Türkiye Is Bankasi A.S. (ISCTR) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Isbank 2025 Financial Results and 2026 Guidance Audio Webcast. The presentation will be held by Ms. Ebru Ozsuca, Deputy Chief Executive; Mr. Mehmet Turk, CFO; Ms. Nilgun Yosef Osman, Head of IR and Sustainability. [Operator Instructions]. Now I leave the floor to our presenters.

Welcome, and thank you for joining our year-end results webcast. It is a pleasure to be with you as we conclude another successful year. Using this opportunity, we also would like to extend our best wishes for 2026. Today, we will review our 2025 performance and share our guidance for this year. Year 2025 has once again proven the strength of our core banking model and our ability to navigate market shifts with agility and foresight. Restoring price stability and providing long-term predictability for both local and foreign investors still stand out as the most important priorities in the short term. These objectives, on the other hand, require tight economic policies, which inevitably shape short-term economic dynamics. Against this backdrop, despite Central Bank's tight monetary policy, Turkish economy has remained resilient in 2025. Taking into account the outcomes from the first 3 quarters of the year, we estimate that the Turkish economy ended 2025 with a moderate growth rate of around 3.5%, remaining below its long-term performance. And for 2026, we expect growth to be around 4%. In the last quarter of 2025, monthly inflation figures came in lower than market expectations. As a result, by the end of 2025, annual CPI inflation was realized as 30.89%. During this period, CBRT continued its rate cuts in line with the downward trend in inflation. Consequently, the policy rate came down to 38% in December and followed by a further 100 basis points cut in January. Increase in food prices played a significant role in inflation exceeding expectations in January. Taking into consideration the current dynamics, we expect the year-end inflation to be around 25% at the upper bound of our forecast range of 23% to 25%. Accordingly, we expect the policy rate to stand at around 30% by the year-end, where we see the path of policy rate to be in line with the disinflation process. Thanks to the improvement in risk perception, the increasing capital inflows into Turkiye allowed reserve accumulation. CBRT succeeded in accumulating reserves, reaching a record high of USD 2,018 billion in gross reserves and USD 93 billion in net reserves as of January 30. CBRT's efforts to expand its gold reserves and the upward movement in gold prices also played an important role in this increase. All in all, we also observed Turkish lira continue to appreciate in real terms, driven by a tight monetary policy approach alongside with the ongoing improvement in CBRT's reserves. Let me briefly touch on the key highlights -- in the key highlights of the year. We have maintained our position as the largest private bank in Turkiye with 11% to 12% market share across all major balance sheet items. Strong set of results in this quarter, supported by an outstanding achievement in our swap adjusted net interest margin with an expansion of 285 basis points, which is a reflection of not only our effective balance sheet management, but also our strategic positioning in a period of changing market dynamics. One of the important highlights of not only this year, but also the recent years was our remarkable accomplishments in fee generation. Concentrating our efforts in this area, we have consistently enhanced our performance every year, having registered an average annual growth rate of 89% in the last 5 years. On the cost side, without compromising our strategic priorities or service quality, our strong cost discipline once again stood out as a key differentiator. As a result, we preserved our strong efficiency metrics and built a meaningful cost cushion going into 2026. With our well-diversified portfolio, we demonstrated resilience in managing asset quality with the highest collection performance. High coverage ratios are a reflection of our conservative approach. Finally, our capital and liquidity metrics further improved, providing us with ample flexibility to support future growth opportunities. Moving to our 2025 realizations versus the guidance we shared. We successfully delivered results that are largely in line with our guidance. We effectively addressed the margin pressures observed in the second quarter, successfully holding our ground and containing net interest margin compression to a very narrow range and still printing the highest expansion among our peers. Looking ahead, we believe that we are exceptionally well positioned to deliver a significant improvement in each and every metrics. Turning to the major P&L items. Our proactive balance sheet management allowed us to widen core spreads and deliver a robust performance across all metrics. However, the standout highlight of the fourth quarter remains our net interest income contribution. We achieved a notable 67% increase in swap adjusted net interest income on a quarterly basis. To put our full year performance in perspective, this represents a more than sevenfold increase year-over-year. Momentum in fee generation remains as a key pillar of our noninterest revenue. We saw a 7% quarterly increase, bringing our annual growth to 47%. OpEx growth over the year was well controlled with the annual increase limited to 28%, meeting our guidance. It is worth noting that we have consistently outperformed our peer group in cost management over the last 3 years. The disciplined cost control, combined with the high velocity fee growth has resulted in a fee to OpEx coverage ratio of around 90%. All in all, our net profit increased 65% quarterly with a return on equity of 23% in the last quarter. Respectively, on an annual basis, net profit increase has been realized as 90%, bringing our full year return on equity to 19%. As we look towards 2026, I'd like to outline the strategic pillars that will differentiate us. Our favorably positioned balance sheet will enable us to deliver the highest NIM expansion among our peers. Needless to say, we will sustain our proactive and agile balance sheet management approach within the year ahead. We are eager to sustain the strong momentum in fee generation capabilities by leveraging our digital channels and upgrading overall customer experience and to further optimize our efficiency metrics. Relying on our strength and expertise with regards to customer relations, underwriting, credit modeling and collections, we will continue to maintain asset quality metrics. As always, our strategies will be centered on sustainable and profitable growth that will enhance our return on equity. Now I will leave the floor to Nilgun for the details of the bank's performance.

Thank you, Ebru. Welcome all, and thank you for joining the webcast. And turning to our asset composition. Our mix remains driven by loans, which represents 50% of our total assets and 57.4% of our interest-earning assets. The share of our securities portfolio, mainly comprising Turkish government bonds stands at 17% of total assets. Within our loan book, the TL FX composition reflects a steady approach. We have prioritized TL lending while carefully managing our FX exposure. In 2025, share of TL loans reached to 64%, while share of FX loans stood at 36%. As for the securities portfolio, which we actively manage based on market conditions, share of TL is around 68%, while the share of FX is 32%. While maintaining our prudent and selective approach, TL loans grew by 12% quarter-on-quarter, bringing annual growth to 43%. On the FX side, loans remained flat in the fourth quarter, while increasing 15% in dollar terms annually. When adjusted for parity impact, annual increase on FX loans comes down to high single-digit levels. In 2026, our TL loan growth expectation is similar to 2025, which we expect to be around mid-30s and a mid-single-digit growth on the FX side. We always prioritize productive sectors that contribute to economic growth, current accounts and employment. In the sense, by offering tailored solutions and leveraging our expertise, we expect to continue to gain market share in selected productive segments, including trade-related loans, sustainable finance, agriculture and tourism. Needless to say, sustainability considerations are becoming increasingly integral to our commercial lending approach. In 2025, we successfully executed strategic portfolio adjustments and actively managed the securities portfolio. Looking ahead, we will continue our adaptive and well-diversified portfolio management with proactive positioning in the securities market, while balancing yield enhancement with prudent risk controls in a dynamic interest rate environment. When you look at the funding mix, main source of funding is deposits with a share of 67% as of year-end. The pillars of our funding management are being dynamic, flexible and cost sensitive. Without doubt, our widespread deposit base will continue to be our primary source of funding. At the end of quarter by increasing our TL deposit by 9%, we became the market leader among private banks. Please note that we have achieved this increase without compromising the optimal cost of funding. At the same time, we will continue to evaluate FX wholesale funding structures and potential transactions in line with the needs of our balance sheet based on market conditions. During 2025, we successfully completed 2 capital market issuances with a total size of $1 billion. These include our debut AT1 issuance in the first quarter and the $500 million Tier 2 in September, followed by $500 million, 11 [indiscernible] 6 Tier 2 issuance in January this year. The January transaction represented the first subordinated issuance out of Turkiye in 2026, set a record for the longest duration in the Turkish Tier 2 space and saw strong investor demand with the order book reaching nearly 4x oversubscription at its peak level. We are also very excited to issue our first blue bond. The $50 million 5-year transaction with proceeds allocated to biodiversity protection, sustainable water, wastewater management and sustainable tourism, represents an important step in diversifying our sustainable funding sources. We maintained our concentration on widespread granular core deposit base. There was around 43% annual growth in TL deposits, which largely matches the increase in TL lending. Growth in FX deposits when adjusted for parity and gold price movements is almost flat in 2025. We maintain the largest demand deposit base among private banks. As of the end of 2025, 44% of our deposit base is comprised of demand deposits, providing substantial support to our funding cost base. Going forward, we will continue to focus on granular small ticket core deposits, continuing to benefit from our historic leadership in demand deposits. In 2026, TL deposit growth could be expected to be in line with TL loan growth. In the current regulatory environment, loan yields have remained relatively resilient. At the same time, while margin deposit costs continue to be maintained above the policy rate due to regulations, average costs are steadily decreasing, thanks to our widespread deposit base. This resulted in significant improvement on our swap adjusted net interest income with an increase of 67% during the quarter. As we guided throughout the year, we proved the potential of our balance sheet in expanding net interest margin. NIM continued to improve significantly, and we posted 132 basis points expansion in the last quarter. This performance is fully in line with the trajectory we shared with you during our previous earnings calls. Full year expansion in NIM reached 285 basis points, highest among peers. Looking ahead, we expect to sustain our progress on a gradual basis throughout the year, considering the rate cut cycle continues in line with the ongoing disinflation process and to maintain a net interest margin above historical averages. Accordingly, we expect to have the full year NIM level of around 5%. Moving on with net fees and commissions. We continue to see strong and sustainable momentum in fee and commission income generation, reflecting both the strategic investments we have made over the past several years and the structural diversification of our revenue base. The groundwork laid earlier, particularly in digital banking, product innovation and process transformation is now consistently translating into resilient and recurring fee streams, which are less sensitive to interest rate cycles. All in all, in 2025, fee income increased 47%, reaching TRY 134.4 billion. Over the last 5 years, we have been posting remarkably high fee growth rates, outpacing our peers. Although, we will see more normalized figures going forward with stabilized macro indicators, our aim will remain as delivering real return with respect to fee generation. In this respect, in 2026, we are targeting to increase our fee base of around 40% higher than inflation. We are aware that this target is relatively ambitious. On the other hand, considering the initiatives that we have been implementing, we believe this level is well within our reach. In recent years, efficiency and cost management have become increasingly important in a relatively high inflation environment. As you know, we have been taking solid steps to transform our business model in line with our digitalization strategy, which continues to deliver meaningful efficiency gains. As a result, our OpEx growth once again remained significantly below our peers in 2025. Accordingly, the fee coverage of OpEx rose to 90%. In addition, our cost-to-income ratio improved by more than 10 percentage points compared to previous year. In 2026, we are expecting further improvement in cost-to-income ratio. In terms of OpEx, we are targeting mid-40s in 2026, mainly driven by business development expenses as the operating environment is normalizing. We think it is strategically beneficial to grow in this area accordingly. As a result, we are expecting the share of business development costs to converge to 30-ish levels. Other than that, as you might have followed, we have just finalized our collective bargaining process for the next 2 years and made the necessary adjustments in order to compensate our valuable workforce. This is also incorporated into our projection. Next page shows the NPL and provisioning trends. Asset quality metrics remained resilient in 2025. NPL ratio stood at 3.2%, which is largely in line with our projections. Flows to NPL increased slightly but at quite manageable levels and collections remained strong at 25%. Our total net cost of risk, including the currency impact stood at 238 basis points for the full year. Furthermore, as part of our cautious approach, our NPL coverage ratio stood at 63%, while total coverage is at 3.7%, one of the highest in the system. In 2026, moderation in economic activity will be the main determined of asset quality metrics, thanks to our prudent stance, continuous efforts and conservative risk management principles, coupled with utilization of latest technologies like AI, we do not anticipate a significant downside risk in our asset quality indicators, which will continue to differentiate us positively. This year, we expect the NPL ratio to be around 4%, keeping our conservative approach. We expect net cost of risk to be lower than 250 basis points in 2026. Our capital ratios remained at solid levels at the end of 2025. Capital adequacy ratio without the BRSA's forbearance measures stood at 16%, while common equity Tier 1 was at 13.2%. We believe that our capital ratios are strong enough to sustain the growth whenever it is deemed favorable. Sensitivity of our capital adequacy ratio to 10% depreciation in TL is around 35 basis points, while sensitivity to 100 basis points increase in TL interest rates is around 10 basis points. On the next page, you may see a summary of the guidance we have provided throughout the presentation. Please note that we expect these guided levels to lead us to level of real return on equity at the year-end. And this concludes my presentation. You can see more details both on our financial and nonfinancial performance in the annex. Now we can open the floor for your questions.

The first question comes from Ashwath PT, Goldman Sachs.

I have a couple of questions. The first being on the net interest margin. Do you -- based on the chart you have on Slide 15, do you expect it to peak in the fourth quarter and gradually increase throughout the year? And does that suggest that you expect it to peak in the fourth quarter and then subsequently decrease within 2027? That's my first question in terms of NIMs. Also, your exit or your guidance for 2026 at 5%. Could you give us the breakup of the different components of NIM that gets you from the full year figure from 2024 to that 5% mark for 2026, i.e., through your expectations for core spreads, reserve requirement ratios, funding costs and CPI linkers? Then my last question is more of a long-term question in terms of if, for example, you expect inflation to settle around mid-teens, 15%, what do you think is a sustainable level of NIMs for the bank, sustainable level of -- or through cycle level of cost of risk and also the sustainable level of ROE?

Thank you, Ashwab, for the questions. I will try to go step by step on all those and run through our net interest margin expansion. For year 2026, I can say that we are assuming a measured pace of rate cuts, where we will be closing the year at around 80 basis points rate cuts, bringing us to 30% levels by the year-end. This cautious approach will be in line with the steady repricing environment, which will mainly depend on the probable macro prudential steps that might be taken to secure the effectiveness of financial transmission mechanism. Therefore, we forecast a progressive and incremental expansion of the NIM throughout the year. While we think the full year NIM might also be above 5% level, we are keeping our guidance on the more conservative side at around 5%, taking into account how the disinflationary process will shape. All in all, we expect the margin to strengthen sequentially and closing -- and probably we will see a further expansion potential in year 2026. Just to be looking ahead, maybe I could also say that, as I said, the swap adjusted NIM will continue to have a gradual expansion throughout the year 2026. Still, when we look -- there are -- we expect the Turkish lira loan deposit spread to widen throughout the year. And thanks to the relatively resilient loan yield and declining funding cost, the process of the rate cuts will be the main component of supporting our NIM expansion. In this regard, I can say that around 80 to 85 basis points of the expansion will come from the core spread improvement. If I take you by the details, for example, from the funding mix, we will see a 450 basis points to 500 basis points support to our net interest margin. And from the loan side, there will be a reduction of around like 100 basis points contraction to our NIM expansion. And therefore, it is mainly the core spread that will provide us the NIM expansion. As I said, at the moment, it is not -- we cannot say that it is the peak margin that we will see is in the last quarter of 2026 because we are -- it will be more dependent on the Central Bank's rate cut [ path ] trajectory and also the other macro prudential measures, how long they will be in place and whether there will be easing at the end of year 2026 or in year 2027. So there might be a potential for the high net interest margin evolution in the first quarter of 2027. And going forward, I can say that for the more sustainable net interest margin and the sustainable cost of risk, I can say that for each bank, when we look to the historical averages, net interest margin were around 3.7% to 4% for each bank. But from now on from this balance sheet composition, I can say that we are seeing it at around 4% level going forward, and net cost of risk to be around 100 to 150 basis points for our balance sheet. And also you asked for the sustainable ROE level. Again, I can say that from now on, we will be again posting ROEs on the real return side over the inflation, which we will start for this year. And I can say that when we look to the path of our ROE, probably we will see -- it will be meaningful to expect the positive ROE levels starting from the third quarter onwards for this year. And going forward, again, the core banking income trajectory will be one of the main determinant on the evolution of ROE. And we think that we could post on a sustainable level, if I would say where the real return over inflation, it should be -- I can say that it will be at high single-digit levels, 9% to 10% levels over inflation. I think I hope these all answer your questions, if I missed anything.

Just one last follow-up on the RoTE guidance. When you said in your guidance is RoTE of 30%, but then you said on the ROE, it's positive. Is there a major difference between your expectations for RoTE and ROE?

Yes. We are just -- on the -- our return on average tangible equity side, we are just deducting the mark-to-market evaluations. So it is a difference.

Do you expect somewhere in the mid-single digits? Because based on the RoTE around a mid-single-digit real RoTE. Is that something similar for your ROE expectations? Is that's based on your 25% year-end inflation expectation?

Yes, it is based on our 25% expectation for ROE, return on average equity. We are waiting a real return over CPI, which we now guided as around 25% for the year-end.

The next question comes from David Taranto, Bank of America.

I have several questions. The first one is on fees. Your expectations look quite strong. Could you discuss the main drivers behind this, especially in light of expected trends in the merchant fees within the payments business? And is there any particular segment where you anticipate a meaningfully higher contribution this year? And second question is on the subsidiary income. What should we expect this year for income from nonbank subsidiaries? Third one is on the capital. Could you share your expectations regarding Basel IV, in particular, how you see the impact evolving from -- for your capital ratios there? Do you plan to distribute dividends from 2025 earnings? And the last one is on book value. It was again another quarter of strong book value growth for Isbank. Was this driven by fixed rate bond repricing or real estate revaluation or anything else here? And do you provide any sensitivity for capital or book value impact coming from lower interest rates regarding your fixed rate bond portfolio?

David, let me start by the fees and commissions. That might be a long answer, but let me try to put it shortly. We continue to expect the fee and commission income to grow above inflation as we have shown, and we are confident that this growth is driven by structural factors rather than cyclical tailwinds. Let me give you a few numbers related to our previous fee growth. In 2022, for instance, our fee growth was 112%. In 2023, it was 163%. In 2024, it was 115%. And last year, in 2025, it was well above inflation at 47%. So our guidance at around 40% fee growth in 2026, therefore, implies another year of real growth, and that's consistent with the strong track record we have delivered over the recent years. As you can see from the numbers, fee income has grown from TRY 16 billion in 2022 to TRY 134 billion in 2025, with constantly strong growth rates across different macro environments. This, I think, underpins our confidence in the sustainability of the fee franchise. But there are 3 key reasons behind this outlook. First, volume and penetration effects still remain strong. Growth in transaction volumes, customer numbers and product usage continues to outpace nominal economic growth, particularly across digital channels. This allows fee income to expand even in a moderating inflation environment. Second, we continue to benefit from a favorable mix within the fees, namely asset management, bancassurance and investment-related services are gaining weight in the overall fee base. And as you suggested the interest rates are going to gradually decline, customers tend to rebalance towards investment products, which directly supports asset management and advisory fees. At the same time, money transfers remain a strong growth area where we still see the meaningful room for optimization, and we are still behind the peers in this area, and we are aiming to close this gap with peers through higher activity levels and pricing refinements. And thirdly, our strategic positioning and ecosystem approach continues to deliver, especially the seller promotions, payments, cards and digital onboarding act as anchor products, allowing us to deepen customer relationships and increase share of wallet. And once we become the primary bank of the customers, which we aim to, fee generation becomes broader, more recurring and less sensitive to inflation dynamics. So looking at the individual fee lines, payment systems, which account for around 70% of our fee base is a real contributor. But while we acknowledge that the declining interest rate environment may create some pressure on the interchange fees, we believe there's still sufficient room within the payments ecosystem to offset this through higher volumes, increased card penetration and broader usage. In credit cards, becoming a market leader is clearly a strategic priority for us. We have recently moved to second place in terms of number of cards issued and are now very close to the top position we are targeting. So with the initiatives planned for 2026, already embedded in our business development expense projections, including the card campaigns, seller promotions, et cetera, we believe further progress is well within the reach and continued market share gains in cards will directly support fee generation. Apart from this, asset management fees also is an important buffer and bank issuance is another area where growth is clearly accelerating, supported by the cross-sell capabilities. So taking all this together, we remain comfortable guiding for around 40% growth in fee and commission income in 2026. While payment fees remain important, growth is increasingly driven by the other factors I mentioned, asset management, bank issuance, trade finance and money transfers. Overall, our fee momentum is structural, as I said, and we believe it's sustainable across different market conditions. And the second question was about the subsidiary contribution, I think. The subsidiary contribution continues to be an important and supportive component of our overall profitability, but it's not the core driver of our earnings. In 2025, the subsidiaries made a meaningful and positive contribution, benefiting from solid operating performance across insurance, asset management, payment-related businesses. That said, we continue to manage the group with a clear focus on core banking profitability. Subsidiary income provides diversification and helps smooth earnings volatility, but our guidance does not rely on outsized or one-off subsidiary contribution. In 2025, subsidiaries income increased, as you can see from the numbers by 28%. For 2026, we would expect a slightly higher increase. On the other hand, as the net interest income, as Ebru mentioned, is improving at a faster pace, we would expect the share of subsidiaries income in total operating income to decline by a few percentage points. I think the next question is about Basel IV.

Yes. Thank you. From here on, I will get the question for Basel IV. As you know that the local implementation details of the Basel IV draft regulations, particularly those aspects that have created some uncertainty for the reporting banks as well as the expected phase transition time line, have not yet been formally communicated by the regulator. So we will see how we will be -- how it will evolve. But while making our budgeting, we have incorporated in our assumptions that there will be a Basel IV shift in our capital adequacy ratio, and we have already made our plans accordingly. And for the other question was about the dividend distribution. As also you know that it is a process that we get the decision of the regulators. So it is just -- it is not clear yet. But as you know that in all years, we are just on the side of creating value to our investors and stakeholders and therefore, on the distributing a decent amount of dividend to our stakeholders. But the final decision has not been given by the regulator yet. So when it comes, we'll be, of course, seeing it in the coming days. And for the -- you asked about the book value, the equity increase, where that you said that it is more than the profit. So what is the rationale or the underlying other components of this increase. I can say that it is coming from both security mark-to-market plus the fixed asset revaluation. So both of them has already affected. And for year 2026, I think if I understand the question right, your question was saying that as we will be having rate cuts all over the year and probably see the yield curve to come down. Of course, it is meaningful to expect a positive development in our securities mark-to-market valuations, which will also be incorporated in our equity side. For now, of course, we are just more conservative on that side while making our budgeting. We assumed a kind of downward shift on the securities curve, but it is also dependent on the other variables. So it is not -- it will not -- I don't want to give you a wrong guidance on that level, what is the percentage of the increase there.

Our next question comes from Simon Nellis, Citi.

Maybe one quick technical question. Your risk cost guidance for this year of under 250 basis points, that includes currency impacts, I think. If you could just confirm that that's the case. My other question -- It does, yes. Sorry. My second question is on OpEx growth. So I guess it's the flip side of the -- of David's fee growth question. You're expecting much higher than inflation OpEx growth. Can you just run through why that's the case? And when do you think OpEx growth might converge closer to inflation? And my last question would be, I think you've put most of your nonfinancial investments into a holding company. You were thinking of listing that business at some point. Can you just give us an update on that initiative?

Let me start by the OpEx question. As you know, in 2025, we once again demonstrated strong cost discipline, and the OpEx growth was 28% year-on-year, around 6% below average inflation, which clearly reflects the effectiveness of our cost management framework. Importantly, this was achieved without compromising service quality or our strategic priorities. We maintained tight control over the recurring cost base while continuing to invest selectively in areas that support long-term value creation such as digitalization, customer acquisition and data-driven capabilities. As a result, we preserved our strong efficiency metrics and entered 2026 with a meaningful cost cushion. For 2026, we are guiding for approximately 45% OpEx growth. We recently completed a collective bargaining agreement covering personnel salaries, which will naturally be reflected in the cost base. However, it's important to emphasize that the expected increase is not primarily wage driven. The main driver of the 2026 OpEx outlook is a more normalized macro environment, a lower interest rate setting and a more stable and modestly recovering level of economic activity. In this context, customer acquisition is becoming increasingly competitive, particularly given recent regulatory changes around income verification, limit rationalization and the cancellation of unused limits. Without salary agreements, acquiring and anchoring primary customers becomes materially more challenging. Accordingly, a larger share of the cost increase relates to business development spending rather than structural cost pressures. Over recent years, we have deliberately built efficiency through disciplined cost management and digitalization, which now allows us to utilize part of that capacity to support growth initiatives. In line with our strategy of becoming the main bank of our customers, we plan to continue investing in customer acquisition and in deepening existing relationships. As a result, we expect the share of business development expenses within total operating costs to increase by around 6 percentage points in 2026. One additional point to highlight is that salary promotion agreements, which represent a significant component of business development costs, as you know, they are typically on 3-year cycles. Given the inflationary environment experienced over the past couple of years, the cost step-up required to renew these agreements in 2026 is more pronounced. We have fully incorporated this impact into our budgets in line with our market share ambitions in salary agreements. Overall, while operating expenses will rise in nominal terms, the underlying driver is strategic investment into growth and franchise strength, supported by the efficiency gains accumulated in prior periods. In parallel, with the recovery in core banking income, mainly driven by net interest income, we expect the cost/income ratio to improve, trending towards the mid-40s in 2026. But in the longer term, this will obviously get closer to the CPI levels as we expect. I hope that answers your question.

I think the next question was about the holding plans.

Yes.

I can say that regarding the -- it was regarding the partial demerger process, as you all know, we have made our application to regulatory authorities in April 2024. But afterwards, we needed for the approval process, while we were waiting the evaluation of the authorities. We've just seen that the approval process will not end at that time. So it is -- for us, for each bank, I can say that it is needless to say that unlocking synergies within the participations and optimization of the subsidiaries portfolio is always an ongoing focus. from our side. So although not a formal new application in place, it is on our agenda. And if something happens, we will be disclosing it accordingly.

So as far as I can see, we have no other audio questions. We will be looking at the written questions in this case. So the first written question is from Valentina Stoykova, Barclays. I'm reading the question. Can you please give us color on how you see the NII and net interest margin trajectory throughout the year? And what will be the key strategy at Isbank to benefit the most from the expected rate cuts? Also, will it be possible to mention again your macro assumptions that back up 2026 net interest margin guidance?

Thank you, Valentina. I can start to -- from our macro assumptions. We are just expecting to close the year 2026 at around 25% inflation rate and probably depos rate coming down to 30% levels. Of course, in that environment, we have projected a more gradual rate cut environment. And therefore, our net interest margin expansion and NII expansion is on a more on a gradual basis. And when we are just looking from that side -- as you would remember from our previous calls that as bank, we are carrying a Turkish lira ratio mismatch of around 6 months in our balance sheet. And we have already positioned there. But apart from that, dynamically, we are managing our loan book and also the securities book. At the moment, you are seeing that by the end of 2025, the share of our fixed rate securities is around 44% levels. And -- but while seeing it as a rough number, I could say that we are dynamically shifting from short-term assets to the longer-term assets, and we'll continue to do it in that way within the year. So it is a dynamic process, I could say.

So the other written question is from [ Johan Sara ], HSBC. I'm reading Johan's question. Financial year '25 cost of risk was already on the high side compared to competition. Financial year '26 doesn't assume much improvement year-on-year from a high. Can you please comment on why you expect cost of risk to trend at such high levels?

Okay. Let me try to address this question. I think Valentina has already asked the same question. Let me try to cover both. As you know, we have been highlighting during 2025, that 2025 was a somewhat demanding year for certain segments driven by a combination of high interest rates, a stronger Turkish lira and the softer demand conditions. That said, the impact remained largely company-specific rather than systemic. We have been emphasizing this. And overall asset quality evolved broadly in line with our expectations. At the beginning of 2025, we were guiding for an NPL ratio of around 3% and the cost of risk close to 200 basis points. And in the last quarter, we have said it would be around 220 basis points, but there was an upside risk. So while already acknowledging some upside risk, which became more visible by the third quarter. Ultimately, we closed the year with an NPL ratio of 3.2% and the cost of risk of 238 basis points. It's important to note that the fourth quarter included a large one-off corporate inflow, which temporarily inflated these figures. Excluding this item, the underlying trends remained broadly stable and confirmed the resilience of our portfolio. Looking ahead into 2026, we continue to see some ongoing inflows, particularly in the retail and SME segments, which is not surprising, given that many of the conditions that shaped 2025 are still present at this stage. Within SMEs, we are monitoring sectors more closely, notably textiles and ceramics besides still labor-intensive and low technology sectors, where margin pressure and limited pricing power are more visible. That said, our exposures are manageable and well provisioned. At the same time, there are several support factors that we believe will help the asset quality outlook in 2026. This outlook is supported by the expected evolution in the macroeconomic environment and the macro prudential framework, which includes the new retail restructuring scheme and the expected impact of the credit guarantee fund mechanisms, the gradual decline in interest rates. As rates come down, we expect some normalization in borrower cash flows, which should help stabilize asset quality trends. So while this is an overall picture, but while we expect some continued pressure on credit risk during the first half of 2026, we believe that asset quality trends will stabilize and improve in the second half of the year. All in all, assuming the macro environment evolves broadly in line with our current expectations, we do not see -- foresee an outlook that materially diverges from 2025 levels for NPLs and cost of risk. Accordingly, we are guiding towards an NPL ratio of around 4% and net cost of risk below 250 basis points for 2026. Our proactive resolution, strong collection capabilities and disciplined origination strategy remain key pillars supporting stability across all segments. Overall, we expect our asset quality trajectory to remain broadly in line with the sector and our peer group.

I believe Valentina's question has been also covered. So the next written question comes from Ovunc Gursoy, BNP. What would be your effective tax rate guidance since you expect core banking revenues to increase meaningfully?

Well, let me try to briefly walk you through the bridge from the accounting profit to our effective tax rate and how we think about 2026 and longer term. So we start from the profit line, which includes a significant contribution from income from participations. As a reminder, income from participations are not subject to corporate income tax in Turkiye. In 2025, this was a meaningful item and reduced the reported effective tax rate when included in the calculation. And compared to our peers, we have a larger subsidiary portfolio, and you can assume that we have a lower effective tax rate due to this reason. When we exclude income from participations to look at the core banking P&L, the first major adjustments relates to the termination of inflation indexation under the tax law. And the inflation indexation was -- for banks was abolished, as you know, for 2025 to 2027, and this was largely recognized in the fourth quarter. In parallel, a more limited revaluation mechanism was introduced, which is applicable only to depreciable fixed assets and at a lower rate. As a result of this transition, we recorded a noncash deferred tax impact of approximately TRY 2.2 billion. This impact is predominantly one-off and deferred in nature rather than a cash tax outflow. Putting all this together for 2025, our effective tax rate is approximately 18.3% when income from participations is excluded, which we view as the best proxy for the core banking tax rate and approximately 5% when income from participations is included, reflecting the nontaxable nature of that income. Looking into 2026, we expect the effective tax rate to trend higher, and this is driven by the higher taxable operating income, the absence of inflation indexation going forward. Based on our business plan assumptions, we expect an effective tax rate of around mid-20s, excluding equity method income, income from participations and around mid-teens, including income from participations. So as always, the exact outcome will depend on the profit mix, the level of equity, net income from participation, but this is the framework we believe best explains both the '25 outcome and the '26 expectations.

I believe there are no open questions, both on the audio and written side. I'm waiting for a few seconds. And now handing over to our presenters for closing remarks.

Thank you very much for your participation. We believe that we have presented another solid performance, indicated our resilience and expertise. We feel confident that 2026 will be a promising year for Isbank, our banking sector and Turkish economy. Best regards and keep safe until the next call. Thank you. Have a good night. Bye-bye.