Akbank T.A.S. ($AKBNK)

Good afternoon, everyone, and thank you for joining our first quarter 2026 earnings call. This is Kaan speaking. I hope you are all well. Before turning to our performance, let me first briefly touch on the operating environment and how we positioned the bank through the quarter. As we enter the year, geopolitical tensions, war-related uncertainty, energy price volatility and evolving global monetary conditions continue to shape market dynamics. While our bank's direct exposure remains limited, we continue to monitor the potential secular effects through inflation expectations, funding conditions and broader market sentiment. In contrast to portfolio outflows from Turkiye during the first few weeks of the war, there was little or no signs of dollarization observed from the domestic residents. In the meantime, the cease fire has supported a reversal in portfolio flows, allowing the CBRT to rebuild nearly half of its FX reserves. The authorities' timely and coordinated response across fiscal and monetary, including liquidity and FX measures was key to preserving financial stability, sustaining confidence and limiting the broader effects of rising energy prices. Looking ahead, higher energy prices may create some inflationary pressure and could delay the expected easing in financial conditions. We expect some pass-through from higher energy prices to domestic inflation, although this could be partially offset by a prospective moderation in economic activity. Given the fact that prudent macro policies and stronger buffers built over the last 2 years, leave both the economy and the banking sector better positioned to navigate this period. In the medium term, both the intensity and duration of the shock will determine the total impact and the associated policy response. At this point, I would like to emphasize that domestic policy settings, particularly on the fiscal side, remain well positioned to steer through this period of volatility, supported by significantly greater policy flexibility than many advanced and peer emerging economies. While near-term volatility remains elevated, Turkiye's strategic location and growing relevance in trade, logistic and energy corridors continue to support longer-term structural opportunities. Having that said, a prolonged high rate environment may continue to weigh on margins and asset quality in the near term. However, the sector remains resilient, well capitalized and supported by adequate buffers. Now let's move on to our bank. As you know, we have successfully operated through multiple cycles. Our focus remains on maintaining a balance sheet that can adapt quickly to changing market conditions while continuing to protect long-term profitability and shareholders' returns. In environments like these, agility and preparedness become even more important. We entered this period from a position of strength, supported by a resilient balance sheet, robust fundamentals and clear execution momentum. Our solid capital foundation with 16.1% total capital and 13.1% Tier 1 provides flexibility to capture growth opportunities while remaining resilient across cycles. The liquidity profile remains healthy, and our funding structure continues to be well diversified across products, maturities and investor basis. Our recent wholesale funding transactions further underscore the strength of our funding franchise. During the quarter, we were particularly pleased to complete Turkiye's first sub-8% AT1 issuance and successfully renew our syndicated loan with extended maturities at unchanged pricing from launch despite geopolitical volatility. This reflects continued international investor confidence in both Turkiye and Akbank. We remain agile in optimizing our funding mix, managing duration, adjusting pricing and allocating balance sheet resources in line with the evolving market conditions and regulatory dynamics. On the growth side, our approach was selective. In the current environment, we continue to prioritize risk-adjusted returns over volume-driven growth, focusing on areas where we see attractive customer opportunities while maintaining pricing discipline and preserving balance sheet strength. Asset quality is well managed. Our prudent underwriting standards, close portfolio monitoring and conservative risk practices continue to support asset quality trends. As a result of this disciplined approach, our NPL market share further improved, declining by 360 basis points over the past year. At the same time, our reserve coverage for Stage 2 plus Stage 3 loans remains elevated at 26% -- 27.6%, providing additional protection against potential volatility. From a profitability perspective, we started the year strong and in line with our quarterly projections with an ROI (sic) [ ROE ] of 25.3% and ROE (sic) [ ROA ] of 2.2%. While external volatility may continue to create some short-term timing differences, the broader recovery trajectory remains intact, and we remain committed to our high 20s ROE guidance for this year. On the NIM side, further improvements in second quarter may be challenging given the funding environment. However, we expect gradual margin improvement to restart in the second half of the year, supported by improving funding dynamics. Fee momentum remains solid, and we feel comfortable with our guidance. Actually, higher-than-expected interest rates for longer may even provide upside. At the same time, despite a slight quarterly moderation in fee to OpEx, we remain confident in our 100% outlook as operating expenses normalize towards guidance levels. We also continue to benefit from well-executed treasury management, supported by both customer activity and portfolio positioning. While these factors supported our earnings performance this quarter, we remain equally focused on building long-term competitive advantages. We are embedding AI end-to-end from insight generation to execution, proactively engaging customers across digital channels and supporting frontline teams in real time. To share some examples, we embed financial business intelligence into Akbank Assistant. This is our digital financial interaction tool within our mobile app, scaling AI-driven insights directly to customers and driving up to 6x higher conversion. In parallel, we are enhancing Akbank Assistant with Gen AI and developing digital financial health solutions for SMEs, such as digital CFO. AI is also enhancing our call center operations by providing real-time recommendations and automating routine tasks, resulting in 15% efficiency gains. The outcome is clear. Enhanced customer experience and service quality, deeper customer penetration, higher share of wallet as well as structurally lower cost to serve. Overall, while the external environment remains complex, we believe we are well positioned to navigate volatility. Our strong capital and liquidity position, adaptive balance sheet management, disciplined risk framework and selective growth strategy continue to support that resilience. Just as importantly, we remain fully committed to the strategic priorities we laid out in our 3-year plan. These priorities continue to guide how we invest, grow and create long-term value. Finally, I would like to thank our people at bankers for their continued dedication and contribution. Their efforts remain central to our performance. I will now pass it over to Ebru to walk you through our results in more detail. Following that, we will be happy to answer any questions you may have. Ebru, over to you.

Thank you, Kaan Bey, and hello, everyone. As you just mentioned, we started quite solid with an ROE aligned with our quarterly projections of 25.3% and an ROA of 2.2%. Our net income was up by 39% year-on-year to TRY 19.143 billion during the quarter. We achieved robust revenue growth, up 42% year-on-year to TRY 71.952 billion with dynamic ALM execution and resilient fee income generation continue to underpin our core revenue performance. NII expanded by 87% year-on-year, driven by balance sheet discipline, funding cost optimization and contribution from proactive securities portfolio management. Our net fee income increased by 35% year-on-year, in line with our full year guidance of above 30%. Looking ahead, our risk return focused growth approach, solid balance sheet and prudent risk management will drive our profitability while the pace of improvement may be influenced by persistent geopolitical uncertainty. Now let's dive into the quarter's financial performance and key drivers, starting with the balance sheet. As Kaan Bey just mentioned, during the quarter, we pursued selective risk-adjusted growth, optimizing yields and leveraging our strong franchise in targeted segments. During this period, we fully utilized regulatory growth caps. We recorded 6% year-to-date growth in TL loans, while FX loan book grew by 1% in the same period, with a growing pipeline indicating continued momentum. At the same time, we continue to lead private sector issuances for blue-chip companies, which also contribute to our interest-earning assets. Our risk return focused loan pricing and growth strategy aim to sustainably support and strengthen margins, while disciplined lending and proactive risk management help preserve asset quality as we continue to grow. Moving on to the securities. The share of securities in total assets have been gradually declining since 2022, in line with our focus on customer-driven sustainable revenue generation. The share of TL securities, excluding the corporate bonds within TL assets decreased by 6 percentage points over the past 3 years. At the same time, we continue to optimize the composition of our TL securities portfolio, reflecting a balanced approach to yield enhancement. As we have consistently highlighted, we have been strategically reducing our CPI linker exposure since 2022, bringing it down from its peak of 17% of total assets to 10%. Meanwhile, the share of FX securities in total securities increased by 8 percentage points since 2024, reaching 35%, primarily through timely buildup of NIM accretive Eurobond investments. Active yield-focused portfolio management has enabled timely repositioning of our securities portfolio and reinforces margin resilience going forward. On the funding side, our strong deposit franchise has continued to drive funding cost optimization while providing flexibility in meeting Central Bank's ratio requirements. We achieved a 50 basis points year-to-date increase in widespread TL demand deposit market share, which supported margin dynamics. A healthy 54% share of sticky and low-cost TL time deposits continue to contribute to funding stability. Looking ahead, our well-structured balance sheet and sound deposit mix are expected to support gradual and sustainable NIM improvement. Let's move on to the wholesale funding side. As Kaan Bey mentioned earlier, our recent transactions have been a strong validation of our market access. To highlight 2 examples, during the quarter, we completed a $600 million Basel III compliant AT1 issuance. Our AT1 issuance attracted a peak demand of over TRY 3.1 billion and became the first Turkish AT1 issuance with a coupon that was lower than 8%. The issuance contributed to our capital adequacy by around 100 basis points. We also renewed our $700 million syndicated loan structured across 6 tranches with maturities ranging from 1 to 3 years. This transaction attracted a demand around $1.2 billion and with the participation of 47 banks. Equally important, the yields remained unchanged from launch and 53% of the syndication loan now consists of 2- to 3-year tranches, once again reflecting investor confidence in our long-term franchise strength. Moving on to the profitability. We had a strong start to the year with NIM at 3.3%, in line with our quarterly projections. Accordingly, our swap-adjusted NIM improved by 20 basis points quarter-on-quarter, supported by better TL funding dynamics and well-positioned loan portfolio. On a CPI normalized basis, quarterly NIM improvement was even more visible at around 90 basis points, underscoring our disciplined balance sheet management. Looking forward, further NIM enhancement in the second quarter may be challenging as a reflection of elevated geopolitical uncertainty and funding conditions. However, our unwavering focus on sustainable profitable growth and disciplined funding strategies is expected to support gradual margin improvement, which will be more visible in the second half of the year. Please also note that during the quarter, we valued our CPI linkers at 20%. And as a sensitivity, every 1% change in CPI has around 6 basis points NIM and 40 basis points ROE impact. Accordingly, while margin evolution remains closely linked to the inflation path, higher-than-expected inflation will be partly offset by the CPI linker income. Moving on to our fees. Our fee income increased by a sound 35% year-on-year in the first quarter, broadly in line with our full year guidance of above 30% despite a slower loan growth in volatile environment. Our diversified fee base supported by a comprehensive product offerings continues to provide structural resilience, reducing reliance on loan-driven cycles and enhancing earnings visibility. Although we saw a temporary moderation on a quarterly basis, we remain confident in achieving our full year fee income growth guidance of above 30%. The prevailing higher for longer interest rate environment could even present potential upside to our fee generation with the sector-wide fee dynamics remaining supportive. As highlighted earlier, we remain dedicated to enhance our sustainable recurring revenues underpinned by robust customer-centric initiatives and innovations. And without any doubt, our digital initiatives continue to be a key differentiator, supporting fee income generation at scale. Moving on to costs. Our solid fee generation and disciplined cost management continue to be reflected in our robust fee to OpEx performance. The quarterly fee to OpEx ratio temporarily declined to below 90%, primarily due to the seasonal OpEx dynamics and our selective risk return focused growth strategy. However, our confidence in achieving around 100% fee to OpEx ratio for the full year remains intact. We expect OpEx growth to moderate towards our full year guidance of low 30s, thanks to our continued focus on cost control and operational efficiency. Meanwhile, our cost-to-income ratio remains around 51%. For the remaining of the year, NII dynamics will continue to be the key for cost-to-income ratio improvement towards the full year guidance of low 40s. Cost discipline across our workforce and branch network, together with targeted AI initiatives will continue to drive efficiency and scalability. Moving on to asset quality. Retail-led NPL formation continues across the sector, reflecting a broader macro environment. Against this backdrop, we have further improved our relative positioning during the first quarter, and our NPL market share among private banks declined by around 100 basis points during the quarter, extending the multi-quarter positive trend. Our asset quality remains resilient with Stage 2 plus Stage 3 loans contained at 11.4% of gross loans, underscoring our disciplined underwriting approach. Restructured loan exposure remains limited, accounting for 3.8% of total loans. Through prudent provisioning, we have further strengthened our reserve buffers with total provisions increasing to nearly TRY 76 billion. As a result, our coverage ratio remains solid with gross coverage at 3.7% and Stage 2 plus Stage 3 coverage at 27.6%, reinforcing balance sheet resilience. Excluding currency impact, net cost of credit stood at 200 basis points during the quarter, in line with our full year guidance, while NPL ratio remained stable at 3.5%. Looking ahead, we remain confident in our ability to navigate volatility with cost of credit and NPL dynamics remaining well manageable within our full year guidance. Without any doubt, the strength of our asset quality underscores our disciplined risk framework, advanced credit decision models in retail and close monitoring of our corporate and commercial loan portfolio. Moving on to the capital. Our strong capital base remains a key enabler of strategic flexibility, allowing us to navigate cycles while continuing to grow in a disciplined manner. Our total capital, Tier 1, core equity Tier 1 ratios remained robust at 16.1%, 13.1% and 11%, respectively, despite quarter-specific adverse effects. To name some, annual sectoral regulatory implementation of operational risk adjustment, which was done every year in the first quarter and had a negative 48 basis point impact. Our dividend payment during the quarter had a negative 44 basis impact. And for the quarter, because of the geopolitical volatility, our securities mark-to-market had an impact of minus 60 basis points. On a positive note, our successful $600 million of AT1 issuance helped mitigate 103 basis points of the adverse effects. Also, we have witnessed a partial reversal of the mark-to-market losses this month, driven by the improved market sentiment and better bond pricing. As for the sensitivities, as you all know, these are basically not linear and decrease with every increase, a 10% depreciation of TL results in around 25 basis point decrease in our capital ratios, and similarly, a 100 basis point increase in TL interest rates has around 10 basis point impact, which are all demonstrating limited sensitivity and the strength of our capital. Overall, our capital buffers remain solid, providing a strong foundation to support sustainable profitable growth going forward. And as always, before moving on to the Q&A, I'd like to share a few highlights regarding our nonfinancial performance. As highlighted in our ESG video, we are continuing to advance our sustainable action plan with measurable outcomes. We remain committed to supporting the transition to a low carbon and more inclusive economy in line with our long-term objectives. As a part of our broader governance priorities, I would also like to underline that women now represent 40% of our Board, well ahead of our 30% commitment by 2027 and above many sector peers, reflecting our long-standing focus on inclusive leadership. Lastly, let me turn on to our performance against the guidance. As previously highlighted, we delivered a solid quarterly ROE, which is consistent with our initial projections. We acknowledge that newly emerged headwinds related with geopolitical developments, which resulted in a rate cut cycle pause actually, may postpone the expected pace of NIM enhancement. However, at this stage, we believe it is premature to reassess our full year guidance as our exceptional revenue generation capacity such as fees, trading provide a degree of mitigation against potential pressure on spreads, particularly given the uncertainty around the duration of the current headwinds. As a result, our resilient fee engine combined with cost discipline remains supportive of our 100% fee to OpEx ratio ambition and our [indiscernible] treasury management will continue to support the bottom line. In addition, our selective growth strategy and funding flexibility, together with the partial offset of the CPI linkers valuation should be supporting gradual NIM improvement in the second half of the year. Asset quality remains a key area of focus across the sector. However, our disciplined risk framework is expected to contain the cost pressure, supporting a flattish cost of credit trajectory. And this concludes our presentation. Now we are moving on to the Q&A. For those of you who are joining us by telephone, please send your questions by e-mail to [email protected] and for those who are joining us on the call, please raise your hand for the questions.

And the first question comes from David Taranto from Bank of America Merrill Lynch.

My questions are mostly on asset quality this quarter. You already touched base during the presentation. But at the beginning of the year, your 200 bps cost of risk guidance was based on assumptions of around 4% GDP growth and around 30% year-end policy rate. Given the increasing risk of lower GDP growth and higher for longer rate environment, do you see any risk to your asset quality outlook or cost of risk guidance? And during the call, you also mentioned that the NPL inflows this quarter were dominated by the retail segment. Are you seeing any early signs of stress emerging on the SME side?

This is Turker. Thank you very much for the question. Actually, it's a really valid question, like more moderate growth may potentially create further pressure on the asset quality. But as you know our approach very well, we also dynamically manage our lending policies. So because of the latest developments actually, like we are revisiting our criteria, both on the retail side as well as on the commercial side. Whenever needed, we also revisit our collateralization strategies, et cetera, et cetera. Therefore, actually, we are taking a proactive approach to manage this potential, let's say, risks ahead. Therefore, actually, as of today, also based on the data we have in terms of overdues based on the AMK inflows. We do not see any risk on our full year guidance for the time being. And actually, with regard to SMEs, actually, already actually, when we said last year, the inflows were mainly driven by retail segment. We were meaning we were covering both consumer as well as the S part, small part of the SME, micro businesses. This trend continues. And we also see some inflows coming from small part like the segment above micro, but it is manageable. As I said, we are dynamically adjusting our lending policies in this regard. To sum it up, we are comfortable with the full year guidance we have.

And the next question comes from [indiscernible].

Should we expect NIM contraction in the second quarter? Could you elaborate a little more on core spreads? Your expectation is fine enough for me, if not an official revision.

With regard to NIM trajectory actually, as Ebru had mentioned and also Kaan Bey, this expected NIM expansion in the second quarter will be probably delaying into third quarter. But let's wait and see actually how also geopolitical like developments evolve. But when I look at like NIM evolution in the second quarter so far, like it is evolving similar to the first quarter level. So in other words, no contraction. But also having said that, also no further improvement on top of first quarter. With regard to core spreads, definitely, we've seen some increase on the deposit cost side, like it's like that. On the deposit side, it was around 38%, 39% levels towards the end of the first quarter. Now it is at around 40%, 40.5% levels for the back book. On the -- but for the credit side, for the loans side, the yields were at around 42%. Now it's at 43%. So roughly speaking, so there has been some contraction of roughly 1%, 1.5% contraction so far, but it has stabilized. So we can say with the repricing of the loan book, we can start to see some improvement, but it will be like marginal. With regard to the trajectory into the second half of the year, like assuming that Central Bank again can start with the rate cut cycle like towards the end of the second quarter and beginning of the third quarter, we can see the pace of NIM improvement to pick up in the third quarter. And also like to keep in mind, the policy rate is still at 37% and Central Bank is using like in effective 40% but they have the flexibility if things settle down to again revert back into 37%, which will be also helpful on the NIM evolution side.

There's a written question here. Basically, what changes have you made so far to your banking book since the beginning of the year to mitigate interest rate risks from Valentina?

I understand this is much more like related to the duration management of the TL balance sheet, definitely because of the uncertainties, like since the end of February, we are -- we have a cautious approach and balanced approach in other words. This is also to some extent also reflected into our growth figures in the first quarter. When pricing loans, like we try to stay more on the short-term end. And based on the interest rate curve, we are also active in the longer duration, but we have a balanced approach. And as of today, I cannot say we are extending the maturity profile. This is not the case.

Okay. I guess there are no further questions. basically. Simon. Okay, Simon, allowed to talk. Simon, the next question comes from you.

Sorry for the late raising of the hand. Just a really quick one on capital. So your capital ratio continues to be under some pressure. Your core Tier 1 is now, I guess, ex forbearance down to 11%. I mean is there a point where you'd want to do something on the capital side? How -- and when do you think the capital ratios will stabilize and actually improve?

As you know, the first quarter, like there are some temporary impacts like realities which are impacting the capital adequacy ratios, like the adjustment of the operational risk amount, the dividend payment as well as the -- these are like the major 2 items. And this will not repeat themselves in the upcoming quarters. Therefore, actually, we believe, assuming the bank preserves its like profitable trend, we expect to see gradual improvements in the capital adequacy ratio. And also as Ebru has also mentioned, towards the end of the first quarter, there was also an impact coming from securities like mark-to-market side, like around half of which has reversed actually. In this sense, as you know our approach, we are always cautious on our capital adequacy ratio. We will maintain this managed approach.

Very clear. So the 60 basis points impact from mark-to-market securities impact, so half of that's already come back, you're saying?

Exactly.

There's a question regarding our macro assumptions. Could you please remind what your macro assumptions are? Have they changed? Is it policy rates, [indiscernible] growth expectations? [ Lanca Robbins ].

Definitely, there have been some changes after latest developments. At the beginning of the year when we shared our guidance, our GDP growth assumption was 4%. Inflation was 24%, 25% and year-end policy rate was 31%, in other words, 6% real rates on top of inflation. As of today, we expect inflation to like year-end inflation to come down to 28% levels. Like if we would add 6% on top of it, probably the policy rate would be at 34% towards the end of the year. And in terms of the GDP growth, probably we will be seeing a moderation towards 3%.

Next question comes from [indiscernible].

Can you just clarify, if you haven't done so, the exact policy rate path for the second half, please, your assumption?

We expect like that this 37% or in the reverse, 40% effective rate will come down to 34% by the end of the year. We can expect a gradual rate cut cycle starting from end of the second quarter.

Okay. And I haven't looked at it in detail, but I'm seeing now your equity is down by around TRY 8 billion quarter-on-quarter. You distribute around TRY 11 billion dividend. So I assume there is some loss in the equity due to securities, right?

Yes. Actually, that was a question of Simon as well. In the first quarter, from securities mark-to-market impact, there was like 60 basis points negative impact on the capital adequacy ratio, roughly 50% and there was 30 basis points of which has reversed already.

I guess currently, I don't see any further questions. So maybe we go to the closing remarks. As Akbank Investor Relations, we are here to help. Please reach out to us if you have any further questions. And thank you for joining us today. And Kaan Bey, the floor is yours for closing.

Thank you, Ebru. Thank you all for joining us today. Actually, before we close, I would like to once again recognize our people for their dedication, agility and hard work. We also deeply appreciate the continued trust of our customers, shareholders and broader stakeholders. We look forward to meeting many of you in the coming period and continuing our engagement. Bye for now. Thank you.