Haci Ömer Sabanci Holding A.S. (SAHOL) Earnings Call Transcript & Summary

[Presentation] Good afternoon, good morning, depending on your time zone. Welcome to 2024 Banking Day. Today, we have Orhun Kostem, our Group CFO; and also Hakan Binbasgil, Banking SBU President with us today. Before we begin, please refer to our disclaimer. Now I will hand over to Orhun for opening remarks.

Thank you, Kerem. Good morning, good afternoon, everyone. We're very happy to be together with you today in the Banking Day. As you know, within Sabanci Group, we have 4 main pillars, on which we execute towards our purpose of uniting Türkiye and the world for a sustainable life with leading enterprises. In addition to energy and climate technologies, materials technologies and digital technologies, of course, banking and financial services makes a very important part of our portfolio. This is evident in the next page, where you look at the net asset value contribution of each business unit, whereas you see the Banking Financial Services makes about 33% of Sabanci's net asset value, which stands at about $9.3 billion. Well, through time, of course, our challenge, this is banking business, especially within that is thriving business where we're going to make you see, hopefully, display today as well. And in time, it has moved from being 43% of our NAV being 33% NAV, still represents a very, very large and important part of our portfolio. Not only in NAV, but if you look at your next page, based on the latest financial performance, the bank contributes about 42% of our combined revenues, 67% of our combined EBITDA and some 62% of our consolidated net income, obviously, a very, very important part of our business. And then the dividend streams that Sabanci Holding receives, obviously, banking plays a major contributor to that part. So with that, I'm happy to say today, we are together with Hakan Binbasgil. Welcome. Welcome, Hakan. The last time we did this event, the banking event, of course, Hakan Binbasgil participated as the CEO of Akbank and then an Executive Director of Akbank as well. But today, as he sits next to me, he is the Vice Chairman of the bank Akbank and at the same time, a member of the Executive Committee of Sabanci Group for the Banking unit. So maybe you can tell a little bit about this change and how we feel about the role and the management changes, of course, in Akbank as well.

Yes. Thank you very much. Thank you very much for this very kind introduction, and I'm very happy to be here in this meeting. And I'm also very happy to be part of the group. It's a very vibrant environment, the executive team, full of energy, synergies. So I started witnessing that, and I'm really very happy for that. So as you said, yes, I've been with the bank for about 22 years and 12 years as a CEO, it's a long time, actually. But this was a planned, actually, transition. So I'm also very happy in this role. So I always had the privilege of having very strong Boards, but now I can also say, as of today, we have a very strong Board, who knows the business very well. So I'm sure that there will be some contribution from the Board as well. Of course, the management team executes the whole banking activities. But as a support, what I can say, that the Board is also very strong now. And I'm also very happy to leave a very strong management, first of all. So what I did over the last couple of years, there were 2 areas which we focused extremely well. One was the talent side, the management quality and so on. And the second one was the infrastructure. So when you look at Akbank today, I'm really very proud with the bank, the executive team, I think it's an exceptional team. When you look at the executive team, each individual person, I think, one of the best in the country. So it also speaks when we cover the numbers together. I mean, I think that's a fact. And secondly, the culture, the cultural change in the bank, innovative culture, digital culture and so on, young people with a lot of motivation and so on. And now we have very positive trends. So when you look at the numbers, I think the numbers are exceptionally well. And also the infrastructure part, so the digital capabilities, AI capabilities and so on. So I'm very happy as the bank stands today. And also the new CEO. So he is an old friend of mine, a team player actually. So we worked for about almost 7 years. So I'm also happy to have come back. So he was in our team and for a period of time, he was the CEO of another bank. So he knows the bank very well. So this transformation turned out to be very smooth as expected. So it's the same trend, same dynamism, the same team work and also with the Board a very good synchronization. So I'm really happy, both on the group side as well as the bank side.

This is excellent to hear. Maybe from this point, obviously, what I've noticed was the bank had a very good performance in 2023. And I'm sure the audience today have witnessed it in the bank's statements earlier. But I also see some hints of the advancement through its future objectives. The digital transition back to a point about infrastructure and the achievements that provides certain hints for the long term as well. Maybe as you take us through some of your notes, you would be kind enough to touch base on those hints as well going forward.

Yes, sure. First of all, let me start with the 2023 figures. First of all, when you look at the ROE, which is the most -- one of the most critical, of course, items that we look at. It was like roughly 38% ROE in a difficult year. And when you look at the ROA, it was like 4.4%. But what is striking, despite the growth, market share gains and so on, still the bank has a relatively low leverage, which is 9x. So looking at the future, that means there's a lot of potential for the bank. And capital adequacy ratio of the bank was 18.5%, it's the actually strongest among the peers and 15.6% Tier 1, which is also exceptional. And I have to say that on top of that, recently, the management team issued AT1, roughly USD 600 million, where the demand was almost like TRY 3.7 billion. So initially, they were targeting something like USD 500 million, but because of that excessive demand, they increased that to USD 600 million. So therefore, even with the Tier 1 capital that we have today, with the AT1 additional capital that we have, these numbers are even stronger. So that is something very good for the future growth. And the management team is actually exceptionally well in terms of balance sheet management. And as you know, Turkey is a very dynamic place, regulation changes every time. So you have to manage your balance sheet very actively. And I think the team does it extremely well, mismatch management, risk management, I mean, how we can optimize the profitability and so on. So I think that's another major strength of the bank, which I'm most proud of, to be frank with you, is the customer acquisition, the digital capabilities, which is also a reflection of the team quality over here. Digital capabilities, AI capabilities and so on. So the bank is now 76 years old. Last year, it was like 75. So when you look at the last 2 years, versus 73 years, the bank was able to increase its number of customers by 55%. So that really shows the strength of digital capabilities and the talent and the team. I mean, the bank made something like, let's say, 100 customers. So when you look at the 2 years, it's such a short period of time given the previous 73 years. Still, I think that, that's a major, major achievement. So in 2022, the 2.3 million customers and last year, again, 2.3 million customers. And I'm proud to say that the team still continues with the same trend in 2024. So it's not only the -- of course, the number of customers, but of course, the market share reflection. So I think these are like exceptional figures that our friends achieved, like 300 basis market share -- market share gain in consumer loans, 150 basis in Turkish lira deposits. Maybe what is even more important, fee generation is extremely, of course, important, like in every business, 230 basis increase in our market share in fees and commission generations among the private banks and reaching around 16.2%. So I think these are fabulous growth achievements to be frank with you. And as you mentioned at the beginning, so we always have a long-term vision. So there's always this daily work, which we have to manage, but we actually never lost our focus despite the volatility, despite the challenges and so on. So when you look at our 2025 targets and we had already disclosed that to our investor community like a year ago, so we were targeting like 5 million customers in the next 3 years until 2025. So I'm proud to say that almost half of it has been already achieved. So -- and we are going with the same trend, which was a similar -- which is even a better actually situation for the digital customer growth, something like 68% actually. So while we were growing our customer base like 55%, the digital part was growing like 68%. So that is something very good, especially for our numbers, efficiency and so on. For consumer loans, we said like 300 basis increase in our market share over the last 3 years and our friends have achieved that in a single year. So I don't know where this is really heading. SME parts, we also have a very strong SME banking, digital capabilities and so on. But as you know, there were caps on loan pricing, especially at the beginning of last year. So therefore, because of this, we did not really have that much of appetite. Unless something is profitable and sustainable, we don't do that. So, therefore now, SME is actually growing very well, back to our track because now -- because there is some reasonable profit margin in that. So when you look at the TL time deposits, again, our target was like 300 basis. We have achieved like almost half of it in a single year. Demand deposit is the most difficult product actually in a banking environment. Again, we had like 300 basis target there. And our friends had already achieved like almost all of it in a single year. So I'm really very proud with those numbers. Fee to OpEx. As you know, because of the high inflationary environment in Turkey, OpEx space grows exponentially in every company, and this is also the case with the banks. So in such a year, we were able to actually improve our fee to OpEx ratio, 72%, which was like roughly 50s, like 58% like a year ago. So I think these are like major achievements. So when we are talking about Akbank actually, so we also have to keep in mind that we have very strong subsidiary -- subsidiaries. Akbank AG, which is actually a full-fledged bank in Germany. So when you look at the asset size, it's like EUR 4 billion. But when you look at the capital, the capital base is over EUR 1 billion. So where half of it is actually excess capital. So we have ambitions there to grow the bank. And like we did here over the last so many years, we are also transforming our bank in Germany. So it's becoming a very full-fledged digital institution. So we are exporting our digital capabilities to our subsidiary there. And I'm very positive about that bank in the coming years. AKLease. It is a very significant leasing company in the market with almost 12% market share. This is also the case with our brokerage company, especially there are certain areas where they are exceptionally good actually. So when you look at like the bond issuance, so they had like 45% of the market, that really shows their strength. When you look at the IPO market over the last couple of years, actually, so the total volume is roughly USD 2 billion. So these are significant figures. Asset management company, I'm very proud of that team. So they are doing a great job. Actually, they are -- in terms of assets under management, they are the largest or in the top 2, let's say, which has been like this for many, many years. So over EUR 400 billion assets under management. Pension side, they are also very strong. So I think the bank is very well positioned, not only traditional businesses, but we also have like e-money company targeting the youth market, and now they are very active in B2B. We have a venture capital company, which we established in Netherlands about a year ago with $100 million actually capital, which is very aligned with our actually vision in Turkey because we are a very digital bank. Yes. If we continue, I mean, I don't want to go through every single slide. But I think this is maybe the best part of our management because we run the bank and also, we are also focusing on our future. So I think this is the strength of the team. So we have been doing this for many, many years. We have been transforming the bank for many, many years. And that is why actually we were able to come up with such strong results. So when you look at our focus, of course, people, the talent will continue to be our top priority, infrastructure, digital, AI and so on, top priority, open banking, which is -- which has been our vision for the last several years. We will continue to invest in that. We are investing in new businesses. So it's a very dynamic environment in our bank. And of course, last but not the least, this ESG part, which is a great focus for the bank. I don't want to go into too much detail, but there are certain things that I would like to highlight on this slide. This, first of all, bank-agnostic approach that we have. So I think this is the vision that we have adopted in our institution, I think, for the first time in the banking industry in Turkey. So we are trying to make Akbank as the best banking, let me say, kitchen with best products, best services and so on, digital capabilities, AI capabilities and so on. But what we are trying to do, actually, also try -- we are trying to create platforms where Akbank is one of those players. So the other banks, the other financial institutions are more than welcome to have their transactions on those platforms. So Juzdan is a very typical example of this. So when you look at Juzdan, it's an e-wallet actually. You don't only see Akbank products, cards and so on. So you can see other banks products and so on. And I think this is something very futuristic. And I think this is something visionary, and Akbank has done a major, major homework on that part. So that will be part of our strategy. Similarly, Banking as a Service and Banking as a Platform, I think these are very 2 critical -- these are very short, maybe words. But in terms of the -- how should I say, the level of importance in our future strategies, I think these are extremely important. So API, I mean, we are trying to connect our bank to our ecosystem. So -- and we are the first bank, I'm also proud to say that, to come up with the first API in Turkey, which was almost like 10 years ago. So I think these are very critical looking forward. I think this is a slide that we all should be very proud of as Akbank people. So this is our digital business growth, the growth is phenomenal. Number of customers, as I said, 4 million, 4.6 million customers in net after attrition. I think that's a fabulous number. So when you look at the digital, the mobile actually growth, it's even higher than that. So what is striking? So this mobile banking is actually extremely interactive. So when you look at the mobile customer, they visit this 35x a month. So this is a very big number actually. And there's a lot of AI behind this. So I mean maybe we did our best to have a very frictionless processing and so on. But I think what is striking in our mobile banking is the AI, the brain that we have been actually establishing behind this. So the numbers are very striking. So when you look at the sales today, almost 90% of our consumer loans are sold through this channel, almost like 70% of credit cards, deposits, for example. I mean, in the past, it was almost impossible to actually sell deposit products through this. Now 83% of our deposits are initiated here. So I think this is something very also encouraging and 96% of the transactions in the bank are taking place in a non-branch digital environment. I think these are exceptionally good numbers. And I am also proud to say that digital onboarding, which is very critical for our future, the bank has invested so much time, effort and so on. So there are times where Akbank acquires 1/3 of the digital new customers in the country, in Türkiye. So imagine this trend continuing, 1/3 of every new customer coming to Akbank, I mean, imagine where this bank can go in the next several years. ESG is, of course, Ebru is sitting next to me. I think Ebru and the team is also doing a fabulous job in this area. There's a lot of awareness actually. This is part of our KPI, by the way. The KPI of the CEO, the management and so on, very critical. And today is also a very important day for us because we have been working on this. This actually net zero commitment. So I think our commitment became transparent today. So this interim targets for 2030, so we are -- we will be very transparent on that area. When you look at our rating over the last 2, 3 years and so on, MSCI, for example, rating, we were able to improve our rating by about 3 notches, right, over the last 3 years or so. I think that's also a great achievement. There are also some changes at the Board level. I also have to mention this. The Board diversity policy. So we will be having our general assembly tomorrow, actually. So we will be together in that. So now we have a Board Diversity Policy as well for the first time. So that is something that I'm also very happy about. So in that when you look at the diversity policy, there are some certain numerical targets, like achieving like 30% female Board members by the end of 2027. And I'm also -- maybe I should have mentioned that. So when you look at the management team, the direct reports to the CEO. So it was 57% women. So that was something that I was proud of when I left, and this is still the case, and I'm sure that this will continue in Akbank in that manner. There are basically 4 areas where we concentrate, sustainable finance, people and community ecosystem and system management, climate change and so on. I mean I don't want to bore you with all those details and so on. But what I can assure you that we have numerical targets for each one of them and we transparently share this with our investment community. That's basically -- it's what -- that's what I would like to mention. I mean, if I have missed anything major, maybe, yes. But I'm sure that there will be some questions.

Thank you, Hakan. And now we can proceed with the Q&A session. Please type your question to the Q&A section of Zoom. So we'll try to answer your questions. Thank you.

Thank you, everyone, for joining us today. We're very happy to be with you once again, and thank you, Hakan Bey for your time. So I'd like to ask, obviously, the first question regarding today's rate hike comes through. How would you evaluate today's rate hike? What would be the impact on the bank's profitability and management going forward in the banking sector?

First of all, I think that was an important move of the Central Bank today. So they have actually a very strong management, theoretically very sound management. And I think it was a good decision this actually a 5% increase in the policy rate. When you look at the impact of this on the banks in the short term, actually, it is negative because that means NIM compression, which was already under a lot of pressure with all these tightening and so on. So in the short term, there will be some negative impact, but I think that would be good for the country. So if the country is better, of course, everybody is better. The banks are better. So I think we shouldn't look at it in the short term. I think we should look at it in a more actually long term. So I think that was a positive move. So that means maybe in the short term, that might have some negative impact on the growth of the economy and so on. Maybe we can see Turkey now growing down to something like maybe 3% or something plus and minus with the new interest rate environment. But I think the biggest problem that we have as a country is the level of inflation that we are experiencing. So that's not good for anybody. So I think this will have some positive impact in terms of lowering the level of inflation. So our latest forecast for inflation was around 45%. But with this new initiative of the Central Bank, I think we may see now move towards like low 40s maybe. Of course, still, there is quite a lot of time in front of us. And also, we have started seeing the impact of this on the currency already. Long-term interest rates saw some positive impact. So overall, I think it was a good decision. And that also shows in a way the independence and the independent decision-making, so just prior to the local elections, so I think it was a bold moment.

And the next question is regarding the rationale behind our recent AT1 issuance. As Akbank, we already have a very strong capital, actually, one of the strongest capital. So what was the rationale behind the AT1 issuance?

First of all, Akbank has a lot of credibility in the international market. So if we remember what we did last year, we had some Tier 2 loans if we remember and we paid all these Tier 2 loans in due time and so on. And there's a lot of, as I said, credibility. So we started -- decided to take the advantage of having this relatively -- I mean, still maybe we are still experiencing something like 300 basis CDS, but compared to like 700, 600 and so on, it is much better than what we had. And there was this declining interest rate environment. And the gap between AT1 and Tier 2 bonds were narrowing. So -- and there was a lot of feedback from our fixed income investor base that if Akbank issues such a product, there will be a lot of demand and which was the case. So we try to take advantage of that. So we already have the highest level of capital among the peers and that puts some additional strength to be because the bank wants to grow. That protects us also against any FX volatility in the market. And on top of that, that also increases our lending capabilities. So -- because, as you know, in banking, there are limitations. The percentage of our total equity, which is the largest one -- one of the largest in the country, but that is also giving some additional advantages for us, especially for blue chip company type of lending.

And what excites you most in terms of our 2025 targets? And where do you -- where would you like to position the bank in terms of market share or asset size in the future?

That makes me so happy to be frank with you, seeing the bank having the same trend, positive trends, day after day, month after month. I'm -- when you look at my original background, I did a lot of retail banking in the past. So that even today, the trend that we are having today, it is far beyond my expectations. So I'm really so happy seeing our friends acquiring almost 0.5 million customers in every quarter and without any slowing down, I mean, the slope is exactly the same. So that makes me very happy. And also not only the number of customers, the revenue generation, fee generation. What is also very important, when you grow very fast in terms of number of customers, usually, theoretically, your cross-sell ratio should decrease. I mean, that is very typical in every institution. So what is also very good at when you look at the last 2 years, at the same time, the bank was able to improve its cross-sell ratio. So that means every new customer that our friends are acquiring, they are entering the bank with multiple products and service relationship. So that is something very difficult to manage, especially if you are acquiring something like 60% of your customers through digital, that requires a lot of AI capability. So that makes me very, very happy. And when you look at the financial strength, the capital adequacy, et cetera, et cetera, and the trends we have. It's not only consumer banking, SME, we already have a very strong corporate banking. When you look at our subsidiaries, they are extremely well and so on. So altogether, as -- all these different business lines and so on I think the trend is very good. But having said this, as the management team, I'm sure that this is part of our story in the past. We are not only focusing on our daily business. There's always something new that we are building on. So I'm sure that the new management will continue to do that. And as the Board members and we will also be, of course, very happy to see this happening in the coming days.

And one last question, like there is regarding risk this time and it says, how do you actually manage growth and risk? How do you balance growth and risk in the rising interest rate environment when you're trying to gain market share?

Akbank has been actually exceptionally well in risk management. So still, this is the same case. So when you say risk, there are many, many risks in a bank. Credit quality, it has always been exceptionally well. So the typical question in a rising interest rate environment, what will happen to your cost of credit. So especially if you are increasing your market share, so I think that might be a valid question. So I'm very confident in that area, to be frank with you. Of course, rising interest rate environment, of course, in general, cost of credit should rise a little bit, but I think it should be something controllable, especially in our institution. Again, I rely a lot on our risk management skills, lending skills, digital AI because when you look at especially like consumer loans and so on, we have invested so much in our AI, machine learning, technologies and so on. So I'm very happy to see those trends, cost of credit and so on, still under control. So I'm not really expecting anything very different than what we have today. And also, the banks have lots of buffers, lots of provisioning and so on. And also when you look at the low interest rate environment in the past, that was something very positive, especially for corporate and commercial customers. So they have much better equity than what they had back a couple of years ago. So I think this is something very positive. And when you look at the -- also the corporates and so on FX part, the exposures and so on, there is a dramatic decrease. So that is also something very positive. So if I recall correctly, like several years ago, the FX exposure was more than like USD 200 billion. So it is like almost 1/4 of what they had before. And even if you look at the next year, the short term, they have surplus. So -- and the business community also in Turkey because of all the volatility, what we had experienced in the past, many, many crises like many, many years ago. I mean it's a very skillful management teams that we have in the corporate life, in banks. So in general, I'm positive. But of course, cost of credit is only one type of risk. So in a volatile interest rate environment, of course, how you manage your maturity mismatch, asset liability management and so on. I think that is absolutely very critical. But I think the bank has an excellent track record. So we know when to hedge ourselves and what product to buy, et cetera, et cetera. So I'm very confident that we have one of the best [indiscernible] teams in the country. And they are very agile also in managing the balance sheet.

Thank you, Hakan Bey. Kerem, I guess there are no further questions. I'll leave the floor to you for closing remarks. And in the meantime, if there are any further questions, you can always reach out to Akbank Investor Relations. And again, thank you, everyone.

Hakan Bey, Ebru, Orhun Bey, thanks so much for the participation. We'll have following SBU days in the remainder of the year. So please keep on following us. If you have any further questions, please e-mail to either Akbank or us on the IR e-mail. Thank you.