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

Ladies and gentlemen, welcome to our Albaraka Türk Second Quarter 2022 Financial Results Conference Call. [Operator Instructions] I will now hand you over to Mr. Mustafa Cetin, CFO of Albaraka Türk. So the floor is yours.

Thank you very much, [ Cemi ]. Welcome to our first half financial results meeting. First, I would like to give some information about our financial details. And in the Q&A session, if you have any questions, I'll be glad to answer in the Q&A session. First, I would like to give some information on key figures and ratios of our bank for the first half financials. The balance sheet, the total assets, we have TRY 131.6 billion total assets at the end of the second quarter, which implies 20.8% increase year-to-date results. Total funded credits again reached TRY 64.8 billion, which implies again 13.8 percentage increase year-to-date. Our NPLs, on the other hand, dropped from TRY 3.8 billion to TRY 2 billion, which implies 44.5% decrease. And on the deposit side, we have 18.3% increase, which is TRY 107.9 billion level. And again, our shareholders' equity reached TRY 7.2 billion, which implies 55.8% from the end of the 2021 results. Income statement side, our net profit share income reached TRY 2.1 billion on year-on-year base, which implies 265% increase. It's a sizable increase, as you've seen. On fees and commissions side, again, we have doubled the net fees and commissions figures comparing the same period of last year. Provisioning on the other hand, we have almost 5x higher figure on the provisioning side. We have TRY 2.5 billion level provisioning at the end of the second quarter. Personnel expenses, we have only 25.5% year-on-year increase. As you know, the inflation and the increase on the personnel wages, including key figures. And the personnel expenses, as you see, is under control in our expenses side. The operational expenses, again, we have 38.2% year-on-year increase, which is again less than the inflation figures. We have TRY 488 million levels as operating expenses. As a result, the bottom line, the net profit reached TRY 652 million, which was almost 0 levels in the previous year's same quarter results. On the right-hand upper side, you see the key ratios. Our capital vacancy ratio is 15.6%, which is 70 bps higher than year-end results. The Tier 1 side is again 10.97%, which is again 119 bps higher than the year-end figures. On the other hand, our NPL side dropped half -- almost half of the total figure from 6.3% to 3.1% levels. The provisioning on the hand is still higher than 70%. On net profit share margin, again, we have a sizable increase on that side, and we have 3.59% net of share margin at the end of the second quarter. The cost/income ratio since our income is a sizable increase in the second quarter, the cost/income ratio dropped from 43% to 21% levels. Again, this is almost half of the year-end cost/income ratio. These are the key figures and ratios at a glance for Albaraka Türk first half results. And now I would like to give the details regarding the financials, total assets, total funded credits and total collected funds figures. We have TRY 131.6 billion total asset levels. And our total funded credits reached TRY 64.8 billion, and total collected funds reached TRY 107.9 billion. Left-hand bottom side, you see the details of the capital equity details. The common equity Tier 1, additional Tier 1 and additional Tier 2. The total is 15.6%. The major parties common equity Tier 1, which is 9.75%; additional Tier 1, 1.22%; and additional Tier 2, 4.63%, and the total capital [ depreciation ] is 15.6% at the end of the second quarter. On the right upper side, you see the equity details. As you see, in the last quarter, we have a huge jump on the equity from 4.8% -- TRY 4.8 billion to TRY 7.2 billion. As you see, we have cash injection in the second half of this year from TRY 2.5 billion levels. We have paid capital increase. Plus, we have TRY 652 million net profit. And all these things reached our equity from TRY 4.8 billion to TRY 7.2 billion levels at the end of the second quarter. On the right-hand bottom side, you see the development on the net of share margin and net profit share income levels. As you see, we have an upward slope on the net profit share margin from 2.3% levels to 3.5 -- 3.6% levels as net profit share margin. And I can say that the net profit margin increase will be going on, maybe at a slower pace, but still, we will have the remaining of this year, higher net profit share margin. This is our expectation. On Page 5, the asset composition. You see the details: the funded credit is the major party, 49.2%; and securities portfolio reached almost 19% levels; and cash and cash equivalents, 29%; and other assets, 2.7%. On the right-hand side, you see the liquid assets positions, and we have 37.7% liquid assets of total assets are -- 37.7% of total assets are liquid as you see. On the left-hand bottom side, you see the total securities portfolio increase. We have TRY 24.8 billion securities portfolio. And the details, you see the held to maturity and marketable securities are the major part of the securities portfolio. On the right-hand bottom side, you see the securities yield. As you see, we have a very upward slope on the security yield side. on quarter-on-quarter basis, we have more than 3% increase on quarterly basis. And most of them, as you see, come from the CPI-linked securities in our portfolio. Operating performance breakdown, you see on the Page 6. As you see, when we study the key movements income side. As you see, the major participant is profit share income with TRY 2.2 billion. Fees and commissions also have TRY 200 million participation on the income side. And the trading income is the second important factor of our income side, which is TRY 1.4 billion and others TRY 124 million, and we reached TRY 6.8 billion on income side in the first half of this year. On the right-hand side, you see the net share income developments. As you see, the second quarter of this year is also very good in terms of net profit share income development side. TRY 1.3 billion net profit. Net fees and commissions income on a quarterly basis, you see on the left-hand bottom side, and we have TRY 192 million net fees and commissions side. On the cost and yield movement, you see on the right-hand bottom side and the credit yield, net profit share margin and cost of collected funds developments. And our credit yield has been going up for the last 5 quarters. And our expectation, again, it will be moving upside for the remaining part of this year on the credit yield side, and net of share margin as well as net profit share margin. The cost of collected funds also has been rising. But since our credit yield has been going up, the net profit share margin is also -- has been rising. On Page 7, the fund credit portfolio details, you can find the total format credits, including financial leasing, on quarterly basis you see the details. We have a 42% increase year-to-date on the funded credit side. On foreign currency -- on the foreign currency funded credit side, you see we have a 6% decrease for foreign currency credits. The total is a positive figure. But as you see, we have been increasing Turkish lira credits. On the other hand, decreasing the foreign currency-denominated credits for the last 3 periods -- 3 quarters. The composition of total funded credits on the left bottom side, you see the corporate, SME and retail. The corporate credit is 68.6%; SMEs, 23.8%; and the retail is 7.6%. This is the distribution of our funded credits. On the right-hand bottom side, you see the currency composition. Half of the credits -- more than out of the credits are Turkish lira, 51.8%. 36.2% U.S. dollar and 12% euro credits. This is our distribution on the format credit side. The asset quality on Page 8. The first, on the left-hand upper side, you see the distribution on the Stage 1, Stage 2, Stage 3 credits. As you see, our Stage 1 credit is 84% and Stage 2 credit is 12.8%, and our NPL is 3.1% levels. On the right-hand side, you see the yield on performing credits. On Turkish lira side, we have very upward slope with 18.5%, and it will be going up for the coming periods, And FX-dominated bonds has been decreasing, as I said before. And the yield is almost flattish with a slightly downside on FX-dominated loans. The cost of risk on the left-hand bottom side, you see we have 428 bps in cost of risk. But we have -- I mentioned later (sic) [ earlier ] that we have write-offs in the second quarter. And the cost of risk will be going down moving forward because of the write-offs and our NPL development. The provisioning. On the other hand, you see we have 71% provisioning for Stage 3 credits. On Page 9, I would like to talk a little bit on that slide because it is important, I guess. Our NPL ratio dropped from 6.37% to 3.12% levels in the second quarter because of the sizable write-off that we did in this period. We have a write-off of TRY 2.8 billion write-off in the first half of this year, which convey our NPL ratio from 6.3% levels to 3.12% levels. And in July, we still have new write-offs, roughly TRY 400 million. And at end of the seventh month, July results, our NPL ratio further go down to 2.5% levels, and which means in the third quarter, most probably, we will see 2.3% NPL levels with higher provisioning site on the Stage 3 credits. It's a very good development, I think. Because, as you know, the NPL side is higher than -- the NPLs has been higher than the sector averages for the last couple of quarters. And now we reached the sector averages with 2% -- 2.3% NPL ratio levels. This is, I think, very important for our NPL management criteria. On the left-hand bottom side, you see the NPL formation trend. As you see, there is an upward trend last year at the end of the year reached their peak level, and then it's going down. Most probably, we will see the same shape for the remaining part of this year, and the NPL formation also is -- the NPL formation also seems under control. And most probably, our NPL levels will be with the sector averages for the remaining part of the year. You see the NPL sector distribution and Stage 2 credit sector distributions. Construction and real estate is the first NPL distribution. Actually, this distribution is almost the same with our regular credit distribution, which implies that we don't have any specific sector that produce special NPL. Our NPL distribution is complied with our regular credit sector distribution. On Page 10, you see the funding profile of our bank's funds collected, wholesale funding, shareholders equity and others. 72% (sic) [ 82% ] of liabilities are collected funds. Wholesale funding is 7.6% levels, and our shareholders' equity is 5.5% in our liabilities. The conversion of funding base on the right-hand side, you see the details. Funds borrowed, current accounts and participation accounts. Our current accounts is 42% levels, and our participation account is 49%. While funds borrowed is 9% of our funding base. We have 2 subordinated loan in our balance sheet. As you know, one is perpetuity with TRY 205 million (sic) [ USD 205 million ]. And the other is Tier 2 and -- which -- maturity will come at 2025, which is USD 250 million. On Page 11, you see the funding profile of collected funds, the current accounts and participation account. You see in current accounts and also in participation accounts, you see the decrease on the foreign currencies deposits. On the other hand, we have an increase on the Turkish lira-denominated funds collected. For current accounts, we have 12.3% increase in Turkish lira and 10% decrease in foreign currency. For participation account, we have more than 100% increase -- 113% increase in participation accounts and 28.6% decrease on foreign currency accounts. I think the most important factor on the participation accounts for Turkish lira increase as exchange rate protected Turkish lira deposit situation. As you see, most of our participation accounts with roughly TRY 17 million is exchange rate protected Turkish lira deposits, which implies more than 70% of our participation accounts -- Turkish lira construct participation accounts are exchange rate protected Turkish lira deposits. And thanks for this situation, our foreign currency current accounts and foreign currency participation accounts have been decreasing. Starting from the beginning of this year. These are the peak levels. And our bank complies with the standards set by the Central Bank of Turkey and the treasury for banks to reach these targets. We reached our targets that set by the government for the exchange rate protected Turkish deposits. On the left-hand bottom side, you see the cost of funds collected figures. We have 14.27% Turkish lira cost of funding. And on foreign currency side, we have 0.78% cost of funding, and our unit cost of funding is 5.88% at the end of the second quarter as a trailing -- on a trailing basis. The currency composition of total funds collected side on the right-hand upper side, you see the details. The major part is foreign currency, U.S. dollar and euro, and Turkish lira part of the currency composition is Turkish lira with 33% levels. The maturities -- half of the brands collected is almost half of them is current accounts. And after the current accounts, up to 3 months maturity composition, you can see, and then up to 1 month with 11.7% and up to 1 year, 6.1%. This is the major comparison of our funds collected figures for -- at the end of the second quarter. On Page 12 of balance sheet details. You see the LGs to total asset ratio is still going down at a slower pace. And the current percentage for LCs to total assets is 11.2% levels at the end of the second quarter. The other details you can find on the page, I will not talk about the details. And then on Page 13, the summary of income/cost dynamic you can find. The first item is net of trade income side. You see we have more than 265% increase on year-on-year basis. Our net share income reached TRY 2.1 billion. The major part is because of the profit share income growth of more than 100%. On the other hand, our expenses growth is only 41% on a year-on-year basis. So we see this figure for the second quarter of this year is TRY 2.1 billion net profit share income. On the net fee income side, again, we have doubled our figures on year-on-year basis, and this net fees come from the banking services and plus noncash credits commissions. On the net trading income, we saw dramatic -- drastic decrease on that side, from almost 0 -- minus figures to TRY 1.4 billion roughly net trading income figure, which is majorly come from the inflation in securities plus investment fund participation certificates, which consist of real estate portfolio, and the revaluation of real estate give us increase on the investment fund participation certificate in our P&L figures. We have reversals from prior years from TRY 481 million to TRY 604 million, which implies, again, 25.7% increase on year-on-year basis. The provisioning, it is also an important figure. We have first TRY 500 million free provisioning for the first half of this year. So our provisioning included this pre provisioning, we have TRY 2.5 billion roughly provisioning for the first half of this year. It was only TRY 520 million in the same quarter of previous year, as you remember. The personnel expenses, we have only a 25.5% increase on that side. We decreased our total personnel size first, and then our increase on the wages are in line with the sector averages. But since our size of total personnel has been decreased, the personnel expenses of our bank is only 25.5% levels considering the same quarter of previous year. We have other costs, gross operational expenses. And again, we have 38.2% increase on year-on-year basis. The cost side, including personnel expense and the operational costs are less than the inflation percentages has increased on a year-on-year basis. So our net profit reached TRY 652 million at the end of the first half of this year. So considering that in the same period of previous year, we have only -- we had only TRY 13 million net profit. Then this year in the first half results, we see sizable provisioning levels, and very sizable in our standard net profit levels. And at the end of the first half of this year, we reached our financial targets in terms of provisioning, in terms of profitability, in terms of profit share income and net profit share margin sides. On Page 15. On Page 15, you see the details of our financial ratios. The first ratio is capital adequacy ratio, still other categories under the sector averages on the capital side, but our capital adequacy ratio is 15% -- 15.6% levels at the end of the second quarter. Thanks to cash increase on our [indiscernible] capital plus high profitability -- net profitability. And the most important development in our financials, as I said before, is on the NPL ratio side. As you see, our NPL ratio was 6.29% at the end of 2021. And now it is 3%. And as I said before, it is 2.3% levels at the end of the July results. So we are approaching sector averages. On the NPL side, it's a very big development for us to catch the sector averages on the nonperforming loan ratio side. Provisioning ratio on the other hand is still -- in spite of write-offs -- sizable write-offs, we keep more than 70% on the provisioning side for Stage 3 credits. And most probably -- in the third quarter and the year-end results, most probably, we will see higher provisioning rates. And again, we would like to catch the sector averages on the provisioning ratio side. Net profit share margin is also another thing. As you see, we have a 2.35% net profit share margin at the end of the year. Now our net profit margin reached 3.6% levels. And still, we have some room to go to catch the sector revenues on the net share margin side. But our JV projects in our portfolio, we have, as you know. And in the last quarter, most probably, will see some income from the joint venture Musharakah projects, and it will increase our net profit share margin in the last quarter of this year. Staff per branch. This is also -- you see that our staff per branch ratio is better than the sector averages, also participation banking averages. As I said, we decreased our staff size in a sizable figure over the last couple of periods. And these are the key financial ratios that I would like to talk about. And then we have a summary balance sheet on Page 17. You see the details. I don't talk about -- I don't want to talk about the details since we have our financials in our hands. And this is the end of the presentation. Now we can pass to Q&A session. If you have any questions, I will be glad to answer. Thank you very much.

Thank you for the presentation, Mr. Cetin. [Operator Instructions] Sorry, it seems that we don't have any questions.

Okay. [ Cemi ], no problem. If any questions afterwards, our investor relations department is ready to answer always.

Okay. Ladies and gentlemen -- Mustafa bey, if you would like to conclude?

Okay. Thank you. Thank you very much for joining us today, our presentation on the first half results. As I said during the presentation, so far, the first half results in terms of provisioning in terms of profitability, in terms of development on the NPL side, write-offs and et cetera. It's a very good year for us. And for the remaining part of the year, I would like to talk a little bit to give some guidance. Most -- depending on the global and local financial stability, of course, most probably, you will see the same trend on the net profit share margin, NPL side and provisioning side for the remaining part of this year. And at the end of the year, most probably, we will see more than TRY 1 billion net profit level, maybe a little bit more depending on the conditions, as I said. And at the end of the year, Albaraka Türk will be a better bank from the previous year results in terms of NPL side, in terms of provisioning side and in terms of profitability side. The costs are under control, and the digitalization is always our priority in the bank. So again, depending on the global and local stability factors, hopefully, together with the banking sector in Turkey, we will be -- much more better figures at the end of the year. Insallah, we will be together for the year-end presentation again. Thank you very much for joining us today. And if you have any questions in any time, we can always reach our friends in Investor Relations. Also, I will be always like to answer your questions. Thank you very much again for joining us today.

Thank you, Mr. Cetin. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.