Joint Stock Company Kaspi.kz (KSPI) Earnings Call Transcript & Summary

Hello, and welcome, everyone, to the Kaspi.kz First Quarter 2025 financial results. [Operator Instructions] I will now hand you over to David Ferguson, Head of Investor Relations at Kaspi.kz to begin. David, please go ahead.

Great. Thank you, Maxine. Good afternoon, good morning to everyone. Thanks a lot for joining us for our first quarter 2025 financial results. I'm David Ferguson. I'm joined, as usual, by Mikheil Lomtadze, our CEO and Co-Founder; Yuri Didenko and Tengiz Mosidze, our deputy CFOs -- deputy CEOs, sorry. So Mikheil will take you through the strategic update. I'll run you through the operational performance in the first quarter. I'll do that quickly and then spend a bit more time on the guidance for the remainder of the year. There's a couple of moving parts to discuss, and then we'll open up the call for Q&A. So on that note, I'll hand it over to Mikheil. Mikheil, over to you. Thank you.

Hello, everyone. So let's just go through our first Q performance. In general, we had a good first Q. The company itself is performing at the levels which we expected broadly within our expectations. The payments, the continued the strong growth revenues plus 16%, net income, 21%. In the marketplace in the first grew 20% year-over-year, and the revenue, 33%, net income, 19%. And the fintech origination volumes grew 17%, 18% revenue, 8% net income the monthly transactions have been strong, and we continue to have a very engaged consumer base and the revenue plus 21% net income plus 16%. The overall the company's underlying performance is broadly within our expectations. It could have been better on the GMV side. There was requirements to register smartphones, which was introduced in Kazakhstan and that had a quite significant temporary impact on the demand for smartphones. And then on the FinTech side, we see the continuous high interest rate environment which, again, will continue probably through this year. And we are here also introducing higher interest new deposit products, which I will talk a bit as well. So next slide, David, please. So the gross e-grocery, this is the business which we have started one of -- the fastest-growing business in our e-commerce. We continue scaling fast and expect to continue strong growth through the year. The active consumers reached almost EUR 1 million. The GMV 64% up year-over-year and then the purchases are up year-over-year with a 3.3 million purchases in the first Q. As you know, we are operating in the 3 cities, 3 largest cities now. And we are planning to enter another 2 cities. So the team continues to execute on the grocery and you see that average ticket is very good, stable. And yes, we just continue scaling across the country with the -- simultaneously, as you know, Kaspi is very good at continuously good from an operational side, but also scale, and we are entering the new cities to support the growth, and we expect e-Grocery to continue scaling fast through the year. New term deposits that we have launched for consumers. Those deposits are aiming at a higher interest rate. Our interest rate environment has been basically due to all sorts of factors which have nothing to do with Kaspi itself. We are in the high interest environment and there is a demand for deposits, which, on the one hand, have high interest. On the other hand, those deposits are for sort of savings, where you can top up deposit basically anytime, but the term of deposit is actually fixed to the 3 or 6 months. The deposits itself have been very successful in the market. As you can see, we went from basically nothing to 84,000 consumers and almost KZT 379 billion of those deposits. So they are growing fast. There is a demand for those deposits. And therefore, this product has been quite successful, and we will be -- as you know, the strategy we have always said historically is those are the best consumers that are saving with you. And in the future, they are making purchases through all our other services and therefore, investing into the -- acquiring the consumer deposits and the consumers with deposits have been part of our historical strategy always. Again, in the future, interest rates will go down, and therefore, there is additional opportunity for the profitability. At this stage, we are in the high interest environment. Therefore, we're taking advantage of this as well. We have been going through the different deposit terms upgrades. So this is just a bit of a time line for you guys to understand. So for example, we did reduce the deposit in February of '24, from 14% to 15%. But then in '25, we do have a high interest environment. So we have introduced 6-month maturity deposits at 17%. Then we have increased the rate on all our current deposits from 14% to 15%. And then we introduced the 3-month maturity deposit at 18% interest rate. The way that we work with our consumers, for example, when we introduce -- when we increase the rate of the existing deposit from 14% to 15%, we reprice our entire portfolio. So that's the way our products work, and we have been doing this consistently for as long as we had basically deposit products. So that's something you should keep in mind. As soon as we increase the interest rate, we reprice our entire portfolio. So when we went from 14% to 15%, we, therefore, repriced the existing portfolio of our Kaspi deposit. And now the fastest-growing deposits are the ones which offer the higher interest rate of 18% and 17%. A couple of other things. We have raised Eurobonds. This is our first Eurobond, which we have successfully raised EUR 650 million at 6.250% which is due in 2030. Again, this was for us an opportunity to build a track record with fixed income investors, and this is the first Eurobond we have done. And yes, considering our strategy for international expansion and investments in Turkiye more specifically, it's good to be in a position of the financial strength. So that's good to build a track record, but also specifically that transaction was successful in our Eurobond fundraising. We have also signed the agreement to acquire Rabobank. And this is a fully licensed bank, which doesn't really have any customers and doesn't have a branch network. And this enables us to continue developing a fintech product in Turkiye. And also our initial plan is that we will invest roughly around $300 million in 2025 to fund our fintech strategy in Turkiye. So David, back to you just to go through the platforms.

Yes, sure. So thank you, Mikheil. So firstly, on the payments platform pretty straightforward. Decent volume growth of 17% year-on-year, faster TPV growth, up 23% year-on-year. That is a function of higher ticket size, higher inflation, all 3 of the core payment products are contributing to that, Kaspi Pay, bill payments and B2B payments. With B2B payments, growing and expected to continue growing at a faster rate than overall TPV. Take rate moves down to 1.13%, that is consistent with the trend over the last 12 to 18 months and is simply a function of mix change, namely B2B payments and Kaspi Pay QR growing in share within the mix. In terms of the financials, TPV growth with some yield compression results in 16% revenue growth versus 23% TPV growth. There is a slower revenue growth on interest balances. Average current account balances increased 8% year-on-year. But overall, 16% is decent. And then as you've consistently seen with payments business, the combination of tight cost control and its inherent operational gearing ensures that strong top line drops through at a faster rate to the bottom line, 21% bottom line growth. Outlook for payments, highly predictable, healthy and unchanged versus when we updated the market at the end of February. Moving on to marketplace. Marketplace remains the fastest-growing top line platform. GMV growth up 20% year-on-year in the first quarter, supported by purchases up over 36% year-on-year, e-Commerce and e-Grocery particularly playing the part. But actually, again, just like with payments, all 3 services, e-Commerce, m-Commerce and Travel are contributing to growth. Take rate moves up, a continuation also of a theme you've seen over the last couple of years, driven by value-added services. Take rate accretion will ensure fast GMV growth drops through to the revenue at a faster rate. Specifically on e-Commerce. e-Commerce increased -- e-Commerce GMV increased 23% year-on-year on the back of purchases, up 97% year-on-year. Grocery, the main driver of that growth, that high number of growth in purchases. As Mikheil talked about, however, in March of the year, the Kazakh government introduced requirements around the registration for smartphones imported into the country. A number of reasons for this, but one being to ensure the correct duties are paid by importers and merchants and what that meant is a sharp increase in prices on smartphones countrywide at a falloff in demand in the final month of the quarter. Smartphones are an important GMV category for e-Commerce. They account for around 18% of e-Commerce. And we estimate the impact of the fall off in demand in March knocked around 7 percentage points of growth, so that 23% GMV growth would have been around 30%. You can expect this to remain a theme in the second quarter of the year. But the good news is that this will be temporary. Once this has sort of worked through, demand for smartphones in Kazakhstan is not going to change. And actually, it's perfectly possible, you see some catch-up effect in the second half of the year. Moving on to m-Commerce. m-Commerce also delivered a decent growth, GMV up 17%. Take rate accretion in m-Commerce is less than for e-Commerce. E-Commerce is the beneficiary of value-add, it is the main beneficiary of value-added services, advertising delivery and classifieds. So e-Commerce take rate moved up to 12.5%, 140 bps and m-Commerce take rate moved up 20 bps. m-Commerce growth also impacted by the slowdown in smartphone sales in March, but to a much lesser extent than e-Commerce. Kaspi Travel continues to deliver good, healthy results. GMV up 22%. Strong growth across the board, but again, Tours do it, which we introduced around 12 to 18 months ago, delivering really decent GMV performance and now up to 11% of Travel GMV from 0, just 18 months ago and driving the increase in take rate here. So take rate moves up to 5.3% from 4.5%. Further innovations planned in Travel over the course of the year. In terms of the financials for marketplace, fast GMV growth, both with take rate expansion in all 3 platforms translates into faster revenue growth, up 33% year-on-year. That's versus the 20% GMV growth. Profit growth is lower, and that, again, is consistent with trends over the last 2 years is primarily a function of growth in e-Grocery. The other point to call out here is that going forward, it is possible that some large ticket size discretionary transactions, which would be largely weighted towards e-commerce are impacted by broader macroeconomic uncertainty. So categories to call out would be categories like consumer electronics and cars. Keep in mind that a category like cars, one transaction makes a material contribution to GMV with a negligible contribution to the bottom line. We can come back to that later on. Finally, moving on to the fintech platform. Decent marketplace growth translates into decent TFV origination. As has been the case over the last couple of years, the growth has been primarily being driven on the merchant side of the equation rather than on the consumer side of the equation. And again, that should be a theme that replicates, it continues to be seen going forward. On the balance sheet side of things for the last 2.5 years, you've seen the loan portfolio grow at a faster rate than the deposit portfolio. That will now switch around the other way. The loan-to-deposit ratio is high. And just as you saw in 2022, we'll take advantage of a high interest rate environment to once again focus on growing the deposit base, as Mikheil talked about, the logic being more deposits will drive more future transactions and will give us more funding, which again will drive more future transactions on the marketplace business. Pricing trends in fintech stable year-on-year. Cost of risk in the quarter increased to 0.6% from 0.5%. The increase was primarily due to macro provisioning and that macro provisioning is related to the sharp increase in interest rates in the first quarter. Underlying credit trends remain unchanged. And for the year, we expect a cost of risk to remain stable. Therefore, cost of risk was a drag on fintech profitability in the first quarter. But over the course of the year, again, we expect stable trends. The increase in the NPL ratio versus the end of the year is normal Q1 seasonality. Actually, if you look back on the last, the Q1 conference calls over the last couple of years, you'll see a similar pattern, Q1 NPLs move up and then they typically move down again in the second quarter related to seasonality. So decent TFV growth over the last 18 months has translated into decent revenue growth of 18%. Higher cost of risk muted net income growth in the first quarter of 8%. But again, we expect cost of risk to be flat over the course of the year, although as Mikheil has talked about higher funding costs now will be a theme as we grow the absolute number of deposits and the cost of those deposits has increased materially. You should keep in mind that we came into this year with interest rates at 14% across the portfolio. And within a couple of months, the latest product has rates of 18%. That's a substantial increase in costs in a short period of time, but we see it again as an investment in the business, assuming we have successfully attracted deposits over the remainder of the year. Moving on to Hepsiburada, their first quarter results were published by the close of market on Thursday of last week. You can refer to their disclosures for a detailed update. On the revenue side of things, we just make the main call out would be the politically-driven consumer boycotts in March did materially impact GMV trends. That also meant that the company pulled back on its marketing, performance marketing initiatives, which again exasperated the revenue -- negative revenue momentum in the quarter. On the cost side of things, the combination, therefore, of negative operational gearing, number one, and growth in loan loss provisions, number two, resulted in a net loss of TRY 355 million. Around 40% of that loss is coming from higher loan loss provisions. That is perfectly normal in the context of early-stage fintech products. You're testing your risk, you're experimenting with different risk models or higher provisioning is a normal consequence of that, number one. And number two, just to avoid sort of any confusion here, these sort of loan products should not be confused with what Kaspi is doing with its bank acquisition in Turkey. This relates to product initiatives that were started in Hepsiburada last year and have been part of its strategy over the last couple of years. So for Kaspi, despite the impact of lower smartphone sales in March, and despite higher macro provisioning in the first quarter. The first quarter results were broadly where we expected them to be. Revenue up 21%, net income up 16% year-on-year. If you ex out the impact of the macro provisioning, net income would have been up around 19% year-on-year. These numbers exclude Turkey. Including Turkey, revenue increased to KZT 834 billion. Net income loss was -- net income was KZT 254 billion profit. The loss from Turkey was equivalent to KZT 6 billion, around sort of 2% dilution. So a small negative impact from Turkey and particularly small in the context of Kaspi and relative to the long-term opportunity that Turkey offers. So moving on to the guidance. GMV growth moves to 50% to 20% from 25% to 30% previously. So number one, that is a function of the new rules for imported smartphones, it meant higher prices in the short term and temporarily lower demand. But again, this should be a short-term effect that should work itself out in the second half of the year and into the following year. Secondly, increased macro uncertainty and the potential for that to impact higher ticket verticals. I gave the example of cars, average ticket size for 1 car transaction, $10,000 versus average ticket size for an e-commerce transaction, $30. So you can see there how that vertical could have a disproportionate impact on GMV, but almost no impact on the bottom line. That change in outlook should not be confused with the change in outlook for the core 3P marketplace business beyond the point we've made on smartphones. TPV outlook unchanged, TFV growth of around 15% at the lower end of the range, given previously of 15% to 20%. And again, that just reflects slower marketplace growth. There's a couple of other factors to point out. Number one, higher interest rates. We talked about it before. That in itself is probably the sort of biggest drag on earnings. But again, just to reiterate, whilst that is a headwind in the near term, interest rates in Kazakhstan are extremely high. And over the medium term, that should turn into an important tailwind for the business, number one. Number two, we expect the Kazakh government to introduce a 10% tax on revenue from investments, primarily in government securities. We expect this to be applied to interest revenue for the whole of 2025 at 10%, number one; and number two, we expect the government to increase National Bank reserves from the summer of this year. Both of these 2 factors are still to be confirmed, but we think there is a high probability and hence, we include them in our guidance today. The combined effect of those 2 factors will be around sort of approximately 200 bps of net income this year. So there's a number of moving parts. The question is, is the guidance conservative? Well, we try to definitely reflect these different scenarios in the updated guidance to the best extent that we can. On that note, we will open the call up to Q&A.

[Operator Instructions] Our first question comes from Ygal Arounian.

Ygal Arounian from Citi. Maybe just on the macro because I have a couple of factors. If you could expand on the macro uncertainty in Kazakhstan. Is that driven just by the higher interest rates? Or are there more things you're seeing there? If you could help us kind of understand the framework of what's going on there? And then in Turkey to with the boycotts, has that changed your -- I know it's not going to change your long-term outlook, but your near-term outlook for the integration, your expectations around what you can do in Turkey. Would love to kind of get a sense on that level?

All right, Ygal. Thanks for your question. So on macro, I guess, there's a couple of things you could sort of point to, but I think let's just keep it simple. Lower oil price can translate into slower GDP growth, number one. Volatility in commodity prices can translate into currency volatility and increased uncertainty number two. Again, I wouldn't overexaggerate this. I mentioned earlier, we expect payment trends to be resilient throughout the year. Payment trends are indicative of spending in the economy, but some high-ticket discretionary transactions, which would be weighted to marketplace and could disproportionately impact GMV could be impacted to some extent. And we're choosing to take a conservative approach. The third area, currency weakness translates into inflation and higher interest rates, which we've talked about, and that is a pressure on earnings in the near term. So there are a number of different moving parts. They create some more uncertainty at the margin. We're taking a conservative approach. But again, overall, the outlook for this year remains robust and decent. On Turkey, simple answer for me is no. But I know have Mikheil has anything to add to that.

Yes. I mean in terms of our plants, we has -- doesn't have any impact? Again, whoever has been -- who has been following the Kaspi and the way we sort of work, I think it's all about quality of the product, quality of the consumer and the merchant experience and that's what is important for the long-term success. It's -- again, it's not about competition. It's not -- it's really about delivering the super quality products and the services to our customers. And that has been our most important strategic priority always in our operation. So that remains our focus.

Okay. And just a follow-up then on Turkey and the Rabobank acquisition, you talk about a little bit more of the early steps there and building out the fintech platform, how much progress have you made? Maybe an update on time line products as you roll that out.

Well, at this stage, we are still in the process of getting the approval for the acquisition. So that will happen probably sometime in the second half of the year. And -- and therefore, that's basically the most important immediate step for us to put in a simple words, a license to launch the products on the market. We do see a lot of opportunities in the digital and online services. So as soon as we have approval in, then we will start -- yes, we'll start introducing some of the fintech products on to the market in Turkiye, but we're really excited about the things that we could do and how we can take fintech and financial services to another level.

The next question comes from Darrin Peller from Wolfe Research.

All right. Can we just start off by going a little further into those onetime factors impacting guidance one more time. I mean I think the interest rate on securities, just -- is that a 1-year item? Just trying to figure out the timing of that. And even on the smartphone dynamic, if you can explain a little bit more of what exactly happened, how you estimate it's impacting your numbers? And then putting those aside, what you see as marketplace normalized growth right now, if you were to pull out some of the factors on the macro front that you're just referring to now.

Yes, Darrin. So a couple of things. So all right, firstly, let's do the smartphone one. So this is a ruling that came into place in March. It relates to the import of all devices, smartphone devices into the country. The unique code within the device needs to be registered with the authorities. I mean this is actually quite common all around the world. There's different reasons for this security being, one, to ensure the relevant sort of import duties are paid. Number two, amongst other factors. And what that has meant is that over across the country, the price of smartphones increased, number one, and demand temporarily fell off. You saw this quite dramatically in our numbers. In March, and you can expect that to continue in Q2. It will work its way through relatively quickly. It's, I guess, a price adjustment, a short-term price adjustment to the margin, nothing hit to the market. Nothing has changed in Kazakhstan with regard to people's use of smartphones and so on. So demand should normalize in the second half of the year, as I mentioned, there could also be some sort of catch-up effect there. You asked about normalized rate. Well, I mean I would take the normalized rate. You asked how we can quantify it. Well, we know the size of smartphones as a category within e-commerce. I said it's about 18% of e-commerce. GMV, we saw the impact in March. So I'd say normalized e-commerce growth rate is around 30%. If you adjust for that factor versus I think, 3% that we reported in the quarter. So that's sort of one-off. I think the second is interest rates. I mean, that is actually the biggest sort of drag, higher interest rates. You saw that the Central Bank we came into, we sort of -- if you think about sort of 6 to 7 months ago, just as the trend globally, rates are expected to move down. Inflation started to wobble, Central Bank moved freights up in December and then, again, move them up sharply in March of this year, higher national bank rates to combat inflation, translate into higher deposit rates for us. But again, whilst this isn't one-off, the good news here is that, well, I wouldn't want to speculate on whether interest rates have peaked, but they are incredibly high at the moment, and there is a material drag on earnings in the near term. It's not unreasonable over the medium term to think about rates normalizing, if you think back to sort of 2022 rates were sub-10%. So it's a big change in costs. So what is for 2025, a headwind does have the potential to be a tailwind over the medium term, although the timing is difficult to predict. On the 10% tax that's likely to be introduced for liquidity revenue. No, that's not one-off. You should assume that, that stays in place going forward. It's not actually material for us. There's other banks in Kazakhstan that have a much larger share of their P&L that comes from investment activities. We're a transaction-based business. But at the margin it makes an impact, same also for National Bank higher potential reserve requirements is not huge for us. But again, at the margin, it makes a difference. I talked about sort of those 2 factors knocking around 2% of growth. So there is a number of different moving parts. We tried to sort of put them all together here and reflect that in the guidance. And probably we've done that correctly.

All right. That's very helpful, David. Mikheil, just a quick follow-up would be on the payment side. When I think of the underlying growth rate, and I see the B2B side, in particular, or bill payment, maybe just break down the key drivers you're seeing more versus less strength and right now affected by macro perhaps. But on the payment side of the business, if you were to break it down a little bit more on what you're seeing more granularly.

Mikheil, that question is for you.

Yes, sure. I mean on the payment side, at this stage, I mean it's -- I mean our payments business is really all about enabling the flow of the money and the purchasing and the transactions and the payments. So from that perspective, that is -- there is less impact just because we are the drivers of the cashless transactions. The B2B side, that's something which has been historically growing fast just because of a low penetration, but also the type of services that we launched when the payments can be processed between our merchants and distributors. So from that perspective, we feel like payments business is -- yes, it is in a good place and -- and also we constantly innovate around the payments as well as supporting the growth and B2B is really just one example of what we do.

The next question comes from Reggie Smith from JPMorgan.

I had a follow-up on the mobile phone things to make sure that I'm understanding it correctly. So as I understand it, I guess, the government is cracking down on counterfeit phones, and like a quick search showed that or suggested that as much as half of the phones brought in to Kazakhstan or sold in Kazakhstan, where, I guess, believed to be counterfeit. You talked about things improving in the back half. It sounds like it's a supply issue more so than the demand issue. Am I thinking about that correctly. Because if the issue is that there just aren't, I guess, legit phones coming in, like how does that correct in the back half of the year? And then a second piece of that, was there any signaling prior to the announcement, that this could be coming down the pipe? And I guess, finally, is there anything else that is going on in Kazakhstan that could potentially be a thing or an issue for you guys from a regulatory perspective that we may not be talking about or thinking about today. When I say we, I mean, U.S. investors.

I mean, from my side, I wouldn't say it's a supply issue. Let's not sort of overcomplicate it. There's no reason why smartphones can't be imported to Kazakhstan. So it isn't a supply issue. If devices are being imported the correct way, it's just meant a certain increase in prices. It means the duties are being paid. Actually, this is a good thing in the long run because you are again, just bringing more transactions into the formal economy, of which we are a beneficiary of. This is a blip that will work itself out in the next couple of months. But for any e-commerce business, whether you're in Kazakhstan or globally, in the U.S., I mean, smartphones are just an important e-commerce category. So any sort of change in demand is hard to escape from, but it will work itself out. Mikheil, anything else on the coming down the pipe that we need to be aware of?

Well, I mean, we did mention about 10% tax on revenue from government securities. So at the moment, the tax is 0, which is unusual for many other markets. So as part of the new tax code discussions, the new tax of around 10% on revenue for government securities will be introduced, at least we think that it will be introduced. And yes, I mean, nothing really else comes to my mind. I think we did discuss on the previous call that the bank tax also being discussed as part of the new tax code that the income tax will be raised from 20% to 25%. And the banking is one of the businesses that we have. So yes. I don't know, I don't think there is anything else at this stage that we believe or we think might have an impact.

Got it. That makes sense. And then I guess just to follow up on the mobile phone. And maybe I'm thinking about this wrong. I guess previously, there was a large supply of cheaper mobile phones due to counterfeiting or whatever. And that supply is going to go away. And so now people are going to have to buy legitimate phones that may be more expensive. Is that the right way to think about it? Or have I oversimplified it? Or am I missing something?

That's the correct way to think about it.

Yes, we estimate that the price for mobile phones will go up.

The next question comes from James Friedman.

It's Jamie Friedman at Susquehanna. In terms of the Rabobank acquisition and the overall banking strategy in Turkey, Mikheil, I'm just wondering how you would compare the opportunity there relative to Kazakhstan. How the strategy may be different as you go to market there versus in your home country and what the $300 million investment is targeted to achieve to get you standing up there.

Okay. Well, I mean, we will be discussing the details in a due course. And the one thing I can mention that the investment itself should the transaction be improved, this combination of the funding the product development, but also the capital, which any license bank needs a minimum capital to operate. So all those things will just give us an opportunity to innovate around the financial services. I wouldn't expect anything or major introduction of the new sort of services this year. The approval only itself will take us into the second half and when you think about the financial services, in general, it's important to have a very high-quality product from the very beginning because that's what builds up the loyalty, and therefore, we will be looking to launch not -- I mean, not launch, but basically just do -- we have already, I think, the world-class financial products in our mobile application. So those are the things we'll look to launch. But I don't expect anything sort of a major to happen this year because we need to complete acquisition first, gets approval and then set up everything right for the long-term success. So we are not in -- we never hurry to launch things. We want to make sure we get them right and perfect, especially in financial services. And in the lending business, it's equally important to get paid back when you originate. So originating, you either build asset or you build a liability. So in our case, you need to build the whole process to make sure that the product is a very high-quality, like Kaspi has, but also the cost of risk, which we have historically around 2%, which is the world class, is really the important metrics for any lending operation.

Okay. And then my follow-up is with regard to the relative growth of 1P versus 3P. So in terms of what is embedded in the assumption for the guidance, David, I think you alluded to this in your prepared remarks. Yes, how should we be thinking about that because that can have an impact on take rates, obviously, and margin. 1P versus 3P assumptions as we travel through the cadence of the year?

Well, 1P is really just grocery and to a much lesser extent 1P cars. So 1P grocery, actually, we pulled it out in the first quarter. You saw very, very strong growth. And I think you can expect it to continue to post numbers not dissimilar to what you've seen in the first quarter, which is fast and is faster than the 3P business in response to Darren's question, we talked about 3P business normalized rate of growth in the first quarter, around 30% versus e-Grocery growing north of 50%. The one sort of to flag -- again, let's not overexaggerate it because in practice, it's noncore, is 1P cars. 1 and 3P cars, but where it makes a difference to GMV. Again, I made a point sort of a $10,000 transaction versus a $50 or $30 transaction, but the bottom line impact from that is very -- is not material. So don't confuse the GMV downgrade with an equivalent bottom-line downgrade, you'll get to the wrong answer, if you do. Does that answer the question?

Yes, perfect. Thank you, David.

The next question comes from [indiscernible].

[ Niraj ], can you hear us?

Sorry, David. I'll follow up with you guys afterwards. Apologies.

Next question is from Gabor Kemeny.

This is Gabor from Autonomous. Firstly, on funding. Can you help us scale how much is more to come in terms of the increase in funding costs from higher deposit rates and possibly the change in the mix. So what do you pay on the back book? And where do you see your incremental costs overall? Secondly, on the pricing of your lending products, have you made changes there? I mean, I seem to recall you were basing -- pricing the buy now, pay later in the mid-teens interest rates, presumably, you would consider making changes when you incremental deposit cost is in the high teens? And just finally, on the Turkish lending products, Hepsi is experimenting with, how comfortable are you with them, introducing your new lending products, when you are about to scale up the fintech offering with the different franchise?

So Gabor. No change to pricing. Gross yield was flat year-on-year, 26%, number one. Number two, increase in percentage cost of funding for the year annualized between 100 to 150 bps. Number three, just keep in mind that with a banking -- banking license, you can do things at a different scale. You can have deposit functionality. If you have deposit functionality, the rationale is, people who save with you, will spend with you, number one. Number two, you can use that to fund more lending, which drives more transaction on your marketplace, exactly the sort of thesis behind Kaspi marketplace in Kazakhstan. So you can do that at a much bigger scale over time. And Hepsi doesn't have anything like that at scale currently, all initiatives are just early in stage, but logical to do.

Thank you, David, all fair points. Just one small follow-up. The 100 to 150 basis points, that was the blended average increase in funding costs you expect this year or something different, please?

Correct.

Our next question comes from Can Demir.

This is John with Wood & Co. Thank you very much for the opportunity. So I have a couple of questions. So on Rabo, I think it was acquired through the Kazakh entity and not through Hepsiburada, as far as I understand it. And I was wondering why you didn't acquire it through Hepsiburada, when this bank will work pretty closely with Kaspi. So that's the first question. The second question is how do you plan to get out of this boycott-driven drag in Turkey? Is it marketing? Is it PR? Are there any plans around it? And the third question is on your cost of risk and asset quality. So -- the cost of risk is, I think, exceptionally low in Kazakhstan, which is good news. But how is it possible that it's not affected by the macro outlook at all when the macro outlook affects GMV and other things. So I was just curious about them. Thank you very much.

Can't remember what the first question was.

The first question is Rabo was acquired through the Kazakh entity.

Thanks. In simple answer, Hepsi doesn't have the money to acquire and subsequently invest. Kaspi has the money. So simply it's impossible for the Hepsi the entity to fund that transaction. That's the answer to number one. Number -- in the absence of a capital injection into Hepsi, number one. Number two, the boycott, that's probably a question that is better directed towards the Hepsi management team. We wouldn't speak on their behalf. They will update in due course on trading in Q2. And I think the results will answer that question. Number three, what you need to keep in mind is that the trade-off is not just cost of risk in isolation, it's cost of risk versus volume, so you can manage cost of risk stable by turning down volume or you can accept a higher cost of risk with more volume. So whereas you're looking at cost of risk as the variable, I look at it the other way and look at volume is the variable.

Okay. And on the first question, so I mean, why wasn't it possible to inject capital into Hepsi? Because I mean, it doesn't look that smooth to me when Rabo will work super closely with Hepsi, but Hepsi has minorities, right? I mean, isn't that a problematic structure slightly?

No. So in terms of simplicity, this is the sort of simplest way to progress this transaction in the near term, number one. In the medium-term, arrangements can be structured in lots of different ways. But again, you're getting -- you're probably jumping the gun a little bit. Let's just complete this transaction. It's subject to regulatory approval expected in the second half of the year, and then we'll be in a better position to talk in more detail about how we address the point that you fairly raised.

Our next question comes from Salman Ali.

I am from Fountainhead Partnership. My question, again, comes back to the deposit cost. Two questions related to it. One is that how does your 18% compared with the deposit rates being offered by other banks? And second is that if the Central Bank is planning to increase the reserve requirements, do you expect another amount of increase in deposit cost as other banks try to manage their liquidity?

Do you want to talk about the attractiveness of the deposit product, Mikheil?

Yes, of course. I mean, in general, our strategy has been always to be -- to have attractive products for our consumers, but would be highest interest rate on the market. And again, our deposit is a bit different from many others because it's a mobile application, consumer experience is better. The process is better and the product itself, it's probably better. So I would say that our interest rate is on the comparable sort of term deposits, the low end. That's number one. Number two, in terms of the National Bank reserve requirements. I mean that's -- the impact that it has on the -- potential impact it has on the net income. It's because the additional National Bank reserves, as they have been discussed currently, they will be interest fee with the National Bank. So that's where the impact really comes on the bottom line. So it's not really a liquidity issue and I don't think it's a liquidity issue for most of the banks, I would assume so. But not in our case, definitely. But it's just -- this is why we have it in the net income section because if it's an interest-free balances with National Bank, obviously, we don't have interest revenue associated with this.

Does that answer the question?

Yes. I'm just wondering what is the system LDR, like you are at 97%. So do you know what is the system LDR and does it mean it will squeeze other banks?

I can't really help you with other banks. We're really focused on our business and this is what we care about. Historically, we had anywhere from 80% to pretty much close to 100% loan-to-deposit ratio. So it's -- in our case, we're good.

So Maxine, maybe in the interest of time, we can take the final question, please.

Our final question today comes from Ronak Gadhia.

This is Ronak from [indiscernible]. Just a quick one on your take rate on payments. We've seen a pretty significant -- a consistent decline over the last 2 or 3 quarters, whereas if I look at the TPV breakdown, that hasn't the contribution hasn't changed much. So if you could just talk about what's driving the reduction in take rate and where we should expect that to normalize.

I wouldn't say it's a dramatic change. I'd say it's a gradual change. But if you think about it, the Kaspi Pay is 95 bps, B2B is less than that. Than just mechanically if they grow slightly faster than you will just see gradual attrition and I think you should expect that to continue for a period of time. And that is the expense, which you can't really see in that chart, things like interchange on the legacy card product, which would have been a higher take rate business. So your base case going forward should be ongoing gradual attrition in take rate, but it's not substantial. I guess over time, as growth moderates, then so also will -- there'll be also a moderation in take rate dilution as well.

Yes. And just to again mention if you look at the track record and the last several years, whatever, our -- the fastest-growing transactions are the Kaspi Pay transaction, 0.95% take rate. So we have always said that as this business becomes bigger the take rate basically will be gradually moving towards 0.95%. And exactly for that reason, I think 2 calls before this one, we have introduced to give a bit more details before we would say like 1.2% take rate, then we said we started to say 2 digits, like 1.15% or 1.19%, just so that you can guys track, but this strategy and the trend has not changed. So in the medium term, it will be going towards the lowest take rate business, which is growing the fast, which is the 0.96% take rate.

All right. So I think we're going to wrap things up. Apologies if we haven't got to your question, please. We're happy to follow up separately, but we need to move to another meeting now. So thanks a lot for your time today. Thanks, everyone, for your questions. Keep in touch, let us know if you have any follow-up, and we'll speak to you all soon. Thanks a lot, everyone.

Thank you.

Thank you, everyone. This concludes today's webinar. You may now disconnect from the call.