Albaraka Türk Katilim Bankasi A.S. ($ALBRK)

Good morning, everyone. Welcome, and thank you for joining us today for Albaraka Turk's First Quarter 2026 Financial Results Call. I am Seyfullah Demirlek, Head of Investor Relations and Sustainability. Our CEO, Mr. Malek Temsah, is also with us today. He will start with his assessment of the macroeconomic environment and provide an overview of the banking sector, followed by highlights of our financial performance. Following his remarks, I will walk you through the details of our results and key developments for the period. After the presentation, we will be happy to take your questions. You may raise your hands or use the chat box. Without further ado, I will now hand over to Malek Bey. Sir, the floor is yours.

Thank you very much, Seyfullah, and good morning, everyone. [Foreign Language]. Thank you for joining us. So before we perhaps dive into the details, let me just very briefly share our assessment on the broader macro backdrop and really how it's shaped up in the first few months of the year. Now as we enter 2026, the global macro environment has indeed become more complex, as many of you know, driven in large part by geopolitical developments. These rising geopolitical tensions, especially around the energy side, have pushed oil prices higher and led to an upward revision in global inflation expectations. This has naturally created a more challenging backdrop for central banks. And while inflationary pressures have intensified, growth momentum has softened. As a result, expectations for rate cuts have been postponed and central banks have shifted to a more cautious wait-and-see stance until the dust settles, so to speak, and until they are able to assess really to what extent these recent developments have filtered through in terms of the underlying economic as well as inflationary impact. Now these developments have also weighed on global growth expectations with international institutions revising growth forecasts downward amid these higher sustained energy prices and broader, if you want, global uncertainty. Now turning specifically to our country, Turkiye, higher-than-expected inflation has led to a more cautious monetary policy stance. The Central Bank, as many of you know, has slowed the pace of easing while effectively tightening financial conditions through its funding strategy, especially in early March by shutting down the 1-week repo and shifting most of the banks to the overnight corridor. At the same time, the various macro prudential measures introduced by our regulators over 1.5 years ago, especially the credit growth restrictions have continued unabated in an effort to control inflation and reduce pressure on domestic demand. So overall, both globally as well as domestically, we are operating in an environment of higher inflation, tighter financial conditions, lower visibility, unprecedented uncertainty and more limited policy space. So with this backdrop in mind, let me turn to the Banking sector on Slide 4. So asset growth in the broader Banking sector did moderate around 6% year-to-date, while participation banks continue to outperform with a stronger 9.3%, maybe 9.5% asset growth, increasing their market shares. This isn't really a surprise given the entry of new banks into the participation Banking sector, the quite dominant growth of the state-owned participation banks and a relatively lower base. On the lending side, credit growth has indeed slowed down compared to previous periods. And this is natural and it's reflecting the impact of the regulatory as well as the macro environment with the participation banks performing broadly in line with the sector. Asset quality pressures are naturally building up with NPL ratios increasing slightly, reflecting lagging effects of tight financial conditions and quite elevated interest rates over the last year, 1.5 years. However, overall asset quality still remains at manageable levels. In terms of profitability, the Banking sector delivered a strong year-on-year performance with net profits increasing by around, I believe, 34%, roughly speaking, year-on-year in the first quarter. Our participation in Banking sector reported somewhat of a more moderate 8.5%, roughly speaking, increase in the first period. So the profitability dynamics of the Banking sector at large, and I believe it also applies to us during the second half of 2026 are expected to be driven primarily by the pace and timing and resumption of interest rate cuts by the Turkish Central Bank how that filters through in terms of the evolution of funding costs vis-a-vis the loan book repricing, the emerging asset quality trends and the continuity or easing of these ongoing macro prudential regulations. However, what I would say is that profitability recovery is expected to be somewhat uneven and constrained by several pressures which our sector is currently experiencing, including the persistent credit growth caps, quite tight competition for 0 deposits, elevated provisioning needs related to the stress on the credit environment, especially on the SME side and the weak real sector profitability, which obviously impacts us. Now moving to Slide 6. Let me briefly also highlight our financial performance for the first quarter. In the first quarter, our net income increased by around 7% year-on-year to roughly around TRY 904 million, excluding the one-off impact of last year's free provision reversal. Looking at our profitability ratios, our ROA remained fairly stable around the 1.5% mark, while ROE increased by around 70 basis points to 28.3%, indicating a fairly decent level of capital efficiency and remaining above the sector average. On the total operating income side, excluding last year's reversal of the free provisions, our underlying total operating income increased by around 47.5%, 47.6% year-on-year to reach TRY 7.6 billion. This was driven in large part by a recovery in our net profit share income. Now this recovery in our net profit share income, what you probably consider as NIM in the conventional banks was supported by improved spreads following the material market declines in funding costs in the second half of last year in particular. On the cost side, OpEx increased by around 50%, roughly speaking, year-on-year, driven by personnel expenses, while our other cost items remained fairly contained. With one of the lowest per branch rations across the sector, our disciplined OpEx management will certainly continue to be a priority for us moving forward. Now despite the more challenging macro environment and the shift in expectations regarding the dissipation path and the pace of rate cuts as we sort of go into the second half of this year, our net operational income still increased by around 43% year-on-year to reach TRY 2.3 billion. Looking ahead sort of towards the end of the year, considering the de facto 300 basis points hike that took place in early March via the closure of the 1-week repo, we do expect, like many of our peers in the sector, spreads to tighten in the near term, driven by higher funding costs as well as some of the delayed asset repricing sort of dynamics. However, as we believe move into the latter half and tail end of this year, we do expect to ceteris paribus a gradual normalization in funding conditions, which is expected to provide some kind of back end, if you want to support a recovery in spreads. So at this point, what I'll do is I'll pass the ball back to Seyfullah to walk you through the details of our performance, and I'll be sticking around towards the end of the presentation to also assist with any Q&A.

Thank you, Malek Bey. We are now on Page 7, starting with total assets. We continue to deliver solid growth in the first quarter of 2026. Total assets increased by 42.6% year-on-year, reaching TRY 500 million. On a year-to-date basis, growth remained healthy at 7.2%. Looking at asset composition, funded credits remains the key driver of growth. The share of funded credits within total assets increased from 46.5% to just about 50% year-on-year. Cash and equivalents declined slightly as a share of total assets, while securities remained broadly stable. Other assets were also stable in relative terms. This reflects our continued focus on core banking activity and efficient balance sheet allocation. Looking at the asset growth bridge on the right-hand side, funded credits provided the strongest contribution with around TRY 71 billion growth over the last 12 months. Securities contributed TRY 19.6 billion, while FX movements added around TRY 36 billion to total assets. The card reserves also remained elevated due to the tight monetary policy environment. On the currency side, Turkish lira assets increased by around 50% year-on-year, while foreign currency assets increased by 16% in U.S. dollar terms. Year-to-date growth remains more moderate. Now moving to net profit share margin. On a swap adjusted basis, net profit share margin improved from 1.4% in the first quarter of last year to 2.5% in the first quarter of 2026. Compared to year-end levels, the normalization mainly reflects the base effect from profit and loss sharing projects, where income is typically concentrated in the final quarter of the year. As you may recall, these projects contributed around TRY 4.6 billion in the last quarter of 2025. Despite this quarterly normalization, the year-on-year improvement indicates a healthy core margin structure. We also present an adjusted margin calculation, including income from investment funds by securitized assets. These assets were originally generated from the bank's own financing activities were later securitized and classified under the securities portfolio. Due to accounting treatment, valuation gains from these assets are recorded under trading income rather than net profit share income. Given both their size and contribution, excluding these revenues may understate the underlying profitability of our balance sheet and make our reported margin metrics appears lower relative to peers. Including these revenues, adjusted net profit share margin stood at 3.7% in the first quarter compared to 3.8% in the same period of last year. We can now move on to next page. We are now on Page 8. As highlighted in the title, we continue to deliver strong and sustained growth in funded credits while maintaining a stable portfolio composition. Total funded credits increased by 54.2% year-on-year and by 8.6% year-to-date. In terms of asset quality, we continue to operate with a stronger and resilient profile despite the tight monetary environment. Stage 1 credits remained broadly stable at around 92%, indicating continued strong performance asset quality. Stage 2 credits stood at around 5.9%, while Stage 3 credits remained limited at 1.8%. Overall, this confirms that asset quality remains well under control and significantly better than the broader sector trend. Moving to the currency breakdown of funded credits. Turkish lira funded credits increased by around 62% year-on-year, reaching around TRY 144 billion. In the first part of 2026 alone, growth was around 13%, showing continued momentum. Foreign currency funded credits increased by just about 22% year-on-year in U.S. dollar terms, reaching around USD 2.4 billion while remaining broadly stable quarter-on-quarter. Within selective lending, we continue to see strong expansion, increasing from TRY 27.9 billion last year to TRY 44.2 billion as the first quarter of 2026. On the foreign currency side, selective lending increased from around USD 300 million in the first quarter of 2026 to around USD 900 million as the first quarter of 2026. This reflects our active participation in credit lending segments even in a regulated environment. Now moving to credit yields. Turkish lira credit yields showed some normalization compared to previous quarters, mainly reflecting policy rate adjustments and repricing dynamics throughout the year. Foreign currency credit yields remained broadly stable over the period, indicating a more resilient pricing structure in that segment. Overall, total funded credit yields remained broadly stable at around 27% with limited volatility compared to previous quarters. Finally, looking at the portfolio breakdown, corporate financing accounts for around 53% of the portfolio, SME is around 38% and retail around 9%. This structure reflects our continued strength in our core banking activities while maintaining selective and disciplined growth in SME financing. Retail remains a smaller and more secured portfolio consistent with our risk approach. SME financing continues to be well collateralized, while retail exposure remains predominantly mortgage backed, supporting strong asset quality across segments. We are now on Page 9. Asset quality remained strong in the first quarter of this year with nonperforming credit metrics staying at manageable levels despite the ongoing tight monetary environment. Starting with nonperforming credit development. Our nonperforming credit balance increased from TRY 4 billion at year-end 2025 to TRY 4.7 billion in the first quarter of 2026. This increase was mainly driven by TRY 1.1 billion of new inflows, partially offset by around TRY 300 million of collections. Write-offs remained limited. As a result, the overall increase in nonperforming credit stock was contained. Looking at the ratios, nonperforming credit ratio increased gradually from 1.7% at year-end 2025 to 1.84% in the first quarter of 2026. Net nonperforming credit ratio followed a similar trend moving from 0.33% to 0.44% over the same period. Despite this gradual increase, levels remain well below sector averages. On cost of risk, we see a slight normalization trend. Gross cost of risk moved from around 1.7% in the first quarter of 2026 to 2% at year-end 2025 and reached around 2.2% in the first quarter of this year. We remain among the most conservative banks in the sector in terms of cost of risk. Finally, on provisioning ratios, we continue to maintain a prudent stance. Stage 3 coverage remains strong at around mid-70s level in the latest quarter, while Stage 2 coverage stays in the low teens range. Although this gradual normalization in asset quality indicators, our coverage levels remain solid and above sector averages, reflecting our conservative approach. We are now on Page 10, starting with the securities portfolio size. Our total securities portfolio increased by 35.3% year-on-year, reaching TRY 95.2 billion in the first quarter of 2026. In terms of the composition, we continue to increase the share of Turkish lira securities. Turkish lira securities accounted for 63.1% of the portfolio, up from 56.4% last year and 62.8% at year-end 2025. Within the Turkish lira securities portfolio, CPI linked sukuk accounted for around 11.5% of total Turkish lira securities. Now moving to yields. Turkish lira securities yields remained broadly stable around the mid-20% range over the last year, ending at around 26.9% in the first of this year. Foreign currency securities yields showed gradual improvement, increasing from around 5.7% to 7.2% over the same period. As a result, total securities yield increased to 16.3% in the first quarter of 2026 compared to 14.7% a year ago, reflecting both portfolio rebalancing and improved yield environment. Finally, looking at profit share income from the securities portfolio, we generated TRY 3.3 billion in the first quarter of 2026 compared to TRY 3 billion in the previous quarter and TRY 2 billion a year ago. We are now moving on to Page 11. Starting with the liability structure. Our funding base remains well diversified and balanced. Customer deposits continue to represent the majority of total liabilities at around 60%. Current accounts maintained a strong and stable share, supporting a low-cost funding base. Participation accounts also remained resilient and continue to form the core of our funding structure. Borrowings increased over the period, mainly driven by diversified funding instruments such as subordinated sukuk, short-term investment funds, alternative funds and market-linked funding structures. This increase mainly reflects our efforts to adapt funding costs more efficiently to prevailing market conditions. Looking at the waterfall, the main contributors to liability growth were customer deposits, borrowings and foreign currency movements. Moving to borrowings. The structure remains well diversified. Alternative funds, mainly short-term investment funds continues to be the largest component, followed by Turkish lira sukuk issuances, subordinated instruments, money market borrowings and interbank funding. On the composite maturity profile, current accounts remained about 50% of total customer funds, providing a strong low-cost funding advantage. Actually, we saw a shift towards shorter maturities during the period with an increase in 1-month accounts and some normalization in longer maturities. Despite this, the overall structure remains granular and stable. We are now on Page 12. On this slide, we look at our customer deposits and funding cost dynamics. Current accounts continue to show solid performance in both Turkish lira and foreign currency. Turkish lira current accounts increased by around 17.5% year-on-year to TRY 24.6 billion in the first quarter of 2026. Foreign currency current accounts increased from USD 2.4 billion to around USD 3 billion. Participation accounts also continued to grow. Turkish lira balances increased from TRY 82.3 billion to just about TRY 116 billion, while foreign currency balances moved from around USD 900 billion -- sorry, USD 600 billion to USD 620 billion. Overall, our core funding base continues to expand in a healthy and balanced way. On cost of funds, Turkish lira participation account cost increased gradually through the tightening cycle and recently stabilized around the 40% to 41% range. On the foreign currency side, costs remained broadly stable at around 1.1% to 1.2% throughout the period. On a total basis, account cost moved between around 30% and 33% over the last 5 quarters and stood at 32.7% in the first quarter of 2026. When we include current accounts, the overall cost of collected funds remains significantly lower, reflecting the structural advance of our funding base. We are now on Page 13. Starting with profit share income, we recorded a strong year-on-year increase from TRY 12.7 billion to TRY 19.5 billion in the first quarter. This improvement was primarily driven by our core banking performance, supported by a strong contribution from selective financing activities. From a waterfall perspective, financing income increased by TRY 5.2 billion, of which TRY 1.7 billion came from selective credit growth. This remains the key driver of our income generation capacity. In addition, securities income contributed TRY 1.3 billion of growth, while required reserves income added approximately TRY 400 million. Other components remained broadly stable. On the expense side, profit sharing expenses increased from TRY 11.6 billion to TRY 16.3 billion. This increase reflects higher funding costs across participation accounts and borrowings in line with balance sheet expansion and market conditions. However, income growth remained stronger than expense growth with profit share income increasing by 64% year-on-year versus 41% growth in profit share expenses. This supported overall profitability dynamics during the quarter. Moving to fees and commissions income. Net fees and commission income increased by around 27% year-on-year, reaching TRY 1.3 billion in the first quarter. Moving on to next page. We are now on Page 14. Net profit share income increased significantly year-on-year, reflecting strong core banking performance. However, quarter-on-quarter movements mainly reflect the absence of last quarter's one-off profit and loss project gains, which are typically recorded during year-end periods. On an underlying basis, margins continue to improve modestly year-on-year. Net fees and commission income showed solid year-on-year growth, although slightly lower quarter-on-quarter due to seasonal effects. Net trading income remained broadly stable year-on-year. Quarterly volatility mainly reflects the absence of gains from the bank's own investment funds, which are typically recorded more heavily during second quarter and year-end periods. Other income declined year-on-year due to the high base effect from the last year's TRY 7 million provision reversals. On a quarterly basis, however, other income increased significantly, supported by the reversal of approximately TRY 940 million bonus provisions following related payments during the quarter as well as around TRY 230 million provision reversals. Provision increased year-on-year from around TRY 600 million to around TRY 1.6 billion, reflecting our prudent approach to risk management and strong coverage discipline. On a quarterly basis, provisioning declined compared to the elevated levels recorded in the previous quarter, which included additional expected credit loss provisions, bonus credit provisions and additional credit provisions. Stock expenses increased from TRY 2 billion to TRY 3.2 billion year-on-year, mainly driven by annual salary adjustments and inflation-linked compensation updates. However, on a quarterly basis, the increase mainly reflects seasonal bonus payments. Other operating expenses increased by 42% year-on-year to around TRY 2.2 billion, mainly driven by inflationary pressures across operating cost lines. Overall profitability remains supported by strong core banking income, disciplined cost control and resilient fee generation. We are now on Page 15. Our capital position remains solid, although reported ratios reflected the end of the regulatory forbearance on foreign currency risk-weighted asset calculations. At year-end 2025, our total capital adequacy ratio stood at approximately 19%, declining to 18.8% in the first quarter of this year. is the ratio would be higher at 16.4%. Moving to capital composition. Our capital structure remains well balanced. Core capital accounted for 53% as of the first of 2026 compared to 54.2% at year-end 2025. AT1 instruments declined to 20.8%, while Tier 2 increased to 26.2%, supporting a more diversified capital base. Now turning to the chart -- the waterfall shows the movement from around 19% at year-end 2025 to 15.8% in the first quarter of 2026. The main positive contributions came from Tier 1 and Tier 2 capital generation. However, these were more than offset by regulatory and risk-weighted asset impacts, including market risk and methodology changes. The most significant impact came from the removal of the regulatory forbearance on foreign exchange rate calculations with an estimated negative impact of around 312 basis points. Overall, despite these adjustments, our capital position remains strong, comfortably above regulatory minimums and supportive of future growth and risk absorption. That concludes our presentation. We can now move on to the Q&A session.

[Operator Instructions] I think there's no questions. So we have a question from [indiscernible]. He's asking, should we expect revaluation gains in the last quarter of this year?

Thank you very much for asking your questions. It would have been nice to hear your voice. But in any event, let me just touch on this briefly. So when we look at our overall assets, which are subject to revaluation, they represent roughly around 5%, 6%, in fact, of our overall balance sheet. Now in previous years, when we look at our modeling, we see that the revaluation gains tend to be more or less aligned with inflation. So the answer to your question is yes, so we do expect some measure of revaluation gains come end of the year, specifically related to these joint venture projects. The difficulty for us in providing a specific quantitative figure is the highly volatile overall inflation outlook as well as the fact that these are effectively being revalued by independent appraisals coming into the year. But when we look at our internal modeling, we certainly do expect a measure of revaluation gains to come by end of the year and as we have done over the last few years to support the bottom line.

Thank you, Malek Bey. [Operator Instructions] So we have another question from [indiscernible]. What's your strategy regarding the reversal of the remaining fee provisions for the rest of the year?

Thank you very much for asking the question, [indiscernible] Bey. So as you know, when we had set aside these previous balances at the end of 2025, we, like all the banks in our sector, set these aside because we simply do not have sufficient confidence in terms of overall evolution of profitability moving forward given the very hazy environment. So naturally, the reversal of these fee provisions is going to be tied to what extent we see any underperformance on the profitability evolution side. Now when we look at the sector by large, most of the bigger banks have indeed already reversed almost all their provisions. As we had mentioned earlier in our presentation, given that we expect some degree of pressures in the second and third quarter financials of this year, there is a possibility. I cannot dictate the probability of that, but there's a possibility that we will tap into these free provisions in order to support profitability sort of involvement. But again, to what extent quantitatively is very difficult to say, given the highly uncertain, highly nonvisible environment that we're in. In terms of 2026 fiscal year guidance, so let me start off by saying this. At this point in time, we're not going to provide any revisions to our guidance, our preference is to wait and see how things unfold from now until the closure of the second quarter of this year. The reason for that is, as I'm sure all of you as experts can appreciate, we still have not seen a dust settle in terms of the broader geopolitics as well as what implications that may have in terms of monetary policy evolution here in Turkey. However, it is highly likely, as I'm sure some of the banks that you've covered have already told you that some of these guidances will likely be touched once there's more visibility about them. We want to make sure that when we provide that guidance to you that it's based on not just credible backdrop, but also quantitative confidence on our part. We believe we will be there towards the end of the first half in terms of providing that renewed guidance. For the time being, we still are holding on to the year-end that we had given with the obviously downward bias I just mentioned. In terms of the following question from [indiscernible].

Yes. We have another question from [indiscernible]. He says, thank you for the presentation. Do you anticipate any incremental competitive pressure from the new entrants in the participation banking space? What's your assessment regarding the time frame of this potential impact?

Thank you very much, [indiscernible] Bey. So when we look at the participation banking landscape today as it stands, the new entrants are specifically the digital participation banks, whereas as you know, we also have the state-owned participation banks as well as Kuwait, TCS Finance and ourselves. Now for us, in terms of core banking activity, in other words, credit and deposits, we still see the traditional players, the state-owned participation banks as well as the private participation banks as our predominant competition in the short to sort of medium term. When we look at these new digital participation banks, of course, they've been primarily focusing on the customer acquisition side and more, if you want, on the platform experience, which is an absolutely critical area for us as well. But in terms of directly threatening sort of customer acquisition and core banking activities in terms of deposits and credits, we expect the new entrant of digital participation banks to be more of a threat sort of in the medium to long term over the next few years and not so much in the short term.

So [indiscernible] Bey extended his question on the base of [indiscernible] question. So he said, regarding [indiscernible] question, is 56% of the year-over-year HR cost growth related to the competition for staff keep inside.

Thank you very much for the question. So what I would say is that to a large extent, when we look at our HR cost annual growth, it is overwhelmingly being driven by the salary adjustments that we have been making. Our salary adjustments are obviously done once a year, taking into account independent HR consultancy benchmarking and obviously, looking at where levels are in the sector. We also look at -- we try to get an idea of where our peers are in terms of pay levels, and we try to provide something competitive. So naturally speaking, the growth in HR cost is being driven more by the salary level adjustments and not so much in terms of staff count because as I mentioned earlier, we have arguably the lowest staff count per branch in the entire Banking sector. So that growth is coming from the salary adjustments and obviously, the importance that we give to having competitive pay scales.

Thank you, Malek Bey. We have another question coming from [indiscernible]. He says, I think you get the competition from saving finance institutions as well as on the consumer banking side. Is there any plan to enter into the space?

Thank you very much for asking the question. Yes, you are right, savings finance institutions are a source of competition, so to speak. But what we've also been sort of seeing more recently is the increasingly sort of scrutiny and regulatory oversight over that side of the business. It has become quite more competitive as well. So we, at this point in time, do not have any plans to enter that space despite indeed being an area that is providing some competition as well as some opportunities.

Thank you, Malek Bey. [Operator Instructions] I think there are no further questions. So we will conclude today's session here. Thank you very much for your time and participation and for your continued interest in our bank. We appreciate your engagement and look forward to speaking with you again next quarter. Have a good day.