Turkiye Vakiflar Bankasi TAO

IST:VAKBN.E

Earnings Call Transcript 2018-Q3

[Operator]

Ladies and gentlemen, welcome to VakifBank Third Quarter 2018 Earnings Results Call. Today's speakers will be Mr. Mustafa Turan, Senior Vice President, Head of International Banking and Investor Relations; and Mr. Ali Tahan, Head of Investor Relations. I will now hand over to Mr. Mustafa Turan. Sir, please go ahead.

[Mustafa Turan, executive]

Thank you, operator. Ladies and gentlemen, welcome to VakifBank Third Quarter 2018 Earnings Announcement Conference Call. I am Mustafa Turan, Head of Investor Relations, and I have the team with me as always. We will start with the details of the quarter. Ali will continue with the details of the quarter, and then we will welcome your questions then as usual.

I mean, first of all, please accept our apologies to host this call at Friday afternoon. We will be doing our best to keep it as short as possible. Again, thanks a lot in advance for your patience.

I'm very glad to announce such a solid set of results, beating expectations in almost all KPIs after such a challenging quarter. We have quarterly net income of TRY 984.9 million, which is up by a stellar 40.6% year-on-year, and the first 9 months earnings of TRY 3.1 billion is up by 10%, year-on-year basis. This gives us 15% quarterly return on average equity and 16.6% cumulative return on average equity. Both of them were around 2 percentage points higher than the sector averages. And we achieved those good set of earnings despite sizable extra provisions put aside for Stage I and Stage II loans of TRY 700 million at both IFRS provisioning key numbers under our more conservative understanding and extra risk averse position.

Thanks to this, coverage ratio was also very high, 77%, flattish Q-on-Q, substantially higher than the peers, especially when comparing to the trend of lower coverage. And Stage II coverage prudently improved to almost 10% versus only 5% just a quarter ago.

When we look at the highlights of the quarter, I want to start with the margin. Net interest margin expanded 75 bps Q-on-Q to 5%, almost better than our expectations for the quarter thanks to CPI linkers. However, this strong CPI linker support will be even more stronger in Q4, so it promises, again, another goodwill margin in the last quarter of the year. And probably, we are going to be in line with our 4% full year margin expectations. 9 months average margin is at 4.2%.

The fee performance of the bank keeps even beating our aggressive expectations. 9 months cumulative fee growth is 62%, and quarterly fee growth is 17.3%. Fee to OpEx ratio is almost 40%, almost all-time best in VakifBank's history, and we're glad to announce that we keep delivering under the new management's strong guidance of better fees. Hopefully, we will continue to meet the expectations in fee and commission income.

Service ratios are again one of the best part of the challenging quarter. I'm glad to say that VakifBank's CAR ratios, without BRSA forbearance measures, increased both Tier 1 and Tier 2, core Q-on-Q basis, probably the one and only bank in Turkey who managed this, thanks to first-ever additional Tier 1 issuance of TRY 5 billion, which is a sizable number that is closed end of September. That gave us 191 basis points Tier 1 impact. And in line -- under BRSA reporting, our Tier 2 came at 17.2% and Tier 1 came at 11.7%. But even without BRSA numbers, our Tier 2 is up Q-on-Q to 15.2% and Tier 1 is 12%. Consolidated Tier 1 of the bank without forbearance is 11.7%. This is higher than the system average and better than most of our peers, very strong solvency ratio.

Liquidity-wise, we enjoyed being extremely liquid, both Turkish lira and hard currency. Hard currency LCR is at 272%. Turkish lira, total LCR, is at 116%. VakifBank did a 10-year DPR securitization, end of September, the first hard currency bond issuance after the currency turmoil in summer, and we keep having a better deposit franchise, mostly in the hard currency part, despite the last part of the quarter -- last 2 weeks of the September, we gave exit to cost in the deposits for both Turkish lira and dollars because of our Tier 1 and DPR issuances. Despite the last 2 weeks of decrease, we managed 3% of dollar deposit growth Q-on-Q better than the system average.

Before giving the floor to Ali for the details, I want to spend a couple of minutes with the NPL asset quality highlights. Ratio-wise, we are flattish Q-o-Q at 3.9 of NPL. Of course, unfortunately, this is only happening because of optically higher loan book because of depreciation of the currency. Unfortunately, we had double-digit NPL growth nominally. But the coverage was at 77, unchanged despite more incoming NPL. Stage II provisioning also increased to 10%, and Stage II Loans increased to almost 7% of the loan book, in line with our expectations. And we keep being extremely prudent, increasing our coverage, total coverage, from 104 to 112 in such a challenging quarter, unlike the industry trend of decreasing coverage.

So I'll pause here to leave the floor for Ali for the details of the numbers. Thank you.

[Ali Tahan, executive]

Thank you, Mustafa Bey. Good afternoon, everybody. I will keep the presentation part as short as possible just to give more time to the Q&A part during this Friday afternoon before leaving to go to the weekend holidays. As always, I will start with Page 4 in the presentation, where you can see the P&L details, both on a cumulative basis and qualitative basis, item by item. And on the next slide, on Page 5, you can see the revenue breakdown.

The strong and high-quality revenue generation capacity of VakifBank continued during the third quarter. Total revenues on a cumulative basis is up by 35%, and qualitatively total revenues are up by a strong 8.5%, reaching to a more than TRY 4.6 billion. And more importantly, the high quality of the revenue generation capacity is also visible. Core banking revenues, which are consisted of net interest income and net fee and commission income -- by the way, the sum of these 2 items represents almost 85% of total revenues. These core banking revenues are also up by 35%, again on a cumulative basis, and almost 29% on a quarterly basis, reaching to almost TRY 4 billion.

Page 6 is related to net interest margin. As Mustafa Bey mentioned, our quarterly margin improved 75 basis points Q-on-Q, from 4.2% to 4.95%, which brought cumulative net interest margin of '18 so far to 4.22% area, which is flattish compared to the average of 2017 at 4.24%. And when we look at the details in terms of the core spreads, our trend is also in line with the market trend. In terms of TL core spreads this quarter, especially due to higher cost of funding, we do have some slight contraction. But on the secured spread site, we do have some improvement, but this is more driven by depreciation, and the real support to the quarter, limiting Turkish margin improvement, is coming from the secured site. This requires our CPI estimate to transfer something this quarter, and therefore, we enjoyed almost TRY 1.4 billion interest income from CPI.

And as Mustafa Bey mentioned, October CPI data is out, and therefore, we can also guide you. During the Q4, we will have around TRY 1.5 billion interest income, which is around TRY 110 million more compared to third quarter, therefore, CPI linkers, as we guided, will continue to support both net interest margin as well as profitability during the second half of the year.

On Page 7, you can see the fee and commission income. Stellar fee growth continued to be supported by all fee sources. Total net fee and commission income is up by 62% year-on-year, reaching to about TRY 1.5 billion. And more importantly, quarterly fee income is also up by another 17%, reaching to TRY 600 million. This is also important especially given the fact that as we had guided, lending growth was much muted during the third quarter compared to the first half of the year, but still such limited lending growth still, at VakifBank, they continued to generate a good number of fee income, and therefore, fee to OpEx ratio, despite the denominator effect, despite high inflation rate into the country, continued to improve. As of September, on a cumulative basis, fee to OpEx ratio improved almost to 40%, 4-0, which was 30% during the end of 2017. In other words, our fee to OpEx ratio improved an additional 10 percentage points during '18 so far.

And when we look to the details of net fee and commission income growth, during the quarter, it is coming from everywhere, especially from transactional fees as well as mobile payment systems, apart from the lending-related fees.

The next slide, Page 8 in our presentation, is related to OpEx. OpEx is up by 23% year-on-year on a cumulative basis, which has been related to CPI, reaching to almost TRY 4 billion. The good news is, quarterly OpEx is slightly going down at around 1%. But despite such high ratings -- of OpEx, we still maintained strong efficiency, which is very visible in our cost income ratio. Our cost income ratio compared to the same term of the previous year improved 3.4 percentage points, from 37% to 30 -- less than 34% area, so efficiency improvement is still on track.

And finally, in terms of the OpEx breakdown, we may say that there's almost equal split between HR and non-HR cost. However, the share of non-HR cost is slightly above at 53% compared to the share of HR cost at 47%.

The next 2 slides, Page 9 and Page 10, is related to lending growth. This quarter, we had 1.5% Turkish lira lending growth, which is completely coming from the retail segments. And within the retail segments, GPL lending and credit cards were the main drivers of Turkish lira lending growth. Apart from those 2 segments across the board in all lending areas, there was some contraction from the residential mortgages, to SMEs, to corporate and commercial lending, and even under CGF loss, debt -- mutual lending growth was visible. Our CGF lending continued to be flattish at -- flat to above TRY 21 billion a month. And in terms of the overall lending growth, excluding the depreciation, on a quarterly basis, we do have slightly above a 2,000 total lending growth, which brought total year-to-date lending growth to around the 10% area, again excluding the currency depreciation.

And in terms of the breakdown of loss, the share of FX loss, it increased further to 38% from 32% in the previous quarter due to depreciation and in terms of the portfolio breakdown, again mainly depreciation related to difference. The share of corporate and commercial lending further increased to almost the 52% area, which was less than 45% 1 year ago, and the remaining cost is equally split between SME and retail.

On Page 10, you can also see the breakdown of loan portfolio. At the left-hand side, above chart, you can see a sectoral breakdown, and in terms of sectoral breakdown, manufacturing, wholesale and retail trade and logistic and transportation are ranked within the top 3 compared to other types of sectoral. And detailed information related to construction and energy exposure can also be seen at the right-hand side of the page.

And finally, we also provided more detailed information about our project finance loans as is shown in the previous slide. Within the FX lending, almost 2/3 is coming from the project finance. And within the project finance, infrastructure, energy and service-related exposures are making almost 90% of total project finance lendings.

And as we discussed in detail in the previous conference calls, almost -- about 40% of total project finance is secured via direct and/or indirect government guarantee. And for the remaining part of FX lending, the remaining 1/3 is also coming from export loans as well as working capital loans.

Page 11, 12 and 13 is also related to asset quality. As we guided and communicated earlier, in line with the expectations due to macroeconomic developments, Stage II Loans are rising. Stage II Loans increased to TRY 14.8 billion as of September, which was TRY 8.5 billion, end of June. And the share of Stage II Loans increased from 4% to the 6.3% area. And within the Stage II Loans, around half of these Stage II Loans are coming from past due 30-day loans, and the remaining half is coming from both restructured loans as well as SICR-related risks. And at the right-hand side of the slide, you can also see detailed information about the sector breakdown of Stage II Loans.

Next slide is related to NPL. Despite such increasing Stage II Loans, NPL ratio remains flattish on a quarterly basis at 3.9% without NPL write-off and NPL sale. Our coverage ratio has also remained at flat -- remained flattish at 77%. Compared to sectors during the third quarter, we see around 2 percentage point decline in the sectors in NPL coverage ratio. But for VakifBank-specific, it was flattish Q-on-Q. NPL growth is still under control despite challenging conditions mainly thanks to prudent origination. At this Stage II increase during the third quarter, we have more NPL inflow during Q4, and therefore, during Q4, NPL ratio may further go up. But as we guided previously, as of today, we understand that our NPL ratio guidance of maximum 4.5% for the year as of '18 seems to be realistic. In other words, from 3.9% as of September, NPL ratio may go up to 4.5% during Q4.

Page 13 is related to provisioning and cost of risk ratios. Our cost of risk ratios, both in terms of gross and net, continued to be lower compared to peer averages. In terms of cost in the numbers and figures, our third quarter gross cost of risk and net cost of risk came at 159 basis points and 136 basis points respectively, which brought 9-month cumulative net cost of risk ratios to 130 almost at gross and 90 basis points for net cost of risk.

As Mustafa Bey mentioned, we also put additional provisioning of TRY 700 million during the quarter for Stage I and Stage II Loans, and therefore, our Stage II coverage ratio further improved to almost 10%, from 5.3% in the previous quarter. Despite such increase in our Stage II in terms of nominal amount, still we managed to increase our coverage ratio. And therefore, total coverage ratio for the NPL further improved to 111% as of September, from 104% in June.

Page 14 and 15 are related to -- slides related to funding and liability, especially under Page 14, you may see the details of deposit growth. During the quarter, we had flattish Turkish lira deposit growth mainly because, actually, up until to the second half of September, Turkish lira deposit growth during the quarter was much more visible. However, because of the TRY 5 billion Turkish lira Tier 1 issuance, we had the luxury to give exit to some closed Turkish lira deposit accounts, therefore, Q-on-Q-wise, Turkish lira deposit growth remained flattish. And on the fixed deposit side, we also have performed in the sector in terms of FX deposit gatherings. Sector at fixed deposit growth was minus 1 compared to June in dollar terms. But in our case, we continued to increase our market shares and we had plus 3% Q-on-Q FX deposit growth.

And within the total deposits, because of the depreciation mainly and because of the flat Turkish lira deposit growth, the share of Turkish lira deposits further increased to 41%, which was 34% as of June. And automatically, the share of Turkish lira deposits contracted to less than the 60% area, which was around 2/3 as of June.

At the right-hand side, above chart, you can also see loan to deposit ratio, both blended-wise as well as Turkish lira-wise. In terms of blended loan to deposit ratio, we had 129 -- 124% blended loan to deposit ratio, which is more or less in line with the sector. However, for the Turkish lira part, our Turkish lira loan to deposit ratio continued to -- is substantially lower than the sector averages. Sector Turkish lira loan to deposit ratio came at 144%. However, our Turkish lira loan to deposit ratio was 30% lower at 115%.

Next slide is also related to international funding. As of June, we have around $13 billion international borrowings coming from well-diversified funding sources, including Eurobond issuance source, covered bond issuance source, subordinated bond issuance source, IFI borrowings, DPR securitization, post financing and syndication. And as Mustafa Bey mentioned, during October, we had fresh funding under our DPR securitization program, with an amount of $300 million and 10 years maturity. And as of October, during October actually, despite the Eurobond redemption of $500 million and syndication repayment of $856 million, still, we continue to have strong FC LCR ratios. Our October FC LCR ratios, despite such payments, came in strong at the 275% area.

And finally, the final point on this slide is related to the maturity profile of our international funding. You may see, both short-term and long-term, external debt maturity profile. All those remaining international funding, we may consider around 37% of them are short-dated, meaning the repayments will be done until '19 year-end, with an amount of $4.1 billion, and the remaining, plus $7 billion, international funding will be maturing after 2020. And the share of those loans, those $7.1 billion is coming to 63% of total international funding.

And for the hard currency and liquidity part, as of today, we do have around about $3.1 billion of fixed-digit liquidity, which can be used freely, coming from both cash and cash equivalent sources. And on top of that, in a very short period of time, hopefully, we will also be closing our upcoming syndication transaction.

The last slide I would like to touch about, touch to your attention is related to solvency and capital, which is the best part of our story during this quarter. Thanks to effective capital management and timely additional Tier 1 issuance, which is the first Turkish Tier 1 issuance in a conventional basis, with an amount of $5 billion for a perpetual non-call 5 structure -- TRY 5 billion, sorry. Also, the ratios in terms of Tier 2 on a deposit basis came at 17.3%, which is 291 basis points higher compared to June. And our Tier 1 ratio came at 13.69%, variable than what we had in June at 11.81%. Of course, those numbers are inflated with -- accounted with BRSA forbearances. At the right-hand slide, above chart, you can also see our solvency ratios without BRSA forbearances taken into account. Beyond that, an asset, still without taking those measures into account, we became the only big Turkish bank among the peer group whose solvency ratios further improved Q-on-Q. Our CAR will be 15.26%, which is up by 24 basis points compared to June, and our Tier 1 ratio will be almost 1%, again, up by 17 basis points compared to June numbers. And at the left-hand side, below chart, you can see the detailed numbers, which explains the capital ratio's evolution.

For the sake of time, I will stop here and leave the floor to the moderator again to move to Q&A. Thank you.

[Operator]

[Operator Instructions] Our first question comes from Mehmet Sevim, JPMorgan.

[Mehmet Sevim, analyst]

Just a quick one. Your effective tax rate seems to have come down this quarter to 15% from 21%, 22% levels usually. Can you please explain the reason behind this?

[Mustafa Turan, executive]

Thank you. Provisioning, extra provisioning levels, therefore, it is temporary.

[Mehmet Sevim, analyst]

And can we understand this extra TRY 700 million of provisioning as free provisions, or is that something different technically?

[Mustafa Turan, executive]

No, they are not free provisions. Those are provisions under Stage I and Stage II, which was not necessary under our relegated IFRS 9 model. But we put those under our, what we call it, individual assessment, extra, in order to reflect excessive earnings coming from CPI linkers. And hopefully, we will continue this very conservative approach in Q4 as well.

[Mehmet Sevim, analyst]

And one final question. It looks like your TL securities book has grown substantially this quarter by 34%, and the breakdown shows it's mostly fixed securities. Can you please tell us why the increase and what kind of securities these are for us to better understand?

[Mustafa Turan, executive]

Sure. Those are mostly fixed rate government securities, both during the quarter, and almost all of them are booked under held-to-maturity. And we keep investing in comm securities, both fixed rate and floating rates, but during the quarter, most of the newly bought securities were fixed rate. And in order not to have earned accretable liability, they are booked on -- they have to mature.

[Operator]

Our next question comes from Klim Fedoff of Lord, Abbett.

[Klim Fedoff, analyst]

I just have a question mostly on liquidity. It seems a little bit tight, especially in comparison to other banks. I see you mentioned 3.1 billion, and I know that you paid back the bond obviously and the syndicated loans. So question is, did you get any of those syndication back post the quarter end? And what are the other possible sources that you can get in terms of liquidity? And second question, somewhat related, is on foreign currency loan growth. You guys posted 3% in dollar terms growth. Where did it come from because other banks have -- are -- seem to be contracting that. Yes, that's my questions.

[Mustafa Turan, executive]

Sure, Klim. Let me start with the latter. The dollar loan growth is small, but as you mentioned, this is not visible in a lot of banks because this is mostly, that is, a result of the project finance loans. Although they committed a couple of years ago, these first ones continued during the quarter, so none of this loan growth came from fresh origination, but mostly on regular disbursements for the infrastructure project loans, blue-chip loans, government-guaranteed projects. And nothing was unexpected. They were scheduled to disperse. For the first question, actually, Klim, as you mentioned, we paid sizable repayments on -- in October in terms of Eurobond as well as syndicated loan. We are in the process of launching a new syndicated loan, 1- and 2-year tranches, as early as next week. It's possible to close it as early as next week, with hopefully, a very nice and healthy rollover ratio, which will make markets comfortable, on top of the loan we repaid in October of $865 million. And for the cash-ready, number of 3.1, I have to say this is not a small number, but of course, every bank may talk different numbers. I mean, I even saw a number, double digit, in a bank, but obviously, you have to read those small footnotes. This 3.1 is actually real cash and liquidity, and we don't like funky footnotes, therefore, this is cash-ready, which I believe is a good number after paying 1.5 billion in just a month, right before making the syndication. So my point is, we are very happy about the existing liquidity, and probably, the numbers you refer are not comparable. We have to look at the footnotes carefully.

[Klim Fedoff, analyst]

That's fair. That's very helpful. If it's cash, that's good. Do you -- can you disclose what you have on the ROM and possible swaps availability?

[Mustafa Turan, executive]

Actually, you're referring to the September numbers or the recent numbers under ROC?

[Klim Fedoff, analyst]

Recent. It will be better.

[Mustafa Turan, executive]

Actually, we have around $1.5 billion of reserve option quite efficient, ready. It is down almost $1 billion since the beginning of July because as you know, the Central Bank decreased reserve requirements. So ROM, reserve option mechanism, we have around final numbers of November. We have $1.9 billion, including gold. We're using the upper end of the mechanism. And we have around $1 billion cash. Part of that are correspondent banks. And the remaining numbers are ready for usage in the near short term. We are not counting mandatory reserves and/or some other investments in hard currencies like Eurobond as our core liquidity. That's maybe why you heard a smaller number from Vakif versus our peers. So these are all cash and equivalent, ready as quickly as a couple of days.

[Operator]

Our next question comes from Alan Webborn, SocGen.

[Alan Webborn, analyst]

A couple of questions for me. Could you talk a little bit about where your deposit costs sort of peak to spec? Given the fact that you weren't growing TL in the third quarter, maybe you've done relatively well. But could you give us an idea of where you were at the end of September? Have you seen the peak in those costs now? And where do you expect the cost of TL term deposits to be at year-end? That would be helpful. And so, I guess, as a follow-on from that, like what do you think the core spread trajectory is going to be in Q4? And if you were able, at the moment, to see any further out than that, where do you think that's going to go? When do you think it stabilizes? And I guess, the third question was, after that -- the net cost of risk of, what, 90 bps at the 9-month stage, is it reasonable now to ask you for where you think that will be at year-end?

[Mustafa Turan, executive]

Thank you, Alan. For the deposits -- actually, first of all, thank you for the question because that's an extremely important question. And I think there's a good story behind this because since mid-September, we're seeing a sizable correction in Turkish lira rates in Turkey for both deposits and lending markets. In mid-September, during September, middle of the month, we saw, in the market, upper end of the pricing, 30% deposit rates, which was the peak. And thereafter, as Ali mentioned, we started to cut those rates towards the end of the month, and that's why I have to say we give exit to some of the deposits because of this aggressive rate cuts. But it hurt. We keep cutting here the rates, deposit rates. Today, we are around here below 25%, up in terms of the upper end of the pricing. And we do expect these rates to keep going down towards the end of the year. We may see the upper end of the pricing at/or even slightly below the Central Bank rate. Of course, on the other hand, short-term lending rates are also going down, from very ultra-high levels of something at 40%, towards 30% levels. And we do expect those short-term blue-chip lending rates will also keep going down towards the 25% threshold. So we are witnessing a sizable correction in the Turkish lira market, both deposits and the lending space. For your second question, I mean, we stick with our guidance, 4.5% NPL ratio, and this doesn't need necessarily a very big spike in our cost of risk on top of where we are end of September because the ratio increase will not occur mostly from an enormous increase in nominal and new NPL but obviously, since the beginning of the quarter, there is a clear appreciation of the Turkish lira. We don't have loan growth quarter-to-date. Probably, we may close the quarter with no loan growth because of the appreciation of the currency. And in that regard, NPL ratio will go up optically, 50 to 60 bps, as Ali mentioned, but this doesn't mean to end up with a massive increase in the cost of risk. So we are sticking with the guidance of something around 100 for the full year, needless to change this in just last quarter. But I have to add one more thing. Stage II Loan growth is occurring as we guided in the previous quarter. We are, today, around 7% of the loans, and this seems to go towards high single digit, up to 10%, end of the year. But maybe, it took your attention. We're still having only half of the Stage II Loans coming from past due 30-day loans, and this -- the delta of the growth is still mostly coming from SICR, which is a more conservative treatment versus past due 30-day loans. Therefore, expected growth in Stage II Loans is not giving us hard times, and this is a pretty normal outcome of challenging conditions in the country. And -- but we are still keeping our asset quality guidance unchanged towards the end of the year. Before we have -- we receive the questions, I want to also mention that, for us, it's a little bit early to make the budget of '19 and communicate this properly to the investor community. Hopefully, we will be doing this end of December, the latest, early January. So unfortunately, we don't have liberty to give you a decent 2019 guidance.

[Operator]

Our next question comes from Ovunc Gursoy, BNP Paribas.

[Ovunc Gursoy, analyst]

I have a couple of questions. The first one is, can you give us a little bit information about the cost of the Tier 1 issue and how that might affect the net interest income? The second question is about the loan growth. I mean, apparently, you're going to have one of the highest solvency ratios in the system. So what do you foresee in terms of loan growth? Do you -- is the strategy going to be higher loan growth than the sector? So that's the second question. And the third question, can you give us a little bit information about the covered bond issue that you just applied? So that's pretty much it.

[Mustafa Turan, executive]

Thank you, Ovunc. Let's start with the last one. This is simply a regular and a new shelf registration. Our program expired on the 6th of November. With this new approval from CMB, we will be relaunching our program, hopefully next week, in order to keep an evergreen fresh program. So it's not an upcoming issuance. And I don't want to rule out whether we can issue in Turkish lira covered very quickly, but this is not happening in that reason. It is a regular shelf registration and renewing the program every year. For the second question, yes, this is a good question, actually. Thank you for this. We're having lots of these questions in such a challenging environment. We have very good solvency ratios, as you mentioned, but this will not change the bank's conservative approach to lending. We are very selective in lending, but we never close doors for our clients, even in adverse market trading of the third quarter. This is not going to change, but I have to say the bank doesn't have a very high lending appetite, which is not different than the market averages. But we have room to grow, and we'll not hesitate to do the right lending decisions from our existing clients thanks to our good solvency ratios and good liquidity levels. For the first question, as you know, this is a private placement. That's why we don't have the liberty to answer a lot in terms of details of the Tier 1 issuance like all the other product placements. But it's in our disclosure as well, the yield of the Tier 1 is 13%. We disclosed this because we have to disclose capital cost. But we don't have the liberty to give more information because it's a private placement. And as you may hear from the number, it's a pretty nice figure. In such a challenging climate, we are -- this is substantially below our existing and expected return on average equity.

[Operator]

Our next question comes from Yulia di Mambro, Federated Investors.

[Yulia Di Mambro, analyst]

I have a follow-up question regarding your liquidity. Can I just confirm that, if I understood it correctly, so the 3.1 billion number that you disclosed to us, that's cash on hand, ROM reserves and cash cut with correspondent accounts? Do you have any swaps? And if you were to include swaps in that number, what would that be? And related to liquidity as well, you mentioned that you've had some project finance loan disbursements in the quarter, which is why your FX loan book grew. How much more do you need to disburse on these loans for the remainder of the year and actually, just going forward? And then my second question is on your buyback program for bonds that you approved a while ago, can you give us an update on how much you've been able to buy back and specifically which bonds and are you planning on carrying on with that program, or have you now stopped?

[Mustafa Turan, executive]

Thank you, Yulia, for the comprehensive questions. Let me start with the last, as always, because I forget the last question if I don't start with it. First of all, the program you mentioned is, actually, it's not a program, it's like the board gave approval to the bank management, up to $100 million of buyback, for the purposes of supporting the liquidity in VakifBank's Eurobonds. So this is not a regulated buyback in the sense that the invested community understands in order to replenish capital because you're buying back below par. So this was a targeted -- a smaller operation to support liquidity in our bonds secondary. We bought $30 million covered by VakifBank 2022 because we saw sizable illiquidity premiums in that bond because, mostly, it was not owned by the real investors versus it was mostly bought by -- almost by private accounts. So it was more in liquid, so we bought $30 million up to now from VakifBank 2022, which is also disclosed in the public disclosure domain. And it's visible that this kind of liquidity support mechanisms are helpful, and we will continue. For the second question, for the project finance disbursements, we have less than $500 million left towards 2020 from over the signed project finance. So we don't have a lot disbursements happening because, I mean, the big project's sizable loans under our project book is at/or at the final stage of completion, like, for example, a new airport, a third bridge or even the Istanbul highway. Therefore, we don't have sizable new lending under the existing project agreements. And for the first question, this includes very short-term lightweight swaps because we see them as short-term liquidity. But this doesn't include long-term lightweight swaps because we didn't produce swaps for the purposes of liquidity. They are done for the purposes of hedging. So -- but obviously, long-term cost currency lightweight swaps may become a source of dollar liquidity, if you wish, if you decide to have one, but we don't see them as a source of liquidity, that's why we don't put a number from them. And probably, on the top of my head, the long-term part of the lightweight swaps are above $500 million, which is not included in that liquidity number.

[Operator]

[Operator Instructions] Our next question comes from Deniz Gasimli, Goldman Sachs.

[Deniz Gasimli, analyst]

I have 2 questions from my side, one on your coverage ratios. This quarter, you almost doubled your Stage II coverage to around -- to almost 10%. I just want to ask if -- kind of what was the driver behind it. Was it kind of based on the IFRS 9 model? Is that something that kind of the model predicated and guided for? Or is it more of a judgmental decision maybe because they're also using the TRY 700 million that you booked using the CPI linkers windfall? And do you see maybe Stage II coverage increasing further? And perhaps, on Stage III, I mean, it's above some peers at 77%. Do you see staying at these levels? Or again, is it dependent on IFRS 9 and on the collateral of the exposure and so forth? And my second question would be on your capital ratios, if I can. If you could give your CET1 ratio on a consolidated basis, excluding forbearance measures. So I think quota CET1 ratio was around 11.5%. So if you have a number you can share on a consolidated CET1 ex regulatory forbearance, that would be very much appreciated.

[Mustafa Turan, executive]

Okay, Deniz, I hope I will not miss -- I wrote in the questions. So starting with the provisions, probably, you missed during the presentation, we have TRY 700 million additional provisioning coming from Stage I and II. This is not a must from our IFRS 9 models. And as you mentioned, this is put there under judgmental decisions of individual assessment. In order to decrease the windfall of excessive CPI revenue, we have TRY 650 million more CPI accruals in the quarter, and we decided to use even more than that number for extra conservative provisioning, as you mentioned, double the Stage II provisioning level. This doesn't need to be that much on the next -- upcoming quarters but probably will not change thanks to very strong earnings. For the NPL provisioning, what we think, having the higher coverage compared to our peers, I have to say is definitely not new in the town. And this kind of solid levels, not decreasing the coverage, will not change. We will keep our coverage very high, although it's not a necessity under IFRS. So unlike some of our peers, we're not going to decrease the coverage because we have new NPL. And I think your last question was about capital consolidated. I mean, these BRSA forbearance measures give us 3 more new numbers, so I hope I'm not looking at wrong numbers. Consolidated VakifBank numbers are: 16.8%, Tier 2, without -- including BRSA forbearance; Tier 1 is 13.4%, including BRSA forbearance; and CET1 is 11.3%, including BRSA forbearance. If we exclude BRSA forbearance, VakifBank's Tier 1 is -- consolidated Tier 1 is 11.7%. And Tier 2 is at 14.8%. And the CET1 would be around 10%, excluding BRSA forbearance measures consolidated.

[Operator]

[Operator Instructions] We have no other audio questions.

[Mustafa Turan, executive]

Just a second, operator. Let's continue with the webcast questions. So Ali Bey will be asking the question on behalf of the investor community, and I will try to answer.

[Ali Tahan, executive]

The first online question is coming from AllianceBernstein. Vinod is asking Stage II guidance for Q4 as well as 2019.

[Mustafa Turan, executive]

I think we answered the question. Up to 10% Stage II Loan end of the year is our unchanged guidance. And again, it's early for us to give a credible guidance of next year. Hopefully, we'll be doing this end of December.

[Ali Tahan, executive]

We have one more question. Jordan is asking, can you please disclose the coupon of both TRY 5 billion additional Tier 1 issuance as well as $300 million DPR securitization issuance?

[Mustafa Turan, executive]

Let's reiterate. VakifBank's Tier 1, Turkish lira Tier 1, has a yield of 13 and has a fixed coupon rate of 12.61. This is in our disclosure. But for DPR private placement, we don't have liberty to disclose that pricing as all the other private placements, unlike capital. But just to give you an idea, we are very happy, we happily printed that deal. They're below sovereign levels as well as very tighter than the CGF level during the execution of that trade.

[Ali Tahan, executive]

Thank you, Mustafa Bey. We don't have any further questions from the online. If we have any further questions from the audio, you can continue. Of course, we can leave the floor to Mustafa Bey again for the closing remarks.

[Operator]

We have a final question on the audio from Valentina Stoykova from Barclays.

[Valentina Stoykova, analyst]

Just one final question on the FX liquidity. You mentioned that you have some long-term FX swaps, so -- for $500 million. So if we understood the 3.1, it comes to $3.6 billion FX liquidity that you have? And it is still short of the 4.1 billion that's coming due by 2019. And you mentioned that you're working on a syndication loan. So can you give us some guidance on how much you expect to actually take from the syndication loans? You said next 3, right?

[Mustafa Turan, executive]

Sure, sure. So Valentina, again, first of all, hopefully, very shortly, we will announce a very healthy rollover ratio. Let me not give you figures because it's not done. But hopefully, you will hear very good news from our upcoming syndication, from $865 million we paid, we will be borrowing a sizable number, which will be cash addition to this good number. Again, I want to take your attention. I know you heard some bigger numbers from some other Turkish banks so far, but these are not comparable numbers and our 275% foreign currency LCR is one of the highest in Turkey, which is comparable. You can't look at those in all the other Turkish banks' disclosures. And probably, we're giving you a very conservative liquidity assumption. Unfortunately, some of those peers' footnotes have very aggressive numbers like all unsecured borrowing is counted as ready liquidity, which it's not actually. So my point is, we don't have any single concern about our existing cash under the hard currency numbers for our repayments. And on the contrary, of all those discussions, I am glad to mention that the borrowing availability of Turkish banks proved to be wide open as of now compared to August. And I think our $300 million, 10-year DPR borrowing is just the beginning of that openness since the beginning of October. Repo lines are available, and now we are having a -- my treasury colleagues are happily rejecting some trade ideas because we don't need those liquidity. So my point is short-term hard currency liquidity is not a concern at all for us. And as we guided, we don't have a lot of hard currency growth in loans or securities, therefore, we also don't see need of excess borrowing rather than healthy rollovers of existing debt. I hope that's certainly a good answer to your questions.

[Valentina Stoykova, analyst]

And just one final one. Can you just tell us the CET1 ratio on an unconsolidated basis without forbearance? I didn't hear that.

[Mustafa Turan, executive]

Hello. Can you repeat again? Line was not good.

[Valentina Stoykova, analyst]

Yes. Sure. The CET1 ratio on an unconsolidated basis without forbearance measures. That was my question. I missed that one.

[Mustafa Turan, executive]

Unconsolidated CET1 without BRSA forbearance?

[Valentina Stoykova, analyst]

Yes. Correct.

[Mustafa Turan, executive]

Sorry, guys. This is really confusing on a Friday afternoon. So it's 10.20.

[Operator]

We have no further questions. Dear speakers, back to you for the conclusion. Dear speakers?

[Mustafa Turan, executive]

Thank you very much for the patience of the investor community. Looking forward to talk with you with another strong set of results. Thank you.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.