Akbank TAS
IST:AKBNK.E
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Akbank TAS
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Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Fourth Quarter Consolidated Financial Results. [Operator Instructions] I must advise you that this webcast is recorded today, Wednesday, 31st January 2018. And I would now like to hand over to your first presenter today, Mr. Hakan Binbasgil, CEO. Please go ahead, sir.
Thank you very much. Dear friends, welcome to Akbank's Fourth Quarter 2017 Financial Results Webcast and Conference Call. This is Hakan Binbasgil speaking, CEO of the bank, and thank you for joining us today. And today, I have with me Türker Tunali, our CFO; Ali Karaali, our EVP for Treasury; Ebru Guvenir and [indiscernible] from our IR and sustainability team.
2017 was quite a successful year for us, where we performed much better than our guidance. Our total assets grew by 16% versus our guidance of 10% to 12%. Our loan growth reached 17%. This was basically led by our healthy TL loan book, which grew 24%. On the liability side, our total deposit growth reached 16%, and we were able to keep our LDR at 104%. That is below our guidance of 105%. In 2017, the CGF initiatives stimulated the economy and supported the whole industry, we all know this, but however, as you all know, sustainability is always key to us. We continue to focus on our core profitability and risk metrics. We delivered an ROA of 1.9%, above our guidance of 1.7%. Our ROE remains well above our guidance and ended the full year at 16.2%. Thanks to our proactive and forward thinking asset and liability management, we were able to improve our NIM and beat our guidance of 3.4% by reaching 3.5%, despite the rising cost of funding in the markets. This is an area where we see an upside potential looking forward. Our bank-wide initiatives supported our fee growth and reached 15%, which was again well above our guidance. And this is another area in which we are giving utmost importance. Our cost income ratio ended the year at 35%. Our medium-term target of 33% to 35% remains intact. Our cost to assets ended the year in line with our guidance of 1.5%. Our prudent risk management enabled us to end the year at 2.1% NPL and 49 basis net specific cost of risk, which are both well below our guidance. Therefore, we ended the year with a 24% EPS growth, reaching above TRY 6 billion net income versus our 10% guidance. As a result, our [indiscernible] ratio further improved, our capital adequacy ratio improved considerably from 14.2% in 2016 to 15.8% in 2017. And our Tier 1 ratio strengthened significantly from 13.1% to 14.2%. All these will not only enable us to increase our dividend payouts, but also invest into our future. As we have shared with you during our Investor Day on January 8, with these investments, we are not only empowering our people for more value-add services, which will result in revenue gearing, but also reshaping customers' banking experience. Our aim is to simplify life, both for our customers and our people. And the road map was shared in detail at the beginning of the year. If you go to Slide 2, yesterday was quite an exciting day for us. We celebrated our 70th year and opened our first visionary branch in Istanbul, which I believe will set the new standards for banking. We hope throughout the year many of you will have a chance to visit and experience our ambitious mind-set. For the past 70 years, we have been the driving force that carried Turkey into the future. Today, we continue with this vision, not only in Turkey but throughout the banking industry with a model that is paperless, mobile, quick, supported by advanced analytics and in the end state, cashless. This is our ambition. With the same philosophy, we will be rolling out a new software throughout the whole branch network in the second quarter this year. And we also be implementing the new branch model in 250 different locations this year, 10 of them with full new design as you see on the slide and the rest with the more practical kit of parts, partial solution. We will continue to increase our sales and revenue generation and further improve our efficiency. The new branch model will be complementing our digital strategy and supporting our medium-term cost-to-income ratio, targeted at 33% to 35%. And now, Ebru will share our performance in detail, after which we will be more than happy to answer your questions. Ebru, please.
Thank you, Hakan. As you mentioned, we grew profitably, despite our lower leverage of 8.4x versus 9.1x in 2016, with the support of our 10 bps enhancements in ROA at 1.9, we were able to deliver a higher ROE of 16.2% in 2017. Our full year revenue was up 16.4%, reaching TRY 13.3 billion, where our net interest income was up almost 17% and our fee income with actually accelerated in the second half of 2017 with above 15% reaching almost TRY 3 billion. Throughout the year, we will continue to focus on shareholder value and therefore, we are very successful and careful to not bear huge costs, while generating higher fees. As we have been sharing, there have been many bank-wide initiatives taken to further enhance our fee generation. One area where our investment continues to pay off is Direct Banking. Direct Banking fees, which now make up 21% of our total fee base versus 15% at the end of 2016, was up by remarkably 71% year-on-year. More than 48% of our credit cards were sold through our direct channels, up by 9 percentage points year-on-year. As you all know, mobile is at the center of our direct banking strategy. The success of the strategy shows in the numbers. Our total mobile fees more than doubled in 2017 alone. Our net non-lending linkage fees, such as money transfers, asset management and bancassurance, continues to show eye-catching increases of 43%, 27% and 21%, respectively. Our asset management company -- asset management, which has an [indiscernible] of TRY 25 billion is ranked second with almost 16% market share. As for the pension business, Akbank's management is leading in this sector with almost 21% market share and TRY 16.4 billion AUM. At the beginning of 2018, we shared that a new division for wealth management and private banking had been established at the bank. We believe this is an ideal model and in line with global standards. Our PVCO of Ak Asset Management has appointed [ an AVP ] responsible for this division. His plus 20 years of experience in asset management will no doubt help us achieve our aspirational targets. We believe this change will be a role model in the industry, strengthening our competitive position and further increasing synergy within the group. It will be a key growth area for the bank to further enhance and diversify fee generation as well as funding base. Our success in asset management supports our leading role in wealth management and private banking. Akbank Private Banking has [indiscernible] the best private banking in Turkey by [indiscernible] money in the last 8 years. At Akbank Bancassurance, we have a well-established cooperation with insurance partners of [indiscernible], and its clear organizational focus within the bank. We have completed a further bancassurance project in the first quarter of last year, after which implementation started to flourish, strengthening our leading role. Customer needs' profiling model has been designed to include [indiscernible] insurance survey and capturing [indiscernible] moments to all principal products. Products just like I've been reviewed and calibrated simplified [indiscernible] to customer needs. In 2018, we plan to launch 4 product [indiscernible] processes from mobile channels. Our focus on digital channels continues with increased [indiscernible] penetration in mobile up to 90%. We launch new products in Internet banking like home content and credit card insurance. As a result, we were able to utilize multichannel insurance sales with the focus on digital, increasing penetration as well as customer satisfaction and loyal [indiscernible] on our customers. Thanks to all these initiatives, our bancassurance commissions grew 21% year-on-year with the TRY 4 million annual policy sales. While its share in noninterest income increased almost 1 percentage point to 10%. This is the highest among peers taking into account third quarter data. As the technology [indiscernible] and customer needs are changing rapidly, we have been optimizing our branch network. Our branch optimization has been going on since 2014. We have closed 190 branches since the end of 2014, reaching 81 branches at the end of 2017, while we have actually been able to add more than 3 million customers. In 2017 alone, we closed 40 branches, while adding more than 1 million new customers. Direct banking has been an important tool in this strategy, both as a service and sales channel. As of 2017 year-end, we have reached more than 4 million [indiscernible] direct banking customers, while [indiscernible] of all transactions take part through these channels. As we mentioned in the previous slide, mobile is at the heart of the [indiscernible] strategy. We've added 1 million new mobile customers in 2017 alone, reaching 3.8 million. Mobile's share in all transactions have gone up by 9 percentage points to 78% in 2017 alone and mobile fee for customers is up by 47% in 2017 alone. Our total loan growth reached 17%. TL loans of 21 -- 24% was a key driver. As we guided during our third quarter call, during the second half we started to gain market share in TL business banking loans up by an impressive 33% for the full year, [indiscernible] consumer loans up 20%, where human [indiscernible] took place the most. We deliberately lost market share in mortgages, as yields were not attractive. On the FX side, due to low demands, our loan books remained flattish. We believe there will be opportunity in 2018 to grow low single-digits in this area, due to the low base effect. [indiscernible] continues throughout fourth quarter along with our growth. In fourth quarter alone, we grew 8% Q-on-Q in both TL business and general purpose consumer loans. You can see from the graph the outcome of our successful sales strategy gaining market share in lucrative lending products. The favorable yields of TL business banking loans and GPL, pave the way for margins improvement in fourth quarter. Our Q-on-Q average portfolio yields for TL business loans was up 40 bps, while for GPLs was up by 50 bps and our average TL loan book yield enhancement was around 35 bps. For the full year, mobile's share in GPLs have gone up by 16 percentage points to 55%. In December alone, thanks to our successful launch of new loan app, 65% of our GPLs [indiscernible] through our mobile channel, where cost is lower and cross-sell is higher. All this is no coincidence. We've done our homework in GPL and [indiscernible] alignments, where we reevaluated all procedure together with loan, risk management and product team to simplify the process without changing our prudent risk approach. With these procedures being enacted, our market share increase in GPLs from 8.89% in second quarter to 9.34% as of year-end.
In fourth quarter, our TL deposits grew 1% Q-on-Q while our FX deposit grew 7% Q-on-Q, resulting in total deposits to go up by 7% Q-on-Q. Our focus remains on gaining market share in demand deposits. Our cash management, cross-selling capabilities, along with our [indiscernible] 1.1 million customer acquisitions plays an important role in this. We have added almost 250,000 net new payroll customers in 2017, which is 5x that of 2016. 95% of payroll customers have 3 year contracts, which will help support our demand deposit base and consumer loan book going forward. Thanks to our TL -- our lower TL LDR levels versus sector and peers, we were able to keep out portfolio's average TL deposit rate flattish Q-on-Q. There is an upward trend in deposit cost starting mid-December of last year. Our full year NIM beat our guidance of 3.4% and reached 3.47% at the year-end. Our quarter-on-quarter and NIM improvement was above 62 basis points, not only due to higher CPI impact, but also due to our successful corporate management. CPI normalized fourth quarter NIM reached 3.50% still a respectable improvement up 20 basis points from third quarter. Please note that in the NIM breakdown analysis the loan and deposit yield impact are calculated on quarter and average volumes. As you know, we guided 3.5% self-adjusted NIM for 2018. Taking this is -- taking into account a 9% other inflation forecast. Every 1 percentage point upward move in inflation creates a 5 bps NIM impact. Continuous [indiscernible] to become a more efficient bank with high origination is in our DNA. With this mind-set, in order to reach one of our main goals and improving our core NIM, we are taking several initiatives. Our recent conflict development, I'd like to share with you, is our new organization structure where we have merged all of our customer relationship deposit management under one roof. This renewed focus has already helped [indiscernible] the decline in TL deposits. Its early days, but as of recent TL time deposit have started to come down and our margin is below our portfolio average. TL loan rates have come down slightly, however, the margin is still above the portfolio average, hence the loan deposit repricing placed a positive impact on NIM for now. This has been liquidity management as an essential part of our strategy. Not only have we kept our LDR levels below 105 internal limit, ending the year at 104, but also we have the lowest total LDR among all our peers and are significantly below sector average of 123 as of December data. We have kept the same [indiscernible] in place for 2018. Such an [indiscernible] of our assets are funded by our strong and stable deposit base. We have been preparing the bank over the last several years for an increasing interest rate environment. Our total FX and TL duration gap is now around 5 months, half of what it used to be a few years back. We are immune to FX interest rate increases thanks to our effective treasury management. We have been very selective in FX lending. Majority of our FX loans are to corporate. Basically, we use FX lending for short-term trade finances. We have almost no exposure -- FX exposure to SMEs. Hence, our total size on market [indiscernible] project finance loans is much lower than our peers. On the security side, we manage our security portfolio within the limits of our high-quality liquid asset requirements stemming from our balance sheet structure, with a well-balanced liquid asset portfolio in repo and bond, fixed income floating fix and CPI linker's. We timed to keep our balance composition in 2018.
Our bank [indiscernible] several successful wholesale funding transactions in 2017. In first quarter, we issued for the first time ever, a Basel III Compliant tier 2, which was 4x oversubscribed. 38 banks participated in our syndication loan in first quarter, which was more than 100% covered and we attracted 8 new banks. In third quarter, there was even more interest in our syndication loan with a tightened pricing versus first quarter. Significant oversubscription took place by 1.26x which was a record amongst all Turkish banks for syndication loan. This deal also attracted 11 new banks. This was a powerful testament to Akbank's reputation of backup choice in Turkey, as the deal attracted first comers. In 2017, we also issued 2 covered bonds with 6-year maturity amounting to [ 1.2 billion ] in total. Those are the longest tenure TL bonds issues ever transacted by a Turkish bank. Major adjustments in 2018 are as follows: In the first quarter, we have a TRY 1 billion bond redemption in February and [ $500 million ] worth of Eurobond and $1.1 billion syndication loan redemption in March. In third quarter, we also have [ $1 billion ] syndication loan redemption in September.
Although Akbank has strong liquidity, we will continue to monitor Eurobond market closely and will consider any opportunity that may arise. Please note that we are the lowest among our peers in number and the amount of outstanding Eurobond. Therefore we see some room to grow in Eurobond market. The success of our superior credit risk management is in our numbers. We have entered the U.S. significantly below our guidance in cost of risk and NPL formation. Our net specific cost of risk ended the year at 49 basis, while NPL ratio has come down by 20 basis to 2.1% in 2017, relatively below the sector average which was around 3% according to December monthly data. And this is despite the fact that we are proactively classified some -- a commercial filed as NPL in the fourth quarter. Please note that our average 10-year net specific cost of risk was 100% coverage is at 70 basis points. With IFRS 9, our net [indiscernible] coverage will come down to around 80% level, our medium [indiscernible] cost or risk should be around 55 to 60 basis points. As you know for 2018, we have guided for 50 basis points net specific cost of risk, which would translate to around 60 basis points with 100% coverage. So far it's early days, but we are performing in line with our guidance.
Now some details regarding OTAS classification in group 2 loans. We have been very prudent -- we have taken a very prudent approach in our IFRS 9 calculation. This is -- in this respect, we have allocated 25% provisioning for exposure [indiscernible] OTAS in our IFRS 9 calculations. Taking into consideration our total general assessment provisioning under IFRS 9 modeling, we still have excess TRY 500 million of provisions in BRSA. Thus we have recycled TRY 500 million from general into free privileges as of the year-end of 2017. Therefore, our total free provision as of year-end have reached TRY 700 million. Even after this reversal, our total coverage, general and specific, is still high at [ 156% ] versus average coverage for peers as of third quarter standing at 129%. As for group 2 loans, at the end of third quarter, our group 2 loans share was around 2.6% versus peers' average around 4%. After the classification of OTAS, our group 2 loans increased to 5.4%. Please note that OTAS makes up 56% of group 2 loans. Without OTAS, our group 2 loans would have actually declined further to 2.4%. We would like to give some information around the collateral side of OTAS as well. As you all know, we have [ 1.5 ] billion unpaid principal balance exposure to OTAS. The accrued interest is around $185 million. Our collateral covers around [ 70% ] of the exposure. So just to reiterate and to clarify, we have set aside 25% of OTAS exposure of provision. This is not taking into account [ $700 million ] free provision, therefore we expect no negative NPL impact for this loan. As a follow-up to the previous slide, the impact of lower specific provisions will have around 40 bps positive impact on our ROA in 2018. Please keep in mind that an ongoing profit impact is expected on our specific coverage with no longer being at 100%. That this is starting from this year onwards.
As for the cost side. Although we have missed our guidance in Opex despite an 11.9% inflation, we were able to keep costs under control and end the year at 9%. Efficiency is an important metric for the bank. I'd like to share some detail regarding our 2018 Opex guidance. Inflation pass-through from 2017 is expected to add 2.5 percentage points on Opex growth. Additionally, higher IT execution expenses, including maintenance and depreciation expenses and also marketing expenses associated with the branch optimization process will have another 2 percentage point impact on Opex. Ideally, CapEx is around $150 million normally. However, due to our visionary approach, we will be investing $300 million in 2018 and 2019. So 50% of this CapEx is nonrecurring investment such as data center, new service model, branch [indiscernible] transformation and fiber security infrastructure. We expect CapEx to normalize from 2020 onwards. The highest [indiscernible] CapEx will reflect into Opex via depreciation expenses, but the impacts on 2018 ROE will be relatively limited by below 10 basis points. These investments, obviously, are done to create ROE accretion. So they will further help our efficiency gains and revenue gearing with the value-added services. This is why for the medium-term, we are maintaining our 33% to 35% cost-to-income ratio. We had shared with you our 2018 guidance at our Investor Day. We expect to grow a tad higher than the sector in loan, once again led by TL loans and low single-digit contribution from FX loan. Here you can once again find our guidance in detail. We have discussed many items throughout the presentation. However, I would like to highlight some details regarding our ROA expectation. As you all know, this year we will have 2 percentage points higher tax versus last year. This has around minus 30 bps impact on our ROE. The lower CPI calculation we are taking into consideration has around minus 70 basis point impact. As I mentioned earlier, our lowest specific coverage has around plus 40 basis [Audio Gap] impact. Therefore, the net impact of all of these is around minus 60 basis points year-on-year on our ROE. Also, to be on the conservative side, as I mentioned earlier, please keep in mind that we are using 9% of our inflation in our CPR [indiscernible] calculation and every 1% upward move in inflation has around 30 basis points ROE impact. Therefore we maintain our medium-term ROE between 15% to 17%, targeting the upper band. This concludes our presentation. And operator, you can now open the lines for Q&A.
[Operator Instructions] We have no questions. Yes, we have one coming through and it comes from the line of Alan Webborn.
Clearly you are doing very well in terms of generating fee income from your mobile channel and you highlighted that on the call. How do you feel the competition in terms of the pricing of product is through the sort of the mobile channels. Are they getting less expensive? Are consumers happy to pay because of the ease of transaction? Could you give us some idea of how sort of competition is moving in that area? Because when clearly, it's a big source of fee generation. But arguably it's also much cheaper to execute. So I wonder how you feel that is going. And how you feel trends are likely to continue over the next sort of couple of years. That would be helpful.
Actually this is fast growth area. So every year, we actually add hundreds of thousands of customers. Last year, for example, we added like 1 million new customers. So therefore, the number of transactions are increasing exponentially. So as we mentioned, like 78% of the transaction have taken place in that mobile channel. So therefore -- there is this multiplier effect. So the more transactions, the more customers that we have, we are actually expanding our fee base. So this is one of the major reasons why we were able to increase our fees exponentially. And on the other side, I also have to tell you this probably every bank is trying to do more or less the same. So therefore this is a new area for fee generation. And the level of competition we see in the mobile is not really that strong. And the reason is actually because the fees that we're charging at mobile actually significantly less than the fees that we charge at the branch level. So it is already low and it is already very convenient for the customer. So therefore it is a channel which is preferred by many of our customers. So I see that trend probably will be continuing at least for quite a while.
Your next question comes from the line of Gabor Kemeny.
I have a couple of questions on your loan pricing policy. So looks like you're -- you are growing more quickly than the market and you still managed to increase your loan yield. So I guess the first thing is do you see attractive returns with moving towards incrementally more risky borrowers? So are you moving up on the risk curve? And then secondly, how do you see the tradeoff between loan pricing and asset quality? I mean, you mentioned you increased the loan yield just in the fourth quarter by 40 basis points. How do you see companies being able to service historically pretty high levels of Turkish lira interest rates?
Thank you very much, I think this is a great question and thank you for asking this. So the yields are quite good, I have to tell. But on the other side, we're pretty comfortable about the asset quality. And the reason is, actually, I think, to explain why I am comfortable, I think, we have to look at the market shares. So if you look at -- just as an example, this general purpose loans, on Page 8 for example, just to give you an idea, our market shares were actually was down to around 9%. So the natural market share of Akbank should be actually much higher than this because there was a period where we were not really very comfortable with the yields and so on. And there was period we were a little bit more reluctant in growing this portfolio because the yields were not really lucrative. And -- but starting from the middle of this year, we, as you said, gained around 40 basis market share, but where we are now is still around 9.3%. So still it is below the natural market share of Akbank. Akbank should be able to -- for those selected areas, should be able to reach around like maybe 11%, 12%, even 13%. There was a period where bank was operating around more than 12% in general purpose loans. So still we think that we can cherry-pick customers without really changing our lending policies at all. So we haven't really touched upon our lending policy. But with all those mobile lending and so on, we are trying offer more convenience to the customers. So it is much more practical to get a loan, but actually, this scorecard, the lending principle -- these are exactly the same. But the convenience is a little bit different because now we have more technology. So I feel quite comfortable with this. And I think, this is a similar story on the TL business loans. So yes, did we gain some market share? Yes, we did gain some market share. But where are we today? But still we are around 9.9% around 10% market share. Still we're capable of acquiring new good happy customers. So that's what we are targeting at. And again, we speak to our old lending policies, which were proven to be pretty good for so many years. But on the other side, there are certain areas we are more reluctant. And we are deliberately losing market shares. So this is actually is a very analytical team. Those areas we find prudent. Relatively good profitability, yes, we are more aggressive. But aggressive, of course, in a prudent fashion. But those areas, we deliberately give away some market share, like mortgage, life FX lending for example. That's a typical example. I mean, why upfront FX loan were significantly less than some. I think the answer is very clear because of our approach. So I feel comfortable actually.
And what's your edge on the corporate loan side? So I understand your mobile solutions in GPL help you reach your natural market share, but what about the corporate side, where you are seemingly increasing your pricing? So I wonder what's your edge here? How can you attract good quality customers?
Again, I think, you have to divide commercial loans into 3, corporate loans, commercial loans and SME loans. So the corporate side, actually, our growth was more or less in line with the markets. We gained some market share, but just very little like 10 basis or so. On the commercial, mid-size companies, again, similarly like 10 basis to 20 basis and on the SME side, again, something like 20 basis. So I think, these are not really big gains. So when you again move towards more like retail commercial, again, your systems, your technology, again your efficiency makes a lot of difference. On the corporate side, that's more like relationship and so on, which we're also feel very comfortable. I think we have one of the best practices here that has been for many, many years in corporate and investment banking. And when you move down the SME, again, this is a matter of how good you are in your infrastructure. So that yield enhancement can also be, to a certain extent, is coming from this practicality, convenient service.
Your next question comes from the line of Paul Formanko.
Just on the brand reduction, quite impressive. You've closed 20% of your branches over the last few years. Just wondering, what is the optimal size in the next 2, 3 years once you finish some of the investments? And could you also disclose the corresponding headcount numbers, just how much has the headcount changed since 2014, that's my first question. And on the regulatory front, how do you expect the FX lending evolution considering some of the recent changes in the regulation for the SMEs? And how do you see the Credit Guarantee Fund now that we know it's going to be released targeting exporters impacting your credit growth targets? And the final question is on OTAS restructuring, just if you could perhaps outline your thoughts on the timing? And how do you see the solution evolving? And if nothing changes, say in 3 months, and you will report your Q1 numbers, are we going to see higher provisions for that exposure?
Okay, first the branch numbers, we will continue with the branch optimization. So typically, our number of reductions is, until today was like 50 to 100 range. So we were a little bit faster at the beginning, but last year we closed down like roughly 40 branches. So I would imagine that in the next couple of years, this roughly 50 would be a reasonable branch reduction size. But however, we are not really doing this just for pure cost-reduction reasons because revenue generation is very important for us. Increasing enough number of customers is very actually important for us. So as Ebru mentioned in her slide, we closed like 200 branches, but during the same time gained like 3 million customers. So we're approaching this in a very sensitive and in a very analytical manner. So we're trying to optimize this cost-reduction as well as revenue enhancement. But with all those digitalization and so on and also this our new branch model will, I guess, will be contributing to this. That will be complementary to our digital vision. I think, we will be continue with the branch optimization for quite some time. So I don't really want to give you a number, but over the next, I would say 3 to 4 years, I think, we will more or less continue with the similar speed. So this is about the number of branches, and still we will be growing. You'll still see Akbank acquiring new customers, increasing number of transactions, increase revenues, et cetera. So this is our ambition. In terms of number of people, so we're like 14,000 people today. So where was Akbank like, I think, you asked like 2014 couple of years back? I think, at the top of my head, I mean, this is a wrapped rough number, but I would say we were around 17,000 I would say, so that is quite a lot of efficiency gain in that area. But I think what is even more important if you look at the profile of our people today versus several years back, I think, it is significantly different. So when you look at the profile, now we have like 95% university graduates, like 10% with Masters and PhD degrees because the bank is much more analytical now. So there's lots of machine learning, artificial intelligence, [indiscernible] number crunching, optimization and so on. So what I'm trying to say here, maybe we have still quite a lot of people, but the composition is very different. So when you look at it today, we have relatively less number of -- significantly number of routine operation type of people, less number of maybe tellers. But on the other side, we have more marketing people. We have more people on the field -- sales -- people who can give advice, so more value-added services. So 2 things are happening at the same time: number of people are being optimized and at the same time the type of people that we have -- the composition is changing significantly. And it is a very millennium mind-set. All these people are very digital, all of them are now mobile. This is also part of our strategy in this new branch model. So every salespeople in Akbank today is mobile, who can deliver services in branches as well as outside the branches. So this is the people size. There was a question about FX loans, SMEs. So SME actually when you look at our portfolio, we don't really have exposure to SME at all. I mean, even if we have something very limited, if they have, actually, exports to outside and so on. This is the only way that we were granting loans to SME companies. So the impact of this on us would be something very marginal, quite frankly. So I don't see an impact there, because as you already know, to start with, we have a relatively smaller FX portfolio in the bank. So I am really comfortable in that area. You asked about CGF. CGF as you know, the limit was [ 250 billion. ] So roughly [ 200 billion ] was already utilized and out of that [ 200 billion ], some of those loans were paid back. So I think, these are just, again, rough figures, but just to give you an idea, out of that [ 200 billion ], now I think roughly [ 170 billion ] is like outstanding. So there is this [ 30 billion ] already paid back. So by the end of this year, probably, there will be another [ 60 billion, ] that will be paid back. So [ 30 billion ] plus [ 60 billion, ] so together there will be an opportunity for the banks to give like [ 90 billion ] out of that [ 200 billion ] that they have already granted. So on top of that, I think, we should add the difference between [ 250 billion ] and [ 200 billion ], which is another [ 50 billion ]. So there's this, probably, a capacity of roughly speaking, [ 140 billion ] CGF loans in 2018. But the government, I think, this is a very sound decision, actually, that they will be putting some restrictions around those CGF loans. These loans -- will be more targeted towards export-oriented companies, for those companies with new investments. So this is actually something good for the economy, but there is this still some potential for future growth in this area. And your last question was about OTAS, about the timing and so on. So what I can say, because there are different parties involved in this. So it is not only a decision of Akbank, so the government is involved, there are some other parties -- the banks are involved and so on. All I can say, just to be fair, and transparent to you, there are some discussions. But there's nothing solid, actually, I can say at this stage. What I can say, government wants to resolve this. But until today, it was because of different issues and so on, maybe it was not a top -- couldn't be a top priority. It was not at the top of the agenda because of various reasons. But this is something everybody is trying to focus and resolve. But I cannot really give you a time on this because there are multiple parties around this. I don't know if I answered all your questions, I guess.
We have no further questions on the telephone lines if you wish to continue. We do have just a late question coming through. Would you like to take this one first or would you like to take the one on the webcast?
It's fine. We can take that one, please.
Okay, it's from the line of Deniz Gasimli.
I just have a few question on OTAS as well. Just want to confirm the numbers -- figures that you provided during the call. So the exposure is as far as I understood $1.5 billion and with collateral coverage of 70%. And this quarter, you booked general provisions, which will cover 25% -- which covered 25% of the loans total collateral plus general provision coverage increases to 95%. Just want to confirm that. And my -- there is a follow-up on that in case if there's any positive outcome on OTAS, will that result in you reversing those general provisions? And if I may also ask, given that you had $2 billion of excess general provisions prior to this quarter, why did you have to book general provisions on top of that? Or could you have used the existing general provision reserve to report this OTAS exposure? Or is there like a regulatory requirement that you have to appear to -- even on the very first time where you have to increase your provision coverage when the group goes -- when the loan goes to group 2 loan? And just if I may on the last point. When I was looking at the quarterly statement, I see a big increase in other noninterest income, which seems to be coming from recoveries collections on nonperformance loan. Just want to confirm if you have a big increase in collections during the quarter.
Okay. Let me start from your last question, regarding the increase in other income lines. Actually as we have said, we have reverse TRY $0.5 billion general reserves in fourth quarter. This is actually why you see this increase in other income line. This increase is mainly coming from this general reserve reversal. Actually you will see the opposite in our provision expense line where we have booked our TRY 0.5 million -- billion free provision. This is regarding this increase in other income line. As I said, you see the same in the opposite direction in our other -- in our provision expense -- provision line. Regarding OTAS, actually your understanding is completely correct. We have put 25% allocation -- we have provided 25% provision for OTAS. Plus, as we said, we have covered by our -- by the collateral at around 70%. So it makes up 95% in total. But we should keep in mind, this market cap calculation doesn't take into consideration any consult premium. As you know, the lenders keep [ 55% ] of the telecom share, altogether, so actually it gives us control power in that sense, which we think will give an upside. And regarding this -- all this general reserve license, as you have correctly said, in the -- at the end of the third quarter, our excess general reserves were amounting to TRY 1.8 billion. This TRY 1.8 billion was actually coming from our excess reserves compared to minimum requirements of BRSA. As you may remember, at the end of 2016, BRSA had lower general provision ratios for retail loans, for restructuring loans, et cetera, et cetera. But we haven't applied these low percentages to our portfolio so thus kept this TRY 1.8 billion excess reserves in our books. This was actually a preparation for IFRS 9 calculation because at that time we didn't know how IFRS 9 calculations would look like. So at the end of the year, we have done our IFRS 9 calculation and in this respect, actually, we have also allocated [indiscernible] percent provisioning for OTAS. So in other words, actually, you're right, actually, we've used some portion of these excess provisions keeping in our BRSA books for OTAS. And after this calculations, we had TRY 0.5 billion reserves in excess. So that's why actually we have reversed it from general provisions and record it as free provisions. I hope it was clear. And at the end our free provisions have reached TRY 700 million. I hope it is clear.
Any further questions operator?
We have no further questions. Thank you.
Just as some maybe concluding remarks. Maybe I should mention about this dividend policy, what we are thinking about dividends this year. So my -- until recently, we have been paying, like, roughly 20% over the last several years. But now the level of profitability and the level of capital adequacy ratio that we have that this year and looking forward, we are very comfortable with our profitability guidance looking forward. So therefore, we think that we will be able to come up with a more higher dividend payout ratio, around 25%, I would say. And also, which I would like to mention, actually, our equity pickup policy that we started implementing in the last quarter. So now this dividend calculation will be on a consolidated basis. So therefore, this is another actually
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points difference, when you compare with the previous years. So therefore, this 25% is actually equal to, in other words, last year's 27%. So this is something which I would like to mention before we close the session.
So in summary, what I would like to say in 2018, our focus will remain on profitable growth, but still with solid asset quality, solid risk management and also being a role model for the sector in efficiency and digitalization. And I have full confidence actually in our management team and our people for the execution of our visionary strategy. And I would like to thank you once again for your participation and support. And we look forward to meeting you all throughout the year. Thank you very much. Have a good evening. Thank you very much.
Thank you. Ladies and gentlemen, that does conclude your conference and webcast for today. Thank you all for participating, and you may now disconnect.