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

Good day, ladies and gentlemen. Thank you for joining us on this conference call to review Halyk Bank's financial results for the First Quarter of 2025. My name is Mira Tiyanak, and I'm Head of FI and IR. We have our executive team joining us on the call today, including Mr. Umut Shayakhmetova, Chief Executive Officer; Mr. Dauren Sartayev, First Deputy CEO for B2B Banking, Marketing NPR and Acquiring; Mr. Murat Koshenov, CFO and Deputy CEO for Finance Subsidiaries, Compliance and International Activities; Mr. Roman Maszczyk, Deputy CEO for Risk Management, Data Science and Collateral; and Ms. Olga Vuros, Deputy CEO for Corporate Banking; Mr. Nariman Mukushev, Deputy CEO for B2C Banking, Digital and Digital Government Services; and Mr. Andrey Zavarzin, Deputy CEO for IT and ecosystem; Mr. Viktor Skryl, Strategy Director; Mr. Almas Makhanov, Finance Director; and Nurgul Mukhadi and Rustam Telish from IR team. The format for the call today is as follows, we will start with a presentation by the Halyk team, covering our B2C and B2B business segments and the Q1 financial results. Then we will open the floor for questions and answers. Please note that this call is being recorded. We will begin today with an update on B2C segment. Let us remind you that our B2C platform, the Halyk Super-App form the core of our digital ecosystem and gives consumers access to our banking and finance services as well as broad area of lifestyle solutions that help them manage their daily lives. In the first quarter, we saw both the number and volume of transactions carried out for the Halyk Super-App grew by more than 30% year-on-year. The Super-App now has 7.7 million monthly active users, including 5.4 million who carried out transactions and 2.4 million daily active users. Halyk Bank has a total of 11.1 million active clients as of the end of Q1, and we account for 43% of active salary cards in Kazakhstan. Next slide, please. 96% of the consumer loans we issue are rasied through the Super-App. Our gross retail loan rose by 2.3% year-to-date to KZT 4.2 trillion, though on the back of lower loan issuance. NPL slightly increased and remained well covered. We have just under a 20% market share for retail loans in Kazakhstan. Next slide, please. In terms of deposits, Halyk Bank has a 28.8% market share in Kyrgyzstan and 67.6% comprised the deposits in tenge. A full 94% of deposits are now opened digitally through the super app. Q1 saw a large increase in the number of deposits opened to 224,000. Compared with the year-end 2024 the overall dynamics of amounts due to customers was impacted by appreciation of tenge versus U.S. dollar, where the retail deposits were down 0.7%. Taking a look at some of the value-added services in our digital ecosystem. You can see remarkable growth in our after insurance offering with a 50% year-on-year increase in the number of clients and we'll double the value of premiums. We sold slightly fewer movie tickets on Kino.kz but for high gross merchandise value, which rose 10% year-on-year. Travel bookings were stable as compared to Q1 of last year. Next slide, please. Halyk Marketplace and Halyk Market both saw GMV growth by more than 34% and 37%, respectively. We have substantially more partners working with us versus a year ago, thereby increasing product choice for our consumers. Halyk Market has now almost 3x as many SKUs as it did just 1 year ago. We'll wrap up the B2C segment with a look at our 2 strong brokerage platforms, Halyk Invest and Halyk Finance. The number of active clients rose by to 54.5% as compared to Q1 2024. Given recent market volatility globally, would you see a drop in transaction volume. Assets under management and total brokerage assets were both substantially high year-on-year at the end of the quarter. I should note that Halyk has a 68.9% share of pension assets under management and 66.1% market share among private asset managers. Next slide, please. Now we will move and take a look at our B2B segment. Let me again remind you that online bank is our platform for the B2B segment, offering a range of tools to help our commercial clients and particularly small and medium-sized enterprises with banking, lending, insurance, payroll solutions and more as well as access to Halyk Marketplace. Monthly active users for banks stand at just under 300,000, including 270,000 monthly transaction users during the first quarter. Daily active users stand at 102,000. The number of payments processed from the platform rose by over 29% year-on-year, and the volume of transactions was 24.3% higher at KZT 31.7 trillion. Next slide, please. 65% of our corporate loan portfolio are in local currency. As you can see from the industry breakdown on the right side, we finance clients across a range of sectors from trade businesses to industrial enterprises in every industry. Our corporate loan book has grown by 22.4% since Q1 of the last year. Even with the increase in portfolio size, our portfolio quality remains strong, with little movement in NPLs during the quarter. Halyk Bank works with 86% of Kazakhstan's largest taxpayers and accounts for 52% of lending of real economy, along with 32% of their deposits. We have strong product penetration among our 3,000 active commercial clients who carried out more than 2 million transactions during the first quarter. In past calls, we have spoken about how our online bank that for makes banking easy for B2B, particularly through quick and easy loan origination. You can see here that our gross SME loan portfolio is up 16.5% year-on-year, while digital loans, in particular, are up over 38% year-on-year. We also arranged KZT 27.8 billion in digital bonds during the first quarter, almost 34% more than the year ago. Next slide, please. online banks ease of use for SME borrowers, so we account for 96% of digital loans issued. In Q1, we did see a small increase in NPLs for SME borrowers, but the coverage is more than adequate. Now I would like to pass the floor to my colleague, Nurgul Mukhadi, from IR team. Thank you.

Thank you, Mira, and good day, everyone. Now I will take you through the financial results for the first quarter 2025. We're glad to note that Halyk had another strong quarter. Here, you can see the composition of the net income growth in the first quarter 2025 versus first quarter 2024. It was primarily driven by the increase of net interest income by 30.1% year-on-year and other expenses, noninterest income line, which was impacted by the base effect of one-off recognized loss in the year expected early repayment of the deposit of KSF in accordance with IFRS in first quarter 2024. Net income growth adjusted to this base effect of one-off recognized loss in first quarter 2024 would be 19.1%. Here's a quick look at the balance sheet. Total assets of the group increased by 1.7% year-to-date. Total interest-earning assets in the same period also grew by 1.7%. Its share in total assets was up 91.8% a year ago to 93.4%. The share of loans to customers in total interest-earning assets increased from 63.7% to 65%. Total deposits to total liabilities ratio was at the level of 83.3%. The total equity of the banking increased by 7% compared to the year-end, mainly due to a net profit owned by the bank during fourth quarter 2025. Loan-to-deposit ratio was to 88.2% versus 82.9% a year ago. Interest income for the first quarter 2025 grew by 26.8% year-on-year, mainly due to increase of balances of loans to customers. Interest expense increased by 23.4%, mainly as a result of the interest increase in average balances of amounts due to customers as well as the growth in the share of KZT amounts to customers. Despite a slight increase in average rates on amounts due to customers in the first quarter 2025, NIM was positively impacted by the increase in share of loans to customers in total interest-earning assets as well as increase in the share of tenge interest-earning cash and cash equivalents. As a result, net interest margin has grown to 7.5% for first quarter 2025 compared to the 7% for the first quarter 2024. In first quarter 2025, the average rate of total interest-earning assets has grown to 14.4%. The average rate on securities grew to 7.9% in first quarter 2025 mainly due to the increase in the share of tinge Securities and growth in the rates of FX securities. The growth of rate of amounts due to credit institutions and interest-earning cash and cash equivalents from 9.9% in the first quarter 2024 to 13.5% in first quarter 2025 was due to increase in the short term tenge deposits [ with and Burka ]. Average rate of total interest-bearing liability sales increased from 8% to first quarter 2024 to 8.2% in first quarter 2025. In first quarter 2025 compared to the first quarter 2024, the overall dynamics of fee and commission income and expense was driven by the increased number of plants and the growth of client transactional activity. Net fee and commission income for the first quarter 2025 increased by 13.4% year-on-year due to increase in the transactional income of legal entities, as well as fee on letters of credit and guarantees issued. Net transactional income of individuals slightly increased and was offset by the growth of an amount of bonuses from the bank's loyalty program. Here is an overview of operating expenses which increased by 22.2% versus first quarter 2024, mainly due to the indexation of salaries starting from February 2025 and other employee benefits, including the cost of the long-term incentive program. While the salaries indexation in 2024 was made in May. The cost-to-income ratio decreased to 16.5% compared to the 19.9% for first quarter 2024 amid higher operating income for the first quarter 2025. Compared with the year of 2024 due to seasonal effect, loans to customers were up 0.1% on growth and were down 0.2% on a net basis, with retail loans growing by 2.3%, while the loan portfolio of legal industries decreasing by 1% on a gross basis. The share of fixed loans in total net loans was 21%. Cost of risk in first quarter was at normalized level within the scope of our full year guidance and what is the level of 1.2%. At the end of the first quarter, Stage 3 loans increased from the level of 6.3% to 6.8% year-to-date. As a result of the moratorium on sales of problem retail loans to collection agencies until May 2026. As I mentioned earlier, compared with the year 2024, the overall dynamics of amounts due to customers was impacted by appreciation of tenge versus U.S. dollar, where the deposits of legal entities were up by 0.6%, and the deposits of individuals were down 0.7%. At the end of first quarter, the share of Tenge deposits in total deposits was 68.8% compared to 69.1% as the year-end 2024. In corporate deposits, the share was 70.3% versus 70.9% as of the year-end 2024, while the share in total retail deposits stayed almost flat. On a consolidated basis, capital adequacy ratio of the bank increased to 19.3% in the first quarter 2025 due to net profit earned by the bank during first quarter 2025. Dear ladies and gentlemen, this is a quick look through the financials. We will now open the floor for your questions.

[Operator Instructions] And the first questions come from [indiscernible].

I'm Milosz Papst from Edison Group. I have 3 questions, if I may. Firstly, maybe can you give us a sense of what you expect -- what kind of impact do you expect from the new tax code assuming it will be implemented on your SME loan book growth quality? Secondly, as you've highlighted, you increased the -- I mean, the share of stage 3 loans in the retail and SME book increased in the quarter, and you also had a higher provisioning rate. So maybe you can give us some background to this and if it affects your cost of risk expectations for this year? And finally, can you also give us a sense of what the run rate of your investments in the digital ecosystem was in the first quarter if it's broadly consistent with would you expect in the next couple of quarters?

Well, thank you for your questions. Let's take them one by one. Regarding the new tax code, the discussions are currently taking place at the parliament level. And when we talk about the changes in the tax code, there are some changes which would be affecting -- might be affecting results 2025, but majority of changes would be impacting results starting from to 2026 because they would be part of the new tax code. Those which might affect results for 2025, is the new concept, which is currently being discussed. We can call it the tax on excess profit. Presumably, certain profit from certain lines might be included. First one is related to state securities. Secondly, the report transactions might fall under this category. And third one is swap transactions. At this point of time, the discussion is not finalized. So if you would be asking what the impact we might expect probably it's a bit premature to give the exact figure, but the size of the rates, which is being discussed is 10%. So presumably, I would say, a material figure in the context of overall bank results. With regards to tax changes in the new tax code, which again would be implemented from the 1st January of 2026. Firstly, it's increased corporate income tax for the banks from 20% to 25% with potential execution of profit related to lending to so-called drill economy, which presumably would include most of the corporate and SMB transactions that lending. Then corporate -- the corporate income tax would also profit from state securities with some potential benefits to be incorporated, again, not everything clear yet. So presumably, the statutory rate for state securities might be lower than 25%. The VAT tax would also interpret the certain banking operations, presumably fees and commissions. And also potentially, the personal income tax would have some elements of aggressive scale from certain portion of profits, individual profit would be still at 10% and above certain thresholds, it will go to 15%. Regarding the Stage 3 loans. The most of the increase was attributed to growth in our retail book, as we disclosed in our results. And as my colleagues mentioned, one of the key elements was the moratorium, which was imposed last year by regulator on sales of retail loans to collection agencies. That means that we still have a bank in position to work out these loans from our balance sheet, but the timing obviously would be somewhat extended compared to sales of that portfolio to third parties. Regarding the investments on ecosystem, we continue to work on expansion of our ecosystem I think broadly expenses, which we had on that side comprised from investing in our business in our stock, which works in certain types in [ agile mode ] that was probably larger corresponds to what we did in previous quarters. So nothing one-offs, which happened in that space in the first quarter.

And the next question comes from Simon Nellis.

Congratulations on the strong result. I guess my question though is, going forward, do you see a need to revise your guidance for this year given the changes to the tax regime? And beyond -- and if I understood correctly, if you could just clarify. So the government is talking about some kind of 10% tax from this windfall or excess profit tax hit on banking earnings. Is that what you were saying? And then on top of that, you could potentially see another 5% increase to the corporate tax rate next year. So it's a quite material impact. I know it's early days, but if you could just provide any clarifying commentary around that. And then if you could also just clarify as well when that regulation came in terms of being able to sell bad loans on the retail books to third parties? And when do you think that will be lifted? And any other impacts that you expect from the changing taxation regime on customer behavior? How do you see -- and maybe your asset liability management will you divest from government securities in favor more real lending? Or what's your plan there?

Simon, thank you very much for your questions. Well, we have a practice when we provide updated guidance after we publish a 6-month results. We think that current discussions on tax code and on some other regulations, which I will briefly touch upon a bit later. At this point of time, we do not have the final wording and the discussions are continuing. And during that discussion, we see that certain elements are still in the process of clarifying an amendment, that's why we are not in a position or we think that updating on the guidance is somewhat premature. And again, let me -- to reiterate that on the tax code, we're talking about the 2 changes. The broader changes in the tax code would be implemented from January 1, 2026. So it will be applicable to the bank's operations starting from 2026. They will not be impacting guidance for 2025. So the results of 2025, when it comes to regulation, it might be coming from 2 regulatory changes. One is on the excess profit tax, as I already mentioned before. And secondly, the Central Bank, the National Bank of Kazakhstan is coming with an idea of amending the minimum reserve requirements, basically increasing them from current level. Again, the final decision is not made yet. So there are still discussions going on, on exact boarding on the exact levels and the timing of the limitation. We hope that by the time we would be publishing 6-month results and at scale, we would be able to provide updated guidance, which would interpret not only the discussed changes in the legislation and regulation, but also our overall normal course of business dynamics because we already will have a 6-month results behind us.

And on the ability to work out retail loans through sales. When will that be lifted, do you think those restrictions?

At the moment, the ban is until May 2026. So it's still 12 months ahead of us. So this is what is currently written in the regulation.

And the excess profit tax, is that time-based? Or is it kind of into perpetuity? Is it every year?

It's only for 1 year. It's more a result of the 2025.

Understood.

And then again, mechanics is still to be clarified. Again, when we talk about the different components, it's not about only the gains from the state securities, but also when we talk about the repo, it takes asset side, liability side, it has some netting. So again, we really need to look at what the final wording, what the final formula would be in order to provide the exact guidance because otherwise, we might be in a position that we announced certain estimations now only to find out that in a week's time, it's changing because the regulation is not -- or the law is not finally adopted yet. So that's why we think that it's a bit premature to provide exact figure at this point of time.

And the next questions come from Sergey Voronenko.

So I have 2 or 3 questions, if I may. Firstly [ E.SUN ] Bank has recently changed the owner. And I was wondering whether this might create more competition for you in some part of your business? So that's firstly. Secondly, on the NPLs, I see they started to rise. Obviously, the economy is going through some challenges. So I was wondering where we are there in terms of economic challenges as well as NPLs. Are they still lagging behind? And can we expect then to go up a bit further. Maybe you can share your thoughts on the economy and NPL prospects for the coming quarters, that would be great.

Thank you for your question. I think when it comes to competition, we've always been experiencing the competition on the market. Obviously, the shape or form of competition was evolving. Sometimes we are facing the similar sized competitor where we would be facing same bank or same name across a number of clients and product segments. Sometimes, we are facing competition in particular niches. So this time is no different than number of banks which are developing their own model, their own focus. So the life continuous, competition continues. It's always I think it's always good. We always welcome competition if special is done in the proper way. So -- because it's also stimulating us in terms of coming with product and services to our clients. So it's normal. The banking should be competitive segment. When it comes to state of the economy in NPLs. Well, we already have preliminary 4 months results on the economy. The GDP is actually increased significantly, if you're comparing with the same period of last year. For 4 months, GDP grew by prelim results by 6% compared to 3.4% for the last year. There are a number of contributors in terms of the sectors. So we see that transportation construction increased materially. We partially attribute that to completion of TCO project, which is increasing not only oil production but also transportation. On transportation, we see increase, not only in the pipeline, but also on the railway transportation. Construction, we attribute largely to increase in investments into capital which is materially driven by state-related sources. On the flip side, the increased fiscal stimulus or continuing fiscal steam was increase in inflation. So inflation for the first month is standing at 10.7% year-over-year basis. And actually, National Bank increased the expectation or the full year inflation in the range from 10% to 12%. So that is probably one of the reason why the Central Bank, the National Bank of Kazakhstan is also increasing the base rate. Our investment banking our Halyk Finance expect that the rates would largely stay at the current level. Obviously, higher rates and higher inflation is having impact on the create portfolio. First of all, higher rates we see start impacting the credit demand on the SME side, the inflation side is probably also impacting the demand on the retail side. That's why our first quarter result growth on the retail portfolio is somewhat lower than the last year. However, we have to admit that partially, it is attributed to the base effect because our retail portfolio was growing materially year-over-year basis during the last 3 years time. When it comes to NPL, I think partially, it is partially is a reflection of -- as I mentioned, the inflation side but also, we have to say that there has been a rotation in our credit portfolio. And if we take the 3 months arising the portion of retail portfolio and small businesses was increasing. And these are particular segments, which, on one hand, provide higher return in terms of higher rates, but also they are naturally having somewhat higher cost of risk compared to corporate portfolio, for example. Overall, we reflected our expectation in the cost of risk guidance for this year. And so far, the first quarter results, in our opinion, are largely in line what we provided in our guidance earlier this year.

And the next questions come from the Tunde. So we will switch to the Q&A chat. First question has come from the [indiscernible]. The NIM has risen nicely from 7% last year to 7.5% for the past 2 quarters. Does the company think it is sustainable at 7.5% in the current interest rate environment? Is there a potential for further expansion? And the second question is marketplace doing we grew by 34% year-on-year. As we mentioned, we believe that the recent crackdown on smartphones in March, lower GMV 7%, by 7% in first quarter of '25, was the Halyk Marketplace GMV also materially impacted by the crackdown on counter feed smartphones in the caster implemented at the end of March?

Thank you for your question. When it comes to net interest margin, it is affected by several drivers. First of all, we have 2/3 of our balance sheet in local currency in tenge and 1/3 of our balance sheet in U.S. dollars. So the interest rate changes in either of these currencies is having impact on net interest margin. Secondly, as I mentioned before, we have a certain had certain rotation in our assets. So we were increasing the share of loan book in our total assets. which is typically positive to NIM. And secondly, during last -- during last year, we saw a high increase in retail and small businesses compared to medium-sized and corporate. Again, that was positive to NIM. So typically, that was -- naturally, that was supportive to the NIM starting from the second half of last year. At the same time, National Bank of Kazakhstan start increasing rates starting from December last year. Historically, that's having a negative effect on NIM during next couple of quarters until the assets start repricing again. So we have not seen a material impact from all these trends on a combined basis in the first quarter. However, we might expect some headwinds due to the rates which was increased in the second quarter, potentially some or the third quarter until the asset side would start repricing. So overall, as I said, we are not changing our guidance, which is exactly standing at 7.5%. Again, on the guidance, we might come with some updates once we'll be publishing 6-month results. When it comes to our marketplace, we saw positive trends in our marketplace. That was attributed to several activities, which were -- which we implemented last year and continue to do this year. So first of all, we substantially increased a number of our partners. Actually, we more than doubled them within 12 months. We almost increased 3x in terms of the SKUs. Obviously, we continue to work with our categories. There might be some rotations. But overall, results was positive because of the activities, which I mentioned simply, we continue to scale our marketplace.

And the next question comes from Simon Nellis.

Just one quick one on the balance sheet. Could you explain why the cash went up 34% over the quarter? And why amounts due to credit institutions went up 40%? Quite large moves.

Yes. There's nothing specific. I think same question was asked during our full year results. And the basic answer was that we -- starting from second half of last year, start actively managing our liquidity, actually using different instruments like more actively changing -- swapping between repo instruments, overnight instruments, it's more proactive asset liability management.

And will this new regulation on repo somehow hinder your ability to do this activity and generate high margin? I guess it will, no?

Maybe to a certain extent, I think the medium reserve requirements would be definitely impacting the overall asset liability situation. But again, we are in discussion with the Central Bank in terms of in what shape or form and timing, this amendments to minimum reserve requirement regulation would come?

And the next question comes from [indiscernible].

This is [indiscernible] from [ Virgin Asset Management ]. First of all, congratulations on yet another set of great results. I just wanted to follow up on the 2 matters that have been raised in the Q&A hided to. Firstly, I just wanted to clarify 1 thing about the windfall tax anticipated for this year. You mentioned that you'll likely see a 10% tax rate in state securities and maybe repo transactions or swap transactions. But at the same time, you said would be relatively immaterial in the context of overall bank results. So would that -- would it be fair to assume, therefore, that the effective tax rate would stay in that mid-teens range for this year? And the second question I had on the reserve requirements, whilst obviously, this is still subject to discussion. Is -- does this discussion revolve mostly around sort of bring Kazakhstan in line to the CIS average? Or is the regulator looking to create a whole new regime perhaps looking at the European banks as a proxy and what does the regulator think about of the differential between foreign currency and local currency reserve requirements, like have they articulated anything on that front?

Then, thank you very much. Let me start responding regarding the minimum reserve requirements. Currently, reserve requirements for Kazakh banks is indeed at a relatively low level compared to other countries. Like in local currency, it's 0% to 2% on foreign currency, it's up to 3%. They're referring to different countries in the region, including Georgia, Nina, Azerbaijan and some other countries. They're also looking at some Eastern European examples. And based on that, they obviously saying that the minimum reserve requirements should be increased. And in the draft, we saw a proposal of bringing reserve requirements for tenge up to 5% and on the foreign [ currency ] up to 15% with some potential step increases, not as one goal and with certain exclusions. So these details have been in discussion. Again, that's why we probably cannot give you the exact impact because these details, which liabilities would be included or excluded? And what is the timing -- what would be the timing? And steps for that increase, they're still not fully clarified. That's why we prefer to wait until we get much more clarity on that regard with that again.

And on the effective tax rate for this year, do you think it will still stay in the mid-teens despite the 10% windfall on state securities and potentially repo and swap -- or go to up to high teens?

Good question on which probably I have no answer right now. Again, because it really would interpret a few things. First of all, what would be exact formula like, for example, on repo, as I said, what we saw is the difference between repo income and repo expenses and things like that. On state securities, it might interpretate let's say, profits of realization. Again, the rates are increasing. And if the banks in order to meets the new reserve requirements would need to sell certain positions or state securities that might create loss that might again impact the whole calculation, it's many things which are impacting. That's why we prefer not to provide in the area of uncertainty, provide the specific guidance because they might materially change when we'll be coming with our 6-month result. We have greater visibility in terms of the calculations. We'll have greater visibility in terms of our run rate on our normal operations for the 6 months of the year.

And we will switch to the Q&A chat. The next question is coming from [indiscernible]. Congratulations on another great set of results. Is there any discussions of withholding tax on corporate or bank dividends? If so, could this impact how to distribute earnings in the future, for example, share buybacks versus cash dividends.

We have not heard anything regarding the withholding tax. Overall, Halyk Bank is a listed entity on Kazakh Stock Exchange and the [ Astana ] Stock Exchange. And from that perspective, we are not seeing changes on the taxation of dividends related -- which might be related to withholding tax. However, there are some changes related to case credence in terms of dividend income. Within certain thresholds, they would be still exempted but that level there will be additional taxes, which will be implemented. So we don't expect that it will impact our view with regards to dividend vis-a-vis buyback, we have both of them, so we have a buyback program, which is ongoing. And we have our dividend policy, which is also which was amended last year. And as I mentioned during our first call this year, we said that we looking to stick to our dividend policy, meaning to make payments twice a year.

And the next question is coming from [indiscernible]. Can you please provide additional details on KZT 60 billion loss reported in comprehensive income statement?

That relates to our security portfolio, which is not certain negative mark to market due to increase of the rates because most of our portfolio is dealt to maturity because so that at the maturity level would be reversed unless we'll decide for certain reasons to sell certain portions of portfolio, but so far, we do not see a big necessity in that. So it's unrealized loss due to changes in the rates.

And the next question comes from [indiscernible] .

I just wanted to follow up on one thing. In the scenario where capital requirements are increased and increased so at least in line with the proposal, would you consider issuing AT1s or additional Tier 2 debt? Because I'm conscious that I think the Tier 2 subordinated debt that you had was redeemed this quarter. So would love to get some clarity on your -- on whether you would consider AT1 or Tier 2 issuances to most of your capital position?

We are not considering that because we have materially higher capital compared to regulatory requirements. The only changes in the capital requirements is the introduction of a countercyclical buffer in the amount of 2% of retail portfolio. It's part of Metro prudential regulation, which was decided to be implemented by the Central Bank. Typically, it takes 12 months until that clients kick in. So the decision was taken in the April of this year. So that requirement will be kicked in -- starting from April 2026, because we have only 30% of our portfolio in retail on one hand. And secondly, because we have materially higher capital adequacy ratio above the minimum requirements. We do not expect that would trigger any decision in terms of issuing additional capital instruments.

So the next questions come from Tunde Ojo.

So I just wanted to go back to the point on asset quality and just understand the backdrop of this. The ban on selling retail NPL to collection agencies. Why did the regulator decided to what's the motivation behind that? And when was this ban implemented when was this initiated? And just broadly for me is, what does that mean for you in terms of the kind of NPL ratio we should expect for the retail and SME segment because those are the ones that have kind of regime in the first quarter. And your cost of risk guidance for the year, is that already factored this into it? Or should we expect some kind of deviation from that level of cost of risk guidance provided earlier in the year.

Roman Maszczyk. I'm going to take that question. The moratorium was implemented on the first of April 2024. And originally, it was planned for 2 years. So it will last until the 1st of April 2026. This unfortunately has affected our way we manage our retail portfolio because prior to that moratorium, we could sell NPLs and realize all expected future cash flows from those NPLs at the moment of sale. So definitely, the moratorium complicated the way how we manage the NPL ratio because right now, we have to wait longer to realize those future expected cash flows. That unfortunately impacted the NPL ratio, especially that at the end of last year, we tightened our credit policies in response to this moratorium. And therefore, you see a slightly higher NPL ratios. On the cost of risk side, we are following the same provisioning standards and rules. So we do not see any deterioration of the quality of the portfolio. This is only the effect of not realizing those future cash flows through the sales of NPLs. What we expect is up to speculation but there are also opinions that the AFR can expand that moratorium for another period of time. We don't know for sure at the moment what could happen next year. As far as trends are concerned, we -- as I said, we tightened. So we expect that our new generations of retail loans are going to come with higher quality and future generations will default at the lower right, than we used to generate those loans for all the generations because we -- prior to that tightening. So overall, we do not see any significant impact on our profitability of retail portfolio, still net interest margin after operational costs and after cost of risk around 10%, and we will try to reduce NPL ratio through internal channels of collections rather than sales. That may affect in the medium-term perspective of NPL ratios, but not significantly the quality of the credit portfolio.

Yes. So can I just follow up on that last point, and I appreciate the color you provided because I'm not aware of this earlier. So if this ban has been around for like a year already, right? Is it fair to say that you're seeing a higher level of NPL formation because this is not new, right? Why are we seeing the increase in formation in terms of Stage 2, Stage 3 loans on the retail and SME segment then. Is there more going on? If this -- I mean, just from the fact that this is not a new band, you've had this for a year or why is it just reflecting.

I can address that. Over the last year, even after the introduction of moratorium the portfolio was growing faster than it was growing in the first quarter of this year. So there are 2, I would say, contradictory factors impacting the NPL ratio. The growth of portfolio reduces NPL ratio, which was lower in the first quarter of this year. Last year, we had a higher growth rate in retail portfolio. Second is that all retail loans take some time to mature and default. So you always see the defaulting loans with a lag. So because we had more originations last year, we only see at the beginning of this year, those generations maturing and defaulting. And with a lower growth rate in our retail portfolio, that unfortunately is going to increase the NPL ratio because of the moratorium. So there are at least 3 factors that are influencing this those ratios. But as I said, we do not see any deterioration in the quality of the portfolio overall. This is only a time lag in the collections time profile.

And the next question comes from Ronak Gadhia.

Congratulations for the results. Maybe just a follow-up from the questions from the previous call from Tunde. Given the tightening standards that we have seen on the retail segment, as you mentioned, you've tightened your credit standards and actually lower cost of risk, NPLs going forward but does that have any impact on the growth trajectory of the retail segment as well because that's a portfolio that's been growing quite rapidly in the last 2 or 3 years. So that's one. And sort of related to that, maybe even shifting focus to the corporate side. Given all the global and global and local uncertainties that we're seeing, plus the increase in interest rates by the NBK. What sort of appetite are you seeing from the corporate segment in terms of borrowing?

Yes. Ronak, thank you very much for the question. Yes, if you would compare the first quarter growth for retail this year compared to last year, yes, you probably noticed the slowdown in terms of the growth we see somewhat probably a better demand in the month of April. But however, it's quite holistic to assume that probably retail would probably -- so slower growth compared to last year as I already mentioned, is due to continued high inflation, but also due to base effect because we have some repayments from loans, which was originated in previous years. With regards to corporate portfolio, we believe the situation is -- obviously, the high rate is overall impacting the demand, but also -- this is an area which is the focus of the government in terms of stimulating the growth in terms of the investments, the government is looking into ways to stimulate investment, not only on the government-driven side, but also on private side, with the bank being the largest corporate lender we see the government activity. And we have a pipeline -- we think that, that would be enough to continue our growth in the large corporate area space. Well, in terms of the particular guidance percentage-wise, again, I can reiterate that we would come back with any updates, if any, when we'll be publishing 6-month results.

And just 1 last follow-up on the retail loan growth, like you mentioned, weak in Q1. One of your peers indicated that retail growth moderated because there are some regulations around smartphone -- registration of reported smartphones. Was that a factor for you as well? And do you think as that situation normalizes, maybe you should see a bit more of a stronger growth later in the year?

As I mentioned, actually, we saw growth in the first quarter on our Halyk Markets, including our e-com business, there might be some impact on sorting categories. But overall, as I said, we continue to grow the number of partners and SKUs, and we'll move that is a positive effect potentially, if we might see some slowdown. If any, this year, that might be for overview slowdown in retail because Kazakhstan, the marketplaces are substantially supported by credit products, including the NPLs and unsecured credits. But in terms of the supply side. I think we're looking fit in terms of being more supplied to lower clients on our marketplace.

And the next question comes from Olga Naydenova.

Congrats with strong results. I just have a small question relating to the duration of your held-to-maturity portfolio? And also, is it similarly accounted for in your national standards for the capital base that you show?

Thank you very much. The duration because the most impact was coming from our securities portfolio in tenge. The average duration is around 2.5 years.

And I will switch to the Q&A. And the next question comes from [indiscernible]. When you talk about the excess profit state securities taxation, do you mean both Kazakh treasuries and NBK securities or just NBK?

I think both [indiscernible] , but currently, treasuries, which is issued by Ministry of Finance is predominant state security installment.

And the last question is from [indiscernible]. Thanks to the great results. Are you experiencing more competition for retail deposits today compared to a year ago?

Yes. We think so because we see that banks have started competing more on the retail deposits, which is translated in this area. So interest rate increases by a number of banks. It is partially attributed by a change in a code from the National Bank to remove the sort limits set by the deposit insurance fund on the tenge-dominated deposits. But as you see from our results, we continue to perform well in terms of retail deposits. The minor reduction in the portfolio level is attributed mostly due to appreciation of tenge versus U.S. dollar. It was still around 30% of our retail portfolio is dollar denominated. Except for these facts, we think that on an organic basis, our retail deposits grew in the first quarter.

And the next questions come from the [indiscernible]. Do you currently receive remuneration or on mandatory reserves? If so, will a material increase in the mandatory reserve requirements, meaningful impact interest earning on Central Bank deposits?

[indiscernible] zero interest rate. So we are not getting any remuneration. We expect that approach would not be changed and increasing mandatory reserve requirements might impact the net interest in term to be received by the bank. Again, in terms of the timing and an exact impact, we hope provide better clarity during our next investor call.

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