Turkiye Garanti Bankasi AS

IST:GARAN.E

Earnings Call Analysis

Strong Earnings Amid Challenges

Garanti BBVA's third quarter results demonstrate resilience with a net income of TRY 22.4 billion, elevating their year-to-date earnings to TRY 67 billion. This reflects a solid 27% year-on-year growth once adjusted for last year's provision reversals. Despite facing rising funding costs and regulatory changes, the bank achieved a return on average assets of 3.5% and a return on average equity of 33%.

Growth in Core Banking Revenues

Core banking revenues have soared, achieving a year-on-year growth of 58%, totaling TRY 128 billion in the first nine months of 2024. The most significant contributor was the net fees and commissions, which grew 18% quarter-on-quarter and 2.5 times year-on-year. This growth is attributed largely to the bank's leadership position in payment systems, bolstering their fee generation capabilities.

Operating Efficiency and Costs

Garanti BBVA reported an 18% growth in operating expenses for the quarter and an astonishing 71% for the year due to inflation impacts. However, the bank maintained an impressive cost-income ratio of 42%, which showcases their efficiency relative to peers. Fees covered 93% of operating expenses, underscoring their robust fee-generating businesses and improved digital customer engagement.

Solid Capital Position

The consolidated capital adequacy ratio improved to 15.8%, with a core equity Tier 1 ratio of 13.4%. The bank has TRY 81 billion of excess capital available, aligning well with regulatory requirements. This solid capital position enhances their resilience in fluctuating market conditions.

Asset Quality and Provisions

Garanti BBVA continues to demonstrate a commitment to maintaining high asset quality with total provisions reaching TRY 76.5 billion. Coverage ratio for non-performing loans (NPLs) remains the highest among peers at 4.5%. The net cost of risk is tracking towards a guidance of 125 basis points by year-end, reflecting prudent risk management amidst increasing pressure on the retail segment.

Inflation and Monetary Policy Outlook

The macroeconomic landscape in Turkey is changing, with expectations of monthly inflation declining to just below 2% by the end of 2024. In 2025, projected inflation stands at approximately 25%. Garanti BBVA anticipates a modest rate cut by the central bank in December, contingent upon inflation trends.

Guidance for Future Growth

Looking ahead, Garanti BBVA maintains a full-year profitability guidance, targeting mid-30s return on average equity for 2024. Growth is expected to continue at a robust pace, especially in the fee-generating segments, with an anticipated growth rate of 35% to 40% in 2025 as the bank adjusts for a changing regulatory environment.

Focus on Customer Engagement

Investment in digital solutions has been significant, with digital active customers rising to 16.3 million, representing 89% of total sales. The bank aims to enhance customer journeys and experiences, which is crucial for sustaining competitive advantage in the evolving market.

Looking Towards Market Opportunities

Management indicated they would remain vigilant regarding Eurobond issuance opportunities, although for now, their high FX liquidity renders further issuance unnecessary. They will continue to observe market dynamics before making any capital raising decisions in the coming months.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and thank you for joining us in Garanti BBVA's Third Quarter 2024 Financial Results Webcast. Our CEO, Mr. Mahmut Akten; our CFO, Mr. Aydin Guler; and our Investor Relations Director, Ms. Handan Saygin will be presenting today. [Operator Instructions].

I now leave the floor to our CEO for his initial remarks and management for the presentation.

[Mahmut Akten, executive]

Hello, everyone. Welcome to our third quarter earnings results and call. It's a pleasure for me to be able to meet with you today, especially as we present again another stellar results.

I've been part of this organization for 12.5 years and from -- moving from the front line of retail banking to corporate and investment banking and as a part of executive leadership. And these 12.5 years actually deeply shaped my understanding of our institution strength and potential. I'm excited to lead us today into a new chapter. While there may be changes in leadership, as you will notice from our results, our successful strategic direction remains unchanged, as you will see from our most recent figures.

Now I hand over the presentation to Handan to present our third quarter results.

[Handan Saygin, executive]

Thank you, Mahmut. Good afternoon, everyone. We're thrilled to be with you on another earnings call, presenting our outstanding performance. Despite the continuing market complexities and even further regulatory pressures, we sustained improvement in our core banking revenues.

Before getting into the details, let's quickly go over the macro backdrop we're in. Rebalancing in the Turkish economy continues with a mild slowdown so far. Restrictive monetary policy and expected fiscal consolidation, 2025 onwards might keep GDP growth at closer to 3% in the short term. We expect monthly inflation trends to decline to slightly below 2% by end of 2024, resulting in an annualized level of nearly 25% in 2025, with risk tilted to the upside.

Depending on the improvement in inflation trend, we maintain our call of a modest first rate cut in December, but define risks as staying high for longer. Uncertainties about the wage and tax adjustments at the start of the year will require the central bank to remain cautious.

Driven by weak domestic demand and lower energy prices, current account outlook further improved to below 1% of GDP. Medium-term program shows efforts to keep budget deficit to GDP below 5% in 2024 and close to 3% in 2025. Negative fiscal impulse will support the disinflation process. And excluding earthquake spending, budget deficit to GDP will remain below 3%, which would be in line with the Maastricht criteria.

Now time for the financial results. In the third quarter of 2024 as well, Garanti sustained its best-in-class performance with a TRY 22.4 billion of net income, bringing the 9 months net income to TRY 67 billion. This represents a clean 27% year-on-year earnings growth when adjusted with last year's provision reversal. So even with the rules of the game changing midway through the quarter, causing further pressure on funding costs, we sustained our outstanding performance and ended with a year-to-date return on average assets of 3.5% and a return on average equity of 33%. This best-in-class performance is owed to our highest internal capital generation capability on the back of customer-driven asset mix, high asset quality, closely managed funding costs and operating expenses.

We registered an even higher performance in growing our core banking revenues. The quarterly growth of 12% in core banking revenues carried the cumulative year-on-year growth to 58%. Biggest component this year is net fees and commissions as expected, with an 18% quarterly and 2.5-fold cumulative annual growth.

Second biggest component remains to be growth in core net interest income, despite stabilizing loan yields in the quarter and further tightened macro prudential measures such as much higher reserve requirements, the deposit conversion rules and minimum interest rate calculation changes in credit cards. Still, when we look at our core banking revenues to assets ratio, we have been consistently improving it and its level compares quite favorably to that of the average peers.

For instance, our core banking revenues to assets ratio of 6.7% was 2.9% on average at peers in the first half. In other words, our core banking revenue generation capability remains to be the highest in sectors and our inherent strength.

This achievement requires high share of customer-driven asset mix, and relatively lower share of securities. Our performing loans and assets make up the majority with 56%. Securities share on the other hand, is at its 2-year low with 14% share, and it is the lowest among peers.

We booked another 8% Turkish lira lending growth in the quarter, bringing the year-to-date Turkish lira loan growth to 38%. This growth is achieved while sticking to the imposed loan growth cap and booking higher growth in the preferred areas, such as investments, export, credit cards and earthquake-affected area loans.

In foreign currency lending, we booked a strong 8% growth in the quarter, taking the year-to-date to a double-digit growth, suggesting an upside in our foreign currency loan growth projection.On the securities front, we're typically opportunistic and grow for either hedging purpose or regulatory driven. In the quarter, we did replace our redeeming Turkish lira securities and added a bit more to our fixed rate portfolio. Combined with the securities purchased in the first half, year-to-date growth registered in Turkish lira securities reached 32%.

Drivers of our Turkish lira loan growth were mainly consumer loans, such as mortgages and general purpose loans with preferably longer maturity and credit cards. We gained market share in Turkish lira across the board, except for a slight market share loss in business loans due to low demand and current short-term preference of companies waiting for the rate cuts.

Our Turkish lira loan portfolio at the end of third quarter surpassed TRY 1 trillion mark on the back of a year-to-date growth of 49% in credit cards, 40% in consumer loans and 28% in business loans. Our market share in consumer general purpose loans among private banks neared 20%; in mortgages, it exceeded 26%; and in credit cards, it's almost 23%. Also in business banking, we still have 20% market share. In total, we had the largest Turkish lira loan book among private banks.

Moving on to the quality of the total loan book of TRY 1.7 trillion, 88% is in Stage 1. 10.4% or TRY 176 billion is in Stage 2. Now isolating the currency impact, which has affected largely the restructured portion of Stage 2, Stage 2 increase was predominantly due to the increase in the SICR portion, namely those expected small ticket size, retail and credit card loans. Since the coverage of the SICR is relatively low, it did not pressure the Stage 2 provisions much while the recovery of a highly provisioned wholesale book in Stage 2 diluted the foreign currency coverage portion of Stage 2. About 1/3 of our Stage 2 is foreign currency loans related and their coverage, even after this recovery, remains at a strong 38%, while the Turkish lira loans coverage is at 8%.

For the NPL evolution, let's see on next slide. The net NPL inflows in the quarter suggests deterioration we all expected after last year's exceptional low base and robust retail growth. New NPLs doubled quarter-on-quarter and 90% of them related to the retail book. Half alone was from the credit cards portfolio, NPL -- while NPL inflow from commercial side was almost nil. The ratio post NPL sale and write-downs went up to 2.1% from 1.9% in the first half. It was also supported by the still strong faring collection performance on the wholesale side. We sold a total of TRY 5.9 billion of NPLs for TRY 2.3 billion, as they were feasible with positive spread in NPL sale price and the legal process time cost in this inflationary period.

Our total provisions on balance sheet, including the written-down portion went up by another TRY 6 billion and reached TRY 76.5 billion. This is the highest provision level among the private banks and represents a 4.5% total cash coverage.

On the next slide, we'll see the translation of this into cost of risk. Even though net provisions, excluding currency and earthquake-related provisions of last year, spiked almost fivefold year-on-year and doubled quarter-on-quarter, collections from the wholesale book continued to support the year-to-date net cost of risk. Cumulative net cost of risk went up to 90 basis points from 66 basis points in the first half. This increase is very much parallel to our anticipated deterioration in the year. For that reason, we stick to our whole year guidance of 125 basis points of net cost of risk by year-end.

On the funding side, customer deposits dominate the funding of assets. The high share of demand deposits funding assets in spite of the high interest rate environment remains to be the key financial differentiation supporting margin outperformance. Borrowing share and funding assets remains low at under 6.5%. Total external debt as of the 9 months was $4.6 billion with some increase in the MTN program in the quarter. Of this, 41% related to securitizations, 27% to subdebt and 19% to syndications. $1.5 billion of the external debt is due within a year. And against that, we have $5.1 billion buffer in foreign currency liquidity.

The quarterly drop in foreign currency liquidity buffer is due to the significant increase in the total required reserve amount and decrease in bank depo placement. Overall, our leverage remain to be the lowest among peers at 8.5x the equity.

Conversion to standard Turkish lira deposits continued in line with the regulation targets given. As of the third quarter end, we grew another 6% in Turkish lira deposits, bringing the year-to-date Turkish lira deposit growth to 29%. Turkish lira deposits now make up 56% of the total. On the foreign currency deposit side, even though there seems to be higher growth in dollar terms, 11% in the quarter versus 6% growth year-to-date. This growth, though, largely relates to gold deposits that went up in value and the parity move during the quarter rather than dollarization. Actually, half of the increase in foreign currency deposits in our bank-only foreign currency deposit growth relates to the appreciation in the gold value. Quarter of the impact comes from the change in euro-dollar parity in the quarter.

On a consolidated basis, the reason behind the increase that looks much bigger is because of the non-retail foreign currency deposit volume growth at our foreign subsidiaries. Even though we managed the most sizable Turkish lira deposit portfolio in high interest rate environment, we continue to lead in customer demand deposits share in total, that is 40% at guarantee versus the average of private peers of 34%. Also, within the time deposits, even though the conversion to standard Turkish lira deposits has picked up significant pace, we still have the highest share of foreign currency protected deposits and Turkish lira term deposits with relatively lower funding costs. So clearly, these provide significant funding advantage and continue to support our superior margin performance.

Accordingly, our margins remained resilient despite the continuing tight stance in monetary policy and additional macro prudential measures. Quarterly margin improvement of 50 basis points largely stemmed from the CPI book, and our CPI estimate increased to 45% from 40% that we have used in the first half. On the other hand, the regulatory changes introduced midway through the quarter exerted additional pressure on our core net interest margin and limited the expected quarterly expansion.

In the quarter, our core margin went up by a mere 8 basis points to 2%. Nominally speaking, our net interest income, including swap costs in the quarter ended TRY 25 billion. Stripping out the CPI income of TRY 13 billion in the quarter meant another TRY 1.6 billion increase of core net interest income to TRY 12.2 billion. Even though the core net interest income growth is lower than our projections in the beginning of the year, the level of core net interest income and the margin are by far the highest among peers. This strength proved to be our legacy.

Please note that if we had not had the rules of the game change midway through the year, our cumulative net interest margin would have been 60 basis points higher and quarterly net interest margin expansion would have been 70 basis points rather than 51 basis points. And with that, we would have been perfectly on track to meet our flat margin guidance for the year taking into account the further spread and thus, margin improvement we expect in the last quarter.

As for net fees and commissions, there is 18% Q-on-Q and 2.5-fold year-on-year growth driven largely by the payment systems business. Accordingly, of the TRY 68 billion of net fees and commissions booked in the first 9 months, 2/3 relate to the payment systems business owing to our #1 rank in that business. Also, our #1 rank in Turkish lira cash loans, noncash loans, as well as money transfer fees, non-life and life insurance were all supported in our net fees and commissions growth.

Key reasons behind our robust fee performance are the strength in relationship banking and the digital empowerment contributing to not only growth in our active customer base, but also penetrate further the existing customers. Our digital active customers now reached 16.3 million, and digital sales in total is 89%.

As for the operating expenses performance, quarterly growth was 18%, and the annual growth pointed to 71% post the currency adjustment. Even though the salary adjustment hit the quarterly operating expense base, our efficiencies remained best in class such that our cost-income ratio was 42% -- about 43%, sorry, suggests the highest efficiency among peers in this period. Fees coverage of operating expenses remained at a strong 93%, and operating expenses in average assets were 3.8%.

As for capital, consolidated capital adequacy ratio without the BRSA's forbearance went up to 15.8% and core equity Tier 1 (sic) [ common equity Tier 1 ] to 13.4%. Net income generation in the quarter continued to support the solvency and became more visible, especially upon the normalization of risk weights assigned to consumer loans in the quarter per the regulator. If further normalization of risk weights on commercial loans gets realized, it will take the capital adequacy ratio level 95 basis points higher than the current one. The foreign currency sensitivity on our capital adequacy ratio is a low 21.6 basis points negative for every 10 percentage points depreciation, owing to our $500 million Q2 issuance in the first quarter this year.

Now in summary, we hold the Olympic gold medal in the financial pentathlon. In the 9 months into 2024, we recorded the highest net income via sustained increase in core banking revenues. The year-on-year growth in the core banking revenues was 58%, reaching TRY 128 billion in the 9-month period. On the fees side, our diversified fee-generating businesses, along with the extraordinarily high payment systems fees, almost tripled year-on-year and brought the fees coverage of OpEx to 93%.

On the asset quality front, we remain committed to robust provisioning. Total provisions on balance sheet reached TRY 61 billion. Including the written down portion, it is actually TRY 77 billion, suggesting a total coverage of 4.5%, a level that is highest among the peers. With the rise in credit cards and retail NPL inflows and normalizing collections from the wholesale business, our net cost of risk is well on track to be within the guided level by year-end.

On the capital front, we remain solid. We had TRY 81 billion of excess capital as of the 9 months end when calculating without the BRSA forbearance. Our progress in business growth continues. Today, every 1 out of 2 bank customers has an account with Garanti BBVA, and our digital active customers with 16.3 million is the highest in the sector. In conclusion, our agility and financial resilience once again validated our unmatched leadership.

Looking forward, we maintain our full year profitability guidance. Even though there is now a visible downside risk to our margin guidance due to the additional regulation changes in the second half, we are well on track to compensate that downside with better growth in fees and commissions and trading income. Therefore, we stick to our mid-30s return on average equity guidance for full year 2024.

Now with this, I end my presentation, and we can now start to take your questions. Thank you for listening.

[Operator]

[Operator Instructions] The first question comes from Cihan Saraoglu.

[Cihan Saraoglu, analyst]

Thank you very much for the presentation. I have 3 quick questions actually. First one is about your non-HR operating expenses, which have grown almost 17% Q-on-Q. If you could give us some granularity about that growth. I mean I understand the HR growth because of salary adjustments. But I mean 17% in the quarter for non-HR is also a significant growth.

Then the second question is, obviously, there is some increase in NPL formation. So if you could give us your preliminary thoughts about the 2025 cost of risk. Where could it be? And then lastly, you have benefited significantly from the balance sheet positioning in 2024 as rates have increased, but obviously, in 2025, we are going to discuss lower rates. So is there any change that you're planning in balance sheet mix to benefit more from falling interest rates in the coming year?

[Mahmut Akten, executive]

First of all, our non-HR cost includes promotions we pay to retirees as well as salaries, and that is, as you might know, amortized in income statement. When you compare it to our peers, likely we'll have the lowest increase quarter-over-quarter. As you can imagine, the customer acquisition cost goes up with the campaigns. That's mainly driving the cost.

Regarding your second question is cost of risk. Yes, last few months shows that the last 3 months with the higher interest rate as normal. There is a bit of a creep up in overall cost of risk related to consumer side because credit growth, which was not capped, credit card growth has been growing significantly 200% year-over-year. And that translates into with a delay to NPL and an increase in cost of risk.

But if you go back 4, 5 years, the cost of risk we had recently has been very low compared to historicals. As such, it's an early prediction, but we could expect 2025 cost of risk to go up to 200 to 250 bps based on the consumer loans, primarily. Otherwise, our commercial and corporate provisions has been relatively stable and commercial one has been negative.

On balance sheet, as you can imagine, we are -- we manage our balance sheet with significant agility. As we saw that higher interest rate coming in, we had reduced our duration very much over the last year in 2023. And then we start to increase our duration again to position ourselves better to leverage decreasing interest rates in the coming months and in the coming year. And so we will continue to be customer-driven, although we have been building a bit of securities, but that was partially related to regulation. So there hasn't been a significant change. And when you compare our results with peers, we have lower securities ratio that actually positively impact our overall results. I hope this answers your question.

[Operator]

Our second question comes from Mehmet Sevim. Please go ahead.

[Mehmet Sevim, analyst]

Mahmut, congratulations on your -- for your new role and all the very best. I just was wondering if you could give a sense of your very near strategic priorities and what changes we may see at Garanti  under your leadership, if at all. Do you foresee to do any strategic changes in the coming year relative to your peers given obviously, as we're entering the, hopefully, a more normalized environment with more growth, et cetera? So if you could give us any sense of -- if we may see any changes or not, that will be very helpful under your leadership.

And also, because we're approaching the rate cutting cycle, hopefully, for 2025 in a more normal environment, do you have any views of when we may see the relaxation of the macro prudential measures in terms of the timing? And what levels of growth we may see in 2025?

[Mahmut Akten, executive]

Thank you, Mehmet. First of all, in terms of strategy, I've been part of the executive team. And for many years, I think our focus on execution has been there and will continue to do so. Especially, we focusing on capital-generative growth and so our focus on managing the balance sheet prudently will continue to exist. I think as we have had really 4, 5 years, including COVID and monetary policy normalization has been tough years, and the prior CEO, Recep, has done an outstanding job throughout those years.

Now we are coming into the time where the, as you mentioned, there will be more relaxation on monetary policy in the coming year, hopefully, and adjustments. So we will focus -- we'll continue to focus on customer experience. That's both BBVA's and Garanti BBVA's focus, to be always #1, but also focus on all the customer journeys and experience. That makes a significant difference. And that includes digitalization of all the segments, not just retail. That will continue to be focus. As you know, in the mid- to long term, the impact of AI will be crucial and pivotal in customer experience as well. So we'll continue to focus and invest in the mid- to long term while we focus in the short term, our execution capabilities.

And third one is our focus on winning team and talent, and we'll continue to invest in talent. That's the third part of our strategy, and that's also BBVA's strategy. We are a global bank and globally working together with BBVA gives us strength, not only in Turkey, but also for companies outside of the Turkey, healthier businesses in trade finance, healthier businesses when they expand beyond our borders. So it's important to continue to support and leverage BBVA's 20-plus countries existing and presence. That is more cross-border work.

So in summary, capital generating growth is number one, and that is how we generate the numbers. Radical customer experience, number two, including digital, AI and leveraging more those in any segment. And number three is continue to build our global presence and strength through better talent across the globe.

In terms of your second question is related to relaxation of monetary policy as well as the loan growth related to that. As you hear also our minister as well as head of central bank, they follow the data as we follow as well. There is a very tight spend and the inflation is the most important data.

As we see, there will be a decrease in interest rate in the coming months, but the timing is not predictable, as you can imagine. But toward the end of the year, we are hoping that the inflation comes down below 2%, and we start to see some further decrease in interest rates. And I think given any inflation experienced in country, including Turkey, but you have seen over the last few years in U.S. as well, inflation is a very tricky metric. And from month to month, it could fluctuate very easily based on many parameters. So I would expect, but this is my personal view, we may not see every month a reduction in interest rates because there will be different factors coming in.

But we see that clearly, a very successful monetary tightening process will yield lower interest rate. And in a good scenario, we can expect finishing the year, next year, somewhere around 25%, plus/minus 5%, maybe more on the upside, close to 30%. But there is clearly an indication of decreasing interest rates.

And what it means for us beyond extending duration, also, it affects our loan growth, I would suspect again when certain months when there is no interest rate decrease, there might be some relaxation on credit limits. Credit limit is very important also factor or regulation to limit the consumption and demand and therefore, affect inflation reduction very effectively. But our loan growth right now is capped around 2% for most of the loan types. So you can expect us to hit those numbers every month because we believe there is sufficient demand in many fronts, including renewables, including the country's investment and corporate investment in many fronts.

So we expect to hit those 2% on capped loan products, but credit card as well as more importantly, for those loans that are not capped. What I mean is investment as well as exports and agriculture, we continue to focus on those to grow beyond 2%.

So overall, we expect to have a reasonably good growth closed or above inflation for next year, maybe between 35% to 40% at minimum for next year. That will give us a very good balance sheet and income statement for next year. So we are relatively positive overall. It's just the trend, month-to-month will be different. And we should expect a very sound -- continue to see very sound policies around both interest rate as well as these regulations that supports and -- the fight against inflation. So those are my quick answers. I hope it answers your questions.

[Operator]

We have a written question from Valentina Stoykova, Barclays. She asks, can you please explain a bit more how you managed to expand core net interest income and net interest margin in third quarter? And how do you see net interest income and net interest margin trajectory going forward into fourth quarter and the next year?

[Mahmut Akten, executive]

First of all, thanks for the question, Valentina. Number one, in this quarter and going forward, the most critical item in NIM management is managing the funding costs. As you can imagine, with the expectation of lower interest rate, we start to be able to manage more on funding costs, as we continue to keep our loan yields almost at the highest level. We still maintain those levels. And to an extent, having caps also helps to maintain those levels, given our large customer base.

In fourth quarter with that and with slightly higher CPI revenues, we expect to have 1.5% higher NIM in fourth quarter, and our cumulative NIM will be slightly lower than 2023. Even though we earlier declared that we will keep it flat, but the increase in reserve requirement actually deviated us from hitting that number.

In terms of 2025, it's hard to guess at what level we will be, but we will definitely be significantly higher than today given that every day, we are able to manage our cost of funding further without actually even seeing an interest rate cut yet. So with that coming and with higher duration in our loans, we are confident that we will see very good NIMs. All I can say, we'll probably see, again, the best NIMs in the sector, and we'll continue to execute on that.

[Operator]

We have a question on the line from Mikhail Butkov.

[Mikhail Butkov, analyst]

I have a follow-up question on, yes, on asset quality. I think you mentioned that there was nearly 0 formation on the corporate side. Was that a net 0 formation or also from the gross formation perspective, gross NPL formation, it was low in the quarter. Basically, I'm asking if there still -- do you see recoveries in the corporate segment, which supports your, yes, cost of risk and NPL? And for how long do you think it can continue?

And then also a question on, yes, on inflation accounting in the TL accounts. So do you expect it from the beginning of the next year? What's your outlook on this?

[Mahmut Akten, executive]

Let me start with the first one. The -- in terms of corporate and commercial NPL formation, actually, we have almost noncorporate NPL, very little commercial NPL that has been offset by continued collection, actually. Without going further detail of the companies, but as you see the Turkish corporate Eurobond market is quite open and the companies are going out to that market. There are different opportunities for financing the growth of commercial customers, and that has a positive result on our collection performance.

On net-net, we had 0 NPL for September. We expect the same thing in October and going forward toward the last 2 months as well. So overall story is good. And then corporate and commercial customers have very strong, actually, balance sheet coming out of the low interest and COVID environment. The ones who had issues or challenges, those are coming even before -- from the time even before that. And right now, they are also able to manage their NPL, so we are lucky there.

And then the second question regarding inflation accounting. For us, regardless whether it's applied next year to banks or not, we continue to do that for BBVA. I don't -- I do not have any impact on tax regime, but the numbers you might see differently if we all switched to inflation accounting for local reporting. But from BBVA perspective, for us, it doesn't matter. We are calculating our numbers based on that. Earnings per share growth will be higher, but we'll see with the inflation versus without inflation.

[Mikhail Butkov, analyst]

And just a follow-up on the first question. As you see collections from the past NPL vintages on the commercial side, do you expect these collections to continue into the next year or maybe later? Or it's the scope of collections is gradually coming down on that front?

[Mahmut Akten, executive]

It will gradually come down. We had 4, 5 important files that comes from the past, and we have been collecting on those. I think there will be some more in the first quarter of next year. But overall, we don't see new gross NPL in commercial and corporate.

Where we see the challenges where also regulator took action was, as I mentioned, in the consumer side, especially related to credit card and a bit, a little in GPL or general loan. And there, as you know, there has been a restructuring program that has been provided to us that we can actually structure the loans up to 5 years, which gives quite a bit relaxation and it helps us in the collection side.

And then on top of that, the minimum payments level for 20% payment has been increased. That also helped the consumers. So -- and we haven't seen much on SME yet on NPL, gross NPL yet. As I said, commercial corporate, we feel very comfortable. We still have some more files that we can collect on in the next 4 to 5 months. In SME, we don't see much yet. In consumer side, there has been an increase, I think, for all of our peers as well in the third quarter. But that has been stabilized and we expect to see some even improvement over that level with this restructuring program that has been permitted by the BRSA.

[Operator]

Our next question comes from David Taranto.

[David Taranto, analyst]

I have 2 questions, please. How should we think about the fee growth into 2025, particularly on the payment side given this inflation trend and anticipated rate cuts? How much of a deceleration should we expect there? Fees over assets or fees over revenues have been holding well above the historical levels. What should be the normalized level there in the aftermath of the macroprudential measures?

And secondly, shall we expect a change in the payout policy given the uncertainty around the inflation accounting? Would you expect any change there from regulators' point of view?

[Mahmut Akten, executive]

Yes. I mean fee growth may not be as strong as you can imagine this year with interest rates coming down. That will impact at some point what we can charge in terms of commission to our merchants. So we expect a reduction. At some point, we are still not there. There needs to be more than a few cuts to see lower fee generation. Therefore, I don't have a very good prediction because we don't know how quickly interest rates will come down, but we expect a fee growth regardless, slightly above inflation for next year.

And in terms of dividend payout, if this is applied, as you know, BRSA sets every year the maximum dividend payout ratio by looking into solvency ratios. And for sure, hyperinflation account lowers the current year net income with no negative impact on regulatory capital, in fact. So BRSA may allow banks to distribute cash dividends over hyperinflation adjusted net income of 2025, therefore, with a higher payout ratio if no deterioration of capital ratios is observed. It's too early to make an estimation or assumption of BRSA approach regarding 2025 due to payout of the banks.

On top of this, there might be additional options to pay dividends out of the retained earnings as well. But we'll see as we approach. I mean this is one of the potential discussion with BRSA as we go into the next year. As you know, it has very little impact on us because we are still applied tax on the nominal terms. I hope we still report on nominal terms, maybe we'll see in the coming days. Thank you, David.

[Operator]

We have a written question from Valentina. Do you see market conditions conducive currently for Eurobond issuance? And can we expect a higher appetite for issuance from Garanti going forward, both in senior and capital instruments? Any color on this will be very helpful.

[Mahmut Akten, executive]

Sure. First of all, we don't need senior issuance as our FX liquidity is really high. And there is a cap already on swaps, therefore additional liquidity sits with us, and we cannot grow our regulatory caps on FX loans. As such, we cannot utilize really more FX.And if CDS go lower, we might consider it. Depends on the cost.

We are looking into the -- invest in 5 to 10 years bonds, if we have extra liquidity. But the yields are not there for our appetite. So from senior issuance standpoint, we are not there in thinking. We don't need really a Tier 1 issuance, but maybe we will consider Tier 2 in the coming months. Currently, we are observing the market, and we'll be opportunistic for the possible issuance in the coming months.

[Operator]

Seems like we don't have any more questions. So this concludes the Q&A session. I'll leave the floor to our CEO for closing remarks.

[Mahmut Akten, executive]

Thank you all for your participation. In concluding this quarter's calls, I would like to emphasize once again our commitment on capital-generative, responsible and sustainable growth strategy that has guided us so far successfully in the past and will continue...

[Audio Gap]

Always prepared in any environment to succeed and exceed expectations and as well as the sector. And I think our third quarter results and market positions as Turkey's most valuable company are clear evidence of this capability.

Consumer-focused and agile business model will remain at the heart of everything we do, and we will continue to transform our process. As I mentioned in the questions, invest in the future, not just the next year or next quarter in expecting and meeting the evolving needs and expectations of our customers and the sector and the shareholders. Thanks again for your time and hope to meet you in person in Istanbul or anywhere, and have a great evening. Thank you for listening.