Turkiye Is Bankasi AS
IST:ISCTR.E
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Turkiye Is Bankasi AS
Earnings Call Analysis
Q4-2023 Analysis
Turkiye Is Bankasi AS
The year 2023 marked a turning point towards traditional economic policies within a highly regulated environment, leading to a slight loss of momentum in domestic economic activity in its second half. Despite this, the Turkish economy posted a resilient growth of 4.7% across the first three quarters. The Central Bank's interest rate hikes post-elections underpin a climate of improving inflation expectations, although headline inflation numbers remained high. Anticipating the annual Consumer Price Index (CPI) inflation of 64.77% at the end of 2023 to reduce to 40-45% by year-end 2024, the economy is expected to slightly decelerate to 3.5% GDP growth in 2024.
Fiscal management faced headwinds with the budget deficit to GDP ratio escalating to 5.4% in 2023, primarily due to earthquake-related expenditures; however, excluding these costs, the deficit to GDP ratio lowers to a more modest 1.7%. In line with a tighter monetary stance, the economy braces for a continued challenge in curbing inflation.
In a year marking its 100th anniversary, Isbank led the way in the Turkish banking sector with a sturdy return on equity (ROE) of approximately 39% and a return on assets (ROA) of 4.5%. The bank's diligent revenue generation efforts and efficiency enhancements contributed to a declining cost-to-income ratio. Exceptional loan growth of 56% in Turkish Lira (TL) terms is a testament to the bank's strategic focus on driving profitability through selective sectoral lending.
Isbank's lending strategy for 2024 underscores a continuation of market share capture in pivotal sectors such as exports, tourism, agriculture, and sustainable finance. With TL loan growth expected around 50% and FX loans to increase by 5%, the bank positions itself to leverage commercial loans within a regulated framework. A foreseen average net interest margin (NIM) of 4% reflects the bank's anticipation of net interest margin recovery to normalized levels through asset price-supported expansion.
The bank achieved a 128% annual increase in TL deposits, outperforming the sector average, compensated by a 9% drop in foreign exchange (FX) deposits. A capital adequacy ratio well above the regulatory minimum at 15%, buttressed by a solid mixed funding structure that includes significant sustainable funding, showcases Isbank's robust risk management disposition.
Isbank's prudence highlighted in 2023 by a best-in-class non-performing loan (NPL) ratio and superior collection performance. The bank stands prepared with a substantial free provision buffer to navigate potential uncertainties in asset quality.
Operational expenses (OpEx) and human resources (HR) expenses are expected to align with average CPI levels, with fee income predicted to contribute profoundly to covering these expenses. The bank's commitment to digital transformation and organizational streamlining portrays a forward-looking strategy that anticipates enduring efficiency gains.
Building upon digitalization and sustainability, Isbank is primed to undergo a strategic demerger to enhance group synergy and efficiency. With the demerger formalities slated for completion by late August 2024, the move is expected to lay the groundwork for future growth, public offerings, and potentially improved key performance indicators.
A significant uplift in book value, marked by TRY 46 billion growth in the last quarter, was led by revaluation gains within the bank's real estate and securities portfolio. This trend implies the robustness of the assets under management.
Whilst strategizing within a high-inflation context, Isbank foresees an average inflation rate of around 55% for the year. The bank navigates a regulatory landscape adeptly, with its robust fee-generating services poised for continued growth, against the backdrop of meticulous inflation management.
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Ladies and gentlemen, welcome to Isbank 2023 Financial Results and 2024 Guidance Audio Webcast. Today, our presenters will be Mr. Gamze, CFO; and Ms. Nilgun Osman, Head of IR and Sustainability.
[Operator Instructions]. Now I hand over to our presenters, Ms. Gamze, the floor is yours.
Thank you, Ozge. Hello, everyone. This is Gamze speaking. Welcome to our 2023 earnings and 2024 guidance presentation. Thank you all for joining us. As you may already know, besides being the Chief Economist of the bank, I have recently taken over the position of CFO from -- of [ Gamze Hanim ]. And today, being my first presentation, I am happy to share another strong set of results with yourselves.
Before diving into our financial performance, I would like to briefly go over the macro environment we were operating in and provide the color on the macroeconomic outlook of 2024.
2023 was a year of return to traditional economic policies in a heavily regulated environment. In line with the tightening measures to combine with high inflation, domestic economic activity lost some momentum in the second half of 2023, while it maintained its relatively positive outlook.
During this period, the normalization steps in economic policies, including the policy rate hikes, improved the expectations for the coming period. Especially, CBRT's policy rate hikes after the elections, supported the improvement in inflation expectations in this period, while the headline inflation figures remained elevated.
Despite all the tightening measures, Turkish economy grew by 4.7% in the first 3 quarters of 2023. External balance also improved compared to the first half of the year, mostly due to the historically high tourism revenues. The earthquake related public expenditures and for grand tax revenues had a negative impact on the fiscal budget. Thus, the budget deficit to GDP ratio increased to 5.4% in 2023 based on the medium-term plans, GDP forecast. Please also note that excluding the earthquake-related expenditures, budget deficit to the GDP ratio declines to 1.7%.
In the coming period, economic activity is expected to lose some momentum due to the tight monetary stance of CBRT. We expect the annual GDP growth, which is anticipated to be around 4% in the previous year to slightly decline to 3.5% in 2024. According to our baseline scenario, the annual CPI inflation, which was 64.77% as of December 2023 will fall to 40% to 45% range at the end of this year.
Besides, External balance figures are expected to improve during 2024 while budgets balance to GDP ratio is anticipated to remain relatively high due to delayed earthquake-related expenditures.
In the challenging operating environment, starting from the next slide, I want to highlight the financial performance of Isbank. First of all, I have to say that 2024 is a very special year for us. We are proud of celebrating our 100th anniversary this year. Isbank was formed in 1924 by Ataturk the founder of Modern Turkiye, with the mission of providing support to the economic development of Young Republic.
In the 100 years, he left behind, always bearing his founding mission in mind, we have operated with a unique target of creating sustainable value for all our stakeholders primarily relying on our internal capital generation capabilities.
Consequently, at the end of 2023, our metrics in all key areas demonstrate our strength and pioneer position in the Turkish banking sector.
Let me share the highlights of our performance that indicate the success of our responsible way of doing business in our first century, constituting a healthy and comfortable base for the next 100 years.
With respect to market position, we continue to be the largest private bank in terms of main balance sheet items. One of the most important highlights of the recent years was our remarkable accomplishment in fee generation. Concentrating our efforts in this area, we have consistently enhanced our performance, obtaining better results in every year. As an outcome of this successful trend, we have not only registered the highest growth rate among peers, but also reached the highest fee base at the end of 2023.
As for margins in a highly regulated environment, despite pressures, we have managed our suppress successfully and closed the year at a competitive level, thanks to our timely responsive policies and agile balance sheet management approach.
On top of our core revenue performance, our diverse subsidiaries have played a pivotal role in driving profitability. These subsidiaries have not only expanded our service of rigs, but have also added value by diversifying our revenue streams and mitigating risks.
In 2023, once again, we demonstrated resilience in managing asset quality, displacing the best-in-class NPL ratio with highest collection performance and NPL coverage among peers.
Coverage ratios are a reflection of our conservative approach. Additionally, we sustained solid capitalization levels and liquidity continued to be robust. We believe that our capital levels are strong enough to weather any challenges that may arise in the economy as well as supporting the future growth. Thanks to the robust performance in all these pillars, we have achieved an outperformance in profitability targets.
Comparing the outcomes with the expectations we provided for the year, as you can see in the next slide. We achieved to deliver results largely in line with our guidance in a challenging environment. Our strong performance during the year carried our return on equity above our guidance. Let's see the details in the next slide.
In the last quarter of 2023, we have topped up our free provision base by TRY 3.5 billion, bringing the balance to TRY 10 billion, which is a reflection of our prudent steps. We wanted to expand our free provision base in order to be comfortable in an environment where monetary and quantitative tightening process will prevail for a while to tackle inflation.
Against this backdrop, we will have a strong cushion of free provisions at TRY 10 billion in our balance sheet to effectively navigate uncertainties. Also, as you know, we have a relatively conservative and sustainable approach for valuing our CPI linker portfolio, where we take into account the expectations of market's participants rather than the headline inflation.
Nevertheless, for 2023, had we used the same valuation methodology with the peers, our income from CPI linkers would stand at a higher level. So if we make an adjustment taking into account these two elements, our return on equity for the year stands at around 39%, while return on assets realized at 4.5%.
Cost-to-income ratio further declined, thanks to our revenue generation capabilities as well as efficiency improvements. Solvency ratio stood at solid levels, well above minimum requirements. High profitability and optimization of risk-weighted assets surge to further strengthen our capital. Core banking revenue generation capabilities is our innate strength. We achieved remarkable levels even in a heavily regulated environment.
Our core banking revenue increased by 27% annually while there was a continuous rate hike cycle. If we recalculate our profit, taking into account the actual CPI level for the linker valuation and the free provisions we set aside, we can say that our 2023 profit would be TRY 13 billion higher.
Now we can touch upon the pillars of our strategy that will positively differentiate us in 2024. In terms of lending, we will continue to be selective and focused on gaining market share in key sectors and segments such as exports, tourism, agriculture and sustainable finance. These areas that are also prioritized by the regulator will be supporting profitability. In an environment where funding costs are approaching a plateau we anticipate net interest margin to recover gradually to its normalized levels as a result of separate expansion backed by asset price.
As you know, we are using 12 months ahead CPI expectations for the valuation of our CPI linkers portfolio. Therefore, as the expectations had a smoother trend compared to the headline inflation, we benefited from stable and consistent revenue stream from this portfolio. Going forward, expected decline in CPI will not have a major impact -- negative impact on our revenue generation capacity compared to the other methods used in the sector.
We believe that we still have a strong potential to increase our fee generation capacity. Therefore, we will continue to benefit from this potential to keep our #1 position in fee income base considering all untapped areas. Ongoing efforts to enrich the type and scope of fee-based services on digital channels will be supporting the fee growth going forward.
Along with the contribution of digitalization, employees' preferences to benefit from early retirement plan gave us a room to improve our efficiency metrics by optimizing head count and physical network. On top of this, there is further potential for increasing efficiency and enhancing our group synergy with respect to reorganization plans within the group. Now I leave the floor to Nilgun for the details of the bank's performance.
Thank you, Gamze. Welcome, all, and thank you for joining the webcast. Page 8 shows the main balance sheet items. In the fourth quarter, we observed a pickup in TL loan growth compared to the previous quarter. This gave us an opportunity to benefit from repricing of the loans with lengthened maturities, which will continue to support our loan yields. Largest driver of this increase was non-retail loans, particularly SME loans, which is one of our focus areas. Annual TL loan growth reached 56%. On a dollar basis, annual decline in FX loans stood at around 10%, which is in line with our budgets. While non-export side of the export portfolio has been declining, we continue to grow in export financing, where we are the sector leader by far with a market share of more than 16%. Besides, starting from the last quarter of 2023, we had an appetite to lend in selected FX loans, which also contributed to our margins.
On the funding side, we maintained our concentration on widespread granular core deposit base. There was around 23% additional quarterly growth in TL deposits and annual increase reached 128%, standing above the sector average. As the realization efforts continue, there was a quarterly contraction in FX deposits in the fourth quarter, bringing the annual decline to 9%. Needless to say, we continue to have the largest demand deposit base among private banks. As of the end of 2023, 39% of our deposit base is comprised of demand deposits providing an impressive support to our cost of funding.
As for the external liabilities, our total external views were $7.5 billion, of which $4.9 billion is due within a year. Against that, our FX liquid assets are more than 2x of the short-term repayment amount. FX LCR was again at comfortable levels with 327%. We see FX wholesale funding as an integral part of our efforts to maintain an optimal mix on the liability side in order to manage the maturity profile efficiently and diversify our funding sources. $2.4 billion of the FX wholesale funding obtained in 2023 was sustainable funds raised via diversified transactions.
Share of sustainable funding in FX wholesale funding reached 41% as of the year-end. Moreover, at the end of 2023, we issued a green bond amounting to TRY 500 million, which was the first ever domestic green bond issuance by a Turkish bank. Going forward, we will continue to evaluate potential transactions based on market conditions as well as the needs of our balance sheet management and continue our cooperation with our counterparties for FX wholesale funding transactions.
In 2024, we expect the loan growth to originate from TL side, especially from commercial loans, which aligns with the framework of regulations and monetary stance. We will maintain our selective lending approach as always. Our expectation for TL loan growth is around 50%, while we are expecting around 5% increase in FX side as the market conditions is expected to present a favorable environment, both for demand and supply of FX loans.
Export financing is an area that we prioritize at the same time, tourism will also be a key area for us. By offering tailored solutions and leveraging our expertise, we expect to gain market share in these selected segments. On the funding side, increase in TL deposits will surely continue as realization goes on.
On the next page, we have spread evolution. At the last quarter of the year, market conditions remained tightened with rate hikes and the addition of elevated reserve requirements. Deposit costs were also in an upward trend in the phase of the realization process. On the other hand, along with the simplification approach, as the policy rates stood at high levels, loan rates were also increasing in a gradual manner. With repricing of the loan portfolio, TL spreads will improve going forward.
On the FX side, we benefited from our high demand deposit base as well as very low deposit cost and better FX spread than our peers. Since FX loan growth is expected to pick up slightly, this will continue to support our interest income base. Additionally, our current loan-to-deposit ratio indicates enough room for strategic loan growth, which we plan to utilize while maintaining our selective and prudent approach. When we move to the next page, we have the details regarding net interest margin. Despite the regulatory environment, putting significant pressure on spreads, we ended the year with 3.5% swap-adjusted NIM. Please keep in mind that TL reserve requirements had a negative impact of 110 basis points on our full year figure. Additionally, NIM would be 80 basis points higher if we use actual CPI figures for the valuation of our CPI linker portfolio.
We should take into account that 2022 was an exceptional year in terms of spreads, where banks overall experienced substantially high levels of margins deviating from historical averages. In that sense, in a normalizing macroeconomic and regulatory environment, NIM will also approach to long-term averages. In 2024, we will continue our agile and proactive asset liability management, and we expect NIM to converge to sustainable levels.
We started the year with low margins. However, in our baseline scenario, improving TL loan deposit spread with ongoing repricing process will lead NIM to follow an increasing trajectory in 2024, more visible from the third quarter onwards. As of the end of December, share of securities in total assets was 19.3%. Looking at the composition of TL securities, we see that the share of fixed income securities was 41%.
We continue to maintain the diversified structure of the book, enjoying the benefit arising from the support of floating rate notes with a share of 59%. Please note that the potential impact of interest rate hikes with respect to fixed income securities have been fully absorbed in our balance sheet. Our CPI linker portfolio make up of 37.4% of TL Securities, contributing to our income base by TRY 13.2 billion. As you know, for the valuation of CPI linker portfolio, unlike our peers, we are using 12 months ahead CPI expectations.
I would like to mention once again that expected downward trend in CPI in the second half of the year will help us prove the merit of our methodology by providing us a consistent revenue stream from linkers in 2024 and beyond.
Moving on with net fees and commissions. As we always emphasize, in recent years, we have been focusing more strongly on the fee-generating businesses as a way of boosting income base without consuming capital. We have concentrated our efforts to grow business volume of products and services, which provides fees and commissions. We also recalibrated the pricing tools and practices to improve this revenue stream. Accordingly, fee income generation was again remarkable in this quarter. We achieved quarterly increase of 41%, carrying the annual growth rate to an impressive level of 163% outperforming our target once again.
Thanks to our strategic efforts, we have maintained our leadership position as having the largest fee base among our peers. Drivers of the strong growth were again across the board with eye-catching platforms of payment systems growing by 269% annually. It is important to note once again that we have achieved the highest fee base in payment systems, asset management and cash loans.
We expect our strong fee generation performance to continue in 2024. We are estimating a growth of more than 100%. We forecast all items to contribute growth, but again, payment systems and asset management will be the main drivers. We also believe that there is a potential to increase our fee base in money transfers as well.
If we move to the next page, we see the NPL and provisioning trends. We can comfortably say that progress of asset quality indicators was on track in 2023. We have closed the year with an NPL ratio of 2.1%. Quarterly net NPL formation suggest a normalizing trend in Q4. NPL inflow in this quarter largely relates to one big file that was highly provisioned in Stage 2. That's why there was no need of additional significant provisioning.
Our total net cost of risk, including currency impact, stood at 96 basis points for the full year. Furthermore, as part of our cautious approach, our NPL coverage ratio stood at 76% in 2023, highest among peers. Please note that on top of more than sufficient loan loss provisions, we have a free provision buffer of TRY 10 billion. 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 around 2%. Net cost of risk is expected to normalize at around 150 basis points. In the recent years, efficiency and cost management have gained more importance in relatively high inflation environment. 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.
We will continue to focus on efficiency by leveraging our strength in adapting new technologies, pioneering digital banking services and centralizing process management. Within this context, we aim to have a leaner organization with further optimization. This year, we expect OpEx growth to be around average CPI levels. At the same time, we expect to see OpEx and HR expenses coverage of fee income, reaching higher levels. Thanks to digital transformation and effective cost control.
Next page shows the capitalization levels. Our capital ratios remained at solid levels at the end of Q4. Capital adequacy ratio without the BRSAs forbearance measures stood at 18.4%. While common equity Tier 1 was at 15.2%. We believe that our capital ratios are strong enough to absorb any potential adversities in the economy as well as to sustain the growth whenever it is deemed favorable. As we always share, sensitivity of our capital adequacy ratio to 10% depreciation in TL is around 40 basis points, while sensitivity to 100 basis points increase in TL interest rates is around 10 basis points.
In 2024, our target will be maintaining capital adequacy ratio above 15%. On this page, you may see a summary of the guidance we have provided throughout the presentation. Please note that we expect these guided levels to lead us to an above 35% return on equity level at the year-end. And this concludes my presentation. You can see more details both on our financial and nonfinancial performance in the Annex. I would now like to open the floor for your questions.
[Operator Instructions]
So we have a written question at this point. Regarding our macroeconomic expectations for this year.
Thank you for the question. I will try to summarize our expectations for this year. As you know, last year, it was a high volatile period in terms of economic performance, especially we have 2 different sets of policies in the economy, especially after the elections. There is a significant tightening in the monetary policy, which started to have its impact on the economic activity. That's why last year, according to our expectations, the Turkish economy is anticipated to grow by 4% -- 4.2%. But starting from this year, when we look at leading indicators, we started to observe some kind of slowdown -- but limited slowdown in the economic activity.
Taking into consideration the levels of the policy rate which is expected to be at its peak because in the last meeting of the CBRT MPC meeting, the policy rate carried up to 45% level. As CBRT mentioned, this rate, this policy rate is expected to stay in place throughout the whole year -- nearly whole year unless there is a significant improvement in the inflation.
For this reason, it will have its impact on the growth. That's why we are expecting a loss of momentum in the economic activity but we are not expecting a significant decline. That's why our GDP growth expectation is 3.5%. In this conjuncture, we still continue to expect the highest contribution coming from the consumption expenditures. That's why -- still, we observed that the consumption continues to be active. And in that sense, in the coming periods, we might observe some kind of slowdown in the consumption expenditures but still keeping the contribution of the consumption expenditures above 2% level.
The good news might be from the external demand side because we are expecting a slight recovery in Europe, which is the main trade partner of Turkey. So we believe that the exporting industries will benefit from this trend, and that's why we will see a positive trend on the exports as well. On -- generally, I think the main concern still is on the inflation side. But Central Bank, not only tightening the monetary policy or the policy rate itself but also implementing quantitative easing as well, trying to control the inflation expectations.
If you look at the year-end inflation expectation as of December for the coming 12 months period, the inflation expectation was around 41%. As of end of January 2024, inflation expectation declined to 39% level. It is too early to say that there is a significant improvement in the inflation expectations. But we all know that the impact of the monetary tightening has a gap or has an impact on the economic activity with a time lag. For this reason, we are expecting the impact of the tightening in the monetary policy to be in place, especially in the second half of this year.
That's why observing the monthly changes in the inflation figures will be critical to understand the trend in the inflation expectations as well. That's why we are optimistic about the second half of this year to observe a better outlook in terms of inflation. If it would be the case, then we might expect a limited trade [ cut ] from Central Bank, most probably in the last quarter of 2024. But still, we are aware of the risks. That's why being on the conservative side as Isbank, we prefer to set aside an additional free provision for any risks unforeseen risks for this year.
But if the prevailing policies have their impact on the economic activity as it is targeted, then we might see a rebalancing in the economic activity, which will help us to have a better outlook, starting from the last quarter of 2024 and the better outlook for the year 2025. So this is a general summary for the economic outlook.
I think we have another question.
I think there is an additional question on the yes -- average inflation figures from the audience, what is the expected average inflation level?
According to our expectations, average expected inflation level is to be around 55% for this year. These are our expectations.
[ Irish Patel ] has a question about our holding plans.
Okay. Thank you very much for the question. In the management of our subsidiaries portfolio, we aim to increase efficiency and dynamism by moving to a more focused and simplified structure that will maximize the synergy of the group with their systemic approach. So the demerger decision is very much in line with the strategy. The decision basically involves an umbrella company with 100% ownership of the bank and the participations will be managed under this company. The new structure will include organic and inorganic growth potential, making strategic investments much more easier in new areas of activity. It will also contribute to the sustainable growth of our group.
We believe that the investments we have made recently in the areas we see as an extension of digitalization and sustainability such as [ Is Enerji, Pazarlama, Moka, and Proemtia ], which are not yet publicly traded, have a separate value and potential in the structure. We do not expect this transaction to have an initial impact on the -- on our financial statements. However, there may be potential increases in this area going forward as well, which could have an impact on the improvement of our key performance indicators.
In addition, it is possible to reach a higher amount of public offerings potential while maintaining the group control in our subsidiaries. As it is disclosed in October 2023, demerger transaction would be carried out based on the financial statements of 2023 year-end and necessary documentation and application process in line with the Turkish Demerger Regulations will be initialized after disclosure of these financial statements.
According to the regulations, with the year-end financials, the overall transaction should be completed in 8 months in other words, latest by the end of August 2024.
A question from [indiscernible]. He wonders our expectation regarding quarterly spread and net interest margin evolution.
Thank you for the question. Due to the ongoing pressures on the funding costs as a result of monetary and quantitative tightening, we have started this year at a low level in terms of net interest margin, [indiscernible].
Going forward, we expect NIM in every consecutive quarter to be better than the previous one. As a result of expansion in loan to deposits breadth owing to asset repricing. As we have mentioned, we believe that the policy rate is at its peak and if we take into consideration the inflation expectations, the prevailing deposit rates are converging to the policy rate or staying above the inflation expectations which means that we are not expecting a further increase in our deposit costs, whereas we are expecting repricing process on the loan side, which we believe that in each consecutive quarters, this will have a positive impact on our NIM.
Please also note that the marginal deposit rates, policy rate and inflation expectations have converged to each other. We can say that, thus on a marginal basis, deposit rates already implied a positive pre-yield. As this process precedes the recent hikes in the policy rate, incrementally, we don't expect significant upward trend on average deposit costs, as I mentioned. That's why asset repricing will be much more effective in our NIM evolution. And for this reason, we are expecting an average 4% NIM for this year.
Well, we have some in-person questions. First one comes from David Taranto from Bank of America.
Your book value grew by TRY 46 billion in this quarter, which is more than 100% above your net income and indicates 21% quarter-on-quarter growth. What has been the key driver of this growth? Is it revaluation gains on real estate portfolio or mark-to-market gains on subsidiaries or security -- increase in security portfolio value? Could you please elaborate on this trend?
Thank you for the question. I can say that in the last quarter of 2023, especially the revaluations of real estate portfolios belonging to both the bank and the subsidiaries positively impacted the book value growth. So I can say that the major impact was coming from the revaluation of real estate's portfolio.
And do you revalue your real estate portfolio every year in the fourth quarter or semiannually? How often do you do that, please?
Twice in a year, we are revising our revaluations.
Another question from [indiscernible] John. John, please go ahead.
I was just wondering about the fees really because if you look at the guidance, it's implying 400% growth from 2022 to 2024. So I was just wondering what gives you confidence that the regulator will not constrain this kind of growth because it's -- it's very about inflation. And we have seen in the previous periods that they just step in and they just wouldn't let it happen. I mean what gives you confidence this time that it won't happen?
Okay. Thank you very much. As you have mentioned, this is a very well-regulated area. So we are positioning ourselves within the regulations. What can I say is that -- as you know, our efforts in the recent years focused on diversifying the fee-based as much as possible and enhancing the contribution of different items. I think this is the main issue that differentiate us from the other players in the market. As a result, we managed to diminish or eliminate the dependency of fee income generation from lending growth. And especially the leadership in payment system is one of our strategic priorities. And in this regard, we are continuously gaining market share both on the customer side and in the merchant business.
However, we believe that we still have room to go in these areas which gives us the sustainability of fee income in the coming period. And please also note that our active customer base is expanding since 2021, number of active customers increased by 4 million, which is a remarkable indicator supporting our commission income generating capabilities.
Another important issue is that in line with policy is implemented tight monetary policy, the regulator also wants us to increase savings in the economy. That's why asset management have become much more important compared to the previous years. And this is also another area that we benefit a lot and have the largest fee-based in our fees and commissions.
Also, we know that there are some untapped areas such as money transfer. Still, there is room to go there, and we want to benefit from this potential. And we have some special projects in these areas. That's why for the year 2024, still, we believe that all these potentials and all these projects will help us to generate fee and widening and diversifying our fee base, we will easily reach even higher than 100% growth in our fee base or fee income.
I mean you talked about a diversified fee base, but 80% of the fees are actually coming from 2 businesses, right? I mean -- is it really that diversified to act as a mitigated against...
Sorry. I can say that if you look at the year-on-year growth figures, yes, as I mentioned, the payment system has highest growth and highest share in our fee base with 269% year-on-year increase. But besides this, the asset management, the fees from the asset management is increasing by 122% on a year-on-year basis. Money transfers a similar growth and the cash loans, 93%. This year -- last year, our loan growth was around 56%. And for this year, we are again expecting a 50% loan growth. That's why I mentioned it as a diversified fee base because we are nearly #1 in 4 -- 3 of these 4 areas. #1 in Asset Management, #1 in Cash Loans and #1 in Payment Systems, and we have special projects on the money transfers as well.
We have quite a few written questions. The first one we can cover is sectors under potential stress for next year -- for this year.
Okay. First of all, I have to mention that the global economic slowdown due to the tight monetary stance of the major central banks, the geopolitical developments, volatility in Turkish lira and the tightening in loan conditions are the major potential risk factors for almost all sectors in the coming period.
And as the European countries are the main export partners of Turkey, the course of economic activity in Europe and the euro-dollar parity will also affect the export performance. However, considering the financing support provided to exporters, we believe that sectors with high export potential will be relatively less affected by tight monetary policy implementation.
In addition, despite the widespread negative effects of the earthquake put forward investment expenditures in the region and the increasing demand for urban transformation in [indiscernible] with high earthquake risk, especially like Istanbul had a potential to support activity in these sectors, the construction and related sectors. Besides in a highly inflationary environment, turnover and profitability in the retail trade sector are expected to remain strong as in the previous period.
Regarding the Tourism sector, despite the geopolitical developments and the earthquake disaster the total number of foreign investors was increased by 11.1% on a year-on-year basis, while the tourism revenues expanded by 16.9% in 2023. The performance of the tourism sector is also crucial for the course of the airline transportation sector, which has maintained a positive outlook in the post-pandemic period. However, the geopolitical risks still remain one of the main risks on the performance of the tourism industry in the coming period.
In addition, the compliance phase regarding the Carbon Border Regulation will also be a key issue for the medium- and long-term performance of the related sectors like iron, steel, cement, et cetera. But we are aware of the risks -- economic risks or the slowdown in Turkish economy. That's why we will be approaching each sector quite carefully or prudently in order to understand the risks in the sector. And that's why with the prudent policies, we will continue to manage the risk in any sector throughout the whole year.
A question from Simon Nellis. He wonders why we are building up our free provisions [indiscernible].
Thank you for the question. Maintaining a substantial free provision base has been a long-term policy of us as a part of our prudent strategy. In the last quarter of 2024 -- '23 sorry, we have topped up our free provision base by an additional TRY 3.5 billion, bringing the balance to TRY 10 billion, which is a reflection of our prudent stance. We wanted to expand our free provision base in order to be comfortable in an environment where monetary tightening -- monetary and quantitative tightening will prevail for a while to tackle inflation. We will have a strong exclusion of free provision at TRY 10 billion in our balance sheet to effectively navigate the uncertainties.
They are also part of our funding base and serve as free capital instrument in financing our assets. And please also note that the free provisions do not result in a cash outflow. They costed a free capital item and utilized whenever needed. And if we take into consideration the uncertainties of the year 2024 and the relatively tight policies implemented, we think that we might be using this free provision throughout the year if it is needed. If it is not, it will decide as the management to unwind the provisions or continue with it.
Mehmet Sevim from JPMorgan asked about the trajectory of effective tax rate in 2024.
In the last quarter of 2023, our effective tax rate was in the negative territory as a result of strong subsidiary contribution and deferred tax payments -- tax impact, let me say. Going forward, we may see normalization in the tax rate, but it will be mainly determined by the tax base, namely the valuation of securities and derivative instruments and subsidiaries contribution.
Questions from [indiscernible] from [indiscernible]. She would like to know the loan growth trajectory for 2024.
Yes, our Turkish lira loan growth expectation is around 50%. But as you mentioned, when we look at the segments that we want to grow, we can say that this is not mainly on the consumer loans or consumption side because we are aware of the fact that there are limitations, and the regulators don't want us to increase consumption expenditures in the economy. That's why we want to grow mainly on the commercial side, which aligns with the framework of regulations and monetary stance.
So we will grow mainly with a selective approach on the sectors that I have already mentioned. Our expectation for Turkish lira loan growth is around 50% while we are expecting a 5% increase in the FX side as well as the conjuncture is expected to post a favorable environment both for demand and supply of FX loans. And also export business is an area that we prioritize and at the same time, tourism will be the key areas for us. That's why we will be much more on the SME side, on the commercial side, on the areas, it is already prioritized by the Central Bank.
I think these are all the questions for today. So I'm handing over to our presenters for closing remarks. Thank you.
Thank you, Ozge. Thank you very much for your participation. We believe today we have disclosed another strong set of results, indicating our expertise in weathering challenging operating environment. Needless to say, this performance is based on our strength in human capital, technological infrastructure, digital capabilities as well as our sustainable business model, revealing 100 years of experience and responsible value creation in both banking sectors and in Turkish economy. Regarding the details, let's be in touch, looking forward to see you all in person until then, stay safe and healthy. Thank you.