Halyk Bank of Kazakhstan Joint Stock Company ($HSBK)

Good day, ladies and gentlemen. Thank you for joining us for the conference call today to discuss Halyk Bank's 1Q unaudited consolidated financial results. I'm Mira Tiyanak, Head of Fan IR. Joining me on the call today are Mr. Umut Shayakhmetova, Chief Executive Officer; Mr. Murat Koshenov, CFO, Deputy CEO, Finance, Subsidiaries, Compliance and International Activities; [Audio Gap] Mr. Mikhail Khasin, Deputy CEO IT; Mr. [indiscernible], Deputy CEO of B2C Banking; Mr. [indiscernible] , Financial Director; and Mr. Viktor Skryl, Strategy Director; and Mr. Rustam Telish from IR team. This session will start with the presentation by our team and will be followed by Q&A. And please note that the call is being recorded. Let me first start with the B2C update. We continue to see growing engagement across our Halyk Super-A% ecosystem with monthly active users reaching 8.5 million and daily active users 2.8 million. Monthly transacting users increased to 6 million, while our active client base expanded to 11.6 million, reflecting sustained customer activity across our digital channels. Transactional activity continued to grow with a number of payments and transfers increasing by 6% year-on-year, and transaction volumes up 14% year-on-year. We also maintained a strong position in our core customer base with active salary cards, representing 40% of the country's employed population. Overall, these metrics continue to support the strength and scalability of our digital ecosystem. Turning to our retail lending business. The retail gross loan book reached KZT 4.6 trillion, increasing by 8.3% year-on-year. Growth dynamics remained more moderate during the quarter, reflecting tighter underwriting resulting from regulatory changes as well as seasonal factors. Asset quality indicators remain resilient with the NPL 90 days plus ratio at 8.4% and coverage at 83.9%. Loan issuance totaled KZT 482 billion during the quarter, down 18.3% year-on-year, mainly reflecting the impact of regulatory tightening and its effect on BNPL and unsecured lending activity. We continue to maintain a solid market position with 17.7% market share, serving 1.84 million borrowers, while further strengthening digital penetration with 91% of loans issued digitally by number. Next slide, please. Our retail deposit portfolio reached KZT 7.9 trillion, up 10.4% year-on-year and quarterly dynamics reflected a modest normalization following year-end seasonality. We continue to maintain a strong market position with 27.4% market share, while local currency deposits represented 73% of the portfolio, supporting the stability of our funding base. Digital adoption remains high with 94% of new deposits opened for digital channels and over 300,000 new deposits opened during the quarter, reflecting continued customer engagement across our system. In B2B, we continue to expand our digital ecosystem and strengthen integration between banking services and everyday business operations. Online [indiscernible] continues to demonstrate strong traction and further scale up its operations. Since its launch, the GMV reached KZT 50.8 billion, while the number of connected stores increased to more than 17,000 covering approximately 35% of all stores across the country. Now let me turn to our online bank platform performance. We continue to maintain our leading position in B2B digital banking in Kazakhstan, supported by a large and highly engaged client base. monthly active users reached approximately 325,000 with daily active users at around 144,000 and 230,000 monthly transacting users. Client activity on the platform remains solid. During the quarter, the number of payments increased by 12.2% year-on-year while transaction volumes grew by 28%, reflecting a continued expansion in business activity across our customer base. Overall, these trends continue to demonstrate the strength of our B2B digital ecosystem and its important role in supporting transaction flows across the group. Next slide, please. Turning to our corporate lending business. The gross corporate loan portfolio reached KZT 6.5 trillion, increasing by 8.5% year-on-year Quarterly portfolio dynamics was impacted by seasonal factors and appreciation of Tenge. Our corporate portfolio continues to maintain a well-diversified structure across industries with no single sector representing a dominant concentration. This diversification remains an important factor supporting portfolio resilience and overall risk management. In addition, local currency of loans represented 57.3% of the corporate portfolio. Next slide, please. Now let me turn to our corporate business performance. We continue to maintain strong relationships with our corporate clients, serving approximately 2,900 active customers and demonstrating a high level of product penetration with an average of 4.5 products per client. Client activity across our corporate platform remains solid with total quarterly transactions reaching 2.8 million. At the same time, our borrower base continues to demonstrate deep engagement with an average of 5.9 products per borrower. We also maintained our leading market position, holding a 48% share in loans to legal entities and a 29.6% share in deposits of legal entities. Asset quality indicators remain resilient with the NPL 90 days plus ratio at 2.9% and a strong coverage ratio of 114.9%. Turning to our Semi business. We continue to deliver strong performance across key lending and digital metrics. Our semi gross loan portfolio reached KZT 2.3 trillion, increasing by 27.7% year-on-year, while loan issuance grew by 28.9%. Digital lending remains an important growth driver in this segment, and the digital loan portfolio for legal entity increased by 40.3% year-on-year and continued to expand during the quarter supported by increasing usage of our digital channels and financing products. We also continue to broaden our offering across the SME segment issuance number of digital boards more than doubled year-on-year, reflecting continued customer demand and increasing penetration of these products within our client base. Overall, these results demonstrate the strength of our SME franchise and support the continued expansion of our digital ecosystem. Turning to portfolio quality and client activity in the SME segment. Asset quality indicators remain strong, with the NPL 90 days plus ratio at 3.6% and coverage at 137%, reflecting our disciplined approach to risk management. We also continue to see a high level of client engagement across the segment, with product penetration reaching 2.6 products per active client. Customer activity remained solid with monthly transactions totaling 4.6 million and transaction volumes reaching KZT 13.5 trillion. Digitalization continues to be a key feature of our SME franchise with 96% of loans issued digitally by account. Now let me hand over the call to my colleague from IR team of Rustam Telish. Thank you.

Thank you, Mira, and good day, everyone. Now I will take you through the financial results for the first quarter 2026. The group performance in the first quarter of 2026 was in line with our expectations and support the full year 2026 guidance communicated earlier. Here, you can see the composition of the net income in first quarter '26 versus first quarter 2025. Net income for first quarter 2026 is down 14.6% year-on-year due to the impact of increased minimum reserve requirements and tighter regulations in retail lending. Let me briefly highlight the balance sheet trends. Today, assets of the group increased by 1.4% year-to-date. Average total interest earning assets in first quarter 2026 grew by 2.5%. At the same time, average total earnings bearing liabilities grew by 1%. Total deposits to total liabilities ratio was at the level of 79.6%. As of the end of first quarter 2026, total equity of the bank increased by 6.9% compared to the year-end 2025 due to the earned net profit. That led to a respective growth of book value per common share by 6.4% at the end of first quarter 2026. Loan-to-deposit ratio was up to 91.9%. For the interest income, it increased by 14.6% year-on-year, mainly driven by higher average balances of loans to customers. At the same time, interest expense grew by 27.8%, primarily due to higher average rate and balances of amounts due to customers as well as higher share of KZT amounts due to customers. As a result, net interest income showed positive growth of 2.3% year-on-year, despite the pressure from minimum reserve requirements and tighter regulations in retail lending. Net interest margin declined to 7% for first quarter 2026 compared to 7.5% in first quarter 2025, mainly due to the introduction of new minimum reserve requirements efficiency. Excluding this regulatory impact, adjusted NIM would have been 7.3%. Net fee and commission income declined by 26.1% year-on-year, mainly due to weaker BNPL transactional income following tighter underwriting standards introduced as part of regulatory changes. In addition, the gradual pass-through of VAT on certain banking services to clients also had a negative impact on fee and commission income. On operational expenses, OpEx increased by 7.8% year-on-year, mainly due to IT development related costs and increase in VAT. Despite lower operational income in first quarter 2026, year-on-year, our cost discipline allowed us to maintain low cost metrics. The cost-to-income ratio increased only to 18.2% and cost to average assets decreased to 1.4%. Year-on-year loans to customers increased by 11.3% on a gross basis and by 11.5% on a net basis. Compared with the year-end of 2025, loans to customers slightly declined by 2.2% on a gross and 2.7% on a net basis. This was mainly driven by seasonal factors and appreciation of [indiscernible] as well as tighter regulations in retail lending. The share of fixed loans in total net loans was slightly lower at the level of 24% -- 24.5%. Expected credit losses are in line with our full year guidance. Cost of risk in first quarter 2026 was at normalized level of 1.5. Stage 3 loans increased to 8.2% as of the end of first quarter 2026 year-to-date as a result of continuing moratorium on the sales of problem retail loans to collection agencies as well as a lower loan portfolio base. On a year-on-year basis, deposits of legal entities and deposits of individuals were up 3% and 10.4%, respectively. Compared with the year-end 2025, the deposits of legal entities and the deposits of individuals were down 5.8% and 1%, partially due to fixed translation effects following the appreciation of tenge as of the end of first quarter 2026, the share of tenge deposits in total deposits was 72.4% compared to 71.7% as the year-end 2025. In corporate deposits, the share was 71.8%, while the share in total retail deposits was 72.9%. Capital adequacy ratio of the bank increased in first quarter 2026 to 21% due to the net profit earned in the bank during the first quarter and the lower risk-weighted assets base. Risk-weighted assets were down by 3 year-to-date following the decrease of loan portfolio. Dear ladies and gentlemen, that quick through the financials. We will now open the floor to your questions.

[Operator Instructions] And the first question comes from Milosz Papst.

Firstly, I wanted to ask about your SME loan book, which seems to perform quite well in Q1 despite the seasonal factors and the FX impact because it was broadly stable and was up 27% year-on-year. And it seems that the average interest rate on those loans was also quite robust in Q1. So maybe you can give us some background to that. You've mentioned, of course, the digital or the growth in the digital loan portfolio. But I wonder if there were any other factors you can mention.

Milosz, thank you for your question. Yes, indeed, the development of our SME business, in general, is one of the largest priorities for Halyk Bank. And actually, we being the largest financial institution in the country, we put a priority -- one of our priorities that is working on SME business, which would include companies which are dealing in B2B segments, in B2C segments and B2G segment. We also putting work with SME clients in terms of the digital proposition also as one of the largest priorities. And what we see that the leasing on the digital side, especially covering small business and micro business and part of the medium-sized business is less dependent on seasonality, and it performs quite nicely. And as you can see, the growth in digital loan portfolio on SME business is outpacing the traditional loan book. And it's already happening for a number of quarters already.

Excellent. And then my second question will be on your Stage 3 loans in the retail segment. Shall we expect -- I mean, of course, you provided the guidance in terms of cost of risk for your entire portfolio for this year. But I just wonder what should we expect in terms of the pace of accumulation of Stage 3 loans in the retail segment in the coming quarters? Should we expect something comparable to the last few quarters?

It is subject to different factors. One of the facts is the growth of the loan book itself. So we see that the loan book was growing only moderate recently due to tightening in regulatory requirements. Secondly, we saw that the disposable income of population also dependent on the inflation side. We see that on inflation, there are some ready moderation, which is happening. And we see that year-over-year basis, inflation reduced to less than 11% level. And we hope that it might bring the growth of disposable income into positive territory for the population. In terms of the regulatory changes, they probably go in line with our expectations. So we do not expect any negative surprises on that side this year. That's why we expect that the lending growth would on the retail side would be in line with annual guidance, which we provided earlier. At the same time, we see that the season is continuing to happen on the retail side, and there is still limitations on the bank side to sell loan portfolios to collection agencies. But otherwise, we do not see any, let's say, factors which might materially change our outlook. So we see that the quality within overall portfolio and within unsecured consumer lending remains within our expectations. There might be, as I said, some let's say, accumulation continue to happen coming quarters, but we are working on the walkout. So we have a number of initiatives how we can continue to improve our work out, but the cost of risk situation remains, as I said, within our expectations.

Perfect. And my last question would be on your dividend policy. Maybe you can shed some light on the prospective changes to your dividend policy in light of the changes to Halyk Corporate Chartered at the recent AGM in terms of quarterly dividend payments.

Yes. Regarding the frequency of dividend payments, again, 3 years ago, we changed the frequency from once a year to maximum 2 times payments. We -- according to recent changes in the charter put the possibility to potentially increase that payments up to 4 times a year. But to do that, we still need to make one more step in terms of amending the dividend policy. So we'll be doing that in due course. It's not that we necessarily will go to quarterly payments, but we, at this point of time, just opening that possibility. And again, first, we need to make changes in the charter before we're moving potentially to more frequent payments.

And the next question comes from Simon Nellis.

Yes, I guess I just have a question on net interest income fees and other income, so basically revenue. On the net interest income, you seem to be trending a bit better in terms of your guidance on margin, right? I think you're guiding for around 6.8 for this year. You did over 7 . So can you explain what's driving that and if you think this higher margin can be sustained? Obviously, on fees, it was a weak quarter. Just wondering if you still feel comfortable with your 5% to 10% guidance of growth for fees this year because that would imply a quite sizable increase in fees in the coming quarters and where you think those the increases are going to come from if you're still happy with the guidance? And then last, I guess, the same question in terms of other income, which was a bit depressed this year.

Simon, thank you for your questions. Regarding the net interest margin. ended, we posting better NIM than overall guidance, which we provided for this year. And as you can see, we have also provided NIM adjusted for changes in minimum reserve requirements. Saying that we have to mention that there is another increase in minimum reserve requirements, which kicked in, in April. So it would start affecting our NIM starting from the second quarter. That's why probably it's a bit premature to amend guidance in that perspective. But so far, I think we're happy with NIM, which we posted as far as the first quarter is concerned. Regarding the fees and commission income, there were a few factors which actually affected such a dynamic in the first quarter. One thing is, as we mentioned previously, I think a bit slow start of the year, economy-wise, partially explained by introduction of the new tax code and some broad landing of client separations in the end of last year. Secondly, the -- our tightening in terms of the underwriting criteria for which is also accounted in the fees and commission income. And thirdly, the introduction and increase in value-added tax for certain banking operations. So these are probably 3 main criterias and also a partial increase in our loyalty program for SME enterprises regarding new launched transactional products. So these are probably 4 criteria which for aspects which impacted fees and commission dynamic as far as the first quarter is concerned. Regarding the guidance for the full year, we expect that fee and commission income would start showing better dynamics starting from the second quarter. In terms of the particular guidance, we would be coming with that when we'll be reporting the second quarter results.

Okay. So you do expect an improvement in fee generation in coming quarters? And just on other income, do you expect also some pickup there?

On the other income, actually, it was a one-off profit which was recorded in the first quarter last year related to some work out in our stressed asset SPV, Stress Asset Management Company subsidiary. So that was not something which is specific to our core business.

But in the third, fourth quarter -- second, third and fourth quarter of last year, I think other income was almost KZT 90 billion. And this quarter, it's KZT 50 million. So are you saying that the new run rate is closer to KZT 50 million than KZT 90 million because that would be a big drop in other income.

Simon, just a moment please. Simon, are you referring to first quarter results.

I'm just looking at the quarter. So in the first quarter of 2026, I have other income of KZT 50.6 trillion, I guess that's trillion tenge, right? And in the fourth quarter of last year, third quarter of last year, second quarter last year, it was around KZT 90 trillion. So a pretty big drop, not just versus first quarter last year, but also [indiscernible] in the year.

Other noninterest income, KZT 5.7 billion in the first quarter this year compared to KZT 20.6 billion first quarter last year. And the difference is primarily due to one-off gain, which we posted in our SPV, as I mentioned.

I think I also included the insurance -- the net insurance income in that figure. It just seems quite a bit lower than what...

Yes. Okay. On the insurance side, there was indeed a reduction in our income from insurance separations. But when we talk about the insurance subsidiaries, basically, you have to appreciate that there are 2 types of revenues, 2 types of income. One is generated from insurance business; and second one, the revenue which is generated from our investment activity because typically, the business of insurances that they collect premium, they allocate certain amounts in terms of reserves, but also the investing the proceeds. And also they can earn from the investment operations. So if we take the insurance business in its entirety, which would include income from insurance portion, but also income from investment portion. Overall, we see increase roughly by 40% in terms of overall net income, which we received from our insurance subsidiaries. The part which was with reduction on a year-over-year basis is within one of our subsidiaries to higher payments, high insurance payments. And that affected the net income from insurance operations, particularly. But as I said, if you take that in its entirety, including the income from investment business, then it was a positive results.

Okay. Maybe we can take this offline.

And the next question comes from the chat. Question comes from [indiscernible]. How do you manage a fixed risk in the bank, [indiscernible] deposits, we have loans in currencies like USD. And if you [indiscernible] plus/minus 5%, what effect on profit plus equity. the second question, how do you manage interest rate risk in relation to your assets and liabilities? What is the overall strategy as in adds plus/minus 1% change in interest rates affect your profits and equity?

Daryl, thank you for your question. Regarding the management of tax risk, typically, we, as the banks do that through running the limits on the open currency position, typically would be running neutral position, meaning that we would match our exposures in foreign currency through asset liability, either on balance sheet or including some of balance sheet instruments. But typically, we'll be running close to neutral in particular cases we might be running either positive or negative open currency position, but that would be to a less extent. One of our -- a few of our subsidiaries might be having open currency position in foreign currency because on insurance subsidiaries, their liabilities are typically in local currency, while the investment portfolio might contain some foreign currency foreign currency position. In terms of the volatility, I can refer you to the annual results because there, we would be showing our sensitivity to changes to FX positions. Regarding your second question on the interest rate risk, we also are running certain limits in terms of the interest rate limits in our banking book operations. And again, within our annual reports, you might find specific section, which is showing our interest rate sensitivity of our equity and P&L.

Next question from the chat come from [indiscernible]. Thank you for the presentation. Could you please comment on the growth in the profit of the Investment Banking segment. Anyone one-offs?

Thomas, thank you for your question. It would include the [indiscernible] portfolio of our subsidiaries. It's our brokerage, primarily our broker subsidiaries. They're growing. I think with some organic growth, but we do not see any one-offs in that particular business. And if you refer to our segmented reporting, that also would include the investment portfolio of the bank, which would become mostly concluded -- which would mostly contain the fixed income instruments, either Ministry of Finance Treasury deals or some other fixed income instruments.

The next question comes from [indiscernible]. Any update on your borrowing plans.

[indiscernible], thank you for the question. We -- from the fixed instruments, which in terms of the liability side, we only have programs to attract funding on domestic markets. We do not have plans to go to the international debt capital markets at this point of time.

And the next question comes from Ronak Gadhia.

Two questions. A couple of times in the presentation, you mentioned the negative impact on by now pay later from regulatory actions. Could you just highlight to us what those regulatory actions are and whether you expect that book to -- the growth in that book to start normalizing anytime soon? So that's the first question. And maybe somewhat related to that is, I guess, the National Bank QR code payment system has probably been online for now the last, let's say, maybe 2, 3 quarters. Have you seen any noticeable impact on your payment volumes, i.e., have you seen any shift in your payment volumes from the traditional channels to the QR code system? And if so, what sort of impact is it having on your take rates?

Ronak, thank you for your question. Regarding BNPL, I think we mentioned 2 things. One is our tightening of underwriting criteria and secondly, regulatory ones. And our underwriting criteria dependence on the dynamics, which we see in particular portfolios. So we saw last year that particular product needs probably a bit more scrutiny in terms of the underwriting standards. So for BNPL, that was probably the primarily reason why we tightened the approval rates. But there was also the overall regulatory changes and regulated do that through various factors looking at the way how the banks are calculating income also limiting -- in terms of the -- there were some age limitations. There was limitations in terms of the size when the clients need to get the approval within their family, the approval from the spouse, the first time approval. So there was another [Audio Gap] at which regulator was looking wide in our previous calls. Regarding the QR, it is running currently in pilot mode. And what was announced -- was told by the national banks. So they expect to move to more production level sometime during the third quarter. The expectation is July, but we'll see what would be the actual launch date.

And the next question comes from the chat. Question comes from Patrick [indiscernible]. Murat, could you please comment how the recent changes in the macro landscape, higher oil prices, [indiscernible] appreciation, slight decline in inflation affects the various elements of your guidance for 2026, loan growth, NIM, fee and commission, the core and ROE.

Patrick, thank you for your question. I think, indeed, the first quarter was quite eventful from the macro perspective. First of all, we saw a disruption in oil production during the months of June with -- sorry, during the month of January, which might be affecting the overall oil production for the full year. So currently, expectations are that the production would be less than projected by 4 million to 5 million tonnes. At the same time, the oil prices obviously is on the positive side, and that might be more than compensating reduction in oil production. We also saw the strengthening of tenge during the first 4 to 5 months. And the main reasons are higher rates in tenge. We saw that the Central Bank actually halted purchases of dollars to unified pension fund portfolio. There was continuation in sale -- mandatory sale of export proceeds by quasi government sector. There were some mirroring transactions by the Central Bank when they were buying gold. And there was some inflow from foreign investors into local tenge denominated bond market. So that overall were the reasons which strengthened tenge during the first few months. On the inflation side, we see moderation. There are a few reasons. Obviously, the strengthened tenge might help reduce the external pressure from the inflation, but also a more disciplined approach from the central bank keeping the rates high, but also from the government. So we saw that the transfers from national fund to the budget remains within budgeted numbers since beginning of this year. At the same time, Central Bank looking a bit cautious because they would expect that external inflation pressure might come later this year, given the high oil prices and some pressure might be coming from resumption of tariffs growth and growth on petrol prices, which the government halted mid of last year. We also see that the business continue to adapt to the changes to the tax code, which was the big disruption to business activity in the first couple of months. Overall, we see the macro environment more or less balanced as far as our business and our initial guidance were concerned with probably some small exceptional fees and commission. But as I said, we see some better picture on the fees and commission starts showing up, and we'll see whether any corrections to the guidance would be warranted when it comes guidance for fees and commission income. On the cost of risk and overall profitability, again, nothing surprising is happening. So overall, from a macro perspective, we see that the picture is in line with our expectations.

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