Yapi ve Kredi Bankasi A.S. (YKBNK) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I am Gail, your Chorus Call operator. Welcome, and thank you for joining the Yapi Kredi conference call to present and discuss the 9 months 2020 financial results. Today's presenters are Mr. Gokhan Erun, CEO; Mr. Kürsad Keteci, Strategic Planning and IR, EVP; and Ms. Hilal Varol, Head of Strategic Analysis and IR. Now I hand over the presentation to Mr. Erun. Sir, please go ahead.

Good afternoon, and thank you all for joining our third quarter 2020 earnings call. First of all, I hope yourselves and your beloved ones are well and healthy. After 9.9% of GDP contraction in the second quarter due to COVID virus, we have observed recovery in the economy, in Turkish economy. And during the third quarter, thanks to actions taken by the government, eased lending conditions, higher-than-ever liquidity in the market. And forbearance measures, of course, for banks, contributed for the pickup of the economy. Leading indicators point out ongoing improvements in economic activity, such as IT, industrial production increased by around 10%; average PMI, around 55 in third quarter, highest quarterly average since, I think, 2011; further increase in output and new orders. Capacity utilization was in the third quarter, 72.7%, and October, very recently, 75.4%. Economic confidence index, 89, and consumer confidence index at 82. Meanwhile, during the third quarter, especially the last part, we have seen an increase in Turkish lira rates, followed by tightening measures. We have observed that the CBRT funding rate increased around 5.5%. And it was coming from 7.3% to now around 13% as we speak. Together with these rate increases, we also observed actions to reduce asset ratio requirements to increase complements for both sites, to reduce FX transaction tax, et cetera. This is all part of the normalization efforts, steps that is introduced by the government and regulatory bodies. I'm sure that Turkey will again positively differentiate itself, thanks to the timely and effective actions taken. At Yapi Kredi, we will continue to act responsibly against the market, as we have been as transparent as possible since the beginning of the process, and we'll continue to do so. Before starting the presentation, I'd like to thank the dedicated workforce of Yapi Kredi for their extensive effort during and for showing again their commitment to the country and to our esteemed bank. So I'm moving now to Page 2 numbers. Our net profit at TRY 4.3 billion, corresponding to 13.7% RoTE, with strong pre-provision profit, PPP generation and ongoing prudency in provisions. Third quarter was one of the strongest quarter of Yapi Kredi, as we guided so. On a quarterly basis, our net profit at TRY 1.9 billion with 1.6% return on assets. Pre-provision profit generation is very strong, as I mentioned, increasing 27% year-on-year and PPP per gross loans reached 5.1%. Core performance strength is the driver behind this performance. We have improved net interest margin by 43 basis points on a year-to-date basis. We benefited around 130 basis points from loan-to-deposit spreads, improvements thanks to well-managed loan yields and also outstanding performance in cost of funding in TL deposits. Our timely and very accurate decisions on the mix of TL funding helped us to expand our quarter limit and get 39 basis points improvements in loan-to-deposit spreads. Our strong year-to-date growth in demand deposit also helped us to improve our spreads. Fee income increased quarterly basis by 19%, thanks to pick up in economic activity as well as also our decisive strategy to increase number of transactions, so which means small tickets. Number of transactions growth in payment systems was 30%; and for money transfers, 19%. Meanwhile, our strong focus and dedicated team worked in bancassurance business that I would like to highlight, resulting 38% increase for the fee generation. Year-to-date, our total provision stood at TRY 5.6 billion, of which around TRY 3 billion is precautionary. We have increased the coverage of postponed loans to 6%. This is corresponding to TRY 900 million provisions, conservatively increased Otas coverage to 29%, TRY 200 million TL provisions and 62% coverage for the forbearance portfolio, which is TRY 710 million provisions and set aside TRY 1.2 billion COVID-19-related provisions. Our cost of risk is at 2.23% as of the end of third quarter. Of which, ordinary cost of risk is 1.1%, excluding other provisions. Lastly, when we look at our fundamentals. In terms of total LDR, we are at 102%, very close to 100%, in the low end of our targeted level of -- when we mentioned it was 105%. We have solid liquidity with an LCR of 146% while FX LCR, which is more important, at 454%, including the negative hit arising from syndications. Tier 1 ratio at 13.5% without forbearances. With forbearances, you have to add almost 200 basis points on top of that. This level represents close to 400 basis points buffer against regulatory limits. Similarly, CET1 at 12.2%, with again, 400, 415 basis point buffers. And total cash at 16.7%, 475 basis points buffer. And internal capital generation reached year-to-date, 191 basis points so far, even higher, excluding precautionary provisions. So now I am leaving the floor to Hilal.

Thank you very much, Gokhan bey. I hope you and your loved ones are well and safe. Looking at the volumes, we continue to focus on Turkish lira small business loans in the quarter. Total share loans increased 11% quarter-on-quarter and 21% year-to-date, mainly driven by consumer loans in the quarter. As a result, the share of retail loans in total, adjusted for FX, increased to 46%, 4 percentage points up since 2019. At the beginning of the year, we guided high teens of Turkish lira loan growth for full year. Now we foresee a slight upside potential to our guidance. On the deposit side, following a strong Turkish lira growth in the first half, with the increase in the cost of Turkish lira deposits, we focused more on to our funding and our FX deposits increased 8% quarter to date. This shows our agile balance sheet management. Equally important, as we have been guiding you, demand deposit share continues to improve. The share of demand deposits in total stood at 37%, which was 23% in 2019. Turkish lira demand in TL deposits at 28%, up 7 percentage points year-to-date. FX demand share increased as much as 17 percentage points to 42%. The increase is mainly driven by ongoing small ticket focus to retail deposits. Our Turkish lira demand deposit market share increased 152 basis points year-to-date to 17%. And as of today, it is even higher. Moving to Page 4. The breakdown of loans in terms of sectors are pretty much the same, while we continue to increase the coverage levels of the risk profiles further. Loan performance around 3% of loans, and we doubled the coverage to 6% in third Q from 3% in second Q. Reaching to a total provision level of TRY 1.1 billion, we set aside additional TRY 878 million for the sake of [ corridor ] season. We continue to set aside very cautious provisions for 90 to 180 days past due loans. Total provisions reaching TRY 751 million, TRY 685 million of which is these are [ conservative estimates ]. On Page 5, you can see the revenues. With a 9 basis points year-to-date increase in core revenue margin to 5.1% and support from treasury activities, our total revenues increased 23% year-over-year. Quarterly increase at 13%, thanks to 25 basis points improvement in core revenue margin, which stands at 5.17%. Moving to Page 6. On a comparable basis, our net interest margin widened 43 basis points to 3.7%, with a 130 basis point support from core NIM. Quarterly NIM has been widening for the past 5 consecutive quarters, thanks to our strategies that we put in place. In third Q, NIM up by 5 basis points, with 39 basis points support through core. Please note that we still use 8.5% inflation for the valuation of our [ linkerage ]. We will see the positive contribution in the fourth quarter. With this strong performance in the first 9 months of the year, we are comfortable to maintain our full year 30 basis points wider net interest margin guidance for 2020. We are on Page 7. Loan deposit spreads widened 15 basis points quarter-on-quarter, thanks to lucrative and agile ALM strategies. Deposit cost improved 60 basis points with a strong contribution of demand deposits. Loan yields, on the other hand, were down a limited 45 basis points in the 4Q. In the last quarter of the year, with higher cost of funding and limited loan demand, we report a [ hurting ] in loan deposit spreads. On Page 8, you can see the details of our fees. Our fees increased strongly by 19% quarter-on-quarter, thanks to the increase on number of transactions and intense diversification efforts. Number of money transfers increased by 19% quarter-on-quarter, when the payment system transaction number was up by 30%. Bancassurance fees increased as much as 38% quarter-on-quarter and 65% year-over-year. Fees on investment products, up by 37% Q-on-Q and 136% year-over-year. Money transfers, up by 40% Q-on-Q, but down 40% year-over-year. All incorporated fee increase was at 8% year-over-year as of 9M '20. Due to the higher days of 4Q '19, we maintain our single-digit fee contracts in guidance for the full year, which is likely to be at a low single-digit level. Moving to Page 9. Costs increased 17% year-over-year. Higher-than-projected depreciation in lira had 2 percentage points impact on our cost growth. Please note that around 20% of our non-HR costs are FX-denominated and sensitive to the exchange rate. Regulatory costs up by 40% year-over-year, 3 percentage points impact on cost growth. These were related -- business growth-related costs were up 27% year-over-year. On top, COVID-related additional costs had 1 percentage point impact on our cost growth. The positive impact of cost eliminations will be more visible in the upcoming periods and will allow us to improve the efficiency further. Transactions through digital and call center is increasing substantially. Digital transactions increased 29% over 2019, while call center was up by 15%. Although there has been some improvement in transactions through branch and ATMs in the third quarter over the low levels of second quarter, the year-to-date decline is as much or 33% and 13%, respectively. We believe that even after the full normalization, there will be a significant change in the customer behavior and needs. Accordingly, we have initiated strategic summit meetings internally to discuss the actions to serve these changes in the short, medium and long term. Moving to asset quality on Page 10. We have a very high level of 7.4% coverage for our gross loans, including the provisions for risks and charges, excluding pension fund provisions, our coverage is as high as 7.6% as of 9M, which is in line with the ratio in first half 2020. Stage 1 ratio at 79% with a coverage of 0.9%. We have set aside TRY 878 million additional provisions for the postponed loans, increasing the coverage to 6%. Our comparable stage 2 ratio is at 14.6% with a further coverage increase at 16%. NPL ratio came down to 6.5% on a comparable basis, including 90 to 180 days past due loans. The improvement was through lower flows, higher collections as well as the loan growth. We are on Page 11. As Gokhan bey mentioned in detail, we had TRY 3 billion of additional provisions in the first 9 months and around TRY 2.5 billion was through ECLs, increasing the coverage levels. Accordingly, our ordinary cost of risk was at 105 basis points and precautionary cost of risk was 118 bps. Our reported cost of risk of 223 basis points improved 69 basis points year-to-date. Quarterly improvement on cost of risk was 55 bps and third Q cost of risk stood at 181 bps. This performance gives us the comfort to maintain our below 300 basis points cost of risk guidance for the full year. We do not foresee the year-end cost of risk to be on the high end of our guidance. The currency impact, which was fully hedged, was 68 bps year-to-date and 107 basis points quarter-on-quarter. Moving to capital ratios on Page 12. We are very comfortable about our capital ratio levels. All are more than around 400 bps above the regulatory requirements without regulatory forbearances that will expire in 2020. CET1, 12.2% versus the regulatory limit of 8.05%; Tier 1, 13.5% versus 9.55%; and capital adequacy, 16.7% versus 12%. Our internal capital generation was very strong at 191 basis points and would be even higher with our precautionary provisions. Moving to Page 13. You can see our full year guidance and 9M performance. We went through them in related topics, but just to summarize: LDR, we are maintaining 105% -- below 105%, and we are comfortable. Capital adequacy ratio around 16%, we are maintaining our guidance. TL loan growth, likely to be slightly higher than our high teens guidance at low 20s. Net interest margin, plus 30 bps, and we are very comfortable, and this is on a comparable basis. Fees, single-digit contraction, likely to be low single digits. Costs at mid-teens. NPL ratio around 7%. Cost of risk below 300 basis points. And return on tangible equity at low teens. Now I'm leaving the floor to Gokhan bey for closing remarks. Then we will be happy to take your questions.

Thank you, Hilal. Going forward, we'll ensure the continuation of strong and sustainable revenue performance while also maintaining our strong fundamentals and conservative risk appetite, of course, driven by a customer-centric approach, responsible growth, sustainable revenue generation through value-added services and increased transaction banking. With our strong brands, rich organizational culture, fully committed workforce and support of our shareholders, we will seize the opportunities ahead of us and reach together achievements, which will also contribute to our country's economy. I'd like to take this occasion to extend my thanks to our stakeholders who stand by us with trust and support and to our dedicated employees who contributed to the achievements of our bank. I would also like to take this occasion to celebrate 97th anniversary of foundation of Turkish Republic, which is due in 3 days. On behalf of the whole team, I would like to thank you all for joining our call, and we can now take your questions.

The first question is from the line of Gasimli, Deniz with Goldman Sachs.

I have 3 question from my side. They're rather quick. First question on, generally, on the backdrop. As you mentioned, the weighted average cost of funding is almost 13%, 12.7%. But today, we also saw that the repo auction for banks was recently funded at 14.75% from what I saw, meaning that the upper bound of the interest rate corridor, the late liquidity window. I just wanted to get your views on that. Do you expect the funding to continue to be down at 14.75%? In which case, do you expect the weighted average cost of funding to get to 14.75% in the near term? Second question, just quickly on your deposit trends. As you said, because of the market conditions and how you try to manage your deposit and margins, you have got some deposits in Turkish lira in the third quarter. Want to get your views on fourth quarter-to-date deposit trends. I mean, are you also seeing maybe some pressure on Turkish lira deposit side in terms of the cost? Are you guys involved in deposits? Are you trying to bring that back up? And just finally, on the -- on your loan postponement, you -- in the presentation, 3% of loan book is postponed. I want to get the number for the -- not just the postponed amount, but the total loan amount at this point. And if you have any color you can share in terms of how the postponed book is performing. I mean, do you -- what's the percentage of this postponed book that you maybe would think will become an NPL in the near future? If you have any color, this will be much appreciated.

Okay. Let me take the first 2 questions first. About the tightening, all this is maybe referring to Central Bank's policy, I assume. So I think the normalization period, as I mentioned earlier, has started, which means that tightening policy is also continuing. And at the moment, what we have seen, as you very well said today, the repo auction was at 14.75%. This is the traditional repo auction. Obviously, the Central Bank is very much focused on the inflation. And that's why a further tightening -- I think we'll be seeing further tightening, which means that as long as the inflation, which is one of the factors is also the currency depreciation, Turkish lira depreciation is in place, further tightening, we'll be seeing further tightening, I think. So which means that the average cost of funding of the market will increase. So -- which means that if the inflation continues to increase. And also, unfortunately, as of today, the global conditions were not very helpful at all, which means that we will be touching more and more or getting closer to the upper band of the corridor, which is basically at the moment used practically at 14.75%. That I see. So which means that officially, the Central Bank is using the late liquidity window as a tool here, and we'll be going there, if necessary. And attached to that comment, the deposit market will also act or follow accordingly, which means that we have already seen some pressure on the TL deposit market conditions, which used to be below 10% anyhow or even close to 9%. Now it is going up and up. At the moment, for the very high end of the Turkish lira deposit market, it stands at 13%. So if -- as a bank, we would like to get additional TL deposits, then we have to pay something close to 13%. But having said that, thanks to our services, good services that we provide for our customers and for their loyalty, our stock as of today is still close to 11%. So which means that our cost of TL deposits, time deposit, TL time deposit funding is not increasing as much as the weighted average of cost of funding of the market. So we are seeing that our services are paying off. And on top of this, of course, as our demand deposit is also increasing, and we are getting market share there, which is also helping on that side to keep under control the total TL cost of funding for us. But needless to say, as we go to the north of 14% for the cost of funding in general for the market, then it is inevitable to see also the TL deposit rates for the -- at least for the marginal amounts, marginal amounts to go to those levels. But it will take some time, I think, and that's why I think the net interest margin will be further under pressure in the fourth quarter. And last question maybe.

This is Kürsad speaking. For the postponed portfolio, it is around TRY 20 billion overall. And just an addition, the number of postponements decreased by 94% quarter-on-quarter. Therefore, we can say that there is no further postponement request. And when we take the performance, around 95% of this postponed portfolio are being paid. And which means just about 5% of it, we have some delays. And even within this 5%, only 1% is going to NPL. Then we have a detailed look in terms of segments, corporate commercial performance, 99%; SME at around 95%; and retail, around 90%.

Our next question is from the line of Webborn, Alan with Societe Generale.

I wondered how much you felt that the activity levels in the third quarter in terms of volumes, in terms of fees and so on were, to some extent, a catch-up from the sort of less lower levels of activity that we saw in Q3? I know in Turkey, you had a sort of limited lockdown. And also, clearly, as loan rates will have gone up across the quarter, there seems to have been a bit of a rush to get a reasonable mortgage rate in. And so are we going to really see a stop in demand in Q4? I mean, what's your experience in the first few weeks of October, now rates are rather higher? And do you think there's -- is there demand capacity there at this level? Or are we facing a couple of quarters where the demand is really going to be quite weak? I just wondered how you see the sort of -- that we've gone almost from sort of day to night from when you reported Q2 to now you've reported, albeit a very strong Q3. I just wondered how you see market conditions changing as we've gone through that sort of transfer of where we talked to at the end of June and where we're now, back half at the end of September in terms of operating conditions.

First, about the transaction, about the activity, it is not still 100% recovery. Still, we are daily monitoring the activity of our even regions and branches. And the most recovered region is still is lagging behind 20% or so, which means that the flow to the branches is not as high as we saw in, let's say, in January and February. But having said that, because of the mobile and because of the digital transformation that we had in the past, we are seeing at least 30% or more increased activity through our digital channels, which means that's why the third quarter was a strong quarter. Of course, with the -- and this is coming to the second question of yours. With the increasing rates, Turkish lira rates, basically, we are seeing, especially, as you mentioned, for the mortgages, we are seeing a slowdown for sure. So instead of borrowing for our customers at, let's say, 0.9% per month which is 11% per year, now they have to pay 15% or even higher than that. So because of this, there has been a slowdown in mortgages, which is also healthy, if you ask me. And on the other hand, for the GPLs, for the general purpose loans, and in terms of number of tickets sold, it is still elevated, let's see, 40,000 or so. So this is still there. But the number of tickets, the volumes, in terms of volumes, it is decreasing because it is related to installments. Number of installments decreased from 60 months to 36 months, which means that the affordability of the customer decreased basically for our retail customers. That's why the affordability went down. And the tickets that they can buy is now is lower. That's why in terms of volumes, volumes are less. We do not see the volumes that we saw in the past months like TRY 1.2 billion, TRY 1.3 billion, TRY 1.5 billion per week new loans. Instead of this, what we are seeing is TRY 700 million, TRY 800 million per week, but still, it is strong. The demand is there, and with those rates, Yapi Kredi was not competing with our peers because of the asset ratio, which shows the other way around to shrink our balance sheet rather than grow our balance sheet with low interest rates. That's why now, Yapi Kredi is enjoying a lot the new interest rate environment. For example, for the general purpose loans, which is the rates are above 21%, 22% already on a compound basis, even 25%. And we are landing from that. And I'm proud to say that there is almost no loans given below 10%, mid-single digits on our balance sheet. This is a strong set of performance on the ALM management of the bank. That's why we are proud to say as we did in second quarter, also in the third quarter, we have been expanding our net interest margins.

Okay. So if we see sort of rates settling or maybe going a little bit higher than they are now, you still think that in terms of your customer base, there's room to see some more volume growth as we look ahead over the next sort of 3 to 6 months? We're not facing a real stop in terms of demand. Do you think it's manageable at these levels? Is that fair?

This is fair to say that, Alan. And we do not see that. It is the demand, especially for the retail side, it is there. Retail, meaning individuals and also SMEs. The demand is there, and we'll be there for our customers. And that's why now it's a matter of repricing of the balance sheet at the moment, especially on the asset side. And we'll be doing that. And we'll be benefiting out of that as soon as possible, of course.

The next question comes from the line of Rozantsev, Konstantin with JPMorgan.

Two quick questions from my side to confirm. The first one is on the net interest margins. You mentioned on the call that it's fair to expect this to come down somewhat reflected in part of the financial conditions in Turkey. Could you please maybe share some guidance about where you expect the quarterly net interest margin [ to fall ] effectively? And [ then coming ] also the impacts of the maturity mismatches and implications for the margins, where do you expect the margin to stabilize going forward? That's the first question. Second question is with respect to the bank's Tier 2 subordinated bonds in dollars, which is an outstanding and which is callable next year. Could you share some guidance about your thinking if this bond is going to be called next year? That's it for my side.

Thank you for the question, Konstantin. And regarding your first question, in terms of net interest margin, it's obvious that 4Q on Q, it will be a contraction. But also keep in mind that there will be CPI securities remuneration. We are still accounting them at 8.5% of inflation, and every 1 percentage point increase means 5 basis points net interest margin. Also on a quarterly basis, 25 basis point impact. And still, we are keeping our year-end NIM guidance that we gave, which is 30 basis points higher than last year. And we believe that we will be achieving that one. In terms of margins then to stabilize and when you look at the new flow of margins, for sure, it's positive. But the problem is the maturity mismatch, as you mentioned. And therefore, within at least 6 months of period in total, we can see that it's all settled, assuming that the rate environment is going to stabilize soon.

So a few words on top what Kürsad said. The duration gap, we are always very careful about the duration gap that we are carrying on our balance sheet. And it is never more than 3 months. So we've been very careful about this. And I think the treasury is doing extremely good job there to hedge the portfolio whenever it is possible, of course, and whenever our limits allow us to do so. That's why basically, if the tightening conditions stabilize as of today, let's assume then, at most, we have 3 months to fix. And coming to Kürsad's point, that -- and it will be extending the tightening policy, we're extending a few more months. That's why you have to expect up to 6 months to go to back to normal. And the second consumers, I think, related to [ sub ], that is callable on the -- in March, I think, 2021, March. It's still early to say. Of course, we'd like to be market-friendly as much as possible. But on the other hand, of course, we have to see the market conditions and also the regulators' reaction to that too. So basically, because this will have an impact of -- to our capital position, that's why it's a little bit early to comment about this. But we are waiting for the right time to conclude as soon as possible. And once we conclude, then you will hear from us.

Ladies and gentlemen, there are no further audio questions at this time. I will now turn the conference over to management for any webcast questions. Thank you.

We have one webcast question. FX on short-term debt and FX liquidity, breakup of the FX liquid assets. What's the percentage -- what percentage is wrong? Update on your syndicated loan rollover and plans to issue euro bonds? Let's start with the FX part. So you can see the details on our annex on Page 21, that our short-term liquidity is at $11 billion and our short-term debt is $3.9 billion. This is the 1 year, and it is 2.9x above our short-term debt. Looking at the breakdown, for the correspondent banks, we have around $1.5 billion. And at the branch level, we have around TRY 0.6 billion, and the remaining is Central Bank. Only TRY 0.8 billion of this is at -- these are [ option ] mechanism. And related with the syndication rollover, we will be announcing it soon. So we cannot go into the detail, but what I can say is we will be -- the rollover will be higher than what we have been budgeted, very strong, but please wait and see for a couple of days because it's not official yet. And regarding plans to issue the euro bonds, we are always looking to the market. We are always ready. But as you can see, the rates are very high at the moment. If there is an opportunity with a good interest rate environment, definitely, we will be there. But we don't have any plans in the very short term. And we don't have any other webcast questions. Any questions on the audio side?

We have another question from our audio participant Saraoglu, Cihan with HSBC.

Congratulations on the very strong results. I have a very brief question. When I look at your 9-month cost of risk, which is approximately 220 basis points and your full year cost of risk guidance of lower than 300 basis points, there's a very wide gap. So my question is, why isn't the bank actually tightening the guidance for full year cost of risk? And are you comfortable with the current coverage ratio of the bank?

Regarding the cost of risk guidance, our guidance is already below 300 basis points. And we issue at year-end below 300 basis points. It will be meeting the guidance. Therefore, we don't think that we need to revise it. And our expected conversion is not going to be close to 300, but it will be around 225, between 200 and 250.

So 225 to 250?

Without, without -- what you say, sorry?

Sorry. So it's 225 to 250 for the full year, right?

For the full year, this is our initial expectations. But as we move forward for the remaining 3 months, and we will be deciding on that. But as you mentioned, it is below 300 basis points at anyhow. Regarding the coverage levels, and we believe we are more than adequate coverages for each stages: Stage 1, 0.9%; Stage 2, 16%, Stage 3, 68% level. And therefore, we can say we have more than adequate provisioning flows. And we have the highest, as you remember, as of first half, we have the highest total coverage over gross loans, and we are also keeping it stable.

We have another question from [ Nordre, Thomas ] with Bloomberg Intelligence.

I have 2 questions. The first one would be just, could you please repeat your statistics, your data on postponed loans because I think I might have missed that during your presentation? And second question is more general question about lira. We see lira today breaching TRY 8 per dollar, and I'm just wondering, when market result probably, at what level of lira versus dollar or euro, at what level would you expect corporates -- on corporate to start actually having any problem and issues with servicing their debt? Do you have any worst case, best case scenarios where you, of course, assume certain levels of lira and what would be this level? And when we should actually start to worry about corporate -- asset liquidity of corporates? And how it would play out in next year?

Regarding to your questions, let me start with the first one, statistics about postponed loans. It is around TRY 20 billion for our portfolio. And number of postponement requirement decreased 94% quarterly. When we look at the performance of the postponed loans, we are seeing 95% overall is being paid. And remaining 5% is becoming due. And within this due payments, it's just 1% moving to nonperforming loans. And for your second question regarding the Turkish lira against dollar...

I'm sorry. I apologize we could not hear you, sir. I don't know if you would like to repeat a little bit from the end.

For the first question, can you hear me now?

Yes, I can hear you. Yes.

And for the postponed loan portfolio, it is TRY 20 billion within our total cash loans. And the number of postponements is decreasing, a number of postponements requested decreasing by 94% quarterly. And for this postponed portfolio, we have around 6% of provisions. When we look at the performance, 95% of the postponed loans are being paid timely and remaining 5% is becoming due. And within due payments, it's just 1% moving to nonperforming loans. And for your second question, Gokhan bey will be answering.

Well, for the level of the Turkish lira, let me start also from, I think 2018, having the currency crisis in Turkey helped Turkey a lot, which means that back in 2018 and 2019, Turkish corporates as well as the banks understood that carrying Turkish lira and a short dollar of foreign currency position will not help the companies and will put them in jeopardy. That's why I think the 2018 crisis, which was basically specific to Turkey, mainly for Turkey, helped us a lot. So that's why many of the short positions on the corporate balance sheet had been evaporated, which means that either they are converted to Turkish lira with a good hedge with the help of the banks or paid by the shareholders, by the sponsors. And now I can give you numbers, a few examples from our balance sheet, for example. Our foreign currency loan book used to be back in the beginning of 2018, more than $20 billion, $22 billion or so. Now it is down to $14 billion, which means on our balance sheet, basically, the companies that are borrowing from the foreign currency are having either their income in foreign currency or they are hedged basically or they have FX-linked income, not FX, like they are exporters, but they have an FX-linked income, which means, in that sense, I think the exposure, the risk that our clients are having on their balance sheet is very limited. But having said that, of course, it is more important rather than having the level of the currency, it is more important as the volatility of the currency, which means -- which brings down the predictability. And also, we are -- we are seeing that the customers will be losing the appetite for investments because they will be losing the visibility. That's why I think it's not the level of the currency, but it is the volatility. So that's why I cannot exactly tell you that whether it is TRY 8 or TRY 9 or TRY 10, that puts our customers in jeopardy. Because already, 2018 and 2019 has been, as you very well know, has been a rebalancing year for Turkey and also for our customers. That's why to enter the COVID environment after the FX crisis in Turkey has been very helpful for the Turkish banking system.

We have a follow-up question from the line of Webborn, Alan with Societe General.

Could you just explain a little bit how your swap utilization has moved as sort of the interest rate environment has changed? And what do you think, at the moment, that was likely to mean looking into Q4? So just give us an idea about how that has progressed and how things are at the moment, that will be helpful. And then just a small point of detail. Apologies if I should have seen it somewhere else. But what is the TRY 303 million of provisions for risk and charges for -- in the third quarter?

Well, it's swap utilization, Alan. So we are very flexible about our asset and liability management. And whenever we see an opportunity, we utilize it. So which means that, for example, in the second quarter, it was -- it made sense to borrow in Turkish lira rather than -- or take the deposit in Turkish lira rather than taking in dollar deposit and converting to Turkish lira through swaps. That -- we didn't do that, so less to that. But especially in the third quarter and from time to time as we speak also, the -- to borrow in foreign currency because the rate in dollar deposits or in euro deposits, the foreign currency deposit is still close to LIBOR or at most, LIBOR plus 1%, which means that if there is an opportunity with the Central Bank, that we utilize a lot because then to convert those dollar deposits through swaps from the Central Bank and into Turkish lira in the end. From time to time, it makes sense. Then we utilize the dollar deposits borrowing and to converting them into Turkish lira through swaps. That utilize a lot. So whenever there is an arbitrage that we can utilize, we do that, for sure, till the end, until the last thresholds or limits that we have, we utilize it. We've been very opportunistic about that.

Because I mean, the actual cost was quite low in the third quarter. So I just wondered, had it been picking up across the third quarter? And that at the beginning of the third quarter, you weren't doing any because clearly, it's the lowest cost you've had for a long time? And I just wondered how the trends were going, and should we expect it to be a little -- you should be a bit more active in Q4?

It's getting more expensive. It's getting more expensive, and it depends. From time to time, the Central Bank incentivizes the swap position. That's why we go to the swap limit. But then after a week, they increase the Turkish lira borrowing through the swaps, then we -- our balance sheet is so dynamic that we convert directly to Turkish lira. And we have quite an unutilized limit of the repos as well, so we can switch to Turkish lira repos or the swap limits whenever we want, Alan.

Okay. Okay. And on the first...

Alan?

Yes?

On the provision side, let me explain. The TRY 303 million quarterly provisions includes around TRY 70 million provision for our pension funds. As you remember, at year-end, we are charging the pension fund provision. But on a yearly basis, within the year, we are accumulating the provisions, and with that TRY 70 million provisions, our pension fund provision increased TRY 265 million. The remaining provisions within this TRY 303 million are not attached to any possible risk or are not attached to any risk which arise today, but it is there for the precautionary actions we are taking.

And ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.

Thank you very much for joining our call. If you need any further details, you can reach us for anything. Thank you very much. Have a lovely evening.