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
Thank you very much for your patience, and also thank you for joining Isbank's Q4 Earnings 2021 Financial Results and 2022 Guidance Audio Webcast. [Operator Instructions] The event will be hosted by Ms. Gamze Yalcin, CFO; and Ms. Nese Sozdinler, Head of IR and Sustainability. [Operator Instructions] Now I leave the floor to our presenters.
Hello, all. This is Gamze speaking. I hope everyone is safe and healthy. We all wish that we have welcomed yourselves here in Istanbul at our premises. But hopefully, we can do so soon. Let's start the meeting first with last quarter's highlights, and then focus on our 2021 performance, including our expectations for this year. And finally, we'll have the Q&A session.
Despite a challenging year, once again, at Isbank, we have demonstrated our resiliency with strong set of results. We believe that we are well positioned with strong fundamentals and timely, responsive policies. This is clearly reflected on our fourth quarter results.
First of all, we achieved a remarkable increase in our core revenues. On a quarterly basis, we had a 200 bps increase in swap adjusted net interest margin, bringing the full year level to our guidance range. This was mainly accomplished through the expansion of our core spreads.
Secondly, fee income performance was once again at an outstanding level with an around 36% year-over-year increase, further contributing to our revenue base. Also, thanks to our well-diversified and prudently established balance sheet structure in addition to our customer-driven revenues, income from securities and subsidiaries portfolio continued to support our strong revenue base. I'm delighted to say that all in all, quarterly return on tangible equity came to a record high level.
In terms of provisioning, we continued our prudent approach. With the further top-up of TRY 1 billion during the quarter, our fee provision stock reached to TRY 4.1 billion. We also increased our coverage ratios across all stages, indicating our conservative stance. Last but not least, despite high volatility, our capital ratios remained at solid levels.
Let's continue with our guidance performance in 2021. As you can see from the slide, we managed to achieve our targets. Indeed, we outperformed them. We further enhanced our robust position and market shares in the sector as being Turkey's largest private bank.
Throughout all metrics, we achieved outstanding results, thanks to our agile asset liability management in optimizing our balance sheet under the current operating environment. This is clearly visible in our profitability metrics. We achieved a 20% return on average tangible equity at the end of the year. If we adjusted this figure for the fee provisions set aside in the year -- in the quarter, it will be as high as 22%, indicating a remarkable level.
At this point, I would like to hand over to Nese for the details of our performance and expectations.
Thank you, Gamze. We continued our selective and well-balanced growth policy in 2021 and closed the year with a TL loan increase of 27%. Accordingly, we continue to have the largest market share in Turkish lira lending among private sector banks by the year-end. On a U.S. dollar-adjusted basis, annual decline in FX loans stood at around 5%, in line with market sentiment. However, on a selective basis, we were very active in exports business and have gained market share in this area.
If you look at the funding side, in TL deposits, annual increase reached 25% standing above the sector average. On a year-on-year basis, FX deposits posted a low single-digit growth. Needless to say, we continue to have the largest demand deposit base among private banks. Share of demand deposits increased to 48%, further contributing to our low-cost funding base. All throughout the year, in line with our flexible and proactive approach, we also benefited from alternative funding options based on their cost advantage.
As of the end of 2021, we have sustained our position as the largest private bank of Turkey. This was a period in which we have increased our market shares in many items. We have the largest asset size among private banks with a market share around 11%. As mentioned, we are the largest private lender. And in 2021, our market shares in TL loans and nonretail loans posted 50 basis points increase each, enhancing our leadership. We have said that export business is an area that we prioritize. 20 basis points increase in our FX loan market share is derived from the boost of exports business, which reached 14% by the end of 2021.
On the total deposit side, we have, again, the largest base. We have a historical leadership in demand deposits in the sector. We have further increased our market share in this area by 30 bps to around 16%. Nonretail deposits also posted a strong increase of [ 70% ], further enhancing our leading market share in Syria to 13%.
In 2022, again, we expect the loan growth to originate from TL side. We will stick to our selective and prudent lending policies as always. Our expectation for TL loan growth is [ above ] 25%, whereas contraction trend in FX loans is anticipated to continue at high single-digit levels.
Needless to say, in line with our focus on sustainability, we are aiming to increase the utilization of our expanded range of responsible products across all segments in our loan portfolio. While we will continue to increase our already strong financing support for renewable energy production, we will prioritize our lending activities in the light of our climate risk heat map methodology. All these steps demonstrate our commitment to the decarbonization of real economy and sustainable development.
On the funding side for 2022, we expect to see some [indiscernible]. In this sense, TL deposits is anticipated to post a growth [ above ] 35%, while FX deposits are expected to decline. All in all, this growth composition will support improvement in TL loan-to-deposit ratio.
Due to tighter funding costs than our expectations, net interest margin contracted beyond our initial guidance in the first 3 quarters of 2021. On the other hand, as a result of ongoing asset repricing, in addition to easing in funding costs, our Q4 swap adjusted net interest margin went up by 200 basis points and stood at 4.6%.
Quarterly TL core spread expanded by 140 basis points. Thanks to our dynamic balance sheet management, TL deposit costs came down to 10.9% in the fourth quarter. Ultimately, by the help of robust improvement in the fourth quarter, we have finalized the year with a swap adjusted NIM of 3.14% within our revisited guidance range.
In 2022, we expect to see swap adjusted net interest margin to stand at around 3.8%. It goes without saying we will continue to manage the funding costs in a dynamic manner. In this context, we will again be focusing on our unique widespread deposit base and demand deposits. Certainly, we will also utilize alternative sources of funding with a cost-oriented approach as well as deploying AI facilities for customized pricing.
Share of securities in total assets stood at 15.4% at the end of December. Quarterly yield of TL securities increased by 5 percentage points, boosting its support to net interest income.
As you know, we use CBRT's market participant survey for the valuation of CPI linkers. In fourth quarter, yield on CPI linkers was around 30%. The estimates we used for the valuation of the CPI linker portfolio in the last quarter was 21.4%, which was the expectation in CBRT survey for 12 months ahead. Should we use the actual CPI for valuation in Q4, net interest margin and return on tangible equity would be 21 basis points and 168 basis points higher, respectively. Please note that when estimating the CPI linker impact for the upcoming period, we have assumed 12 months ahead CPI expectation in the surveys to stand at around reaching to 30% on the average.
As you know, fee income has always been one of our main focal points. What we have done is concentrate our efforts to grow the business of fee-generating products and services and recalibrate pricing to improve this revenue stream. As a result, we achieved another remarkable fee income increase around 36%, outperforming our targets once again. In 2021, largest contributors to fee growth were cash loans, payment systems and money transfers. If you look at the quarterly evolution, the persistence of the growth becomes more visible. Since March, fees and commissions grew by 12%, 14% and 18%, respectively, with an incremental increase.
We expect the strong performance to continue in 2022 as well. Our projection for this year is again an [ above ] 30% fee growth. We forecast all items to contribute to growth, but the gain payment systems, lending-related fees and money transfer fees are anticipated to be the main drivers.
We can constitutively say that progress of asset quality indicators was on track in 2021. Even with the elimination of forbearance measures, we have closed the year with an NPL ratio of 4%.
Beyond the strong asset quality, of course, we should mention about our impressive collection performance. On an annual basis, our collection rate stood [ about ] 17%, indicating a superior rate amongst all peers. In line with our conservative stance in this period, we increased the coverage ratios in 2021. Our total coverage ratios stood at 7% by the end of December. For all 3 stages, our coverage ratios are amongst the highest when compared to our peer group.
On top of our more-than-enough loan loss provisions, as mentioned, we have a fee provision stock of TRY 4.1 billion, providing an extra cushion for any future risks. Our net cost of risk was 75 basis points for 2021, excluding currency impact.
In 2022, moderation in economic activity will be the main determinant of asset quality metrics. Thanks to our prudent stance, continuous efforts and conservative risk management principles, coupled with utilization of latest technologies, including implementation of AI in this area, we don't expect a significant downside risk in our asset quality indicators. This year, we expect the NPL ratio to be less than 5%. As for the Stage 2 loans, their share in total loans is anticipated to stand at around 13%.
On the net cost of risk side, we will continue to be conservative in 2022. Under this assumption, net cost of risk is expected to be below 150 basis points, excluding currency impact.
In 2021, our liquidity profile was maintained at a robust level, thanks to our stock of high-quality liquid assets. Our readily available liquidity is more than enough to cover our total outstanding FX debt. Furthermore, not only our LCR but also NSFR, which has a longer perspective, stood at robust levels.
In 2021, we followed the cost-sensitive approach in terms of wholesale funding, where we achieved successful rollover ratios as budgeted. This year, regarding our redemptions, we will again continue with our cost-sensitive approach and closely monitor the market conditions. Of course, in line with our commitment to extend sustainable launch, we definitely have the appetite to obtain sustainability-linked funding.
As you know, we have been taking solid steps in terms of transforming our business models in line with our digitalization strategy, which enables efficiency gains as well. To make it concrete, number of digital customers increased to 10.2 million by the year-end. This corresponds to an increase of 1 million customers in the last year.
Transactions held for nonbranch channels as a percentage of overall transactions stood at 96%. Share of digital channels in time deposit accounts is now 88%, while share of GPLs offered digitally reached 93%. Moreover, share of nonbranch channels in fee income base has come to 25%. OpEx and HR expenses coverage of fees, which is supported by digital transformation, increased significantly, respectively, to 48% and 120%.
Accordingly, we have been observing a downsizing trend, both in number of branches and headcount in line with the increase in automated processes as well as enhancing the utilization of digital channels. Maintaining our strong focus on efficiency as well as concentration on cost control, we managed to decrease our cost-to-income ratio in 2021 and posted a positive JAWS figure at the end of the year.
This year, we expect an OpEx growth around average inflation. Obviously, FX volatility and high inflation is putting an upward pressure on the cost front. However, only around 5% of our operating expenses is exposed to currency depreciation. Other than that, as you might have followed, we have just finalized our collective bargaining process for the next 2 years and made the necessary adjustments in order to compensate our valuable workforce in this inflationary environment.
In 2021, we continue to sustain our capital base primarily through net income growth. As you can see in the slide, excluding the impact of BRSA forbearance, our capitalization ratios stood at solid levels despite the high level of volatility in the financial markets. We believe that our capital levels are strong enough to absorb the potential adversities in the economy. In 2022, again, our target will be maintaining capital adequacy ratio [ above ] 15%.
This concludes my presentation. Now I leave the floor to Gamze.
Thank you, Nese. On the next slide, for your convenience, we provide a summary table for our 2022 guidance, which we have already mentioned during our presentation.
To sum up this year, definitely, we will gear up for our second century with focus on future offer by further integration of digitalization and sustainability into our business models with an end-to-end approach. Our focus on asset quality will continue with a conservative and prudent stance. We will continue to accelerate our fee income base. Cost management will again be under our spotlight. All in all, sustaining our strong fundamentals will continue to be the main focus of our strategy.
So thank you for your attention. Now we can have your questions.
[Operator Instructions] There are no -- nobody is raising their hand as far as I can see at the moment. We have a couple of written questions from Tomasz Noetzel from Bloomberg Intelligence.
First one, could you please comment regarding the demand for FX-linked deposits with retail and corporate breakdown? And the other one, do you expect funding costs near -- to stay near 17% looking at the inflation hovering around 30%, 40%?
Okay. Thank you very much for the question. To start with the newly introduced products in terms of FX protected deposits, we can say that the amount is rapidly picking up. With the inclusion of commercial deposits and tax advantage provided to the depositors, strong flows gains momentum. And we can say that the share is already reaching to high-teen figures, around 18%, 19% levels. And what we can say, we have started to offer the opening of these accounts also through our digital channels as of January end, in addition to our branches. And so far, we can say that is [indiscernible] in the process for the depositors to reach out these products also has a positive impact on the customer interest.
The second question, again, coming from Tomasz. It is the -- regarding the funding cost level. Yes, with these newly introduced products, we can say that the interest rate is hovering around 17% levels. And we can say that we can expect to see a flattish level within the first half of this year. And I must also mention about Isbank's levels within that sense. Cost of Turkish lira term deposits hovers around these levels. Whereas on a blended basis, our cost comes down to around 13% levels, thanks to our strong demand deposit base.
Now Alan Webborn from Societe General would like to ask a question. Alan, please go ahead.
A couple of questions, if I may. Firstly, on the outlook in terms of the loan growth. I mean, do you see demand fairly broadly spread? Or do you think it's going to be very much focused on retail? Just a view of where you feel what's going to drive the loan growth that you're expecting for the coming years. So that was the first question.
And then just 2 points of detail, if I may, on the Q4. Clearly, you had a very big contribution from the participations in Q4. Could you just explain that a little bit?
And also could you strip out from the trading gains? And I can see you stripped out the swap costs, but could you strip out the FX impact so we can understand what the underlying trading gains were in Q4 in obviously what was a very volatile quarter?
Thank you, Alan. To start with the loan growth, what we can say is that, yes, within the market, there is this appetite within the market coming from across all segments. In terms of our appetite, we expect loan growth to originate from the Turkish lira side again this year with a rate [ about ] 25% as we just presented. And we will have a balanced growth between retail and nonretail segments.
On the FX loan side, we expect to see the continuation of the contraction at high single-digit levels in line with the market sentiment. On the nonretail side, demand is seen mainly on the short term on the working capital side. So this is what I can share in terms of the loan growth expectations.
In terms of the -- the question was regarding the trading income. Indeed, the reasons behind the relatively high trading income in the fourth quarter were mainly the long FX position and interest rate hedging positions that we utilize.
When we exclude the swap cost, we have a trading gain, which is derived mainly from the loan position in relation to FX loan provisions. And we have also benefited from our hedging strategy on the rate side. This year, we will most probably continue to utilize the similar positions in terms of the [indiscernible] transactions. Of course, this will all depend on the market dynamics. This is what we can say regarding the trading income.
And the other question was related with the income from participations. After we started to implement equity pickup methods in -- back in 2018. We believe that since then, the hidden value within our subsidiaries' portfolio has started to be recognized. And either if it's a good cycle within the economy or a bad cycle, we definitely benefit from the income from our subsidiaries' portfolio.
And this year, in line with the market dynamics again, of course, this is much related with that, but we might see a normalization within this income item for this year. But definitely, the synergy created within the group companies brings us -- bring out the strong potential within the profitability of the bank.
But I mean, is there something exceptional in Q4 because clearly, you've made TRY 4 billion of net revenues or profits from the subsidiaries? And you've made about sort of, I know between 1.2, 1.5 in previous quarters. So is it simply a very strong operating result from those companies? Or is there something else there that's made this Q4 number high?
Yes. Indeed, we can say that this is both related with their increased performance and also depending on the market conditions. For example, the subsidiary Sisecam, for example, they boosted their performance with the exports and in line with their performance capacity in that sense. So on a broad scale, we can say that the contribution is [ derived ] from their increased performance.
Okay. And again, can you tell me on the trading line, if you strip out the hedging, what would -- did you still have a very strong trading line in Q4 stripped out of the hedging? Or is most of that TRY 5.8 billion the hedging?
Yes, we can say so, Alan. Trading income definitely will be there. This is, of course, will be seen if we strip out the hedging instruments as well.
Simon Nellis from Citi would like to ask a question.
Actually, my main question was also on the participation income. But I have another one, which is on asset quality. I see that you're expecting the Stage 2 ratio and the NPL ratio to go up a bit, but you have quite high loan growth forecast. So can you just elaborate on your NPL outlook? Or what's driving you to expect some deterioration?
Okay. Thank you, Simon, for the question. We can say that, first of all, we are comfortable with our asset quality, thanks to our prudent lending policies and strong collection performance in that sense. This year, moderation in economic activity might be the main determinant of asset quality metrics within the system. However, we don't expect to see any major deterioration in our portfolio. In line with our conservative stance, as you know, we have been steadily increasing our coverage ratios across all stages. On top of our more than enough loan loss provisions, we also have a fee provision stock of TRY 4.1 billion, which provides us an extra cushion for any future risks.
And as you can see, we do have a very strong collection performance, which is also reflected on our net cost of figures. So this year, we expect NPL to be less than 5%. And within this context, we think that our asset quality will be quite at manageable levels. Thanks to our, first of all, a well-diversified portfolio and our effective scoring techniques as well as our collection capabilities, muscles that we built within the bank itself as well. So what we can see is that we are comfortable in that sense with our asset quality expectations and portfolio.
So you're saying that you're guiding conservatively for NPLs to rise?
Yes.
Okay. And then just on the capital position, would you expect forbearance to be relaxed at some point? Or what's the outlook there?
It seems that the forbearance related with the FX rates to be continuing unless we see further stabilization within the market. But as you know, the forbearance regarding the NPL recognition has already been ended. And the forbearance related with the FX rates, as I said, relies on the further stabilization within the market, I guess.
And do all your covenants, do they work on the local regulations? Or do some of them, are they affected by the actual ex forbearance capital ratios?
In terms of our capital adequacy ratio, what we provided yourselves is with and without forbearance. Sorry, I'm not sure if I hear your question in a proper way. Would you please repeat?
My question is about the covenants for, I don't know, debt or other agreements. Do any of them quote your capital ratios excluding forbearance?
Without -- in terms of capital adequacy ratio, I can say that there is no relation -- no agreement is there in terms of capital adequacy ratios with the BRSA. No, this is what we guide yourselves. If I understand your question in a correct way, let me try to provide you the information.
Indeed, what we guide yourselves with our capital adequacy ratio is to have this [ about ] 15% levels. In terms of the BRSA capital requirements, we have already provided them within the presentation, which the bank on the figure is 10.56%. And in terms of that, we are pretty comfortable.
In terms of if you're asking, if you are -- if I'm getting the question right, in terms of our funding agreements with the bank, our covenants are based on BRSA's reported capital figures. But even if the covenants were set on without forbearance matches then we would again be comfortable in terms of our funding agreements with the third parties. I believe this is the question you're asking, right?
That's the question I was asking, yes.
Sorry. I totally had difficulty to understand because I couldn't properly hear the word covenant. In terms of -- sorry, in terms of our funding agreements with the bank, they are based on BRSA's reported capital figures. But even if the situation was on without forbearance metrics, as you can see, we will be very comfortable in terms of meeting the criteria set within our wholesale borrowings.
John (sic) [ Cam ] Demir from Wood & Co. would like to ask a question.
So I wanted to ask you, just for our modeling purposes, how do you incorporate lira volatility or lira weakening last year in the ECL calculations? Because as far as I'm concerned, you don't give us a clean cost of risk figure that excludes the FX hedges in the East, yes. So I was just wondering if you could give us some more color on that.
Sure, definitely. In terms of our net cost of risk guidance, we provided yourselves in order to make it comparable with the other peers' figures. That's why we provided excluding currency impact. And we said that it will be less than 150 bps.
And generally speaking, and it's very much in line with that general calculations, what we observed until today, the currency impact hovers around 30 to 40 bps level. But if we present yourselves our net cost of risk including the currency impact, I will be saying to you, it will be less than 200 bps, hovering around 180 to 190 bps level.
Okay. And what was the impact, just again, just for our own information, what was the impact in 2021?
In 2021, it was, excluding currency impact -- including currency impact, sorry, 160 bps -- 106 bps.
106.
106. And I can say -- I must say that our fixed expected credit losses are all hedged in our FX position, in that sense. I must also add this information.
Okay. And then on OpEx, there is a bit of a delta between you and your peers, actually more than 10 percentage points of delta in year-on-year OpEx growth. And I'm talking about last year, 2021 full year. So I mean, how do you explain that given you have a much bigger scale and you're in a better position to absorb increasing costs versus peers? Why did your cost grow much more than peers last year?
Okay. First of all, we do have our cost control focus. Definitely, we continued with that. And when we look at the composition of our OpEx figure, we can say that 40% is HR cost, 60% is non-HR costs like advertisement, marketing, maintenance expenses. And under very volatile conditions, we were able to manage these expenses, at least the timing of them.
In terms of comparison with our OpEx figure, as you know, we have pension fund provisions set aside. This is -- this might be the answer to your question, which differentiates in a structural way us from the peers, at least some peers in that sense.
But please note that these pension fund provisions, even though they have been accounted as an expense item, it doesn't constitute a cash outflow. And for the time being, there is no set time frame regarding the transfer of such pension funds to social security system. And until then, our provisions for pension funds will continue to serve us. It is very similar to free capital items in financing our assets.
According to the current regulations, even at the time of transfer, for example, we might have the option to pay off the pension fund deficit in 15-year installments with a treasury bond interest rate. And we -- this -- with this functionality, this payment plan, such a payment plan definitely resemble a very convenient long-term borrowing instruments. So looking to the pension fund provisioning within this context, I believe it provides a more realistic [indiscernible] rather than seeing it as a mere expense item.
Sorry, just to understand. Why would you describe it as a cheap borrowing instrument because it's a deficit, it's the money you have to [indiscernible] yes, right? I mean it's...
There is no -- there isn't a cash outflow. And the regulations at the time of the transfer will allow us, okay, to pay up the deficit in 15-year installment plan. So that's why I said it might resemble such a very convenient long-term borrowing item. Within that context, I made this explanation.
I guess no one's raising their hand now. We have a couple of written questions left. Some are regarding our macro expectations that are -- that were based to our [indiscernible].
Okay. Thank you for the question. To start with the GDP growth rate, as you know, Turkish economy had high growth rates, around 10% to 11% levels last year. This was mainly driven by the strong internal and external demand. Also, we must take the low base effect into account. This year, we expect to see a moderation in growth rates, mainly due to the adverse base effect. So GDP growth might hover around 3.5% levels.
Regarding inflation, as you know, the monetary policy of the CBRT as well as there is these global inflationary pressures, this might lead to the continuation of the high inflation levels, especially in the first half. And as you might have already heard that officials also disclosed peak levels in April and May period. However, due to base effect, we expect to see a lowering down to around 30-ish percent levels unless, of course, we face with any unexpected additional risk factors. And touching upon the pulse rate maybe, in line with the CBRT's announcements, we assume flattish pulse rate in our baseline scenario.
And the only remaining questions are regarding the sources of expected NIM improvement in 2022 in terms of spread and CPI linker contribution.
Okay. Due to tighter funding costs than our expectations, NIM contract that's beyond our initial guidance in the first 3 quarters of last year, as you know. On the other hand, as a result of ongoing asset repricing in addition to easing in funding costs, our Q4 swap adjusted NIM stood at high levels like 4.6% level. So we ended the year with this swap adjusted NIM as 3.1%, in line with our guidance.
This year, we expect to see this level swap adjusted NIM to stand around 3.8% levels. First of all, we do have a well-diversified base. But our NIM is mainly derived from our core revenues, as you know. It is not based on the performance of a very specific portfolio. We believe that we could maintain the widened spreads. And of course, we will be observing the support of the CPI linkers in the -- especially in the first quarter.
But through the stabilization of pricing, starting from the second quarter we might say, we will see a normalization in the NIM outlook. But however, we will focus on managing the funding costs in a dynamic manner as we did in the last years or in the previous quarters. And definitely, we will also benefit from our low-cost funding base. So all in all, we expect to see like 70 bps widening in our NIM compared to 2021 year-end level.
We have no other question left. Thank you, everyone, for participating. I'm now handing over to Gamze for concluding remarks.
So I would like to thank you all for your participation. And definitely, we are looking forward to seeing and welcoming yourselves here in Istanbul, as I said in the beginning of the meeting. We believe that with the strong support coming from our stakeholders, we will continue to provide strong set of results and getting ready for our second century because there is very limited time for us to reach to our second century.
So until then, take care, and looking forward to seeing you all. Thank you.