Turkiye Vakiflar Bankasi TAO

IST:VAKBN.E

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, welcome to VakifBank Audio Webcast 4Q 2019 Earnings Results Conference Call and Webcast.

I now hand over to Mr. Ali Tahan. Sir, please go ahead.

[Ali Tahan, executive]

Thank you. Thank you, Gil. Good afternoon, everybody, and welcome to 2019 VakifBank Year-End Earnings Announcement Conference Call. I am Ali Tahan, Head of International Banking and Investor Relations. And I have all Investor Relations and international banking colleagues with me, headed by Nihan, [ Chidam ] and [ Celmi]. In such a meaningful day on Friday afternoon, sorry for this timing, but we don't want to talk to you too much in the Valentine's Day. And hopefully, we will keep it as quickly as possible as well as efficient. As always, I will start with the important part of the presentation. And thereafter, we will continue with the 2020 guidance. And we may continue with the Q&A at a later stage. Starting with the presentation on Page 2, related to earnings and ratios. As you can see, during the quarter of Q4, our net income came TRY 1,280.3 million, which is very high compared to third quarter as well as which is also significantly higher than the market consensus of slightly above than TRY 1 billion. [ Net cost in P&L ] results in a quarterly average ROAE of 16%. And that number also brings full year net income number to slightly above than TRY 2.8 billion, considering the fact that in the first 3 quarters of the year, we delivered TRY 1.5 billion. We had almost an equal net income amount just only during the Q4, and therefore, Q4, was very strong in terms of profitability. And the good thing is we didn't touch or we didn't release any amount of our free provisioning, and this is pure the performance of the bank during [ the ] quarters. And by doing such good performance, we also continue to have the highest coverage ratio amongst peer group in terms of NPL coverage ratio, with a slightly above 70% NPL-specific coverage ratio and above 90% total coverage ratio. The next slide is related to key highlights of Q4. Of course, behind such good profitability, the main driver of [ indiscernible ] net interest margin. Our quarterly net interest margin, according to our estimation methodology came at 5.4%, which was 4.1% in third quarter, therefore, Q-on-Q, we had 130 basis points improvement in our quarterly net interest margin. And quarterly net interest margin was even much more visible in our swap-adjusted net interest margin, from 2.9% in third quarter to 4.4% in Q4, which is above than 150 basis points quarterly net interest margin expansion. And in terms of the reason of such net interest margin expansion, of course, the driver was related to core spreads expansion. We had good number of expansion, both in TL core spreads as well as hard currency core spreads, especially the improvement on a quarterly basis from TL core spreads point of view was [ attractive, ] with almost 270 basis points improvement. Another important area of the Q4 as well as entire 2019 actually was related to fee performance. Our full year fee performance came at almost 74% year-on-year, by far, highest growth in the peer group and way above than our initial guidance. And thanks to such strong fee performance, we achieved to deliver all-time high annual fee to total revenue ratio at 22% during the entire year of 2019. And similarly, we also delivered all-time best annual fee to OpEx ratio at 60%.

Another important highlight of the quarter was related to deposit growth. During the year of 2019, we also achieved strong deposit growth. So VakifBank's strong presence in every banking area in terms of gaining market share in asset size, in terms of gaining market share in lending market as well as in terms of gaining market share in deposit market, was very visible. And therefore, our total deposit growth came above than 40% year-on-year versus sector average of 26%. More importantly, TL deposits are up by 31% year-on-year, which is almost 11% higher than the sector average of almost 21%. And we also have significant growth in our hard currency deposits. Hard currency deposits, in dollar terms, are up by 37% year-on-year, way higher than the sector average of 16.6%, due to mainly our bigger presence in corporate and commercial banking. As a result of this deposit growth, we also maintained sound liquidity levels and good level of loan-to-deposit ratios. You can see the numbers in terms of total LCR, hard currency LCR, total loan-to-deposit ratio and Turkish lira loan-to-deposit ratio where we see a good level of improvement both Q-on-Q and year-on-year. And the last highlight of Q4 as well as '19 was related to ongoing pioneer and active role of Vakif in both international fundings as well as capital market transactions. We continue to do many first things in Turkey, including first-ever TLREF indexed Tier 2, which is a domestic local currency issuance, with an amount of TRY 725 million. We also did the first and only DPR securitization transaction under our DPR program with an amount of $417 million back in October. It was the only DPR issuance out of Turkey, after a ratings agency downgraded all DPR programs of Turkish banks to sub-investment grade. And we also diversified our international funding base via new products, like project loan-backed financing and with 2 different transactions during period of 2019, which is a collateralized funding. We raised additional fresh $300 million, with long-term maturity. These were the important performance-related highlights of the quarter.

Another important development of the quarter, which was not related to P&L or the balance sheet, was related to ownership structure change, as you can see the details on Page 4. As of mid-December, long-dated ownership structure change finally materialized at 58% of the total ownership structure, which was owned by GDF, now it is owned by the Ministry of Treasury and Finance. And it was an [ integral ] amount of asset swap between 2 [ great ] institutions. But from our side, all things remain unchanged. Even after this ownership structure change, our state bank status, business model, strategy, efficiency-oriented performance and primary targets as well as top management remain unchanged. As we also pointed out in the middle of the page, the mentality and the motivation behind such ownership structure change was more related to former main shareholder of GDF. The idea came from GDF side, as we discussed with many of you, because they -- by selling VakifBank share, which was the biggest asset in their balance sheet, they would like to have certain and constant source of income to fulfill their principal activities more efficient and effectively. As well as from a bank point of view, from our point of view, of course, compared to GDF, the Ministry of Treasury and Finance is a very stronger and better partner because it was also pointed out by many rating agencies in the past, in case of [ sickness, ] in case of need, we may have additional support from the Ministry of Treasury and Finance in terms of capital injection and in terms of all possible form of support. But especially given the conditions of GDF, that was not something possible with the previous ownership structure. So therefore, we also agreed with some rating agencies that such ownership structure change is a credit positive development for the bank. On Page 5, you can see P&L details, both year-on-year and Q-on-Q. I'm just skipping this page.

On Page 6, you may also see the high quality revenue breakdown. Out of total revenues, 92% of total revenues came from high quality core banking revenues, insisted of -- consisted of net interest income and net fee and commission income. And our total revenues are up by 16% year-on-year, reaching to almost TKY 18.5 billion. And at the right-hand side below chart, you can also see the change in our free provisioning amount. Even though we are having a very strong performance in terms of profitability during Q4, as you can see, we didn't have any reversal or we didn't have any one-off revenue gain from any activities. So this performance was pure driven by bank's own performance. On Page 7, you can see the improvement on net interest margin. As we guided and as we discussed, we had good development net interest margin expansion, especially during Q4, and we delivered the best quarterly net interest margin in Q4 during the entire year of 2019. Both in core spreads interest margin-wise as well as swap-adjusted net interest margin-wise, we have good level of improvement. You can also see the specific numbers related to core spreads at the left-hand side of the page. Also, additionally, we also put cost of TL funding via total money market activities as well as swap cost. So especially for our analyst people, we put additional data related to those funding tools and [ sales ] costs. I'm just also skipping this area. Page 8 is related to fee performance, which was most eye-catching part of our P&L during the entire year of 2019. Even though we have slight contraction in Q-on-Q, still on a year-on-year basis, on a cumulative basis, we are enjoying almost 74% net fee and commission income growth. Which was very remarkable. And you may see also the breakdown of fee income between the different sub items on Page 8. On Page 9, you can see the numbers and graph related to OpEx and OpEx breakdown within HR and non-HR cost as well as quarterly OpEx growth and cumulative OpEx growth. We are very glad, even in a challenging year of 2019, where we were witnessing some sort of rebalancing and correction on the macro front as well as on the profitability of the sector. Still, we managed to end up with less than 36% cost-to-income ratio, which may sound a little bit positive. Starting with Page 10, we may shift to asset side, starting with the lending. I just want to take your attention to quarterly lending growth, at the left hand side, below chart. During Q4, we had 6% total lending growth, which is pure driven by TL lending growth, TL lending growth of 6%, and we had flattish hard currency lending growth in dollar terms. And those quarterly numbers growth -- full year lending growth now moved to 24% for us. And in terms of the quarterly lending growth, you may also see where Turkish lira lending growth came from, as you can see at the right-hand side below chart, especially retail lending, driven by both general purpose consumer lending as well as mortgage lending was the main driver [ of growth, strong ] Turkish lira lending growth during Q4. On Page 11, you can see detailed information related to loan portfolio in terms of sectoral breakdown as well as in terms of detailed information related to relatively more problematic construction and energy loans, as well as we also put detailed information related to project finance, which is pure hard currency. But I will not take too much of your time by take -- you can just [ indiscernible ] of those numbers. On Page 12, you can see the numbers related to Stage II and NPL. As we discussed and as we guided during the quarter, most of the NPL recognition, which was announced by BRSA in mid-September, became NPL during Q4. And as a result of that, our NPL ratio materialized at 5.93% from 5.23% a quarter ago. So Q-on-Q-wise, we are having 70 basis points NPL ratio increase. On top of that, our Stage II ratio -- our Stage II loans in terms of share in total, came at 11.5%, which was 12% one quarter ago. And as of '19 year-end, the sum of Stage II and NPL came at almost 17% area. And within Stage II, you may see that from third quarter to fourth quarter, there is a sharp decline within past due 30-day loans, and this is pure related to the move from Stage II to NPL. And also it was the main reasoning behind such NPL ratio increase during the quarter. At the right-hand side of the chart, you may also see breakdown -- sectoral breakdown of both NPL and Stage II. As we discussed previously also, most of these NPL recognition [ we elected to do ] -- NPL in Q4 was mainly coming from construction and some problematic energy assets. That was something we guided before. And therefore, in line with that development, which shows construction and energy product increase within our NPL portfolio. On Page 13, you may see coverage ratios and cost of risk ratios. Quarterly cost of risk [ came ] the strongest and the highest in Q4 with 264 basis points quarterly net cost of risk, which brought full year net cost of risk number to 193 basis points. And you may also see the numbers at provision coverage ratios in terms of Stage I, II and Stage III. And we didn't give [ up loan coverage at least at the consolidated numbers ]. We continued to have good [ developed ] coverage, both in terms of NPL-specific coverage as well as total coverage. On Page 14, you may also see detailed numbers related to the deposit growth. We achieved another strong deposit growth above our sector average, and we gained market share in total deposits as well as TL deposits and hard currency deposits on a year-on-year basis. And in terms of the breakdown of deposits, out of total deposit base, 57% are still coming from Turkish lira. So I would like to [ explain the ] balanced Turkish lira deposits and hard currency deposits breakdown for the sector. We are still having more Turkish lira deposit base, deposit portfolio. And the share of demand deposits came at 20% in total. And at the right-hand side, you can also see the breakdown of total deposit portfolio between retail, state and other types of deposits includes SME and corporate.

On Page 15, you may also see detailed information related to non-deposits and international funding expenditure and transactions of Vakif. As you know very well, especially in the beginning of 2020, we continued to do more market [ front line ] investor-friendly decisions, especially in terms of deciding to exercise our call option related to Turkey's first Basel III compatible Tier 2. And right after this call exercise, we came to DCR market for a 5-year senior Eurobond issuance with an amount of $750 million. So it was very timely and as it was a very good transaction from our side. Order book -- total order book came almost $4.5 billion, 6x oversubscribed. And compared to IPT levels of 6% area, the landing point came at 5.38% in terms of yield and 5.25% in terms of coupon. So compared to IPT levels, during the transaction, we also enjoyed sizable [ tightening, ] which made us extremely happy. And you can also see the breakdown of our external debt in terms of long-term and short term. And most of the external debt is long term, which is having a maturity of more than 1 year. And [ indiscernible ], we are more active on external debt and international transactions because of the [ fee for maturity activation. ] On Page 16, you may see the numbers related to capital and solvency ratios. Our total CAR came at 16.6%, our Tier 1 came at 13.6% and our CET1 ratio came at 10.5% area. And to boost our CET1 and Tier 1, we are still having TRY 850 million free provision, which can be used at any time to boost our capital portfolio. And all of our numbers are well above than the regulatory minimum introduced by the regulatory watchdog, BRSA, in Turkey in terms of CET1, Tier 1 and Tier 2. And thanks to such relatively comfortable levels, even though we decided to call out $500 million Tier 2, still, we didn't have a need for a fresh dollar Tier 2 transaction, and we are still having very comfortable position in terms of Tier 2 as of today.

These are the presentation. [ After, you may look at ] our Appendix. At this stage, there are 2 pages, I just want to take your attention because these are new compared to our previous [ indiscernible ], especially for ESG investors and for sustainability related colleagues.

On Page 18, you may see more detailed information related to both local and international achievements of Vakif in terms of ESG approach and ESG policies. If you are interested, feel free to approach us as we may provide more detailed information related to any of those topics. We understand, going forward, that part of banking will be much more crucial and important, and therefore, we will continue to update our investor presentation in line with the developments on that area. As this is the first time, we are putting such detailed slide to our earnings presentation. And at this stage, I would like to give also some numbers related to 2020 guidance, our expectations, because unlike to private peers. We didn't share our expectations via Investors Day or via official public disclosure announcement. And this is the time to give some official numbers related to our 2020 expectations. In line with our private peers, we are also much more optimistic in general for 2020, in terms of both macro as well as in terms of banking sector, in general. In terms of macro, our Chief Economist is expecting around 5% GDP growth, which will be very high compared to expectation of slightly above than 0% GDP growth in 2019. So in this sense, in terms of macro and economic activity, we understand that 2020 will be a very, very good year. And on the macro front, in line with the -- all those positive expectations on the macro front, we also expect a normalization and recovery, especially in terms of profitability and ROAE. But before going to that, I would like to start with the balance sheet and then continue with the P&L. Let me first start with the lending growth. In terms of lending growth, similar to other private peers, we also expect high teens Turkish lira lending growth for entire 2020. And we expect flat to slightly up FX lending growth in dollar terms for the full year, which will bring full year lending growth in total to 15% area. And we expect our deposit growth to be more or less in line with the lending growth. Therefore, our loan-to-deposit ratio will remain flattish in 2020 compared to 2019. And in terms of asset quality. As we discussed, we closed the year of 2019 with 5.93% NPL ratio. And we expect our 2020 NPL ratio will be somewhere between 6.5% to 7%. And on top of that, our Stage II ratio, which was 11.5% as of 2019, will be somewhere between 12% to 13%. But despite those developments, still we expect our net cost of risk may be slightly lower in 2020 compared to 2019. So very slight contraction in our net cost of risk is guided for this year. We were talking about normalization and recovery in terms of profitability because even though we are expecting more NPL ratio increase and more Stage II ratio increase, still, we are expecting 14% average ROAE for the full year, which was only 9% in 2019. So from 9% to 14%, we are in a normalization front because apart from 2019, especially in the periods between 2015 to 2018, our ROAE numbers were hovering around those levels. And the main driver of such a good level of improvement in our profitability numbers will be coming from the net interest margin expansion. According to our estimation methodology, we did 4.1% net interest margin for the full year of 2019. And for 2020, we are expecting our net interest margin will be hovering around 4.5% to 4.6%. So we are expecting 40 to 50 basis points net interest margin expansion on a year-on-year basis. And what we understand is, it may be a little bit conservative, because as we also discussed Q4 only net interest margin of the bank was almost 5.5%. And we are starting to the year with such good level of net interest margin hovering around 5.5%. But still, we are guiding 4.5% area for the full year, given the fact that we also expect each and every quarter, our quarterly net interest margin will be lower compared to previous one. But still, from today's perspective, those numbers seems to be a little bit conservative, so we may have additional upside to our net interest margin level going forward. But for the time being, we would like to be on the more conservative side. [ During ] -- compared to our initial budget, we are changing only our guidance related to net fee and commission income, because before the recently announced regulation was announced, [ let's say, ] we were expecting a slight increase, low single-digit growth in our net fee and commission income for 2020, given the fact that we are having a very strong base effect of 2019. It is not -- it was not always easy to put additional fee income growth on top of this such high base effect. But after the regulation announcement, now we understand that, that guidance no longer viable because new regulation will be effective as of 1st of March. And it will be effective for the 10th -- for the last 10 months of the year. Therefore, by taking into account the recent regulatory negative impact, the realistic net fee and commission guidance will be a slight contraction on a year-on-year basis. So from -- before that regulation, we would be seeing low single-digit growth in our net fee and commission income. But now, as of today, we understand that the realistic expectation would be low single-digit contraction in our net fee and commission income. But still that change in our guidance do not necessarily end up to change our guidance for the profitability and the ROAE because of the potential upside from our relatively conservative net interest margin expectation. Therefore, even though we are changing our fee and commission income guidance compared to our budget, still, we are confident we may end up with 14% average ROAE. And when I look at the Bloomberg consensus, I am seeing around TRY 4.8 billion net income for Vakif for 2020, and our 14% average ROAE number, more or less, also in line with that market expectation. And at this stage, I just -- I don't want to take too much of your time, and we may switch to Q&A session. Gil, the floor is yours again.

[Operator]

[Operator Instructions] We already have a question from Sam Goodacre, JPMorgan.

[Samuel Goodacre, analyst]

It's Sam here from JPMorgan. I just had a follow-up on the last point you made on the fee income. So could you let us know in a bit more detail the extent of regulations and the sort of changes you're faced with? But also, what is your view at this stage of potential further tightening at a later stage? Or is your sense from the regulator, actually, they are making a move now and then it will be kind of a level playing field going forward? Because I'm trying to get a sense for -- after this year, if it is a bit of an adjustment year, and what we might look at going forward? And on the point of fees, could you let us know anything that you can try to do to counter the effect of the regulations? Or indeed any fee streams that -- fee streams that you expect to accelerate in the mix going forward? Any new fee income streams, for example, that you can explore or anything like that?

[Ali Tahan, executive]

Thank you, Sam. Actually, that fee regulation is -- the scope of that fee regulation is related to both retail part as well as commercial part. So it is affecting all banking areas. And as a result of that, we don't expect further regulation or further tightening from the current plan because it is covering every banking area. In terms of the impact, of course, the regulation is much more related to transactional fees, especially related to money transfer and other transactional fees. But the impact can also be seen from our side related to fee packages because, in a [indiscernible], it says that those caps cannot be violated at any [ under ] fee package. Because we are having some fee packages consisted of different transactional banking services, including money transfer fees. Therefore, therefore, there will be more impact, especially from a fee package point of view on top of transactional fees. Therefore, Sam, I mean, we were guiding slight increase in our fee income. In this sense, we are a little bit different compared to private peers because most of the other banks were guiding high single-digit growth. But we were no -- under normal conditions, would be guiding low single-digit because of the very strong base effect of 2019. But we understand that, that fee regulation will have some negative impact, hence realistic number and realistic expectation, as of today, is low single-digit contraction. And to answer your question, I mean, given the fact that, that new fee regulation is covering all retail and commercial areas, we don't expect more regulation from this area anymore.

[Operator]

We have another question from Deniz Gasimli from Goldman Sachs.

[Deniz Gasimli, analyst]

Two questions from my side. One on -- just a quick follow-up on fee income. There were -- I mean, thank you for giving the expected impact of the regulation on your outlook. But there's been news flow and press reports that banks are kind of meeting regulators and kind of trying to dispute these new rules and regulations. So I just wanted to get your take on what's happening there? And if you expect something come out of this?

And just switching to asset quality, you were talking about the kind of the decline in past due portion of Stage II loans and that moved to the NPL bucket. But also, if you could comment on the increase in the -- the significant increase in credit risk portion. It went from TRY 9 billion to around TRY 13.5 billion in the fourth quarter. I just want to get your kind of view on the increase there?

And also, on coverage ratios, your Stage III is above peer levels at 70% coverage. When you guide for some improvement in 2020 cost of risk, do you foresee further increase in coverage levels? Or do you see it staying where it is now?

[Ali Tahan, executive]

Thank you, Deniz. Let me first start with the fee side. To my knowledge, I am not sure about the details of the discussions taking place currently, as you mentioned, between the banks and the regulators. Our numbers and assessments are based on the [ building ] of the regulation we saw in the official [indiscernible]. If there will be additional change or if there will be additional positive or negative development, we will update our fee income guidance in accordance with that development. But for the time being, we prefer to be more conservative. And if there will be more positive development or there is -- in case, there will be more relief to the banks in terms of loosening to regulation, of course, we will adopt those developments to our guidance. But for the time being, we don't have any detailed information related to this ongoing discussion. For the asset quality, the increase in the SICR maybe related to so many different parameters include -- and the -- that number, SICR number itself shows how conservative we are in terms of accounting and in terms of classification of the loans. Because, in many cases, those loans and those files may be still classified as Stage I. But because of some early signals or because of some projections under our IFRS-related models, even though the loans are not at default or even though the loans have no past due 30-day -- past due 30-day loan categorization, or even though the exposure is not restructured, just to be on the conservative side, we prefer to put them at Stage II and set aside provisioning in accordance with debt. In terms of the coverage, our NPL-specific coverage ratio is around 70% area. As for the year of 2020, we expect our NPL coverage ratio will increase slightly, but it will not be that much different than the current 70%. But we may see a couple of points increase in our base case scenario. I hope I didn't miss any part of your questions.

[Operator]

[Operator Instructions] We have another question from Simon Nellis, Citibank.

[Simon Nellis, analyst]

Just following up on the fee issue. Could you -- I mean, you used to be looking for low single-digit growth, now you're looking for low single-digit contraction. Can you split the difference between retail and corporate, roughly? Like how much of that change is coming from the cap on retail payments and how much is coming from the corporate side of things? Just to kind of give us an idea of the magnitude of the 2 different regulations that are coming in.

[Ali Tahan, executive]

Actually, I didn't. Thank you very much for this question, Simon. That was something all my colleagues working on the marketing department and accounting departments are trying to figure out during the entire week. In terms of bulk numbers, we understand that most of the negative impact of that fee regulation will be coming from more corporate and commercial banking side compared to retail side. But as you know, even before that regulation came or announced, fee regulation on the retail side already was very regulated compared to corporate and commercial segment. And by announcing such detailed regulation on the commercial and corporate segment, we understand that -- I cannot give specific numbers as of today. But early preliminary numbers suggest that most of the negative impact is coming from more corporate and commercial area compared to retail area because in the past, this area was less regulated compared to retail area. So the negative impact from retail, because of its very tight regulation already in place in the past, very limited compared to impact coming from the non-retail. I don't have a specific number. But to answer your question, you may say that most of the negative impact is coming from corporate and commercial segments.

[Simon Nellis, analyst]

That's very helpful. And my second question would just be on NPL inflow. I mean, you're looking for the NPL ratio to go up, but you also have mid -- mid-teens loan growth. So where are you seeing -- where are you expecting NPL inflow, from what areas?

[Ali Tahan, executive]

Thank you, Simon. Most of the NPL inflow, I mean, will be coming from our restructured part. As you can see in our presentation on Page 12, we also put a detailed breakdown between of Stage II loan in terms of restructured, past due 30-day loans and SICR. Most of the NPL inflow from third quarter to fourth quarter was coming from the past due 30-day loans. But going forward, during 2020, we understand that some of the restructured loans, especially those are the loans we restructured during 2019 by taking additional collateral. First of all, I should mention to you that restructuring is not easy unlike the perception of so many international investors and analysts. In our case, in our written credit policy, every restructuring has to meet at least one of the 2 criteria. The first criteria is either they should make additional cash payment, which is not easy; and/or -- and this is -- the second criteria is the most common one. They have to provide additional collateral. Even in the big files, even in the well-known restructured loans, we didn't diverge from this policy because otherwise, if restructuring was such easy, it would mean that it is creating a moral hazard in terms of the people who are making regular payments. So in order not to end up with moral hazard, we were asking for additional collateral for the ones who would like to restructure their existing debt to the bank. As we restructured a lot during 2019, and we put some grace period for those customers in line with their expected cash flow and the revenue-generation capacity, even though economic activity didn't recover in 2020, still, some of them will fail and some of them will survive. And we expect more NPL inflow to come from this restructured part. As we restructured almost in every area so we cannot differentiate the sectors we didn't restructure, because we restructured from every area, especially on the non-retail side. And we expect the main driver of NPL inflow, will be coming from this restructuring class. And as of 2020, Simon, according to our budget, the sum of Stage II and NPL ratio in VakifBank will be reaching up to 20%. And considering the fact that our exposure to big and well-known companies are relatively limited compared to other private banks in Turkey, on a comparable basis, our NPL ratio and Stage II ratio will be more or less in line with the other private banks of Turkey. But still, despite those numbers and those ratios with better revenue-generation capacity and with additional net interest margin expansion, we expect our profitability numbers to be normalized to 14% area.

[Operator]

Our next question comes from Alan Webborn from Societe Generale.

[Alan Webborn, analyst]

A couple of questions, if I may. The breakdown of the other income in Q4 between sort of reversals and other income, were your collections as strong in Q4 as they were in Q3? And can you give us any steer -- guidance on how you think that's going to perform in 2020? So that was the first question. Second question, I noticed that your -- the growth in your GPLs wasn't particularly strong in Q4. And obviously, some of the private peers saw some very strong numbers in that particular area. I mean, I know your balance -- your split is slightly different. But I just wondered what you felt about that?

Third question was, do you think one of the areas that you may well be able to offset the fee income constraints as a result of the regulations, will there be an improvement in asset quality in your view with earlier repayments get cheaper? Do you think that could be an element? I'd be interested in your view on that. So that was the third one. The fourth thing was, again, on the fees. I mean, as I understand it, sort of last year, you were maybe anticipating you know interest rates coming down. And in some cases, charging perhaps higher fees and then lower interest rates on some products. Does the regulation change your appetite for any particular area of lending? Are there areas that you will need to review how you charge, areas that will become less profitable than they were before? That would be interesting in terms of that mix. And finally, sorry if I've missed that, but I didn't catch whether you gave us any indication on operating expense growth for 2020. And that's it.

[Ali Tahan, executive]

All right. Thank you, Alan. Let me start with the last one, which is the easy one. Sorry for that, I forgot to mention. That's also another magic number for all Turkish banks for 2020 guidance. I mean, first one, the first magic number was related to TL lending growth and all of us, are saying high-teens TL lending growth. And secondly, the other number was related to OpEx in line with the other Turkish banks also, we are also expecting our OpEx growth to be around 12% to 13% for the full year of 2020 compared to 2019.

[Alan Webborn, analyst]

Sorry. Could you say that again, Ali? I didn't quite hear that. What's the number?

[Ali Tahan, executive]

OpEx guidance was 13%, 1-3.

[Alan Webborn, analyst]

1-3.

[Ali Tahan, executive]

Yes.

[Alan Webborn, analyst]

Thanks.

[Ali Tahan, executive]

In terms of the lending appetite, I mean, [ criminally, ] similar to 2019, we will continue to be selective because 2 things are important for us. We are always approaching to the lending via RAROC adjustment, risk-adjusted return on capital. We are not looking to do only yield point of view, we are also looking to do capital consumption point of view, as well as we are also looking from asset quality point of view. And during the year of 2019, yes, we were growing revenue faster on TL lending side, but we -- again, we were selective as we were mainly growing in 3 subsegments. Two of them was related to retail, and one of them was related to non-retail. On the retail side, we were growing relatively faster on GPL loans and residential mortgage loans. Where we feel more comfortable, especially from asset quality point of view. We are comfortable, from asset quality point of view, for GPL loans because of payroll business. As you know, as VakifBank, we are providing payroll to 2.5 million customers. And most of our GPL lending goes to payroll clients. Thus, we directly debit the monthly installment amount from their salary account. So unlike to general understanding, GPL lending, unsecured retail lending, is perfectly secured lending for us.

Second area is residential mortgage. Of course, by far, across the sectors, this is the best asset class you may find in terms of NPL because it is the only segment where NPL ratio of the segment is less than 1%. You cannot find any other asset class in Turkey where NPL ratio is [ such low visible for ] [indiscernible] from an asset quality point of view, Turkey is suffering from construction segment point of view. But on the other hand, still the best and safe asset class you may find is related to residential mortgages. So these are the 2 areas we are growing -- we were growing relatively faster on retail side. And on the non-retail side, we were growing relatively faster in short-term Turkish lira corporate business lending where cost of risk numbers and asset quality numbers are pretty low and safe. Therefore, therefore, without loosening our lending criteria, without giving up from asset quality, and we will continue to support our customers, and we will continue to support Turkish economy going forward. For the other question, in terms of the GDP. I mean, even the most -- sorry. I thought you are asking about GDP but Nihan is saying GPL growth [ indiscernible ]

[Alan Webborn, analyst]

Yes, yes. It was why -- I mean, yes, I saw that your GPLs grew in Q4. But that some of the private banks grew them much, much more strongly. And I just was interested in your view as to what was happening in the marketplace? And perhaps why you maybe didn't take more advantage of what we're being told is pent-up demand, now that interest rates have come down?

[Ali Tahan, executive]

Actually, we were growing very fast in terms of GPL and residential mortgage during third quarter. But during Q4, most of the private banks started to offer even more lower and attractive rates in terms of GPL and residential mortgage compared to us. And as a result of this development, our lending growth, even though it was still in good shape, was behind the competition compared to private peers. But we are happy with that. I mean, we are happy with the banking sector where lending growth is not only coming from state banks, but we are more happy to see an environment -- competition environment where both state banks and private banks are competing with each other. This is more sustainable, and this is more healthy for the sake of the overall sector. But because of the reality that we were growing relatively faster, especially during the third quarter and as a result of additionally lower rates offered by our private peers, we had some sort of slowing down in our GPL lending. But from a strategy point of view, without giving up from asset quality point, which is very critical, by the way, we will continue to support our customers at every front.

And for the first question, other income, I mean, I will double check and come back to you after the call but according to the data in my desk, I don't see too much difference within other income coming from reversal of specific provisions for loss, correct me if I'm wrong. In third quarter, according to my data, we had TRY 630 million. And as of Q4, we had TRY 642 million. And the difference between the 2, should be only TRY 12 million. The number seems to be more or less flattish [ and same. ] I didn't -- I don't have such big differential in my numbers, but I will double-check and I'll come back to you after the call if we have something different.

[Operator]

Well, it seems that we have no further questions by phone. So dear speakers, we can switch to written questions.

[Ali Tahan, executive]

We'll read the questions, and I will answer the question for the written Q&A part.

[Unknown Executive]

Thank you, [indiscernible]. We have question from [ Ren Lisi ] from [indiscernible] Asset Management. Could you please update us on your CGF lending exposure? What is the current outstanding balance and how do you see it changing into 2020?

[Ali Tahan, executive]

Thank you. Thank you very much. Actually, our CGF portfolio each and every quarter is coming down because we are not providing more fresh loans on the CGF compared to amortization and compared to [ payments. ] As of year-end, our CGF outstanding exposure is less than TRY 19 billion. Each and every quarter, it is coming down. Just to remind you, as of September, our CGF exposure was TRY 21 billion. And as of year-end, it is even less than TRY 19 billion. CGF, no longer the trendy product, but we are having different products designed especially for our SME and commercial customers. One of them, and the most important one, is called [Foreign Language] which means acceleration in English. [Foreign Language] is a new product especially designed to provide loan and finance for the capital expenditures of our customers, especially the ones who are making business in the import areas or in the industrial areas because the main motivation within [Foreign Language] loan package is to support our customers and support their investments so that their import dependency in terms of manufacturing and in terms of importing especially intermediary goods, can be robust and can be more limited just to provide domestic production and domestic economic activity. So this is the new package, this is the new product we are supporting more in the last couple of quarters. And as a result of that, CGF, no longer an active product because the problem for CGF, it was just announced after the very slow economic activity in third quarter, 2016, and the scope of CGF was unlimited. Most of the companies were using CGF for their working capital needs and/or for their consumption needs, let's say, which is not [ indiscernible ] because at the end of the day, lending should be also in line with the macro perspective and macro policies. We shouldn't support economy only for consumption purposes because too much consumption means too much import. Too much import means too much current account deficit. Too much current account deficit means too much dollar need. And it will have some negative impact over the currency and over the inflation. So we shouldn't have a similar negative cycle in our macro and sector trends. Therefore, therefore, rather than support the Turkish economy, just only for working capital needs or consumption [indiscernible] loans, we should be much more selective and should support more, especially for the capital expenditures and for manufacturing companies. And in terms of the exposure under [Foreign Language], as of 2019 year-end, at Vakif, our exposure is hovering around TRY 7 billion. So during the year of 2019, each and every quarter, we had a lower exposure on the CGF. But on the contrary, each and every quarter, we have additional exposure under [Foreign Language] loan package, which stands at TRY 7 billion as of '19 year-end.

And this is the answer to the question. Is there another question?

[Unknown Executive]

We have no further online question.

[Ali Tahan, executive]

I think that was the end of the questions. I mean, in this Friday afternoon. Thank you for your time, and thank you for your patience. I hope you will find the both Q4 numbers as well as 2020 expectations and guidance positively.

If you have any follow-up questions, please do not hesitate to contact with us. We are at our office, we are at our desk. We will stay a little bit more. And thank you for your time again, and hope to do another conference call soon. Thank you very much.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.