Albaraka Turk Katilim Bankasi AS

IST:ALBRK.E

Earnings Call Transcript 2021-Q3

[Operator]

Ladies and gentlemen, welcome to the Albaraka Türk Third Quarter Financial Results Conference Call. Thank you for standing by. [Operator Instructions]

I will now hand you over to CFO, Mr. Mustafa Cetin. Sir, the floor is yours.

[Mustafa Cetin, executive]

Thank you, Anita. Thank you very much.

Welcome to our third quarter investor presentation. I'd like to first talk about our financial highlights. And I will talk about a little bit regarding the market comparison. And then in the Q&A session, I will try to answer your questions.

On Page 3 in our presentation, you can see Albaraka Türk financials -- third quarter financials in summary. As you see, our total assets year-to-date 20.8% year-to-date growth, which is -- came from TRY 69.3 billion to TRY 83.7 billion. Total funded credits, we have 15.4% increase again year-to-date. It reached TRY 46.8 billion. Our total NPL TRY 2.7 billion, which implies 35% increase year-to-date again. Our deposits, including interbank and others, TRY 66.7 billion, which implies 29.3% year-to-date increase. Our shareholders' equity is almost the same level at TRY 4 billion.

This is balance sheet items in general, for the income statement side. Our net profit share income dropped 23.6% year-on-year, which is TRY 944 million. Net fees and commissions income, on the other hand, we have 68.5% year-on-year increase. It reached TRY 274 million. Our provisions for loan loss 19.7% year-on-year decrease, which is TRY 738 million. Our operating expenses TRY 1.08 billion, which implies 13.9% year-on-year increase. Our net profit at the bottom line dropped 62.6% year-on-year, which is TRY 51 million at the end of the third quarter of this year.

On the right-hand side, you see the key ratios. The first ratio is capital adequacy ratio. At the end of the third period, it is 12.98%. Our Tier 1 ratio is 8.8%. Our NPL ratio is 5.65%. And our provisioning for Stage 2 -- Stage 3 loans, 63.7%. Our net profit share margin, 2.18%. Our cost/income ratio is 59.3% for the third quarter of this year. This is our key ratios.

On Page 4, you see the details in terms of asset side. As you see, our total asset reached TRY 83.7 billion at the end of the third quarter. Our total funded credits, TRY 46.8 billion. Total collected funds, TRY 66.7 billion.

Left-hand bottom side, you see our equity side. Our equities at the end of the third quarter 12.98%, 6.98% came from common equity Tier 1, 1.82%, additional Tier 1, 4.18% came from additional Tier 2.

On the right-hand upper side, you see the net profit developments on quarterly basis. On third quarter, you see we have TRY 51 million net profit, which was TRY 137 million in the same period of previous year. And 1 year earlier than previous year, it was only 11% -- TRY 11 million as you see.

Our net profit share margin on the right-hand bottom side, you see, there is a slightly dropping percentage you see there. At the end of the third quarter, our net profit share margin dropped to 2.18% levels. We will talk about the reasons on that side. As you know, the cost of funding side, just like the other Turkish banking system, has been growing up because of the higher interest rate environment. But as you see, the higher interest rate environment about to close and the new cost of funding probably will be less than the previous period of this year. So most probably, we will see a better net profit share margin stemming from the reducing cost of funding side going forward.

On Page 5, you see the asset composition of our bank on the left-hand side. The composition of total assets, the majority is 55.9 percentage funded credits, securities portfolio 14.8%, cash and liquid assets 26.1% and others 3.1%. This is the distribution of our assets.

On the left-hand bottom side, you see the total securities portfolio distribution. Available for sale, held to maturity and marketable securities side, you can see the details. The total securities portfolio is TRY 12.4 billion approximately.

On the right-hand upper side, you see the liquid assets situation on quarterly basis. Our liquidity assets of -- as a percentage of total assets reached 14.7% (sic) [ 34.7% ] levels, which is TRY 29 billion levels. The securities yield on the left -- right-hand bottom side, you see the securities yield. There is, again, a decreasing trend on that side. But for the last 2 quarters, it seems flattish. Most probably, we will see upward development moving forward from third quarter results and going on.

On Page 6, you see operation performance breakdown details. On the left-hand side, the key movements in income in terms of TRY 1 million. You see the add and drop of the previous year's same quarter results. Profit share income is the major contributor and then fees and commissions. Trading income has negative effect and others has almost the same positive effect on trading income as a level. And we reached TRY 4.4 billion.

On the left-hand bottom side, you see the net fees and commission income on quarterly basis TRY 1 million. We have TRY 103 million net fees and commissions, which is upward slope you can see over that. So the fees and commission side on quarterly basis, it's going up steadily.

On the right-hand upper side, you see the net profit share income developments. We have -- on the third quarter, there is a slightly increase on quarterly basis on the net profit share income side for this year. This is the maximum level. For the last quarter, most probably, we will see much more better shape in terms of net profit share income side.

Our cost and yield movement on the right-hand bottom side, you see the details. Our credit yield 8.63%. Net profit share margin, on the other hand, has been dropping down to 2.18% levels. As I said earlier, we are expecting going up, and this is most probably we will see the least figures as a percentage in terms of net profit share margin because of the higher cost of funding side for this year, most probably, again, for the same reason, because of the less cost of funding side, most probably we will face with higher net profit share margin moving forward.

On Page 7, you can see the funded credits portfolio details. The total funded credits, including financial leasing in terms of TRY 1 million on year-on-year base, we have 14.5% increase; year-to-date, 6.2% increase. At the end of the third quarter, our Turkish lira credits reached TRY 22.5 billion. Our foreign currency credits in terms of U.S. dollar, again, on year-on-year base, we have 8.8% increase; on a year-to-date base, we have 8.5% increase. For the third quarter, we have USD 2.6 billion foreign currency credits.

And we have FX indexed credits, still it's going down. We don't have any new FX indexed credits. It's coming from the previous years, and it's going to 0 levels. Our total credits in terms of Turkish lira equivalent, we have 15.3% year-on-year increase and we have TRY 46.8 billion. This is our total credits in terms of local currency.

On the left-hand bottom side, you see the composition of total funded credits. Again, the largest part belongs to corporate credit side, which is 66% of our total credits. SMEs 24.3% levels. Our retail credits 9.2% of our total credits.

On the right-hand side, you see the yield on performing credit side. In terms of Turkish lira, it's upward slope as you see, and we are expecting the same slope, upward slope trend moving forward, which is at the end of the third quarter reached 15% levels. On the other hand, our FX-denominated loans, you see that there's a decreasing trend, but still it is 4.1% in terms of foreign currency. Our blended yield adjusted is 9% levels.

The currency composition of our total funded credits at the end of the third quarter 48.1% Turkish lira; 35.4% U.S. dollar; 16.5% euro credits.

On Page 8, you see the details about asset quality. Gross funded credit by groups, including financial leasing, you see the details. At the end of the third quarter, Group I credits, 88%; Group II credits, 6.4%; and Group III credits, 5.7%. The total figure is TRY 48.8 billion total funded credits.

On the cost of risk side, you see we have 211 cost of risk as bps at the end of the third quarter. In the same period of previous year, it was 225 bps, as you see the details.

On the right-hand upper side, you see the NPL ratio developments. We have 5.65% NPL at the end of the third quarter of this year. Our provisioning ratio on the other hand reached 63.8% levels, which was only 15% (sic) [ 55% ] in the previous year's same period. We can say this, there is a development on the provisioning side as you see.

On Page 9, you can see NPL formation trend on quarterly basis. Additions to NPL for the third quarter is TRY 686 million. Our collections on the other hand TRY 349 million and our net NPL formation is TRY 338 million for the third period and net NPL formation rate as bps 294 bps.

Bank's share in our customers' NPL to banking industry. There is a dropping trend since the 2018 from 9.5% levels to 5% levels, which indicates our credit portfolios share in the Turkish banking system and NPLs share again in the NPLs -- banking industry NPLs.

On the right-hand upper side, you see the NPL sector of distribution. The first sector is construction and real estate with 24%, manufacturing comes later 22.3%, energy 14.3% and going on. This distribution is almost the same with the credit distribution. There is no specific sector for NPL production. This is -- the distribution is almost the same. We take cash credit distributions. So we don't have any specific sector for NPL generation.

On the right-hand bottom side, you see the Stage 2 credits sector distribution. Again, this first sector is construction and real estate, and the manufacturing and the energy comes later and trading also are the major sectors.

On Page 10, you see the funding profile. Composition of total liabilities. The major parties: funds collected 79.7% and wholesale funding is 11.5%, our equity is 4.8% and others 3.9%. You see the details on the right-hand bottom side regarding the conversion of total liabilities.

On the right-hand upper side, the conversion of funding base, you see the details. Participation accounts is the largest part with 49%. Current accounts 36% and funds borrowed 15%. The total funding basis is TRY 76.4 billion, which implies 23.2% year-on-year increase from the same period of previous year, which was TRY 62 million.

Maturity profile of liabilities on the right-hand bottom side, you see. We have Tier 1 and Tier 2 issuances in our balance sheet. Our Tier 1 10 years maturity came 2030, which is USD 205 million levels. The Tier 2 Sukuk [indiscernible] related to 2025, which is TRY 250 million. Regarding this Tier 2 instrument, our investment banking department has been preparing to exchange this Tier 2 item. Most probably at the end of this month, we will have a new Tier 2. And most probably, a major part of the old one will be recalled.

On Page 11, you see the funding profile regarding the collected funds. Total funds collected, you see, year-to-date increased 29.3%. We have TRY 667 billion. It was TRY 51.6 million at the end of the last year. You see the current account and participation accounts details in terms of Turkish lira and foreign currency. Our current accounts, 23.9%. Our participation account, 33.7%. And the current accounts Turkish lira -- sorry, the increases are this. So our current accounts TRY 6.4 billion. Our current accounts foreign currency, USD 2.5 billion. Our participation accounts TRY 38 billion. Our participation accounts in terms of Turkish lira, TRY 12.6 billion. Our participation account in foreign currency USD 2.8 billion.

On the left-hand bottom side, you see the cost of funds collected as Turkish lira cost of fund, we have 12.64% levels. This is, as you know, a trailing cost of funding side. The latest figures, the cost of funding start to decrease as the Central Bank of Turkey's rate cuts started in September. But this -- since this figure is trading for the last 4 quarters or 5 quarters averages, it is still going up. But on the monthly basis, the cost of funding started to decrease on a monthly basis, as I said. Foreign currency, almost the same cost of funding levels, which is 1.2%, 1.3% levels. The blended cost of funding is 5.17% at the end of the third quarter.

On the right-hand upper side, you see the currency composition of funds collected for the third quarter of this year. The largest part is 41.7% U.S. dollar. As you see, Turkish lira is going down. The current percentage of our Turkish lira funds collected in our balance sheet is only 28.6% levels at the end of this quarter. And euro terms, we have 18.9%. This is the euro part. And 10.1% precious metals, gold. And 0.8%, others.

The maturity composition of funds collected on the other hand. The current accounts is the major part with 43%. This is because of the -- as you see on the period earlier, we see that in our fund composition -- fund collection composition, the major part is foreign currency and the major part of this foreign currency is in terms of current accounts rather than time deposits. And up to 3 months 34.4% as a maturity composition of our funds collected and 15.6% up to 1 month. Up to 1 year, it's only 2.6%. And more than 1 year, it's 4.4%. This is the distribution of our maturity composition in our fund base.

On Page 12. This is regarding the off-balance sheet growth. You see our off-balance sheet size reached TRY 21.3 billion. And this stems from LGs, LCs and others. The largest part is LGs, which is 34.7%, 15.7% letter of credits volume we have and others 49.6%.

On the right-hand side, you see the total letter of guarantees to total assets ratio has been dropping since the last quarter of the previous year, it came from 13.3% levels to 12.6% levels at the end of the third quarter.

On Page 13, you can find the income cost dynamics on yearly basis. As you see, our net profit share income dropped 23.6% year-to-date, which is TRY 944 million. A major reason for this figure is because of the cost of funding side. It jumped 86.5% levels. But on the other hand, our income coming from our credit has increased only 33.2% levels. So as a result, our net profit share income dropped because of the main cost of funding increase regarding this year's developments. Most probably, we will see -- this is the most probably bottom line for our cost of funding side because of the decreasing interest rate environment in Turkey. Most probably, we will see better figures going forward.

On the other hand, our net fee income side, we have a good development on this side, which implies 68.5% increase on year-to-date. We reached TRY 274 million. The major factor is the suspension of Central Bank of Turkey commissions on required reserves on foreign currencies. Because of this effect -- positive effect, our net fee income increased 68.5%.

Our net trading income, on the other hand, dropped to TRY 195 million negative figure. The major reason is in our portfolio, our investment fund participation certificates and swap transactions. Because of these reasons, our net trading income for the third quarter of this period is negative figure.

Our other income, we have 73.5% increase on year-to-date basis. It is 818% -- TRY 818 million. This mainly came from the reversal of prior year's provisions. We have a very good collection performance of this year, and this is the result.

On provisioning side, our provisioning -- although our Stage 2 coverage ratio is above 60%, our total provisioning dropped 19.7% levels. But our -- as I said, our Stage 3 loan provisioning reached 60% levels.

Our personnel expenses, you see, although we have higher inflation rates. And moving forward, as you see, with 20% levels, our personnel expenses only 6.7% increase. We have TRY 576 million on the side.

Other cost, we have TRY 500 million other costs, mainly stemming from the impairment expense of assets held for sale, legal duties and insurance funds, taxes, duties and other charges, et cetera.

And our bottom line, we have TRY 51 million net profit for the third period of this year, which was TRY 138 million in the same period of last year.

On Page 16, you see the financial ratios and sector comparison. The first ratio is capital adequacy ratio. Our capital adequacy ratio at the end of the third quarter is 12.98%. The participation banking average is 17.57%. Banking sector is 17.30% averages in terms of capital adequacy side.

Our NPL side, 5.65%. The participation banking average is on the other hand 3.30%, and the banking sector averages in terms of NPL is 3.49% levels.

On the provisioning ratio for the bad loans, we have 63.76%, and the participation banking average is 85%, banking sector is 78%.

Loan-to-deposit ratio, we have 70%. The participation banks almost the same at 71%, and the banking sector is 99%.

Asset yield, we have 6.82%, participation banking average is 7.67% and the banking sector is 9.4%.

The asset spread, we have 2.40%, participation bank is 2.75% and the banking sector is 3.17%.

Our net profit share margin, this is also important, we have 2.18%, the participation bank is 3.16%, banking sector is 3.62% levels.

Net profit share margin is less than the sector leverages on the participation bank and the banking sector averages, mainly stemming from our profit and loss projects contribution on that side. Since in the third quarter, we don't have any contribution from the musharakah profit and loss projects. It negatively affects our net profit share margin. If we have a positive effect contribution on the profit and loss projects in the third quarter, we will see better figures in terms of net profit share margin. These are the main ratios that we should mention.

And on Page 18 and 19, you see the details in our balance sheet -- summary balance sheet. And this is the end of my presentation. If you have any questions, I will reply in the Q&A session. Thank you very much.

[Operator]

[Operator Instructions]

[Mustafa Cetin, executive]

I think no question, we can finish, if that's the case. If you have any question, can you just contact with our IR department, we can provide everyone every time what kind of questions you have.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

[Mustafa Cetin, executive]

Thank you very much.