Akbank TAS
IST:AKBNK.E
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
33.64
69.8
|
| Price Target |
|
We'll email you a reminder when the closing price reaches TRY.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Akbank TAS
You don't have any saved screeners yet
Dear friends, welcome to Akbank's Fourth Quarter 2020 Financial Results Webcast and Conference Call. This is Ebru speaking, the Head of IR and Sustainability. Today, I have with me Türker Tunali, our CFO; and Ilknur from our IR team. I hope that you, your families, your colleagues and all your loved ones are doing well.
Before presenting our fourth quarter results, let's kick off with the macro side. After a sharp decline in the second quarter of last year, starting from third quarter, the Turkish economy posted a significant recovery, mainly driven by domestic demand. Although this recovery is not broad-based or this -- regarding the service sector are still prevalent, we envisage that we will be able to reach around 1.5% GDP growth for 2020. We expect this recovery trend to continue this year, also supported by a relatively constructive outlook towards emerging markets globally.
Our growth projections for the year stands at 4%. Equally important, 2021 will also be a rebalancing year. The economic cost of the pandemic and the domestic demand and recovery have been a widening current account deficit and accelerating inflation. We expect normalization in both current account deficit and inflation this year. We project annual inflation to remain elevated until April and then to start declining thereafter and to end the year around 11.5%. As the CBRT is very clearly communicating, we expect tight monetary policy to continue to secure the desired disinflationary process and rate cuts to be gradual and start during third quarter.
When we look at the high-frequency data, we also see that the ongoing recovery is quite robust in many segments. Most recently, Manufacturing PMI, which declined a bit in December to 50.8%, reaccelerated to 54.4%, its highest level since July last year. Similar trends are also observed in Real Sector Confidence Index and capacity utilization rates. On the other hand, relatively elevated levels of unemployment rate is weighing on consumer expectations and keeping the rebound muted. Potential decline in current account deficit and expected rebound in tourism revenues may lead to considerable positive contribution of net exports for the year.
Regarding the financial and banking sector development, with a decisively tight monetary policy and tight financial conditions, TL money market interest rates and TL deposit rates increased by around 900 basis points from their low level mid-July. This increase in funding costs has been reflected to loan yields and has resulted in 13-week annualized average TL loan growth to slow down from its plus 60% levels mid-last summer to high single digits currently. On the other hand, FX loan growth continued to contract throughout last year. Recently, the trend has been more flattish. We expect FX loan demand to remain relatively muted this year.
And now on to our bank. During last year, despite the unprecedented challenging environment, along with the rising funding costs, we successfully managed to preserve our solid core operating performance with a continued focus on balanced asset and liability management without changing our risk metrics. As for the fourth quarter, our reported net income was up 21% quarter-on-quarter to TRY 1.851 billion with full year reaching TRY 6.260 billion, up 17%. Our prudent reserve bills and increase in coverages during the previous quarters was a supportive factor for the quarter-on-quarter net income improvement.
Our reported ROE stood at 10.9% for the year, in line with our low-teens ROE guidance. When adjusted for the TRY 500 million pre-provisions we set aside during the year, our full year ROE is at 11.7%. Despite higher funding costs in the second half of the year, we achieved an 18% increase in our full year swap-adjusted NII. Supportive factors were growth, proactive securities positioning, low maturity mismatch as well as CPI linkers, which worked as hedge.
While credit costs have weighed on our full year profitability, we generated a solid pre-provision income of TRY 16.734 billion, up 19% year-on-year. This robust performance, which enabled the bank to build further reserves, 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 total coverage ratio reached 6%, which excludes our TRY 1.150 billion pre-provision stock.
Thanks to our proactive and prudent IFRS 9 implementation, cost of credit has been improving since it peaked quarterly in the second quarter. This improvement is in line with our guidance and also a harbinger of gradual normalization for 2021. And as always, our robust capital of 19.8% with a solid buffer of TRY 26.500 billion without forbearances remains a significant source of strength and supporter for growth in 2021. We have already started to gain some market share in consumer loans during fourth quarter, which I will go into detail more later. All of these underline the inherent benefits of our diversified business model.
So let's move on to the drivers in detail. Our total assets were up 24% year-on-year to TRY 478 billion while our total net loans were up 22% year-on-year to TRY 263 billion. Loans make up almost 55% of our total assets with growth being led by TL. TL business banking loans are now 42% while consumer loans, including credit cards, are around 23% of our total net loans. Our FX loans were down 9% year-on-year to $12.4 billion. This low FX loan base ties in with our flattish FX loan outlook for 2021. Our securities share in total assets remain around 21%, whereby over 60% is now in CPI and floating rate securities, thanks to our proactive positioning.
Going into the TL loan book in more detail. Our year-on-year TL loan growth was broad-based among business banking, consumer and credit cards. However, for the quarter, as we guided during our Investor and Analyst Day, we have started to gain market share in consumer loans, where our quarter-to-quarter market share gain stood at 30 bps. Our quarterly market share gains in the consumer segment was across the board: 35 bps in general purpose consumer loans; 15 bps in mortgages; 70 bps in auto loans; as well as 35 bps in consumer credit cards.
Our digital channels play an important role in the market share gains. Over 65% of our credit cards and 74% of our GPLs are sold through our digital channels. 62% of our GPL originations are preapproved and separately, around 31% are to salary customers. Our investments in advanced analytics will continue to be a supportive factor in retail lending. You may find the details to our digital performance in the appendix. As for TL business banking, following the growth in the second quarter, which was mainly in short-term loans, there has been a deceleration trend in the second half. Our low TL loan base and strong capital will work as supportive factors for this year's 20% TL loan growth guidance.
Our total security book is up by 22% year-on-year to TRY 102 billion. In the fourth quarter, we increased our foreign currency securities by 17% quarter-on-quarter with our Eurobond purchases with an average maturity of around 4.5 years and the average yield close to 6%. Our TL securities were down 5% quarter-on-quarter and the composition changed in favor of CPI linkers and floating rate, which now make up 62% of total. Please note that every 1% CPI has around TRY 250 million net income and 6 bps NIM impact. As you may also remember, we had shared during the third quarter that we have reduced the average maturity of our fixed rate bonds to around 1 year, and a good portion will be maturing towards the end of first half. Positions in foreign currency and TL securities portfolio were taken at the right time and will be contributing positively to NII this year.
We continue to have a well-diversified and disciplined funding mix, where deposits are our main source of funding with 61% share. Our total deposits were up 20% year-on-year to TRY 293 billion. Demand deposit growth was very robust with an increase of 71% year-on-year, reaching 31% of total. Sticky and low-cost deposits, such as SME and retail, are 72% of total TL deposits. We maintained our total LDR at low levels. As you know, towards the end of the year, there was a temporary increase in TL deposit rates, which has started to ease in the last few days.
Considering Akbank's capacity to access TRY funding easily via various channels, we did not want to unnecessarily increase our TL deposit cost towards the end of the year. Therefore, there was a temporary increase in TL LDR last quarter. Going forward, with the recent international influence of Turkish markets and [ probably ] utilization trends, we expect an easing here in our TL LDR ratio. On the FX side, we have a very strong liquidity with an FX LDR of 47%. As a result, our total LDR stands at 94%, significantly below the sector's 103%. Our focus remains on broadening our deposit base.
We have a well-established wholesale funding profile, which is around 14% of our total liabilities. During October, we successfully rolled over $800 million syndicated loans with LIBOR plus 2.5% and EURIBOR plus 2.25%. Our fourth quarter average foreign currency LCR is robust at 255% and our foreign currency liquidity buffer is noteworthy at $12.2 billion. Over the next 1 year, our wholesale redemption schedule is only $2.7 billion, of which around $1.5 billion are syndicated loans. We do not have any Eurobond maturing this year. Due to our ample FX liquidity and low FX loan demand, moving forward, we will continue to be opportunistic in our borrowing strategies.
And now on to P&L. Our quarterly swap-adjusted NIM was down by 6 bps quarter-on-quarter to 3.61%, reaching 4.12% for the year, which is flattish year-on-year and, as guided during our Analyst and Investor Day, slightly lower than our full year guidance. For the quarterly performance, higher funding costs due to CBRT tightening as well as higher swap costs was offset by the positive contribution of CPI linkers. To put into numbers, our quarterly swap cost was up TRY 1.566 billion, up by 60% quarter-on-quarter due to both increased swap usage as well as higher yields. Our average short-term and long-term swap utilization was around TRY 57 billion, up by TRY 14 billion quarter-on-quarter, led by short-term swap usage.
During fourth quarter, NII contribution of CPI adjustment was TRY 785 million, corresponding to a 71 bps positive quarterly NIM impact. Looking forward, we expect NIM to bottom out in first quarter. With regard to asset repricing, please keep in mind that significant amounts of our TL loan book, excluding overnight loans and credit cards as well as TL securities, will be repriced towards the end of first half. Currently, marginal deposit rates are similar or slightly lower than our back book. So probably, we have seen the top in deposit costs whereas upward repricing in TL loan portfolio is ongoing. This is why we expect our NIM to bottom out in first quarter, ending the full year 20 to 30 bps lower year-on-year.
Our fees were down by 8% year-on-year to TRY 4.549 billion, as indicated previously in our guidance. Payment systems and money transfer weigh on our fee performance on back of regulatory changes, lower volumes due to COVID, along with fee waivers we provided to our customers during the year. Our wealth management business showed an outstanding performance, up by 117% year-on-year, now contributing to 15% of fees versus 6% at the end of 2019. Our efforts in client acquisition by utilizing all of our distribution channels, along with our product innovation and value-added services as well as our end-to-end redesign of the mobile investment transactions, continue to be supportive factors in this area. We expect fees to revamp across the board this year and reach high-teens growth.
And now on to the cost side. Effective cost management is our strong muscle. We have a very low cost base, which gives the bank a lot of flexibility in this environment. Still, we continue to look line-by-line for expense control. Our OpEx is up by 15% year-on-year despite the currency volatility, when we adjust for the one-offs, such as the BRSA and insurance penalties. As a result, our cost-to-income ratio ended the year at 33.8%. For this year, we expect mid-teens OpEx growth due to increased marketing efforts and regulatory expenses, which are in line with our growth strategy. However, our low-cost base and solid revenue generation will support our best-in-class cost-to-income ratio. And we will continue with our disciplined cost management approach while investing in our future.
And now on to asset quality. Our Stage 2 loans have declined from 11.6% in the third quarter to 9.4% of our gross loans. The decline in Stage 2 loans was mainly due to some well-covered commercial files moving to Stage 3. We were following the development on these files for some time and had previously set aside significant provisions. Therefore, this reclassification had immaterial P&L impact as can be seen in our quarterly cost of credit evolution. As a result, our Stage 3 loans increased from 5.8% to 6.2%. We had only TRY 701 million write-off during the quarter, which had 25 bps NPL impact.
On a very positive note, the resolution of some legal processes of some commercial files, our monthly average collection performance has reached above pre-pandemic levels. As for the BRSA staging forbearances, of our 30- to 90-day files, only TRY 500 million are in Stage 1 with strong coverage while 90- to 180-day files amount to TRY 1 billion. If all of them plus 90 days will be booked as NPL, the impact would be around plus 40 bps. But looking at the past trends, we expect around 40% of these to become NPL. And also due to the coverage, we expect limited P&L impact.
As implemented in many countries in an effort to help clients manage their liquidity needs and to alleviate customers with cash flow burden, since March, there had been long installment deferrals. We continue to support our customers while maintaining credit discipline and balance sheet strength. The original deferred risk principal amounted to TRY 28 billion. This deferred has come down substantially by year-end to TRY 22 billion, which is 8% of our gross loans. We have increased our quarter-on-quarter coverage for the deferred loans by 200 basis points to 7.2%. Around 70% of the customers had matured installments. And the repayment performance is very strong.
Despite the staging forbearances, we did not deviate from IFRS 9. And as in the past, we booked necessary provisions for potentially problematic assets even before classifying them to Stage 2 or Stage 3. As a result of our prudent approach, our coverages for all 3 stages have increased year-on-year and remained around the elevated third quarter levels. Thanks to our prudent reserve build, our total provisions have reached TRY 17 billion with net provision charges of TRY 5.5 billion in 2020, resulting in total coverage of TRY 6 billion -- sorry, total coverage of 6%, sorry. On top of this, we have TRY 1.150 billion pre-provisions in total as additional buffer.
On the other hand, thanks to our proactive and prudent IFRS 9 implementation, cost of credit has been improving since its peak in the second quarter. Our full year cost of credit is better than our guidance at 227 bps. When adjusted for currency, it was even below 200. This improvement trend is a harbinger on gradual cost of credit normalization for 2021, where we do expect our cost of credit, including the currency impact, to remain below 200 basis. As a side note, we shared that our LYY low risk has been hedged since third quarter. Therefore, the mark-to-market adjustment is offset at the trading line. And LYY is not included in our cost of risk calculations.
We entered this pandemic in a significant position of strength. Despite all unprecedented challenges, our solvency ratio remained well above regulatory limits at 19.8% total capital and 16.9% Tier 1 and core equity Tier 1, excluding forbearances. Internal capital generation continues to be a key driver of our solid solvency ratios. We have an outstanding TRY 26.5 billion excess total capital and TRY 28.8 billion excess core equity Tier 1, both according to Basel III minimum requirements without any forbearances. Including the forbearances, excess total capital and core equity Tier 1 would be at TRY 28.8 billion and TRY 30.8 billion. Our robust capital remains a source of strength and significant advantage to generate profitable growth going forward.
So to sum up, 2020 was no doubt another challenging year, where our financial strength and operational resilience remains intact, and our positioning will enable us to leverage our strength while carrying out our priorities for improving profitability this year. Last but not least, here, you may find the summary of last year's performance as well as this year's guidance.
And now this ends our presentation. Let's move on to the Q&A.
[Operator Instructions] And the first question I see here comes from Gabor.
A couple of questions, please. First one is on the dividend. Can you share your thoughts on the regulator's recent indication, which enables the banks to pay, I believe, up to 10% of the earnings from 2020 results? What's your outlook here? And what's the timeline on paying out potential dividends?
And the other question, you mentioned this normalization in cost of credit, which happened in the fourth quarter. You are around 100 basis points on an FX-adjusted basis. Can you give us an idea whether this might be seen as a kind of run rate for the coming quarters? Or do you see incremental nonperforming loans which could change this trajectory?
Gabor, this is Türker. Thank you very much for your questions. Let me start with the dividends. As you have mentioned, last week, there was [indiscernible] of BRSA allowing banks to distribute dividend up to 10% of their annual income to this last year's income. As you know, we shared our -- we were sharing our thoughts in all the meetings, actually. We are very well capitalized and we would like to distribute dividends. In the last 2 years, we were not able to do because of BRSA's restrictions. So this year, there is a possibility of limited -- there is a possibility to distribute dividends from last year's income. And actually, we have started necessary procedures because there is an approval procedure by BRSA.
We are in contact with BRSA. If -- I think you will hear from us in the coming days. But normally, we are doing our general assembly towards the end of March every year. So if everything goes according to the plan, also we have [indiscernible] pandemic-related delays as well in general assembly. But our plan is to make our general assembly towards the end of March. And if we can get necessary approvals on time, we would like to use this opportunity at the general assembly.
And with regard to cost of credit, actually, in the fourth quarter, as you guide -- as you mentioned, whether our cost of credit was limited to 110 basis points, 115 basis points, excluding currency impact. As you may remember, in our guidance for '21, we had indicated that we were expecting the gradual -- cost of -- gradual improvements in cost of credit to start. And we were expecting cost of credit to be less than 200 basis points. So we are keeping this guidance.
But as we have shared, so results of the fourth quarter are showing a positive trend. But whether we can take it as a proxy for full year '21 is a bit questionable. Because this month -- this quarter's strong results was also partially due to the fact that we had provisioned strongly in the previous quarters. So therefore, actually, we benefited from this provisioning in the first 9 months. So we expect a normalization. But let's wait and see.
[Operator Instructions] There's a question regarding our Tier 2. What are your thoughts on the call option on your Tier 2, which is callable in 2020? Were you looking to refinance these bonds if the market conditions do not change materially?
First, as you know, normal market practice that we've been sharing is to call these bonds. And obviously, BRSA approval is final. So this is what I can share with you. But the normal market practice is obviously to call these -- the bonds.
[Operator Instructions] Okay. Actually, there's one question. [ Pinar ]?
I just want to have -- I have a question regarding like the January 2021, how the TL loan deposit spread is faring. If you could give a bit of color regarding the Q1 trends, that would be really helpful.
[ Pinar ], this is Türker again. Actually, as we have also shared during -- during our guidance call, starting from the beginning of especially fourth quarter actually, we observed an increasing TL funding cost. Especially towards the end of the year, actually, there was a strong squeeze actually, especially on the TL deposit side. And as a result of that, actually, there was a contraction of Q-on-Q basis by roughly 2 percentage points from third quarter to fourth quarter.
So currently, we are at similar levels because, as Ebru has mentioned, repricing on -- at this point of time being, repricing of TL deposit book has actually -- has finalized [indiscernible] and we are seeing some easing lately in margin of deposit rates. So therefore, starting from now, if we don't see another squeeze in TL deposit cost, we are expecting gradual improvements in core spreads. But what I can say Q-on-Q basis, we had contraction of by roughly 2 percentage points.
When you say 2 percentage points between Q4 and Q3, this is continuing in Q1 versus Q4. Am I understanding this correct?
Actually, Q3 to Q4, there was a contraction by 2 percentage points. And currently, it is -- actually, we haven't seen it further. So roughly -- we had limited construction, roughly 20 to 30 basis points on top of it and it has stabilized. So in the last 1 week actually, we didn't have any further contraction.
And just additionally, have you -- I might have missed it on the presentation. And if you have mentioned, apologies. Have you noticed any change in the sort of demand deposit ratio on the TL front in Q4 in terms of like shrinkage in the demand deposit share on the TL front due to high interest rates?
Actually, we can also observe it actually from BRSA. Because actually, compared to third quarter actually, in the fourth quarter, there was a shrinkage in demand deposits actually in the fourth quarter because of higher interest rates. But currently, it is much more stable actually compared to fourth quarter.
Thank you, [ Pinar ]. I will -- now Alan Webborn.
Can you hear me?
Yes, we can.
Good. Just a small point of detail. Could you talk me through the net impact of the LYY hedge in Q4? Because I'm just looking at your income statement highlights, and I can see a negative and a positive. But it's still a net negative. So is there something I'm missing there in terms of the hedging?
And I guess the sort of the other question was, I think, clearly, a very strong end to 2020. And I wondered, did management think about whether they should have topped up pre-provisions? Clearly, decided not to. And does -- is that a sort of basically you telling us that you think you are pretty well provisioned from where you stand today? I'd just be interested in terms of why you didn't take that opportunity in Q4.
Alan, this is Türker. With regard to LYY impact, as we can see because of currency appreciation in the fourth quarter, Turkish lira appreciation, from this hedge, we had roughly a hedging cost of TRY 430 million whereas the mark-to-market gain was roughly TRY 230 million. The main reason is actually there is small unhedged portion, very minor one. And actually, on top of it as we can know, as you know, the interest-earning assets. And because of the -- we are also booking interest income and we are also provisioning for this interest income. That's the main reason for this gap is because of this interest income differential and small impact.
Okay. So I mean is that a sort of -- so going forward, should we assume it's 100% hedged or not quite?
Almost -- yes, almost. Actually, 100%, I mean to say yes. The main net impact will be coming from the interest income side and potential fair value changes of the assets in Turkish lira terms, I mean. And with regard to pre-provisions, actually, we are comfortable with our provisioning levels. Actually, the provisions we have booked so far in 2018, '19 and '20 as a result of which actually we are carrying roughly TRY 17 billion of provisions. So a total -- a net total coverage of 6%.
So that's actually -- and for next year, actually, we are expecting starting from this year actually -- starting from this year, we are expecting a gradual improvement in cost of credit, which we can also share also, we have seen the initial signals in the fourth quarter. Therefore, we didn't prefer to put additional pre-provisions.
Thank you, Alan. There's a call -- there's a question, a written question coming in. Central Bank stated that rates will stay longer. Will you change your guidance? You canceled in rate cuts in midyear if I'm not mistaken.
I can maybe start with this and then maybe, Türker, you can add. Actually, we did not cancel midyear. We canceled in third quarter. And as I just shared as well earlier, we expect a gradual decline in the interest rates. And we expected, as in line with the disinflation process, that we expect this to happen during third quarter. And actually, the main rates to come down towards the end of the year as inflation comes down to 11.5%. But maybe, Türker, you'd like to also add to this?
Yes. That's right, actually, Ebru. Thank you very much. Central Bank -- it seems that Central Bank is going to keep its tight monetary policy for a while. But also, we have actually, let's say, a buffer on the CPI linker side. Because in our guidance, we have assumed 11% inflation for CPI linkers. And actually, when we look at the latest expectations for October-to-October inflation, it may go up to maybe 13%, 14% levels. So we may have some additional benefits from CPI linker portfolio, which we have actually increased in nominal terms in the fourth quarter. Now currently, our CPI linker portfolio is making up roughly 50% of our TL securities book.
Okay. There's also a question regarding our deposit growth compared to peers, let's say, it says here in 2020, specifically in the fourth quarter.
Maybe I can talk about the total numbers again. We have the details -- all the details in the presentation, you can also find. Quarter-on-quarter, total deposits were down by 1% quarter-on-quarter while year-to-date actually was up by 20% year-on-year. Our demand deposits were actually down 3% quarter-on-quarter while up actually 71% for the full year. Now around 31% of our total deposits is demand deposit, if I can say that.
I don't think there are any further questions here. We have answered all of them. But if there's any further questions on the line, please do raise your hand. If not -- there's one question coming in, sorry, okay. Simon, you're free to talk.
Yes, just a quick question. Maybe could you elaborate on your write-off policy? I've seen some of your competitors have done quite hefty write-offs. I mean, going forward, when would you expect to increase your write-offs? I guess, they were a bit higher than usual in the fourth quarter. But yes, talk about that.
I can't comment actually too much on our peers' write-off policy. But actually, every year, we are looking at our portfolio. [indiscernible] see an opportunity or need, so we make some NPL sales and/or we are writing off some of the portfolio. And this year, actually based on that, our colleagues actually have reassessed the portfolio. And as a result of which, we have written off roughly TRY 0.8 billion of NPL -- sorry, TRY 0.7 billion of NPL from our loan book. Maybe to give you an indicator for '21, as you know, we are -- we have guided for an NPL ratio of less than 6%. In this assumption, we have assumed roughly 1% NPL write-off and/or sales in total.
Any further questions? All right. Well, thank you very much for joining us today. Obviously, we are here to help if you have any further questions. And we look forward to being in touch with you for the remaining of the year. Have a great evening, everyone. Bye-bye.
Bye-bye.