Türkiye Vakiflar Bankasi Türk Anonim Ortakligi ($VAKBN)

[Audio Gap] session following the presentation. If you would like to submit your questions -- written questions, you can send them anytime. You just click the Q and A button, which you will see at the bottom of your Zoom screen. If you don't see a Q&A button, just click the mall, more button. Click on that, that will bring up a couple of options, including a Q and A button. Just click that and send your question any time. Now if you'd like to ask an audio question, you'll be able to do so you just click the raise hand button at the bottom of your Zoom screen. It's as simple as that. Right. Our speakers for today are Mr. Ali Tahan. He's the Head of International Banking and Investor Relations; and Ms. Ece Seda Yasan Yilmaz as the Head of Investor Relations. I will now leave the floor to our host, Mr. Ali Tahan. Over to you, sir.

Thank you, all. Good afternoon, everybody, and welcome to VakiBank's First Quarter earnings presentation conference call. As you show together with myself, we have a, Head of IR and all the IR colleagues with me. And as usual, after the call in case we have -- any follow-up questions, we will be more than happy to answer your questions. Without losing further time, let me jump to the presentation. Starting with the first page. In this quarter, we are announcing TRY 15 billion, 1st quarter net income, which is slightly higher than the market costs are soft TRY 14.3 billion and Vakibank-only numbers. Today, we are also announcing the first quarter consolidated financials. -- and consolidated numbers are even stronger at TRY 17 billion net income for the same period -- compared to a year ago, reported wise last year in the first quarter, we delivered TRY 20 billion net income. Just to remind you, during this quarter of last year, we were enjoying around TRY 11 billion provisioning reversal -- so therefore, like on likewise, TRY 9 billion a year ago versus TRY 50 million in this quarter corresponded to 66% annual net income growth -- and 1 of the important eye-catching development of the quarter similar to last quarter of 2025, we are still having and keeping TRY 8 million provision in our balance sheet, we didn't touch to these 3 provisioning amount. And as you know, among the top Tier 1 banks of Turkey, we are the only bank still having free provision. And as you also outlined in the headline, this TRY 8 million provision is also putting additional potential net income base to offset our uncertainty. And another important part of the quarter is related to CPI estimation CPI valuation. As you can see on the right-hand side below chart, we are starting to hear confirmatively at less than 21% October to October CPI numbers. And compared to other peer group banks, this is the lowest number. And given the recent inflationary trends we understand for the rest of the year, there will be also relatively a good number of potential interest income, We will enjoy from CPI linker portfolio -- so therefore, there will be additional upside from both outstanding free provisioning amount as well as from the currently conservative CPI valuation in the quarter, reported ROE came at 18.4%. -- available if we dusted with a potential release of TRY 8 million free provisioning thereafter our comparable average ROE would be jumping to 28% area, which is in line with our full year guidance. And the last point related to this page is related to total revenue. Total revenues came at TRY 85.6 billion in the quarter, which is up by 13% year-over-year basis. And it is mainly coming from the core banking revenues, 6% net interest income plus to 23% net commission income, which is simply showing a sustainable revenue generation capacity for the upcoming quarters as well. The next slide is related to net interest margin. Net interest margin in the quarter goes in line with our guidance despite very conservative CPI estimate. As we discussed, 20.9% CPI number, October to October CPI is robust. But despite that, reported price in the quarter, we have 4.6% quarterly net interest margin and swap adjusted twice 4.1% swap adjusted net interest margin. In case we are using 25% CPI estimate, which was the consensus in the beginning of the quarter. And as of today, this number is even higher, but even if we take 25% as the base case, thereafter, our swap adjusted net interest margin would be jumping to 4.4% area instead of current reported 4.1% area. And just to remind you, this is exactly the net interest margin level swap adjusted net interest margin level, we were guiding for the full year of -- and in terms of the components of net interest margin, Turkish cost spreads during the quarter continued to expand compared to average of 2025. During the entire year of 2025 Turkish lira secrets were hovering around 4.8%. And -- during this quarter, it further evolved to 5% area despite a cost of funding decline in the quarter. Turkish loan yields also declined, but because of the pace difference, Turkish course widened by 20 bps in the quarter compared to average of 2025. Another page is related to fee income. Fee income in the quarter came at flattish, hovering around TRY 19.3 billion year-over-year basis, corresponds to 26% increase. And thanks to fee growth, we outperformed core banking revenue generation compared to sector average. On annual basis, our core banking revenues actually doubled, reaching to TRY 73.2 billion, which was TRY 36.4 billion a year ago and considering the increase in sector by 73% this quarter, we are glad that on the core banking revenue generation side, which is consisting of net interest income and net fee and commission income. I am repeating you first too much, but please also keep in mind -- that number came despite again a very conservative CPI estimate. So therefore, we are performing in terms of core banking revenue generation despite conservative CPI estimate -- and in terms of the fee and commission income, cash loans increased by almost 50% year-over-year basis. Noncash lending was also at a similar pace at 46%. Payment systems despite the fact they have almost 50% of share in total fee income year-over-year basis. Payment Systems increased only by 15% and as the breakdown of the fee income generation. Next slide is related to OpEx. OpEx came at TRY 39 billion in the quarter, which was to TRY 4.4 billion a year ago. Q-on-Q OpEx is up by 12%. Year-over-year basis, it is up by 60%, and the main driver OpEx growth in the quarter was related to promotional expenses, promotional expense of share in OpEx last year was hovering around 25%, -- but this quarter, it further increased to 32% despite the denominator increase, the share of promotional expenses in total OpEx further increased, and that was the main driver of OpEx growth, first quarter specific. For the upcoming quarters, we expect OpEx growth will normalize and will be more or less in line with the initial expectation and budget. And in terms of the OpEx between HR cost and non-HR cost, -- more or less, it doesn't change too much dramatically year-over-year basis. Around 35% is coming from HR cost versus remaining 65% coming from the administrative cost and non-HR cost. Page 6, we can shift to asset side, starting with the lending, which is the main component of composition with more than 55% take, our selective loan growth strategy is going on with well-managed risk return focus. In the quarter, there was a balanced lending growth between Turkish lira and hard currency, both of them were up by 4%. We will continue to gain market share on the Turkish lira lending side. Sorry, we will continue to gain market share on the hard currency lending side, but we were slight market share on the retail side on the Turkish side. In terms of market share, among the listed banks, we are still keeping our first ranking position yet in terms of retail versus nonretail site, in line with our strategy and in line with our selective lending target, we are becoming bigger players on the nonretail side, including SME, corporate and commercial lending. Our market share on both segments in total cumulatively further increased from 13.6% a year ago to 13.9% meaning we are gaining additional 30 bps market share on the nonretail segment, just in 1 year period of time. At the same time, deliberately, we are -- and because of the strong appetite of private peers. We are gaining -- we are losing some market share holder retail, right, and retail market share came inside 9% area as of first quarter 2026. And in terms of the portfolio breakdown, the portfolio composition still coming from 50% corporate and commercial lending, 30% coming from the SME lending and the remaining 20%, which is mainly driven by credit card and overdraft coming from the total retail lending, and total loan portfolio for the first time is also exiting in terms of nominal numbers, 3 Turkish lira to the threshold. And on Page 7, you can see the detailed numbers and a composition related to variable as loan portfolio in terms of currency breakdown in terms of bond deposit ratio as well as in terms of sectoral breakdown. The next 2 pages are related to asset quality. Starting with NPL ratio and Stage 2 ratios on Page 8. As expected and as guided, we are witnessing limited NPL ratios every quarter. Just to remind you, we were closing the year of 2025 with 2.9% NPL ratio. This quarter, we were having balanced NPL inflow from both retail and nonretail segments. As you can see on the left-hand side below chart, around 47% of the new NPI is coming from the retail portfolio and the remaining 53% is coming from the commercial simian corporate portfolio. And in total, we have almost TRY 19 million new versus a good number of collection polling around TRY 6.6 billion, and those numbers brought our NPL ratio to 3.1% area, just to remind you, our year-end NPL ratio expectation is hoarding around 3.5%, and the current situation on the asset quality on the NPL ratio, is fully expected and fully in line with our guidance compared to beginning of the year. On the Stage 2 side. Stage 2, in terms of share in total loan portfolio is also increasing by more than 1% by the end of 2025. It was moving around 9% as a percentage of loan portfolio versus now, it is above the 10%, 10.2% at most of the Stage 2 loans increase is coming from the restructured portfolio because of the easing of restructuring on the special retail portfolio following the BRSA regulatory watch token exchange, then we have demand on restructuring and all the restructuring loans are classified under Stage 2 category. Therefore, the share of restructured further increased to 64% versus 57% a quarter ago. The next slide is related to cost of risk and coverage. Cost of risk also came in line with the guidance at 164 basis points, and this is to related to coverage policy, which is quite conservative and prudent. Total coverage during 2 quarters compared to year-end increased to 3.6%, which was 3.4% a quarter ago. And because of the aging impact, NPL cash coverage ratio increased to more than 63%, which was hovering around 61.7% a quarter ago. So on the provisioning and on the cost of life, prudent provisioning policy reflected via increased the loss coverage ratios. And last point, still, we are having additional TRY 8 million free provision within our provisioned breakdown. The next page, we can move on to the liability side, starting with the deposits, which is the main funding channel deposits this quarter was limited on the Turkish lira side, we were having around 4% contraction -- but on the hard curing side, we have a limited 2% increase in our hard currency loan portfolio. During the quarter, cost efficiency, cost management, net interest margin management as well as ratio regulations imposed by Central Bank of Turkey, we acted in accordance with those targets and KPIs, because of the access to money market, which is relatively much more attractive from cost of funding point, especially during the month of March, we gave exit to some costly Turkish deposit accounts. And therefore, on the Turkish side, we had flat contraction. But more importantly, deposit composition became much more granular, both in terms of demand deposit share as well as in terms of retail deposit share, demand deposits in total deposits, further increased to 33%, 1/3 of total deposits now coming from the demand deposits, which was 27% a year ago. Yes, we are aware of the fact that compared to peer group, we are still catching up. But on the positive side, on the flip side, those numbers clearly shows we are in the right track and we are in the right direction. And hopefully, there will be further convergence in terms of chain of demand deposits via private peers and other state banks. And on the retail side, retail side also further increased to 47%, which was 45% a year ago. So this strategy, creating a much more granular deposit portfolio is paying off, and we are glad in terms of deposit composition we are approaching more to private peers. The next page is related to international funding, especially this quarter, it was an active quarter despite lack of Eurobond issuance. Still, we managed to obtain almost $3 billion fresh funding and the lion share of this funding is coming under the partial structure of IBR World Bank Group. In the month of March, we obtained a fresh funding of EUR 1.5 billion with 10-year final maturity. And after this transaction on the commercial banking side, we are glad we became the biggest financial institution counter part of an entire world bank group in Turkey. And of course, this funding project will be ESG angle especially use of proceeds will be ESG especially, it will be used for gender equality. Use of proceeds will be used to support women young labor as well as to support women and young intrapanership in the country. So therefore, it will be a very supportive project for the sake of entire structure on metal, and we are glad we became 1 of the biggest counterparty in this critical project. And in terms of the sustainable funding, total sustainable funding amount increased to $10 million with this transaction. And going forward, especially, we will be focusing much more on long-dated cost-effective funding channels like DPI insurances like more and first ever cooperations with multinational IFI institutions. That strategy will be much more alive for the rest of the year from our side. And the last page, I would like to pay attention is related to capital. As you know, with the first quarter of 2026, all the 4 business measures lifted in the Turkish banking space and in order to show you a like-or-like basis solvency ratios, Q4 2025 following ratios are depicted we do for various measures level. And during the quarter because of the market term, because of the mark-to-market losses as well as because of the bonus regulatory impact in terms of the measurement of operational risk, as you know, in third year at every first quarter, we have additional one-off impact coming from the operational risk measurement side, and it had negative 38 bps impact in our total card ratio calculation. And our CT1 ratio in the quarter came in 9.4%, which was down by 57 basis points compared to a quarter ago, and Tier 1 ratio came at 11.9%, and total car came at 14.1%. These are all numbers without forbearance measures under the current new regulation, which is totally different compared to what we were reporting to up until the end of previous years. And all those numbers are back on the numbers because of the relatively better and higher P&L on the consolidated consolidated capital ratios are also higher compared to bank on numbers, and we are having around 35 basis points higher capital ratios at consolidated level compared to unconsolidated tables. And these also another point I would like to share with you. For the sake of the time, this is the point I would like to stop and the rest of the presentation is related to Annex pages, especially related to sustainability, composition of assets and liabilities, security portfolio, detailed information related to retail loan portfolio and all the key financial ratios and the details of it P&L. Thank you very much for your attention and listening. Let me leave the floor again to Rob.

Thank you, Mr. Ali Tahan. Yes, indeed, it is time for our question-and-answer session. [Operator Instructions] question through, Mr. Han will be more than happy to answer that. If you would like to ask an audio question, not a problem. You can join the call by clicking the raise the hand button, raise hand button. You'll also see that at the bottom of your Zoom screen. I don't see any audio questions right now. Mr. Tahan, do you have any written questions. Just a reminder, folks, we are doing the question-and-answer session, written questions, you can click the Q&A button at the bottom of your zoom screen and audio questions -- just click the raise hand button which you will see at the bottom of your Zoom screen. At this time, no audio questions. Mr. Ali Tahan any written questions.

Yes. Yes, actually we have -- sorry, I was muted. I was speaking to myself, but because of the muted bottom, you couldn't hear me, sorry for this technical issue. Yes, we have written questions from Valentina from Barclays. Her first question is led to a level of hard currency liquidity as of first quarter compared to $7.4 billion short-term debt actually. At the moment, we are quite comfortable from hard currency liquidity point of view. -- especially Turkish site is much more tight in terms of liquidity conditions, which is a deliberate action following the macro tightening measures introduced by Central Bank management as a response to, but we were seeing on the geopolitical side during the month of March, but how currency liquidity conditions are quite comfortable and ample dollarization trend among focus which can be considered as risk factor doesn't take place because of relatively a good level of Turkish lira returns -- and in terms of the level of hard currency liquidity, we have 1.5x coverage compared to upcoming 1-year redemptions. So in this manner, we are quite comfortable especially in the 10 years, IBRD partial guarantee funding, which is a very fresh funding actually. It was also helping in terms of hard currency liquidity -- and on top of that, in the upcoming weeks, there will be also new announcements in terms of long-dated and sizable funding transactions. That's the reason actually why we didn't show up on the Eurobond market side offshore. Because as I mentioned, to the extent possible, we would like to focus on either multinational IFI related projects with ESG angle and with ESG value-add contribution as well as to the extent possible because of the cost advantage and because of the duration maturity advantage, new pacts benefit from our secured funding programs like DPR and more enhancements on those areasd will be shared shortly. The second question from Valentino is related to Stage 2, driving lower Stage 2 coverage ratio in the quarter -- can you also elaborate on whether you see asset quite pressure on SMEs and corporates, which and which sectors are affected. That was our guidance actually Valentino. Just to remind you, last year, we were expecting and indeed, we tested and experienced much more retail deliver NPL formation and NPL inflow. But this time, we were expecting much more blast in the first half between retail versus now retail, but in the second half, especially much more SME heavy NPL inflow rather than retail and through the corporate and commercial. For the time being, corporate and commercial segments because of the additional buffers they created from the previous cycles as well as because of the competitive power they have, let's say, they are in good shape, but small-scale mikeMEs, there can be the potential flow of NPL for the rest of the year, especially in the second half of the year. And the first part of your question, which is related to a decline in the coverage of Stage 2. This is related to migration because of the NPL inflow this quarter, which was 18 billion in the quarter, all of that from Stage 2 to NPL at the end of today. So because of this shift from stage 2 to stage 3. And because of the additional specific provisioning, we were putting for those migrated Stage 2 launch once they became NPI. Automatically, actually, that's quite the result of the formula. We see a slight decline. When we see less and slow NPL inflow from Stage 2 thereafter. Automatically, the coverage for Stage 2 ratios are increasing. 1 key KPI or 1 key ratio, we are also looking is related to total coverage ratio -- total coverage ratio, meaning -- the coverage we put -- general provision will be put for Stage 1 and Stage 2 as well as specific provisioning for NPI divided by total loan portfolio as we also showed in the presentation, is 3.6%. And compared to peer group average and compute sector leverage, this 3.6% is slightly higher actually which also shows how conservative VakiBank is in terms of coverage and in terms of provisioning. Another question from Valentino is relateds -- can you please walk us through your net interest margin and core loan deposit dynamics in Q1 and how do you see this NIM shaping up in second quarter for the rest of the year? Can you remind us your full year guidance? And do you see the downside is to it. Also what macro assumptions you used in the forecast. In line with the other banks who announced the first quarter numbers, yes, we see also a downside risk to our full year net interest margin guidance -- just to remind you, last year average swap adjusted net interest margin, we had was 3.4%. And this time for the year of 2026, we were guiding almost 110 bps increase, which is corresponding to 4.5% full year so adjusted net interest margin. In the first quarter, core prep compute average of 2025 further increased, as we discussed, yet we started with the most conformative CPI estimation. For the rest of the year, we have clearly a good potential upside from CPI portfolio. However, on the flip side, because of the policies implemented by Central Bank management just to make sure Turkish lira is still attractive and Turkish lira liquidity conditions tight, we also witnessed relatively higher cost of funding pressure since the beginning of March. That pressure peaked during the middle of April so from March almost till mid-April, we see an elevated level of cost of Turkish lira funding and to navigate pressure, we gave exit to costly Turkish deposit accounts and replaced some bit much more relatively attractive cost of funding, money market funding availabilities. But the good thing is since the second half of April, the highest peak level Turkish cost of funding seems to be coming down slightly. But of course, we are still keep a close monitor to recent developments and because of the correlation between the inflation at the Turkish deposit markets, the recent inflation came above the market consent inflation-wise, CPI numbers. So therefore, there may be some additional cost of funding pressure on the deposit side. So because of that, of course, all the cost of funding increase will be reflected on lending side. But on the other hand, because of the short-dated Turkish lira cost of funding increase, there will be a downside risk to our full year adjusted net interest margin, but we will be updating our full year adjusted interest margin expectation, when we are announcing the second quarter financials, not now, but for the time being, because of those recent developments, we see downside risk to full year net interest margin. There is 1 more question from Mustafa. Do you see any upside or downside risk to guidance? I mean for a time mix, we have now starts to only net interest margin. But for the time being, we would like to keep the guidance unchanged, and we would like to see and monitor the developments within the second quarter. After having some meaningful insights to the second quarter, if you refer to change the guidance accordingly, but for the time being, we would like to keep it unchanged, yet we had additional focus on net interest margin side. Similar to other banks, we also see downside risk to full year net interest margin expectation. The last question I see on the screen is from Hulk from AK Investment. Our company is asking, could you please provide us the current outlook on your expectations for our NIM, cost of risk, fee and OpEx both -- do we see some significant power sits on your guidance for such metrics. Our answering same. For the timing, we mean stitch to our full year guidance. But especially on the net interest margin side, there is clearly a downside lift, but we will change our guidance after second quarter financials, not enough. And these are all the questions actually, we are seeing on the screens. If there is any other questions, we can continue. Please us know if there is any.

Yes. Ali Tahan. We don't appear to have any audio questions. Folks, just a couple more seconds. If you would like to ask an audio question, just click the raise hand button. A few more moments for you to do that. Otherwise, if we don't have any more audio questions, I'm going to hand the floor back to Mr. Tahan for a conclusion.

Guidance has been taken as now road. Thank very much for everybody for their time and for the participation and looking forward to talking to you in the earliest possible wage -- in case you have any follow-up question, A.J. and all the team and myself, we are available as always. But for the time being, thank you very much for your time, and thank you very much for your participation again.

Thank you, Mr. Tahan. Thank you for the presentation. And ladies and gentlemen, thank you for your participation. With that, we conclude today's conference call, and you may now disconnect. Thank you.