREF-indexed bonds, and these make up around 2% of our total assets. This positioning will also help to mitigate negative impact of lower-yielding regulatory fixed rate government bonds. As a result of our strategic and proactive approach in building our securities portfolio, our average TL securities yield, excluding the CPI linkers, reached 25% at the end of the quarter.
Now on to the funding side. We do maintain our focus on well-diversified and disciplined funding mix. Deposits continue to be our main source of funding with 66% share in total liabilities. Our total TL deposits were up by 77% year-to-date while our sticky, low-cost TL time deposits surged by 80% in the same period.
The share of sticky, low-cost TL time deposits now stand at a solid 65%. Our zero-cost TL demand deposits were also up by an outstanding 56% year-to-date. Thanks to our sound customer franchise and our success in gaining further 1.7 million customers just in the first 9 months of the year, our market share in widespread small ticket consumer-only TL deposit among the private banks has increased significantly.
We achieved an additional 50 bps market share in TL time deposits in the first 9 months of this year on top of 180 basis points gained last year. Our market share in demand deposits among private banks also increased by 80 bps year-to-date, in addition to 140 bps gained last year, while our commercial demand deposit market share among private banks increased by an eye-catching 360 bps in only 9 months.
The successful performance is especially important for NIM evolution as cost of funding continues to rise in the sector. We have a sound foreign currency liquidity buffer of $10 billion, which is twice that of our total wholesale funding and more than 4x of the short-term portion. Our foreign currency LCR stands at 227%, and this is despite our proactive positioning in the 3-month swaps, which is excluded in our LCR calculation.
Adjusted for this, our foreign currency LCR would be above 400%. Managing the maturity profile of the wholesale funding book efficiently with sophisticated funding solutions is a priority for us. Our goal is to increase the share of sustainable transactions in our wholesale funding book in order to reach our 2030 sustainable loan financing target.
We ended the first 9 months of the year with 5.3% NIM above our guidance we shared at the beginning of the year. Our strategically designed balance sheet for quick recovery paid off as we are now operating with positive spreads even in back book following the positive rate hikes and easing in the loan rate caps.
Management's focus remains on maintaining low maturity mismatch. As Kaan-bey shared earlier, 75% of our TL loans will either reprice or mature in the next 6 months, and bulk within the next 3 months. Our strategically built 3-month maturity swap book prior to each rate type will continue to be supportive for our NIM evolution as well.
Going forward, regulatory and competitive environments will be critical for NIM evolution. But thanks to our agile ALM and prudent and proactive maturity mismatch management as well as our solid customer deposit franchise, we do expect to end the year above 5% NIM.
I mentioned earlier, our momentum in customer acquisition continues at full pace. Our active customer base reached 12.5 million, up by around 50% in less than 2 years actually since the end of 2021. Similar to the first half, 60% of our -- of the new-to-bank customers were acquired through digital onboarding, underlying the strength of our digital capabilities. We continue to leverage digital onboarding and holistically revamped our value proposition for young customers.
Our active product portfolio, a function of active customer base and average cost sold per customer, has increased close to 30% year-on-year, thanks to accelerated customer activation and acquisition and as well as improvement in the cross-sell.
On top of active product portfolio, which reached its all-time high, our growing active, young customer base also further solidifies the sustainability of our customer base revenue generation for the coming years.
Our digital strategy, which is based on our customers' journey, continues to show in the numbers. We exceeded 10 million digital customers, achieving around 60% increase, again, less than 2 years, which is actually since the end of 2021. Digital penetration increased by 6 percentage points since then to 85%, while migration of transactions to digital channels have already reached 96%.
A digital customer enters our mobile application 35 times a month, so more than once a day, playing a significant role, both in our sustainable fee income generation as well as asset quality evolution.
On the fee and commission income side, we are on track with our strategic ambition to enhance our fee chargeable customer base, which reached an all-time new high as of third quarter. Our net fees and commission income is up by an eye-catching 184% year-on-year and 52% quarter-on-quarter. This is well ahead of our full year guidance of around 60%, clearly indicating a significant upside.
You can see on this slide that all business clients continue to contribute positively. As a result of the strong performance, we have gained a remarkable 300 bps market share among private banks year-to-date in fee income according to the latest BRSA monthly data.
The importance of especially investing through cycles has been a key enabler in this performance. Our OpEx was up 24% quarter-on-quarter, mainly due to internal wage increases in July. Challenges remain on the OpEx side. However, our low OpEx base provides leverage and gives us significant competitive advantage and a lot more flexibility during inflationary environment. Our cost to income remained low at 30% during the first 9 months, in line with our full year guidance.
Our non-HR OpEx increase was mainly related with our investments to grow our business. The success of these investments shows itself in the numbers. We are also on track with our strategic target to increase fee-to-OpEx ratio thanks to our enhanced customer base revenues, while cost discipline remains intact.
As group, our quarterly fee-to-OpEx ratio reached 82% in third quarter, carrying the cumulative figure to 67%, up by 9 percentage points year-to-date. Meanwhile, our cost to assets also remains intact at 3.1% as of 9 months.
Moving on to the asset quality. Our loan portfolio also remained intact with stronger payment performance and only limited net NPL inflow into Stage 3. Collection performance remains robust and broad based. We completed the quarter with a full further improvement in NPL ratio, which is a cumulative 80 basis point improvement year-to-date.
Our NPL ratio now stands at 2%, which is in line with our full year guidance of below 3% shows Stage 2 and Stage 3 in our gross loans, which will be deemed more -- potentially, let's say, more problematic, continues to be at a limited 9% with strong coverage. Meanwhile, all leading indicators regarding asset quality evolution still remain intact, thanks to our prudent risk management and healthy loan portfolio composition.
Our cost of credit evolution underlines our proactive provisioning as well as our healthy loan portfolio composition. We ended the first 9 months of the year at 107 bps net cost of credit, excluding currency impact. Despite our solid loan growth, our strong coverage ratios have increased year-to-date with an additional loan loss provision build of TRY 7.7 billion.
For Stage 1, our coverage ratio is up 0.9%, up from 0.7%. For Stage 2 and for Stage 3, our coverage ratios increased by more than 70 bps and 300 bps year-to-date to 17.1% and 70.7% respectively. We believe our robust provision build, solid collateral values will limit the need for additional provisions going forward.
Please note that, as usual, we plan to have our IFRS model update for the mass segment in the fourth quarter and that the big ticket loans are assessed individually on a monthly basis.
Our total capital Tier 1 and core equity Tier 1 ratios without forbearances remained robust at 18.4% and 15.5%, respectively. Our sound profitability is reflected on to our capital position as our internal capital generation added a solid 173 bps to our total capital quarter-on-quarter, reaching a cumulative 440 bps year-to-date. Worth to note that, adjusted for the temporary risk-weight increase applied by BRSA, our capital would actually even be higher of around 180 basis points at an outstanding 20.2%.
To share some sensitivities, the first 10% TL depreciation results in around 40 bps decrease in our capital ratios while [ impacting issues ] higher amount of changes. And 100 bps increase in TL interest rate results in a 7 bps decline in our solvency ratios, again with diminishing impact.
Sound capital buffers continue to serve as shield against unprecedented challenges and volatility and create significant ammunition for sustainable profitable growth.
On this slide, you may find a summary of our solid 9-month performance. Though there are challenges on the OpEx side, the revenue generation capabilities of the bank, including the outstanding performance in fee generation, creates upside potential to our full year ROA guidance.
Moving on to a few highlights regarding ESG performance. In third quarter, we remain committed to our long-term ambition to support the sustainable transformation of our economy. We have provided TRY 87 billion sustainable finance year-to-date, totaling our support to TRY 174 billion since the beginning of 2021. I am proud to say that we have almost reached 90% of our target.
In addition, our ESG-themed funds are receiving good attention from our investors. Since the beginning of the year, we see a 40% increase in the number of investors investing in our sustainable funds.
We also continue to contribute to the ecosystem for a more inclusive innovative economy. As one of the founding signatories of UN Financial Health and Inclusion commitment, we disclosed our related measurable targets. We aim to achieve a growth rate of 10% annually in the number of women-led business customers to increase financial resilience and support sustainable businesses growth by 2025.
Once again, we are proud to introduce a first in the industry with our partner, Export Development Cooperation. With this green transformation guarantee support package, we aim to increase SMEs access of green financing by facilitating collateral solutions for them. In addition, we kicked off Akbank Hackathon, DisasterTech in September. DisasterTech aims to use technology for effective solutions during and after disasters.
Lastly but not least, I am happy to share that we started the second term of Akbank+ program, which allows Akbank members to work on their entrepreneurial ideas on a full-time basis. For more details on our ESG developments, please check the annex of this presentation as well as our ESG presentation on our website.
This now concludes our presentation. Moving on to the Q&A session.
[Operator Instructions] And the first question comes from Waleed Mohsin.
Kaan-bey, it's a pleasure to reconnect, especially after your retirement at Alternatifbank. Congratulations on your new role and your union with Akbank, so congratulations.
Three questions, please, from my side, if I could. Firstly, on fee income. We've seen a very strong market share gains, as Ebru talked about in the presentation. I wanted to get a sense if you could talk a little bit more about what's driving this. And if you could share some targets around it, whether it's in terms of where do you think is a fair market share for Akbank or whether it's in terms of customer acquisition. So that's the first question.
Secondly, on loan spreads. If you could talk about what's happening in the third quarter -- sorry, what's happening in the fourth quarter. Any trends that you could share with us in terms of loan spreads and how that's kind of materializing in the fourth quarter. Is it a continuation of third quarter? Are things getting slightly better or worse? That would be much appreciated.
And third and last question. Obviously, pleasing to see some of the normalization in the monetary policy, but rates are now at relatively elevated levels and have moved up sharply. Any early signs of asset quality weakness that you at Akbank are seeing?
Hi, Waleed. It is very nice to meeting you again. I hope that we are going to meet in person also. Regarding your questions, I would like to take the first three, and then I'm going to hand over Ebru and to take it, if needed.
But first of all, actually, regarding our fee income, tremendous performance there. Actually, those are the harvesting what we have been investing on the digitization, retail banking and of course, very strong customer acquisition performances. So actually, I would like to emphasize that, yes, this is very important. But at the same time, when you look into our cross-sell ratios actually, our product penetration, those are very strong. And of course, gaining this momentum in the market is going to continue.
And I'm very confident that the growth appetite of Akbank in near future, in midterm is going to continue because we have a strong AI-supported retail machine here. And most importantly, actually, the other line of business will follow that tremendous effort in order to generate a very strong fee income performances, including SME, including commercial business, including our corporate business. This is a kind of ecosystem that we have to understand in a very granular way.
The second question, yes. About the net interest margin, loan spread, I can tell that, especially third quarter, we have seen very strong significant improvement, especially Turkish lira core spreads. This is the fact. And of course, with the support of rate hikes and easing of rate caps, we are in positive territory. When you recall, especially second quarter, for the banking system, we are operating with significant negative core spreads. You know that very well. But it's improving.
And the other thing is here, of course, having the right mix in terms of segments and products will give us more comfortable area that we can keep and increase our existing spreads. The other thing I would like to share with you, the especially maturity profile. So this is another important, let's say, benefit that, as I said before, 75% of our total loans will be matured in 6 months and the bulk is coming from within 3 months. As you see the latest rate hike, the policy rate hike actually give us a room to increase our Turkish lira loan yields. And in the same time, we're going to see more limited increase on the cost of deposit side. So it's going to help us to increase our net interest margin.
So maybe I can say that, Waleed, we can stick to our high net interest margin as we shared with you in our 2023 guidance. So high 5% is going to be achievable, I can say that.
Regarding your especially third question, I think this is very valid question. First of all, I can answer this in two ways. The first one, yes, we are gaining the market share in mass segments, okay? But we didn't deviate from our prudent approach, and we continue to provision and increase our coverage ratios, including a special Stage 1 coverage. Our total loan decision process in terms of sophistication, those are AI-based loan decision processes. And of course, mathematically, we can optimize decision processes and we can easily and strongly monitoring our loan book.
So it means that our TDs remain solid, so despite some growth. I think this is the most important and very successful evidence that Akbank tapping the right points in order to support its organic growth.
On the corporate side, I can say that so far, we haven't seen any material change on migration from Stage 2, Stage 3. We haven't seen any, let's say, excessive structuring demand or any weak collection performances, et cetera.
So of course, frankly, higher interest rate environment would create some asset quality problem when you look into the history. But I think it's not going to be higher than the market expected for 2024.
Actually, those are -- I would like to share with you, Waleed, if my friends, especially Ebru and Turker would like to add anything, what I shared with you. Thanks a lot. And I am really happy with you, Waleed.
Thank you, Waleed. The next question comes from Mehmet Sevim.
And Kaan-bey also, from my side, congratulations on your appointment, and all the very best in your new role.
My question is actually just a follow-up to Waleed's points, but also both touching on loan growth and asset quality, but also on fees. So first of all, as interest rates continue to increase, I wonder if you could talk a little more about how you see loan demand in this current environment and how you balance risk reward?
And basically, are you seeing any drop in loan demand, both in corporates and households? How do you see this going into 2024? And how does your appetite to lend sit in this environment?
And just a follow-up again on the fee question from earlier. Obviously, the momentum is very, very strong, but it seems like you've already reached your 80% fee-to-OpEx target, which at the outset last year, it was obviously very aspirational. Do you think this is sustainable now going forward from a ratio perspective? Or would you expect this to normalize a bit as costs come up? Or again, this is particularly relevant for 2024. If you could share any color on this, that would be very helpful.
Thanks a lot again. Thanks for your kind wishes. Thank you, Mehmet-bey. But first of all, actually, I have shared a lot of things regarding our ambition to actually growing our balance sheet in all terms. But the thing is here, of course, when you look into market practices -- by the way, I would like to give you a few color regarding myself, my experience. I have been in the banking sector over 30 years. And I worked in several areas, SME business, commercial, the corporate. So I'm really coming from the field, okay?
So when you look into Turkey's existing the market trends and of course, the needs of the customers, so despite some regulatory change, we can say that there are some specific, let's say, less appetite, for example, from the corporate segment we have been observing since last 2 months. But at the same time, Akbank itself has different segments that we can find a way systematically to maintain our growth performances.
So as I always said that this is a matter of our product and segment mix that we can, under the existing some lending caps, even though there are caps, but at the same time, there are some incentivized areas that we can tap. So I'm confident that this growth on the Turkish lira especially side, is going to continue. And as our guidance, we are going to end up over 42%, roughly 47%, 48% within whole year.
And the other thing is here, there is another niche, let's say, area that we can tap on the foreign currency opportunities in order to grow our loan base, especially on the corporate and commercial and SME business. It's because Turkey is a very strong exporter, so there are lots of companies that we can penetrate. And this is an ongoing process. And that's why all in all, we can continue our ambitious the targets.
The second question, again, was regarding our asset quality trend. Actually, I have tapped the whole necessary details, but Turker or Ebru, would you like to add some color to me?
Thank you, Kaan-bey. On the asset quality, what I can say -- actually, you have touched most of the items, but as we have also -- as we have mentioned many times actually also in the past, even in good years, actually we had the cost of risk evolution -- asset quality evolution was quite intact like in 2022 and also this year so far.
We have never refrained from booking additional provisions, and that's why actually we were able to increase the coverages for all the stages at Akbank. And therefore, actually, we have a strong provisioning buffer. And in normalized -- hence maybe also just recall in 2018, actually, the first year of IFRS 9 implementation as well as a year with a lot of volatilities. And even in such a year, actually, the cost of risk did not exceed 3% level. So therefore actually, also going forward, yes, maybe from year-to-year, there may be some fluctuations. But in normalized terms, we expect cost of this to evolve like between 1% to 1.5%. So therefore actually, yes, maybe that there may be temporary some growth in the asset quality in the sector, but I think it's quite manageable within our overall profitability. That's what I can add.
Maybe I can add some more color on that. When you look into our -- always, you're going to see me always mentioning about digital capabilities and capacity. So the thing is here, maybe the magic is here. We are using risk-based pricing in our scorecards, our models, what we use, those are very solid and strong, let's say, vehicles. 80% of our general purpose loans are preapproved, and 30% are to our salaried customers. So we have the cash flow, for example, I can say that.
Another important thing is using heavily our digital channels, which is 93% of the general purpose loans sold through our digital channels. So this is really very strong and AI-based loan decision processes. So that's why we're comfortable a little more regarding that issue.
On the corporate side, maybe I forgot to underline the significance of the corporate actually build strong buffers and indebtedness of companies are low. So this is -- again, maybe they are fixed positions, et cetera. Those are all supportive factors that our existing risk appetite.
Of course, we'll continue, but our expectations in order to protect our existing asset quality will continue, and we are not going to see debt much, let's say, new NPL, et cetera. So those are, Mehmet-bey, I would like to add to Turker. Thanks for your questions, and very nice meeting you again.
Okay. So there while we wait for live questions, there are some also questions that are coming in written. [ Furqan-bey ] asked, I'd like to ask about the rising demand deposit share and FX deposits over the years. What is the main reason behind that? And what are the shares of the demand deposits in Turkish lira and foreign currency total deposits effectively as of third quarter?
Yes, as you are mentioning, the share of FX demand to total FX deposits is rising, has been rising, especially in the last 1 year. It has increased from 50% level to a level above 60%, like around 65%. And actually, the main reason is actually coming from the innovation strategy in Turkey. As you know, most of the conversions from FX deposit to total TL deposit is happening from time deposit tracks. So that's actually the main contributor of this change. On the TL demand deposit share side, actually, we are operating with roughly 20% share.
Okay. Another question is coming from [ Ula Adamson ]. Have you been -- will you be able to meet the conversion targets for FX-protected TL deposits within to plain vanilla deposits? What is the level of TL deposit rates that you have an offering to those customers? Where do you see TL deposit rates overall going from here?
Yes. So far, we have been able to meet most of the requirements of central bank, which have been announced by the end of August surely to attract customers to convert from deposit FX to protect deposit scheme to TL deposits. Time to time, we may need to offer higher rates compared to standard TL deposits.
But it also depends on the size of the deposit tickets. But maybe just to give you some color where the back book of our TL deposit book stand as well at the front as well. Our back book of TL deposits cost is roughly at 30% levels. And the front book, the margins are priced at low 30s in a blended manner.
Surely, there are some tickets where they're of a global rates, but there are also some tickets where we may need to offer to the levels of like maybe 40%. But I think the blended level is much more important. So in other words, what I can say is actually probably the back book has almost reached the front book levels, the marginal rate.
And the next question comes from Pinar Uguroglu. Can you please elaborate on the KKM/DDM conversion? What would be the position -- would you be in a position to pay commissions if desired ratio is not reached in the fourth quarter?
Actually, with regard to commission, so far actually, we've been able to avoid this commercial payments. So the commissions we paid was close to 0 actually. And also going forward, we will be aiming to avoid these commission payments. As you know, the most tricky ratio is reaching this 100% conversion ratio on a bi-weekly basis, and we are operating above this level. Therefore actually, we are not impacted with this commission payments on net interest margin side.
The next question comes from [ Thomas Norsell ]. Do you believe there is much upside to your NIM or ROE guidance?
Actually, since we are actually almost by the end of the year, and as you've seen actually, you've seen our third quarter results, like a net interest margin at 5.3%. So as Ebru has also mentioned, we will be able to end the year above 5% threshold. Surely end of October, inflation enhancements will also impact, but probably the upside is -- will be limited actually based on the latest inflation outlook.
And in terms of ROE, we were at 41% by the end of 9 months. So again, we will be ending -- we are expected to end the year close to these levels. And maybe in terms of also fee income growth, I can also elaborate on top of it. The first 9 months growth was at 184%. Also, despite the high base of last year's fourth quarter, we will -- we are expecting to end the year again close to the existing growth level. So actually, the strong fee income growth in the bank is continuing, so we are happy to share that.
Okay. And there's one more written question, and that's from [ Dilesh Patel ]. Congratulations on another set of solid results. Looking at the loan book segment, how does the ROA compare for corporate and retail segments? Last I checked, the former was much stronger than the latter. If so, how will the bank improve the latter?
Actually, in terms of this -- surely the -- especially the funding side is impacted because the most -- the majority of our fund deposit taking pace actually is coming from the customer deposits. Therefore actually, the funding pressure we are getting there is creating this composition. But going forward, because of our growth on the retail side in terms of customer market share gain going forward actually in a [ normalized floors ]. We are expecting the share of net income in contribution to increase.
Thank you, Turker. And there are no more written questions, and there are no more also live questions. So Kaan-bey, I'll leave the floor to you for closing remarks.
Thanks a lot, Ebru. Dear friends, Akbank is a tremendous institution. We have rich legacy and is one of the best positioned banks. Our years of investments in technology, advanced analytics, together with investments in our people will continue. We will keep on offering disruptive new products and services to achieve even a much larger customer base, while ESG will remain at the center of our bank strategy.
As you can see here, there is a lot of dynamism, motivation at the bank at every level. I have full faith in our people's capacity and execution. I would like to once again express my ample gratitude for their exceptional efforts.
Together, we have a brilliant future ahead. I would also like to thank all our stakeholders for their consistent trust and confidence in us. And thank you all for taking the time to join us today. I really look forward to meeting you all in person soon. Until then, keep well. Thanks again.