Halyk Bank of Kazakhstan Joint Stock Company (HSBK) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Welcome to Halyk Bank's conference call on the presentation of financial results for the 9 months and the third quarter of 2022. The session will start with a presentation by the Halyk team and will be followed by a Q&A session. Please note that the call is being recorded. Participants to today's call on Halyk Bank side are Ms. Umut Shayakhmetova, Chief Executive Officer; Mr. Murat Koshenov; Deputy CEO, Finance, Subsidiaries and International Activities; Mr. Roman Maszczyk, Deputy CEO, Compliance, Risk Management, Data Science and Collateral Chief Compliance Controller; Ms. Olga Vuros , Deputy CEO, Corporate Banking; Mr. Dauren Sartayev, Deputy CEO, SME Banking, Transaction Banking, PR and Marketing; Mr. Zhumabek Mamutov, Deputy CEO, Retail Banking and Soft Collection; Mr. Nariman Mukushev, Deputy CEO, Digital Government Services, Ecosystem and Customer Experience; Mr. Anton Musin, General Managing Director for IT and innovation; Mr. Almas Makhanov, Chief Risk Officer; Mr. Viktor Skryl, Financial Director, Responsible for Finance and Subsidiaries; Mr. Margulan Tanirtayev from IR team; and myself, Mira Kassenova, Head of IR and FI. And we would like to start with the digital update for the 9 months and the third quarter of 2022. Customer engagement grows within our core online platforms, Halyk Homebank and online bank continued to perform well year-on-year. The number of monthly and daily active users of Halyk bank app has increased by 37.8% and 44.3% year-on-year, respectively. In the third quarter, the MAU reached 5.1 million. We also see a growth in the number of active users of online bank app for businesses, and the number of MAU reached almost 226,000, increasing by 59.8% year-on-year. Halyk Homebank and online bank apps continue to be within top-3 apps within the respective categories in Kazakhstan. Halyk team is constantly developing proposition to the clients. In the third quarter, we launched additional services and functions within our home bank such as, an onboarding and card issuance for kids and confirmation of transfers via face and touch ID. In online bank, we launched incoming FX payments in the app, submission of a tax declaration for IE, issuance of digital card, and POS statement for merchants. Next slide, please. The increase in customer engagement within our digital platforms continues to support a strong growth in credit and noncredit products for retail clients and businesses. Online sales were one of the key drivers of retail loan growth. Share of digital loans issued equaled 74% in 9 months, which is up 14 percentage points year-on-year. In absolute terms, the number of digital loans issued in the third quarter increased by 45.3% versus the third quarter of 2021. The share of new online deposits increased by 14 percentage points in 9 months and was at 40%. In the absolute terms, the number of new online deposits in the third quarter increased by 59.4% versus the third quarter of last year. The share of noncash card payments reached 66% in 9 months, up 14 percentage points year-on-year. For SME business, we are demonstrating a growth in the number of digital loans issued in 9 months, which is up 32.4% year-on-year. We see a strong growth in online KZT payments number and volumes, which have grown in 9 months by 43% and 62% year-on-year, respectively. Online onboarding for legal entities increased by 2.2x in 9 months, and we're glad to know that around 5,000 LLPs were onboarded online since launch of the service in online bank in the second quarter of this year. Next slide, please. In the third quarter, our ecosystem verticals demonstrated healthy growth year-on-year, except for auto insurance, which has shifted its client focus to the profitable segments. In the third quarter, the GMV of Halyk Travel and Kino.kz have expanded 2.8x and 4.4x year-on-year, respectively. The market share of Kino.kz out of online sales of entertainment tickets increased from 10.5% to 19.5% year-on-year. In the third quarter, the transactions volume of Halyk Invest increased by 38.6% year-on-year. Development of our marketplace platform, Halyk market, remains one of the key priorities for us. In the third quarter, our total marketplace GMV equaled KZT 41 billion, which is up 32.9% year-on-year. Now let me switch to business segments update for the 9 months and third quarter of this year. Turning to retail segment. We would like to highlight a solid performance across key dimensions. We continue to see a strong customer engagement and increasing digital footprint within our Halyk Homebank app and growing transactional activity. The transactions volume has increased by 33% year-on-year. On a consolidated basis, the retail gross loan portfolio has expanded by 34.2% year-on-year while the customer deposits increased by 10.8% year-to-date. We're also glad to see a notable growth in retail products penetration by 9.7% year-on-year. Next slide, please. We continue to develop Halyk Homebank super app which is at core of our retail customer proposition. We keep on to see notable results in customer activity. Moreover, the MAU's penetration rate in retail's active client base has risen from 46% to 53% during the 9 months of 2022, showing a further potential for growth. Next slide, please. On consolidated basis, our retail portfolio has grown by 34% year-to-date. In 9 months, the loan issuance volumes have increased by 10% year-on-year. The growth has been primarily driven by digital sales, which increased by 51% year-on-year and reached 39% of total retail loan sales in 9 months. We observed stable asset quality with NPL 90 days plus ratio at 3.8%, while we continue to maintain a conservative provisioning policy with NPL coverage ratio of 167.6%. Next slide, please. Halyk Marketplace remains one of our top priorities as we develop comprehensive service proposition, both for retail clients and merchants. In the third quarter, the GMV of our e-com platform Halyk market increased by 5.8% year-on-year. Our network expanded to more than 1,800 merchants, offering over 400,000 SKUs and we're focused to expand our footprint further. Over the third quarter, we continued to develop our retail platform in order to simplify our clients' life and meet their needs. We launched bank cards for kids, which is called Halyk Easy, international transfers by a phone number and confirmation of transfers via Face ID and Touch ID, which is available exclusively at Halyk. Next slide, please. During the third quarter, we continued to focus on further upgrade of GovTech. We launched a number of new government services such as the registration at the place of residence, submission of a tax declaration, compulsory pension and social contribution statement, a real estate statement, checking information about labor contracts, which are available exclusively at Halyk. Also, first on the market, we launched medical statements. It is worth to note that in 2022, the government services were used over 8 million times. Turning to the Corporate segment. We would like to highlight that on a consolidated basis, our loan book has expanded by 25.4% year-to-date. Our corporate portfolio remains well diversified across industries, while local currency loans comprise 74.1% of the loan book. As the 1st of October 2022, the segment NPL ratio increased to 1.6%, while the provisioning coverage decreased to circa 304% due to migration of large ticket and previously impaired corporate loan to NPL. We see a sound growth in our active corporate client base as it reached over 2,300 customers. Essentially, the product's penetration and transactional activity have been notably increasing as well. The SME banking continues to demonstrate a solid performance as well. The number of SME MAU in online bank digital platform has increased by 50.8% year-to-date. I would like to highlight that on a consolidated basis, our loan book has expanded by 19.4% year-to-date. The number of SME borrowers has increased by 2.1x year-on-year. The segment NPL ratio decreased to 4.6%. Next slide, please. In 9 months, we achieved a 40.9% increase in SME loan issuance volumes year-on-year. It has been primarily driven by digital loans, which already comprised 32% of our SE loan portfolio. Number of IE borrowers in the third quarter of 2022 increased by 78.2% year-on-year, where 71% of IE borrowers were served digitally. Number of LLP borrowers increased by 37.4% year-on-year, where almost 10% of LLP borrowers were served digitally. Following the launch of digital tender guarantees in October last year, we issued a 5x more blank tender guarantees in 9 months of this year compared with 9 months of 2021. Now let me pass the floor to my colleague Margulan Tanirtayev.

Thanks, Mira. Now let me switch to the overview of Halyk Group consolidated financial results for the 9 months and third quarter of 2022. During the 9 months, the bank generated KZT 417.1 billion of net income. The year-on-year increase by 25.2% was mainly due to significant increase in lending business, including acquisition of virtual loan portfolio as well as increase in net gain on foreign exchange operations and net fee and commission income. Other noninterest income increased by 3.8x for the 9 months of 2022 versus the 9 months of 2021, mainly due to the volatility of exchange rates and interest rates, which resulted in significant growth of net gain on foreign exchange operations. Net insurance income for the 9 months of 2022 significantly decreased versus the 9 months of 2021. Let us remind you that previously the bulk of income from insurance on unsecured loans were recognized on the side of the bank. Starting from 2022, this income has been transferred from the bank to its subsidiary, Halyk Life. Halyk Life, in turn, has created an insurance reserve for the full amount of insurance on consumer loan. Consequently, there was increase in insurance reserve expenses. In the 9 months of 2022, we demonstrated 32.6% return on average equity and 4.2% return on assets. Next slide, please. Total assets of the group increased by 17.5% versus the year end of 2021, as a result of growth in amounts due to customers to support the expansion of lending business. Customer deposits increased by 22.6% as a result of the clients inflow due to changes in the operating landscape. Next slide, please. Interest income for the 9 months of 2022 increased by 39.2% versus the 9 months of 2021, mainly due to increase in average rate and balances of loans to customers. Interest expense for the 9 months of 2022 increased by 58.9% versus the 9 months of 2021, mainly as a result of the growth in average rate and balances of amounts due to customers. Consequently, net interest income for the 9 months of 2022 grew by 26.1% versus the 9 months of 2021. In the 9 months of 2022, net interest margin was affected by the increase in average rates on both loans to customers and amounts due to customers following the base rate hike from 10.25% to 14.5% in the 9 months of this year. Furthermore, the structure of placement of interest-bearing liabilities into interest-earning assets continued to improve with increased share of high-yielding retail and SME loans. Moreover, there was an increase in the average rate and average balances of FX amounts due to from credit institutions and FX interest-earning cash and cash equivalents following the global increase of USD interest rates. As a result, net interest margin increased to 5.8% per annum for the third quarter of 2022 compared to 5.5% per annum for the third quarter of the last year. Net interest margin increased to 5.8% per annum for the third quarter of 2022 compared to 5.2% per annum for the second quarter of 2022, mainly due to decrease in average rate on amounts due to credit institutions as a result of significant decline in volumes of REPO transactions. Next slide, please. In the 9 months of 2022, the overall dynamics of fee and commission income and expense was driven by the increased transactional activity as a result of the clients' inflow due to changes in the operating landscape. Consequently, net fee and commission income for the 9 months and third quarter of 2022 increased by 15.4% and by 35.8% versus 9 months and third quarter of the last year, respectively. Fee and commission income for the 9 months of 2022 increased by 26.4% versus the 9 months of 2021 as a result of growing volumes of transactional banking, mainly in plastic card operations, bank transfers-settlements and cash operations. Next slide, please. Operating expenses for the 9 months of 2022 increased by 20.4% versus the 9 months of the last year, mainly due to the indexation of salaries and other employee benefits. Starting from March 1, 2022, the employee premium reserve accrued in the 9 months of 2022 as well as increase in charity expenses and IT investments. The bank's cost-to-income ratio decreased to 18.9% compared to 22.6% for the 9 months of 2021 amid higher operating income for the 9 months of this year. Next slide, please. On the balance sheet, compared with the year-end of 2021, loans to customers increased by 27.1% on a growth and 27.7% on a net basis. The increase in the gross loan portfolio was attributable to a rise of 25.4% in corporate, 19.4% in SME and 34.2% in retail loans. We also have to mention that share of FX loans was at historical low level of 18% as at the end of third quarter of this year. Next slide, please. Cost of risk on loans to customers for the 9 months and third quarter of 2022 was a normalized level within the scope of our full year guidance of 1.5%. 90-day NPL ratio increased to 2.7% from 2.4% as at the end of the second quarter of 2022, mainly due to migration of large ticket and previously impaired corporate loan and retail loans to NPL. Next slide, please. Stage 3 ratio increased to 8% as at the end of third quarter of 2022, mainly due to migration of individual corporate loans and retail loans from Stage 1 and Stage 2 to Stage 3. Next slide, please. On liability side, the corporate and retail deposits increased by 35.5% and 10.8%, respectively, compared with the year-end of 2021 as a result of the client's inflow due to changes in the operating landscape. As at the end of third quarter of 2022, the share of KZT deposits in total corporate deposits was at 53.6% compared to 52.9% as of the year-end of 2021, while the share in total retail deposits was almost flat versus the year end of 2021 and stayed at 50.5%. Next slide, please. Capital adequacy ratios of the bank increased in the third quarter of 2022 as a result of net profit earned by the bank during the third quarter of 2022 amid the moderate increase of risk-weighted assets.

Dear ladies and gentlemen, this completes our presentation. Now I would like to open the floor for your questions. [Operator Instructions] And we also have the first question from Elena Tsareva.

Elena Tsareva from BCS. I have several questions. So first of all, on your margins. So this is quite a pickup of margin this quarter, third quarter, like 60 bps and quite a weighted level. So what do you feel in terms of this level to be sustained going forward to expand? Do you see that's -- this is more like for likely to compress I think near term? My second question is about cost of risk. So we have this guidance for this year, around 1.5%. But if you have any idea, any guidance or I don't know any color how it can be evolved going forward in 2023 and some increase in NPL, does it sign that risk stay elevated? And my third question is about your sale of bank in the ticket. What is the rationale behind the decision? And is it something that you want to shape your geographical expansion or maybe you can provide any like details of your further strategy international stature or any kind of M&A strategy?

Elena, thank you for your questions. Regarding your first question on the margins, let me remind that during the second quarter results, we already -- we're upgrading our guidance on net interest margin from 5.2% to 5.3%. So basically, we were seeing that the trend is to increasing our net interest income. And basically, there are a couple of reasons for that. First of all, as you see, we were gradually changing the composition of our credit portfolio, and that was happening for the last few quarters. And one of the main reasons was also acquisition of Sberbank portfolio. So altogether, we see a higher growth, the higher share of retail loans and SME loans, particular loans to small businesses, which have high profitability compared to large corporate and medium-sized companies. So that was one of the driver. The second big driver was increasing rates in U.S. dollars. So roughly 1/3 to 40% of our balance sheet is in U.S. dollars. And when rates in dollars start rising, that actually positively contributed to improved margin. And there was, I would say, third element, which is probably to a smaller degree, but it's still impacting profitability of our interest income portion is reduction of the funding from, on Tenge site, which we attracted from our REPO sources. But the first 2 elements probably have the highest impact. Regarding the guidance for the next year, I think it's a bit premature probably to discuss because normally, we provide guidance in the beginning of the year when we are presenting the full year results. But altogether, if you would see what elements contributed to shift in net interest margin, I think they'll be same, so you have to look how our composition of the grid portfolio would be developing going forward, what will be happening on dollar rates, what will be happening on tenge rates. In terms of the cost of risk, again, what we are saying that so far we are not seeing main changes from what we have reported previously. Obviously, current situation definitely has its own impact on the asset quality. That's why we upgraded guidance for 2022 in the beginning of this year, but also we said that the asset quality, in fact, is behaving in better terms than we anticipated in the beginning of this year. So we stick to the guidance which we provided last quarter, which is 1.5% for the whole year. And so far, our result is within that guidance. Again, with regards to the next year, it's a bit premature to say, but probably as a heads up, we probably can briefly look at the macro data. And from a macro perspective, we've seen that overall economy is adapted to current situation, while GDP growth was slightly lower -- third quarter regarding -- third quarter versus the second quarter, it still remains robust given the current context. So GDP for the 9 months is standing 2.8% year-over-year basis. We see that the external situation with regards to trade is also having a positive impact, like trade balance was actually more than 2x high year-over-year basis and reached USD 28 billion for the first 9 months. The current account is positive. Tenge is stabilized during last quarter. So the only big element which is probably -- is providing some concern is elevated inflation, which is also driving the base rates to higher levels. So this is probably the biggest, let's say, negative elements from otherwise good macro picture. And regarding your third question on Tajikistan. Yes, we indeed entered the agreement to sell our Tajikistan subsidy. Let me again remind that Tajikistan subsidy was acquired by Halyk Bank when Halyk Bank acquired Kazkommertsbank. So previously, that was subsidy of Kazkommertsbank in Tajikistan. Also, some time ago, the Board of Directors of Halyk Bank expressed its opinion to exit Tajik markets. Initial intention was to liquidate the small franchise. But in the meantime, we received the offer to acquire our subsidy. So eventually, the negotiations went well, and we entered into a sales and purchase agreement. But that was actually in line with our view, which we translated a while ago.

The next question comes from Mikhail Butkov.

I have a couple of questions. One is also on the net interest margin. Probably the key, as was mentioned, one of the key reasons for the increase in margin is increasing share of retail and SME loans. This was probably also supported by the acquisition of loans from Sberbank portfolio. If we were to exclude this additional portion, what was the underlying like organic improvement in the net interest margin, excluding the mix effect, if you could comment on that? That is the first question. The second question is on the Stage 3 increase. There was some increase quarter-over-quarter basis. Do you see any signs of deterioration in some high-frequency asset quality metrics because of the higher interest rates or it was more as a one-off event? And finally, could you maybe share any color on your dividend outlook, if any, for the next year or any preliminary thoughts considering, yes, the current levels of capital, what is -- is it considered to be at a comfortable level to consider dividends for the next year? Or if any comments you could share on this topic?

Let me answer your question regarding net interest margin and dividend payouts, and then I'll ask Almas Makhanov to comment on the cost of risk side. On net interest margin, basically, we are not calculating let's say, net interest margin with Sberbank transaction or without Sberbank transaction. So this is just one calculation. But regarding what other, I would say, what was other elements which was impacting the positive development in net interest income, basically even without the Sberbank transaction, we saw that we're quickly developing our products to small businesses, especially for individual entrepreneurs. So that in itself is having a positive impact. Last year, we had good growth in our retail book. So on a year-over-year basis, again, it's providing a positive contribution. And third element is overall our dollar portion of balance sheet, which is having a positive impact due to increase in dollar interest rates. So even without Sberbank transaction, we would have some positive development in NIM. Sberbank transactions actually improved the trend even further. On your question regarding dividend payout, again, it's probably a bit premature to discuss what the decision might be taken next year. Normally, we -- actually, our Board of Directors making recommendation on dividend payout after the full year results, and we translate that normally in the month of March. But probably what I can say is that we expected dividend payout of recent years, even during 2020 during 2022, both years was very unusual, if I may say. The dividend payout was varying due to, again, external situation. So we would look on the normal things like what are the prospects for growth? What are the risk environment, what is the current state of capital adequacy at the time of making decision. So it's normal questions on which we'll need to answer to ourselves before making that decision, and we'll announce that in the month of March.

I will answer the question on cost of risk and movement to Stage 3. There is no specific trend in the third quarter in terms of risk metrics. The movement was attributed to migration of single NIMs from Stage 2 to Stage 3, mostly and from Stage 1 to Stage 3. So there is no specific trend that is different from what we saw in the previous quarters. Also, the Stage 3 loans increased due to NPL increase in retail portfolio, which is in line with the trend that you've seen in the past 2 quarters. So overall, for the third quarter, we don't see any changes in metrics. It's only attributed to single NIMs.

And maybe a small follow-up there. Is there any specific coverage ratio which you target on the group level? And yes, that's the last question.

No, there is no specific coverage ratio. It's mostly related to product type to a single transactions depending on the collateral and so forth. So there's no specific targeted coverage ratio.

The next question comes from Simon Nellis.

Actually, more follow-up questions since most of my key questions have been answered. So just on the margin, can you just tell us which factor, was it the higher tenge rates or the U.S. rates was a bigger driver of the margin expansion? Just so we get a sense looking into next year, what the impacts could be. And do you have a view on tenge rates for next year? Would be interested in hearing that. Second question would be -- good to see that you paid a dividend, but obviously, it was less than 50% payout, which I think is your official policy. And I guess that's driven by M&A. So I'd be interested if you have any other M&A transactions kind of in the pipeline? That will be my second question. And third question would be a technical one, just on risk weight density. So I think at the beginning of the year, you had risk weight density at around 65%. Now that's up to 72%. Can you explain what's driving that? And why is risk-weighted assets rising faster than assets?

Regarding which portion of tenge or dollar portion of the balance sheet had a higher impact, tenge is probably having a higher impact simply because it's a higher portion of our balance sheet. But the dollar portion of the balance sheet also had fairly good contribution in the improvement of net interest income. On M&A, normally, we are not commenting that. But as of now, we are not looking at any M&A opportunities. I think we have quite robust prospects for organic growth. It's on the banking side, be it large corporate, SME or retail, but also we continue developing our ecosystem, and we continue to develop in our subsidy in Uzbekistan generally business in Uzbekistan, which also includes any trade facilities or financing from Halyk's balance sheet. Regarding your question on the risk-weighted asset density, yes, that has increased somewhat because we're increasing the portion of our credit portfolio in the total assets. So that is one of the elements. The second element, there were some changes on the risk-weighted assets on the regulatory side. When the risk weighting for SME actually returns to, let's say, previous norms after there was some relaxation provided during the COVID. At the same time, currently, regulator is looking into providing some RWA reduction for some portion of SME businesses, mostly loans to small business. So that might potentially reduce risk-weighted asset density in all things being equal.

Okay. So the outlook is for potential improvement there going forward. And last on the rate view for the tenge, do you have a house view, kind of a macro view on where you think rates go next year?

Unfortunately, inflation is continue to keep growing. So we currently have data for 10 months and inflation increased to 18.8%. That was a further increase from 9-month results. There is still risk that inflation might increase somewhat before it will reach the peak. And according to recent comments from National Bank and its governor, National Bank is continuing to look into inflation data carefully, and they prepared to act in order to stabilize inflation and not to anchor high inflation in terms of expectations. So fight inflation, I think, is high at the Central Bank agenda at this point of time.

And the next question comes from [ Olga Niaginavo ].

Also as a follow-up. Regarding dividends, of course, I think your dividend policy earlier assumed at least 17% capital adequacy ratio. Is this still intact, should we assume it should not go below? And in this regard, does your current capital adequacy ratio account for the dividend that was paid in late October, was it deducted from the capital base already? My second question is also with regards to NIM. And with the dollar proportion of net interest income, to what extent you are transferring the gains that -- are you basically -- how much are you paying on your dollar account and what the competition does? And also a broader question on the competitive environment, if you can comment what is going on with the competition in -- over the past -- this year? Generally, did the competitive environment change substantially over the past months? And what do you expect following going forward?

Olga, thank you for your question. Let's answer one by one. Regarding your question on dividend payouts, yes, indeed, we have this desired minimum 17% Tier 1 capital in our policy. So basically, we do not want our Tier 1 to drop below 17%. In the results as of 1st of October, that was pre-dividend payout. And dividend payout itself roughly have an impact of 1.2 percentage points, but it doesn't take into account that the continuous capital accumulation due to ongoing operations of the bank because we continue to show profitability. So the net effect as of fourth quarter might be different because we continue to hopefully generate good profits. With regards to next year, I think I already answered, so we'll be looking at different positions like risks, what are the current capital position at the time of decision, what are the prospects of profitability and opportunities in the market. On your question regarding the funding costs for our dollar book, with regards to competition, we do not have this comparison vis-a-vis competition because the banks are generally not providing this granularity of analysis. But the expectations might be it's somewhat lower than the market simply due to composition of our liability because we are universal bank, and we have a big -- large corporate business, both on the asset side and liability side compared to, let's say, to pure retail players or players who are focusing on retail and SME. So we would have a higher portion of dollar liabilities from large corporates, which tend to keep money not on the longer-term term deposits, but rather keep them in, let's say, shorter current accounts, for example, overnights. So simply looking from that perspective, typically, the cost of funding for that portion would be lower compared to the bank, which is, let's say, purely attracting retail deposits or deposits from retail and SME. And so one more comment here is probably that in Kazakhstan at this point of time, the dollar cost of funds is lower compared to other markets because we have deposit insurance funds, which is currently limiting the rates for retail dollar deposits at 1%. And that is generally giving a lower funding base in dollars for Kazakh banks in general.

Next question comes from Ronak Gadhia.

I've got 3 or 4 questions. Firstly, if you go back to the slide on average interest rates towards the end of the appendix, I see the yield on investment securities on a year-on-year basis, a 9-month level and 3Q level was still declining. So as we go through the rest of the year and into next year, should we expect that yield to shift upwards as you roll over your portfolio at the higher rates? Or what should we expect on that side? The second question is on -- I know you guys don't want to talk much about guidance, but maybe talk a bit about what we should expect on your loan growth guidance on your loan growth next year? Are you starting to see growth appetite -- loan appetite to moderate given the higher rates? Or is the underlying appetite still quite robust? And are you willing to lend into this environment? And then the third one is on cost of risk. Again, you've spoken quite a bit about this. But as the exposure to SME and retail loans continues to increase, should we expect in the medium term, your normalized cost of risk to be higher than what it has been historically?

Regarding the rates on securities. I think this is a combination of a few things. First of all, the portion of our securities is held to maturity. That's why probably that was not -- it is not immediately reflecting in terms of yield change. The changes are going through comprehensive income and affecting the capital. Secondly, on the rate dynamics, the impact might be coming from distribution of securities in terms of the currency. So we have tenge securities and we have dollar securities. That's why the blended rate might be affected by the composition of our securities portfolio in terms of the currencies. But going forward, yes, all things equal and even if the rates would remain at the current level, by time the current securities is maturing, typically, they will be reinvested at higher rates. In terms of loan growth, again, we are not currently providing guidance for the next year. But what we are seeing in the higher rates in tenge is somewhat affecting our -- the demand and risk appetite for some portion of the portfolio, basically, for retail portion, for SME portion, which is not linked to state programs because the appetite for state programs on SME side has continued to be robust. And we also see that the current rate hikes so far is not affecting our large corporate segment, we still see quite robust pipeline. But again, while making the great decisions, we would be taking into account the increased interest rate environment. So we have yet to see how this demand will be translated in the actual credit growth into the next year.

And on the normalized cost of risk in the medium term as the exposure to SME retail increases?

Yes, Ronak, in terms of cost of risk, we could say that for legal entities, our cost of risk has been -- has normalized since last year due to the fact that last year was a one-off repayments on a big corporate loans -- [ corporate loan ]. For retail clients, the current cost of risk is reflecting the actual pace of the portfolio. So given what Murat said, that we are looking at a more like stabilized growth on retail side, that should not change much the cost of risk at the current level is somewhat normalized.

If I may, just 2 other very quick questions. On the cost of risk, again, I think the discussion earlier this year was the cost of risk guidance was slightly high because of anticipated regulatory changes. Have those changes materialized and the provisions for those, has that been completed? Or where are we with that discussion? And then finally, just on the payment side, we continue to see very strong growth on the gross payments income on the one side, but at the same time, we also continue to see a pretty strong increase in payments expenses. So could you maybe just talk about what's really driving the strong growth on the payments expenses and if we can expect that to level -- to see that level off anytime soon?

Yes. On the first question regarding the cost of risk, we guided in the beginning of the year, higher cost of risk, including because of the expectation on regulatory changes. Those changes should take impact next year. But also for this year, we see a normalization of the cost of risk on [ legal and fee side ]. And for retail portfolio, the cost of risk reflects the overall changes in economy in -- also reflecting the higher interest rates and changes in credit worthiness of the retail clients.

And Ronak, on your question regarding the cost on the payment side. Yes, they increased somewhat, which actually led to almost flat net fees and commissions for the third quarter compared to the second quarter. We still see that altogether, the dynamics on net fees and commission is positive, which is -- which is seen from, I would say, 3 quarters year-over-year dynamics. So we do not expect that the situation in terms of higher costs which was seen in the third quarter would continue. So we expect that net fees and commission in, let's say, medium term and longer term has a positive trend. So there might be some availability quarter-to-quarter, but altogether, we see positive developments in our fees and commission business.

The next question comes from [ Otto Grebze ].

Two more generic questions from my side. You mentioned focusing on home market and Uzbekistan is key growth areas. If you could share any views on Uzbek macro, what are your expectations similar to what you mentioned about Kazakhstan in terms of outlook for growth, inflation, current account, anything like that? And in which segment on this market do you expect growth to come for Halyk bank? And secondly, post the elections last night, would you expect any sort of shift in regulatory fiscal or monetary policies?

Let me start from the second one. Yes, indeed, yesterday, we held presidential election and current President, Tokayev won that election based on the exit poll results. Of course, we yet have to see what his statements would be in coming days or weeks. But so far, we see that the government is trying to, let's say, to have some expansionary fiscal policy, which is based on the stimulus provided to economy and to wider groups of population, while the Central Bank is trying to play some counterbalancing act in order not to have this fiscal stimulus further negative effect on the inflation. So we expect that each of these bodies would continue to play its own tasks in terms of growing economy, but also trying to provide pricing stability. In terms of Uzbekistan, we continue seeing that Uzbekistan is important market for Kazakhstan because it's naturally geographically, it's the country which has the long border. The country is important because it has high population, younger population. The banking sector is still underdeveloped, but is developing very quickly, not only in terms of the size, but also in terms of quality dynamics in terms of digitalization, which is, I think, is viewed by us positively because we are universal bank in Kazakhstan. We also see that Uzbekistan is providing opportunity on all aspects of our business, be it large corporates, SMEs or retail. So we having a positive view in Uzbekistan and would continue to develop our business in a comprehensive way.

Do you have any outlook on rates or inflation over the next year or so?

I probably do not have the exact figures in front of me at this point of time. But what we've seen that inflation in Uzbekistan is currently running lower. I think they do not have, let's say, same issues in terms of higher fiscal stimulus like in Kazakhstan, but also the situation from regional geopolitics which is affecting Kazakhstan higher from 2 channels. One is higher trade with Russia. And secondly, logistical issues. What we see is Uzbekistan has less exposure to these 2 elements compared to Kazakhstan. That's why on the inflation side, we see a better picture in Uzbekistan at this point of time.

The next question comes from Can Demir.

I have 3 questions actually. I think Almas mentioned or talked a bit about the regulatory changes or the impact of the on cost of risk. Could you please expand on the method of it so we can understand more? And I was also wondering what run rate do you see for your trading income? Because I mean, we see in different banks in the region that it's been a good year on the trading income front. But once the volatility dies down next year, what kind of trading income do you think it would make sense for us a model? And my last question is on CET1 ratio. Is this CET1 ratio we see this quarter, is that after dividends or before?

In terms of regulatory changes, we expect a new law to take part -- to start working the next year. If you recall, there was a personal banker flow expected to be introduced in the near future. So far this year, the regulation has been only tightening on the retail side through the increase of risk weights and through new restrictions on income calculations.

On your question regarding CET1, what you've seen in the presentation, this is before dividend payout. And as I said, the impact of dividend payout is around 1.2 percentage points. But again, that doesn't take into account the ongoing capital accumulation due to profitability. On the trading income, yes, this year is probably somewhat unusual in terms of treasury or trading income. So we might expect some moderation in coming quarters and definitely into the next year. But also some portion of that trading income is related to normal client activity. And because we continue to increase our client base, both on retail and especially on SME and the corporates, on an organic basis, but also due to acquisition of Sberbank portfolio and increasing our client base, we expect that this portion, which is more stable, would definitely be higher than what you've seen in 2021, for example. So it will be probably moderating but still at a higher level than it was before 2022.

We have 2 questions left in the chat. So the first one, I think, was covered regarding the dividend payment for the next year. And the second one from [ Azmat Ali ], the payout ratio this year was 30%. Is the company planning to pay out additional 30% for this year? In previous years, the payout ratio was 60%. And the last question we have from [ Paris Takar ], what has been driving up the risk-weighted assets year-to-date? Total assets grew 17% and risk-weighted assets grew 28%.

No, we are not planning additional 30% payment for this year. So there is no more dividend further payment is anticipated this year. And decisions for 2022 results would be made after we would close full year results, and we expect the Board would make its recommendation in March next year. As I explained, I think also, there were 2 elements for higher growth in risk-weighted assets and increasing density. One is higher growth in the credit portfolio compared to total assets. So while the total assets increased by 17.5%, our credit portfolio increased by 27%. So that was one element. And smaller impact was in a change in risk-weighted assets weighting on SME portion, but we expect some of the decisions would be favorable for risk weighting for SME business after upcoming regulatory changes. So some positive impact on the same portfolio, we would expect either in the fourth quarter or first quarter at the latest.

Dear ladies and gentlemen, it seems that there is no question remaining. So this completes our presentation. Thank you very much for the participation. As usual, our IR team remains open for any of your further questions. Take care and goodbye.