Turkiye Is Bankasi AS
IST:ISCTR.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 |
8.3584
17.62
|
| 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.
Turkiye Is Bankasi AS
You don't have any saved screeners yet
Ladies and gentlemen, welcome to Isbank's First Quarter 2022 Financial Results Audio Webcast. The presentation will be given by Ms. Gamze Yalcin, CFO; and Ms. Nese Sozdinler, Head of IR and Sustainability. [Operator Instructions]
Now I leave the floor to Gamze.
Hello, all. This is Gamze speaking. I hope everyone is safe and healthy. Thank you all for joining us in our first quarter earnings presentation. We are happy to present another strong set of results despite challenging operating environment.
As this is an earnings presentation, we will be focusing on our financial metrics. But please note that behind this strong performance, there lies our strength in human capital, technological infrastructure, digital capabilities as well as our sustainable business model, which is based on value creation for all our stakeholders.
Without further ado, I would like to share the period highlights for Isbank. From the profitability, asset quality, liquidity and solvency perspective, Isbank has continued with its strong performance. In terms of profitability, improved net interest income and outstanding fee income generation mainly defined the robust performance in the first quarter. Reflecting our conservative approach within this challenging environment, we have topped up our free provision base by another TRY 250 million, carrying the total amount to TRY 4.3 billion.
Return on tangible equity exceeded 41%, pointing out a record high level. We had a significant improvement in our cost-to-income ratio, thanks to the positive jaws created in the quarter by 75%. Through the support of profitability, we achieved further improvements in our solvency ratios, keeping them well above the minimum required levels.
Looking at the components of our performance, it can be seen that it's mainly driven from core banking business. Our pre-provision income increased twofold on a year-on-year basis, whereas bottom line was 3.5x higher compared to the same period of last year.
Now I will leave the floor to Nese for the details of the bank's performance.
Thank you, Gamze. Welcome all, and thank you for joining our webcast.
Page 5 shows the main balance sheet items. Continuing our selective and well-balanced growth policy, we have started the year with a moderate approach in terms of TL loan growth. Quarterly increase in our TL loan book was in line with our guidance at 7%. Parallel to the system, growth derived from commercial side as we do not observe a significant demand on the retail side. Foreign currency lending was flattish compared to the year-end.
If you look at the funding side, in our guidance, we have announced our anticipation for TL deposit growth at above 35%. However, due to the new deposit schemes, we observed around 33% growth in the first quarter. TL commercial deposits continued to post a remarkable increase. Going forward, there might be an upside potential in Turkish lira deposit growth rate but this depends on the market dynamics. Needless to say, we continue to have the largest demand deposit base among private banks.
In the first quarter, share of demand deposits stood above 46%, contributing to management of our funding costs. As for the external liabilities, our total external dues were USD 9.2 billion, of which USD 4.9 billion is due within a year. And against that, we have nearly USD 13 billion of liquidity buffer, 2.5x the short-term repayment amount. FX LCR was again remarkable at 510%. Please note that we have already redeemed USD 600 million of eurobonds in April.
On the next page, we have the net interest margin and spread evolution. In the first quarter, swap adjusted net interest margin increased at around 70 basis points and stood at 5.3%. The increase was largely due to the decline in the cost of short-term money market funding, along with the repricing of assets, including CPI linkers.
During the period, we have largely defended our core spreads. At beginning of the year, there has been an increase in market rates for TL deposits. However, deposit rates began to ease because of the cap on currency hedged deposit schemes. On the asset side, repricing continued.
On Page 7, we provide information about the securities portfolio and CPI linker contribution in detail. Share of securities in total assets stood at 17.4% at the end of March. For the CPI linkers, as you know, we use CBRT's market participants survey for valuation. According to the March survey results, this expectation was 26.4%. Since both the actual CPI levels and expectations are hovering at higher levels compared to last year, income from CPI linkers posted a substantial increase, reaching TRY 5.1 billion.
On our next slide, I will summarize the fee income performance. As you know, fee business is a strategic focus area for us and this will definitely continue. In line with our concentration on this income item, we see the continuation of the strong momentum with an increasing pace in the first quarter. Largest drivers of the strong growth were, again, payment systems, lending-related fees and money transfers. Ultimately, we have posted a 73% year-on-year growth in fee income, overachieving our budget by more than twofold. Please note that fee income covers almost half of our operating expenses.
Next page shows the NPL and provisioning trends. In the first quarter, we can comfortably say that we have not seen a deterioration in our asset quality metrics. Despite the slowdown in loan growth, our NPL ratio is below its year-end level, less than 4%. With declining inflows as well as decent collection performance as always, quarterly net NPL formation decreased to 20 basis points.
Coverages across all stages pointed out prudent levels once again amongst the peer group. Our total net cost of risk, including currency impact, stood at 76 basis points, better than our budget.
Next page shows the capitalization levels. Despite the currency increase in the first quarter, our capitalization ratios stood at higher than their year-end levels through the organic capital generation capability of the bank. Once again, please note that the sensitivity of our capital adequacy ratio to 10% depreciation in Turkish lira is limited to around 55 basis points.
And this concludes our presentation. Now we can have your questions.
[Operator Instructions] Next question comes from Sam Goodacre from JPMorgan.
I wanted to follow up on your loan growth in the quarter, which lagged peers, and as you noted, marked a bit of a slowdown. Could you remind us about your general sort of strategic goals in terms of lending this year, why you are perhaps happy to lose share at the beginning of the year at least? And remind us of where you think we may settle for the remainder of the year.
And then the other thing I wanted to ask about was your operating expenses. It wasn't something that you just went through in detail in the presentation. And I'm afraid I haven't had a chance to look at the details myself yet. So perhaps you could just give us some high level color on operating expenses and where you see them trending from here.
Thank you, Sam. In terms of answering your first question, in the first quarter, as you can see, we had a moderate TL loan growth in line with our guidance. Parallel to the system, the growth was derived from the commercial side. We didn't observe a significant demand coming from the retail customers, retail segment.
As you know, the recently introduced macroprudential regulation framework limits and shapes the lending activities. However, the targeted areas and segments is very much in line with our own existing risk appetite, namely the small, medium enterprises, export lending business, agribusinesses.
So I can say that's the recent framework. Macro framework is very much supportive of our own lending appetite. Both are moderate pace and focused on these areas, namely the SME, export lending business and agriculture businesses. It seems that we do not require to satisfy additional reserve liabilities because these already existing segments within our portfolio provides a cushion with regards to the new regulation.
On the retail side, we might see some demand in the coming period, in the remainder part of the year. However, of course, as always, we will stick to our lending policies and which is also reflected on our asset quality metrics. To be more specific with this segment, I can say that our NPL ratios for GPL and credit cards, which are deemed as the riskiest portion of the retail portfolio, is less than below 3% levels. Also, 94% to 99% of the portfolio remains in the low risk score categories. And as another important fact and figure, I must share that half of the GPLs within our portfolio are extended to our payroll customers. And on the FX loan side in USD terms, we do not observe a strong appetite as in the previous quarters.
Coming to your second question regarding details about OpEx and the Q1 performance in terms of operating expenses and maybe I can provide some color on the expectation of this figure. Indeed, if you remember, in the beginning of the year, we shared with yourselves that this year we expect to see an increase in OpEx at around average inflation figure. When we look at the HR and non-HR components of OpEx, we can say that our cost control approach is in place and effective. FX volatility and high inflation is putting some upward pressure on the cost front. However, only a very limited portion, namely less than 5% of our operating expenses, is exposed to currency depreciation.
In the first quarter, although we finalized our collective bargaining process in January under an inflationary environment, we managed to keep our HR cost component below inflation figure. The largest driver of the OpEx figure is related with the pension fund provisions. But as you know, throughout the year, as always, we set aside these provisions with a prudent approach to avoid seasonality within this figure. So high inflation creates a drag with respect to pension fund liabilities, and that's why this item posted an above average increase. But no matter what, I can say that the manageable side of the expense items are definitely under control. And in detail, on Slide 22, you can see that the details of the -- and on Slide 15, you can see the details of the composition of OpEx. And if you have any further questions, of course, we'll be glad to answer that.
Yes, I suppose just following up from that, given that you've managed to increase HR expenses below inflation, do you think there will be a bit of a catch-up towards year-end, particularly if it becomes apparent that you do need to increase salaries versus what you agreed back in January?
Of course, as Isbank, we are trying to support our employees under this high inflationary environment. But when we look at our expectations for the inflation figure for the year-end, the recent data announced indicate that we might see a figure hovering around 50%. So we can say that there is no extra further pressure coming on. And we have already throughout our collective bargaining process, we have already set the framework, the bonuses, salaries, et cetera, all made.
Okay. Perfect. And then just my final question, sorry, my final question is about the income from participations. That's obviously a significant boost to earnings this quarter. And I'm just wondering how we can think about that for the remaining quarters of this year. Obviously, that is currency-sensitive as well.
Yes. Thank you for this question. Indeed, as you remember, back in 2018, we started to implement equity pickup method. And definitely, this approach brings out the hidden value of our subsidiaries portfolio. We can say that they act as a balancing item within our revenue stream.
And 2021, last year, if you remember, in line with the financial markets volatility, et cetera, they continue to support the revenue stream of the bank. In 2022, we expect that there is already a high base, and we expect to see some kind of normalization in terms of the income from the participations. And if you remember, in the beginning of the year, when we shared our guidance with yourselves regarding this item, we set to see an increase at around mid-teens levels for the income from participations levels.
So definitely, when the banking system is under pressure in terms of the margin evolution under the high FX volatility, et cetera, the subsidiaries portfolio seems to be supporting the P&L. This year, as I say, as we see a kind of normalization in the banking system in terms of the margin evolution, we don't expect to see that much of high support coming from the income from subsidiaries. And in the details of the presentation, you will be seeing that there is a slightly decrease in that sense in terms of income from subsidiaries.
We have a question from Simon Nellis, Citi.
I joined a bit late, so apologies if you commented on this, but can you please tell us how you think the recent restrictions that have been put in place, I think the minimum, increased minimum reserve requirements and the reserve requirement on certain types of TL loan growth, will it impact the bank and lending in the market? That would be very interesting for me.
Simon, as you know, there is a lot going on both globally and locally, and the authorities have been announcing new regulations as well as new products day by day. However, I can say that our guidance that which we shared in the beginning of the year has been prepared with a conservative approach. I mean, we factored in some cushions within our operating budget. For example, when coming up with our budget figures, we had already taken some of the new regulatory frameworks into account as they had already been account, such as commissions for FX reserves, et cetera.
For the brand-new portion of the newly introduced framework, I can say that, of course, we are adapting our strategy in a dynamic manner. And definitely, there are some upside potentials like the return on equity, net fees and commissions and net cost of risk. So we believe that we have enough room to absorb the pressures of the challenges and the new regulations.
The next question comes from Ovunc Gursoy, OYAK Securities.
Congratulations for the strong results. I wonder about inflation accounting. I know that you have studied or you are studying on the potential impact of inflation accounting, and we are also receiving many questions from investors on that front. If you give us some color on that, I would really appreciate.
Ovunc, yes, it's a very hot issue on the agenda. However, as you're also aware, currently, there is no clarity in the terms of the methodology or the schedule, the calendar. But I can generally say that relatively high share of fixed assets in our balance sheet seems to provide a cushion for us. As soon as there is some visibility, of course, we will further comment on the impact. But I believe with this answer, I give some kind of color on the issue.
Our next question comes from Valentina Stoykova, Barclays.
My question is on your subs that are callable next year in June. I was wondering whether you can share whether you intend to call these bonds and whether your decision will be mainly driven by economics or you will also take some other factors into consideration. And I also have one more question on your issuance and refinancing plans for the rest of the year.
Thanks again for the question. The call dates for our $500 million and $750 million subordinated notes are for June next year, 2023, and January 2025. We will, for sure, take into consideration the market dynamics as well as our investors' expectations. And on top of this, I must mention that, as you know, the banking authorities, permission is also required. So in brief, the market dynamics and the investors' expectations will definitely be taken into account.
In terms of the funding plans, as you know, there is a very strong FX liquidity of the bank. During the presentation, we shared the FX LCR being above 500% levels. And we can say that, of course, we will continue to be opportunistic in terms of being in the market. Indeed, we need to be in the market with yourselves making the transactions. But of course, we need to observe and find the balance, and it needs to be rational for the bank to be in the market in that sense. But definitely, non-deposit funding will continue in the bank's funding plans.
So we are closely monitoring the market dynamics, but we are always keeping ourselves update and ready. Whenever we see an opportunity, even a short window opening, we will consider it. But no rush to be in the market considering the high cost of funding.
We have no further questions. Thank you all for your participation. Now I hand over to our presenters for concluding remarks.
So thank you all for being with us. We hope to see you soon in person. And if you have any further questions regarding the performance of the bank, of course, myself and our IR team will be ready to answer them. Until then, keep safe. Thank you.