Albaraka Türk Katilim Bankasi A.S. (ALBRK) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Albaraka Türk 2021 Year-end Financial Results Conference Call. There will be a Q&A session following the presentation. [Operator Instructions] I will now hand you over to Mr. Mustafa Cetin, Chief Financial Officer, Albaraka Türk. Sir, the floor is yours.

Thank you very much, Adle. Welcome to our year-end earnings presentation. I would like to talk about the financial details first. And then in the Q&A session, if you have any questions regarding the share, I will try to answer. And first, I would like to start my presentation. And our presentation, you can reach from our website. In the first slide, I would like to talk about the financial highlights. On Page 3 in our presentation, you see the details regarding the balance sheet, income statement and some key ratios. First, as you see on the left-hand upper side, you see the total assets year-on-year base, 57.2% increase, mainly due to the increasing exchange rate program of, as you know, the FX side of our assets. And then the same increase you see on the total funded credits with 40% on year-on-year basis; our total NPLs, 85% increase on a year-on-year basis; and our deposits, 76.8% increase; and our equity, 14.4% increase, you can see at the end of the year. On the income statement side, net profit share income, almost the same levels with a slight decrease with roughly TRY 1.7 billion. On the other hand, net fees and commissions income, we have 74% increase. The provisioning side, again we have roughly 55% increase on year-on-year base again. On the other hand, the personnel expenses and operation expenses increased under inflation rate. The personnel expenses increased 12% levels with TRY 808 million levels. And operating expenses, TRY 6 million -- TRY 654 million, a 22% increase. And these two expenses, the major expense items increased under inflation rate, as you can see. The net profit side, we have TRY 104 million net profit, which is less than the previous year's TRY 255 million net profit load. I will explain in the -- during the presentation that on last month of 2021, we had TRY 100 million pre-provisioning we set. So because of this, our net profit came from TRY 200 million to TRY 104 million levels because of this TRY 100 million pre-provision. On the right-hand side, you can see the key ratios. The first ratio is capital adequacy ratio. As you see, our capital adequacy ratio is 14.9% at the end of the year; Tier 1, 9.78%; NPL, 6.29%. The provisioning for bad loans reached 70.26% levels, which implies 924 bps increase on year-on-year basis. Net profit share margin, this is the major factor affecting our bottom line net profit level through net profit share income side. Unfortunately, 2021 was not a good year from a net profit share margin perspective because of the high cost of funding side and the limited profit share generated from cash loans. On the cost/income side, we have 45.47%, last year's rate. This year 2021, at the end of 2021, it is 43.28%. At a glance, you can see the general figures for Albaraka Türk. And let's see the details. On Page 4, you see the total assets, total funded credits and total collected funds trends on a quarterly basis. At the end of the year, our common -- our total assets reached TRY 109 billion levels. On the other hand, our total funded credits, again we have TRY 56.9 billion. And then collected funds, you can see almost the same increase as a percentage. Total collected funds reached TRY 91.2 billion. On the left-hand bottom side, you see equity details, our common equity Tier 1, additional Tier 1 and additional Tier 2. These are the three major components of our equity. You see at the end of the year, this is the 14.9% loss, which was, on previous year, 13.51%. On the right-hand side, you see the equity details. We have TRY 4.6 billion -- sorry, TRY 4.6 billion. Sorry, net profit share income side, you see on the right-hand bottom side, you see the net profit share income and net profit share margin. Although net profit share margin has been decreasing throughout the whole year, at the end of the -- at the last quarter, it started to upward trend, you see, from 2.18% to 2.35%, which implies we are at end of the high cost funding and low return credits. And most probably in the first quarter of this year, we will see higher net profit share margin in the first quarter. And then depending on the general conditions in the Turkish economy, the year-end -- on the year-end 2022, I will talk about also the budget for this year. Again, we will see higher net profit share margin this year, especially for first and second quarter. So it will be beneficial for net profit share income throughout the year. And most probably, we'll see higher net profit share income during the first quarter and second quarter. Third and fourth quarter, it depends on the Turkish economy in general. On Page 5, you see the asset composition. The composition of total assets, the major part is again funded credit side with 52%. And our securities portfolio reached [ 15.8% ] levels. And our cash and cash equivalents is 29% loss. The total securities portfolio on the left-hand bottom side, you see that this is at 17.2% levels -- sorry, TRY 17.2 billion levels. So it implies assets at 15.8% levels. There is an upward slope, as you see. Especially during the last quarter of 2021, our securities portfolio increased pretty much. On the right-hand side, we see the liquid assets. Again, there is an upward slope on liquid assets with 37.5%. But I'd like to talk about the definition of liquid assets. The liquid assets includes cash and cash equivalents, financial assets measured at fair value through profit/loss and financial assets measured at fair value through other comprehensive income. This is also implied that we have a very liquid asset composition in our balance sheet. On the left -- right-hand bottom side, you see the securities yield, again upward slope on that side. And most probably, this upward slope will continue during the first and second quarter of this year. And this is why our total securities portfolio has been increasing. We will see higher returns on the securities side. On Page 6, our operational performance breakdown. You can find the key moments in income on the left-hand upper side from TRY 4.8 billion to roughly TRY 6.9 billion levels. The profit share income is the major affecting factor and then fees and commissions, a positive effect. And the trading income has a negative effect on the key moments on the income side. And then others, we have TRY 581 million. Net fees and commissions side on a quarterly basis, you see the upward trend again. And our fees and commissions, we have a good development on that side and very steady upward slope on the fees and commissions income in our financials. On the right-hand upper side, you see the net profit share income development. On a quarterly basis, you see the developments. The last quarter is the best one on net profit share income side. Cost and yield movement, you can see on the right-hand bottom side, you see the credit yield at the beginning of this year was 8.5%. And then we have a downside figure on credit yield in the first quarter. And the second quarter, third quarter and fourth quarter, there is an upward slope. And most probably, it will continue in the first and second quarter of this year. Net profit share margin, again there is an upward slope. And the cost of -- sorry, cost of collected funds, we have again upward slope but at a slower pace in the last quarter. On Page 7, the funded credits portfolio, you can see the details. We have Turkish lira credits at the end of year with TRY 23 billion. Foreign currency credits, US-denominated, is USD 2.5 billion levels. On year-on-year basis, on foreign currency side, the growth is 0.7%. On Turkish lira on year-on-year basis, 8.6% increase, you can see. On quarter-on-quarter basis, you see that last quarter, we had minus 7%, which means the foreign currency credits dropped 7% on a quarterly basis. So on year-on-year, almost the same figure we have in the foreign currency side, especially the growth is on the Turkish lira credit side. The composition of total funded credits. In terms of corporate, SME and retail side, you see the major parties again: corporate credits with 68%, SMEs with 24% levels roughly and retail is 8.2% levels. On the right-hand side, the nonperforming credits, you see especially Turkish lira credits, you see the development, upwards trend, which is -- which started with 13.6% levels to 16.5% levels, roughly 3% increase on yield on Turkish lira credits on the average. Then on the U.S. dollar and FX -- sorry, FX denominated side, it's almost steady and with a downward trend for the third quarter. And it has again started to increase. It reached 4.4% at the end of the year. The currency composition of total funded credits, on the right-hand bottom side, you see the U.S. dollar and Turkish lira is almost the same with 1% higher Turkish lira funded credits. And we have 18.5% euro -- indexed euro credits, the currency of total funded payment side as a percentage. On Page 8, this is asset quality side. Gross funded credits by groups, including financial leasing and in terms of million Turkish liras. At the end of the year, gross funded credit is TRY 60 billion levels and Group 1 is 84.2%, Group 2 is 9.6% and Group 3 is 6.3%. Our NPL ratio on the right-hand side, you see again 6.3% levels. But you see under this line, net NPL ratio, which is at 1.87% levels. Although we have increased on the NPL side, since we set adequate and a little bit more provisioning side for new NPLs, our net NPL ratio remained steady with a small decrease from 2.05% to 1.87% on a quarterly basis from third quarter to fourth quarter figures. You see the provisioning rate on the right-hand bottom side for Stage 3 credits, NPL side. There is an upward slope on this side. We reached 70.3% levels on the provisioning side. It is also a good figure for us. And in 2022, it will be again higher, 70% levels, maybe a little bit more. We will see at end of next year as the provisioning for bad loans. On Page 9, again the NPL side, asset quality continues. The NPL formation, last year's NPL formation in general, at the end of -- in the fourth quarter, the major additions, you will see. But on the average, the NPL formation is again in line with our credit growth side. And additions to NPL is TRY 1.2 billion, collections is TRY 114 million and net NPL formation is TRY 1.1 billion at the fourth quarter. You see the details on a quarterly basis on the left-hand upper side. NPL sector distribution. You see the first one is construction and real estate and the second is manufacturing and then energy and then trading and so on. The NPL sector distribution is almost the same with the credit sector distribution, which implies there is no specific sector for NPL collection side. It is almost evenly distributed with the credit exposures, cash credit exposures of our bank. On right-hand bottom side, you see the Stage 2 credit sector distribution again. This is energy, trading, construction again are the major parts of Stage 2 credits. On Page 10, the funding profile. You can see the details. The composition of total liabilities, funds collected is 84% and wholesale funding is 8.6%, equity is 4.2% and others, 3.4%. On the right-hand side, the composition of funding base, you can see the major participation accounts and current accounts. As you see, our current account level is 36% levels, which is also a good figure for us. Funds borrowed remained the same level at 15%. And the major part of funding base is all those participation accounts and current accounts. And in our balance sheet, we have two, Tier 1 and Tier 2 items. Our Tier 2 is 2025, which is USD 250 million. And our Tier 1 is 205 million, which is perpetuity. This is our funding in terms of capital side, so we have two instruments here. On Page 11, the funding profile. You can see the funds collected, current accounts on a year-on-year basis doubled in terms of Turkish lira and the participation accounts increased 56% on a year-on-year basis again. On the left-hand bottom side, you see the cost of funds collected. The Turkish lira cost of fund, the first 3 quarters, the upward slope is high. But for the fourth quarter, you see that there is a downward trend still. It's increasing but at a slower pace. On foreign currency side, we have almost flat cost of funds line. At the end of the year, the fourth quarter, it is 1.17% levels. On the right-hand side, the currency composition of funds collected. You can see the major parties, not Turkish lira, U.S. dollars with 48.8%. The second part is 22% Turkish lira and 18% euro and 10% gold and precious metals. The maturity composition of funds collected, the current account is 50%; up to 1 month, 15%; up to 3 months, 28%; and up to 1 year is roughly 2% levels. On Page 12, you see the off-balance sheet side. Our LGs to total assets at the end of the year is 11.4%. That is a downward slope as you see on the LGs to total assets percentage. And the other details, you can see it on the page. I will pass to 13th page on income/cost dynamics. The first line is net profit share income, as you see almost the same figures we have on year-on-year basis. We have TRY 1.7 billion roughly of net profit share income. Net profit share income -- actually, the profit share income increased 40%. But on the other hand, since the profit share expenses increased with 77.2% and also the funds were borrowed, increase is more than 100%, 118.8%. And upward cost of funding led to weaker net profit share income. So we have almost the same figures with the previous year because of this development. And on the other hand, our net fee income increased 74% levels. It reached TRY 406 million. The major part -- the major reason for this, the suspension of Central Bank of Turkey commissions on required reserves on foreign currency accounts. Net trading income, on the other hand, due to the sales of investment participation certificates and especially swap transactions, this is for compensating Turkish deficit in our treasury transactions. Because of this, the swap transactions has negative impact on net trading income side. The other income, with the support of the strong collections performance from Stage 3 loans plus reversal of prior year provisions, doubled. And income from sales of assets increased this other income figure. Especially the real estate sector, previous years, started to be vibrant and it gives chance to our colleagues in related departments to sell the assets of bank because of the bad loans in our balance sheet, so they can sell this easily. And because of this, the performance on the sales of assets is also -- was also good in 2021. On the provisioning side, the Stage 3 coverage ratio has been -- remained above 70% and on a year-on-year basis, which implies 55% increase. The personnel expense, on the other hand, is only 12% levels, which is far below the inflation rate, so which implies the management of the bank focused on the expenses side more. And the major part is personnel expense and our personnel size has been decreasing. You will see on the per branch, the staff size has been decreasing. I will mention later in the presentation. The other costs, also we have 23% -- 22% increase. Again, we see the focus on the expenses side of our management. This is one of the other outcome. The other cost increase is, on a year-on-year basis, only 22% while we have more than 36% inflation last year. The net profit is TRY 104 million. As I said at the beginning of the presentation, on the last month, our management decided to set additional TRY 100 million pre-provisions. Because of this TRY 100 million, our net profit for 2021 dropped from TRY 200 million to TRY 100 million levels. I'd like to talk about the financial ratios on sector comparison side on Page 16. The first ratio is capital adequacy ratio. Albaraka Türk capital adequacy ratio at the end of the year is 14.9% while the participation banks' average is roughly 19% and the banking sector average is roughly 18% levels. Our NPL ratio is 6.29%. Both in participation banks and in banking sector, the year-end figures is roughly 3% levels, which implies Albaraka Türk's NPL is double, greater than the participation banks and the banking sector averages. On the provisioning side, although we have higher NPL side, our provisioning is getting higher and higher on every year, which was only 61% in the previous year. Now it is more than 70% levels, which is another indicator that we would like to set adequate provisions to our bad loans. And net profit share margin, which is -- which was 3.27% last year, the previous year, I mean. In the year 2021, we see 2.35% net profit share margin. This is one of the most important reasons that we have a relatively weak net profit for the year and figures. And this year, actually, we are awaiting for a higher net profit share margin because of the developments that I talked during the presentation. Most probably, we will see extremely higher figures in the first and second quarter of 2022. And most probably, 2022 is better than 2021 in terms of net profit share margin. And per branch, as you see, last year, we had 14.74% staff per branch and now it dropped to 12.69% levels, which is less than the participation banks and also the banking sector averages. This is one of the items that our management is focusing on the cost side. And the personnel expenses is the major expense side. And you can see from here that the staff per branch dropped sector averages, not only the banking sector averages but also the participation banks' averages. It is Albaraka Türk less than the sector averages in terms of staff size per branches, as you see. On Page 18 and 19, you see the balance sheet summary and income summary. You have seen the figures. And I won't talk about the figures in detail. And this is the end of the presentation. We can pass, if you like, to Q&A session. Thank you very much.

Thank you for the presentation, Mr. Mustafa Cetin. We will now start our question-and-answer session. [Operator Instructions] So it seems that we don't have any questions.

No problem. If you have any questions, we are ready to answer. Both our Investor Relations, also myself, is always ready to answer any questions coming from your side. Thank you very much. Hopefully, we will meet better figures with first and second quarter of this year. And at the end of the year, hopefully, we will see better figures. And thank you very much again for joining us today.

Thank you. Thank you, ladies and gentlemen. This concludes today's webcast call. You may disconnect now.