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

Ladies and gentlemen, thank you for standing by. I'm [indiscernible], your Chorus Call operator. Welcome, and thank you for joining the Yapi Kredi conference call and live webcast to present and discuss the Yapi Kredi 2021 Financial Results and 2022 guidance. At this time, I would like to turn the conference over to Mr. Gokhan Erun, CEO; Mr. Kursad Keteci, Strategic Planning, IR and EVP; and Ms. Hilal Varol, Head of Investor Relations and strategic analysis. Mr. Erun, you may now proceed.

Thank you. Good afternoon, and thank you all for joining our 2021 earnings and 2022 guidance call. Before going into details of our strong performance, I'd like to say a few words about the operating environment. We expect to end last year '21, we had GDP growth above 10%, mainly driven by the strength in services, IP, industrial production and also robust external demand. Despite the strong growth, 12 months rolling current account deficit came down to $14 million, or in other words, 1.8% of GDP. Budget deficit at 2.8%, as always, strong performance on the budget side. In terms of rate environment, higher global commodity and also energy prices, together with the imbalances between supply and demand are affecting inflation evolution all around the world and also, unfortunately, in Turkey. Accordingly, the high inflation levels will stay longer than expected and likely to peak in the first half of this year. In the last monetary policy meeting, as expected, Central Bank remained on hold, and we foresee still this tranche to continue at least during the first quarter. The volatility in the Turkish lira cold down following the moves from the authorities, the inflation of exchange rate protected deposit, alongside with higher market rates than the Central Bank. Central Bank rate resulted in a stabilization for the time being. Before starting the presentation, I'd like to spend some time on what we have done so far in terms of sustainability. We are now committed to become carbon neutral in Scope 1 and Scope 2 emissions this year. For Scope 3, as mentioned earlier, our target is before 2050. We secured $2.5 billion worth of sustainable funding. And I'm proud to mention that our bank is one of the 7 companies from Turkey included in the 2022 Bloomberg Gender-Equality Index. Furthermore, as a sustainability-focused company, we are included in the S&P Sustainability Yearbook 2022, one of the 4 companies from Turkey. Now I'm moving to the Page 2 of our presentation. We have doubled our net profit to $10.5 billion and reached 19.6% ROE in 2021. In the year, we beat our guidance of mid-20s. Our sustainable improvement in the ROE supported our share price performance and our price to book value outperformed our peers around 50%, 5-0, in the last 2 years. Once again, confirming the trust and confidence of the investment community to our bank. Quarterly net profit also improved 10%, and we posted 25% ROE. Our ROAA return on assets improved 52 basis points year-on-year to 1.7%. Some important drivers are as follows: in fourth quarter quarterly NIM widened further 54 basis points, following a low start to the year, given high funding costs, remember lowest times. We managed to improve our NIM every quarter, and as a result, are annual NIM tightened 59 basis points in line with our guidance. Loan repricing sustained TL loan yields went up by 20 basis points. With the strength in demand deposits and proactive A&L management, CR deposit costs improved 57 basis points quarter-on-quarter. Fee income increased 40% year-on-year, much better than our guidance of mid-20s. Transaction numbers increased significantly in the year with support from all components. Accordingly, pre-provision profit, PPP during last year increased around 40% and PPP to equity also stood at 42%. Excluding TRY 1 billion flows due to ending regulatory for balance, our net inflow were negative at TRY 200 million. This is thanks to the strong recoveries. In the year, we had TRY 3.3 billion worth of recoveries, whereas the NPL inflow were TRY 4.1 billion. As I said, TRY 1 billion is due to earnings for balances. I'm moving to Page 3. With our rock solid and further improved fundamentals, we are ready for this year. We have enhanced liquidity levels. Our total LDR improved to 94% ongoing TRY and demand deposit focus. As we speak, our foreign currency LCR is above 700%, and total LCR above 200% or USD 11 billion liquidity, covers all our total external foreign currency debt without looking any other maturity. So we are highly liquid. Capital levels very strong. Tier 1 ratio at 12.6% without forbearances, as we always share with you very transparently. And this represents 307 basis points buffer against regulatory limits. Thanks to ongoing support from internal capital generation despite the macro volatility. Even on the worst days of the volatility, remember those days when Dollar TL touched 18, 18.5 levels, we had more than 150 basis point buffer at all ratios, which means that we slapped very well during -- even during those times as the management. Last but not least, our agile ALM management continues to pay off with our small ticket focus, strong customer acquisition and demand deposit increase, our TL loan-to-deposit spread evolution is significantly better than private banks. And as of last year, and our spread is 70 basis points higher than private banks average. On top our CPI linker portfolio is also supporting our NIM. As end of last year, we have around TL 60 billion worth of linkers, highest level among our peers, I think, at 91% of our equity. Also during the first quarter, we have further accumulated a sizable amount. This position is a great hedge for our profitability as we have seen today's numbers for inflation. And with these words, I'll leave the floor now to Hilal for further comment on our strong numbers.

Thank you very much, Gokhan Bey, and I thank you all for joining our call, and I wish you a great new year. Looking at the lending growth. We are on Page 4, our Turkish lira and small ticket driven loan growth sustained through the year. Turkish lira loan growth was robust at 34% year-over-year. And this is with 6% quarterly increase. Our full year growth was higher than our guidance of low 20. In the year, we gained 73 bps market share. This is among private spend. This performance was again to lucrative small ticket products. Consumer loans up by 42% with the 108 basis points market share gain. On the business loans, our increase was 29%, mainly through SMEs and commercial. We had 20 bps market share gain. With a 14% increase in credit cards in the quarter -- in the last quarter of the year, we gained 32 bps further market shares and definitely maintained our leadership. FX Loans continue to decline given the limited demand and ongoing payments we received, deleveraging reached 12%. As a result, the several retail loans, including SMEs, increased further by 9 percentage points and reached 57% of total. Looking at the deposits. So I move to Page 5. We also sustained our Turkish lira small tickets and [indiscernible] demand deposit growth. Turkish lira deposits increased 6% quarter-on-quarter, reaching to 35% annual. In the year, we gained 85 basis points market share among price banks. The driver was the individuals where we gained 40 bps market share. Turkish lira demand deposit increased 44% year-over-year. And the share increased its share in total increased 27%. And looking at the market, we gained 171 basis points. This a significant market share gain in sticky individual Turkey through demand deposits. It is a great result of our customer acquisition efforts. We are talking about that a lot. And this year, in 2021, we gained more than 2.6 million new customers. FX deposits were stable, but the growth and market share gain in demand was again very strong. Demand deposits increased 16%, and we gained 42 basis points market share. And again, individual demand market share was higher at 90 bps. All in all, the share of 0 cost demand deposits in total increased 43% and is up by another 7 percentage points. Moving to the next page. Our revenues increased 20% year-over-year, and this is adjusted for the positive impact of the ECL hedge. With 29% quarterly increase, our core revenues went up by 18%. Strong trading gains definitely were supportive in the year as well, thanks to timely action to our treasury. With 55 basis points quarterly widening in the NIM, remains to meet our guidance and our NIM came down a limited 59 basis points to 3.2% in the year. Our quarter NIM exit was at 3.6% in 4Q and definitely, this is normalized with the linkers. Looking at the core NIM, Core NIM was down at controlled 68 bps. When we had 80 basis points support from securities, our decisions that make further linked as Gokhan mentioned, through the year is and will be very, very supportive to our NIM performance. So looking at what we achieved as loan and deposit spread evolution, our loan deposit spread widened 161 basis points on a quarterly basis. And this is thanks to our proactive ALM management. With ongoing repricing impact our Turkish lira loan yields improved 20 bps and total up by 90. Turkish lira deposit cost in full 60 bps in the quarter. So very strong and robust performance and moving to fees on Page 7. Our fees increased 40% year-over-year and 13% quarter-on-quarter, and this is significantly better than our guidance. With very strong increase in money transfer transactions, money transfer fees increased 63% year-over-year. Payment system fees up 83% year-over-year, not just due to interest rates, but again, thanks to hike in a number of transactions. We are the market leader in credit card business and still adding on top. Bank insurance with new products initiated and strong support from digital sales, bank insurance fees further increased 26% year-over-year. We have a continuous leadership in asset management funds in terms of profitability and returns. Thus, fees from investment products up by 32% year-over-year. This is a huge effort. Cash loan-related fees, on the other hand, up by 37%. Now I'm moving to Page 9. Our cost increase was at 26% year-over-year, and this is mainly due to higher than expected inflation is a bit higher than what we had been guiding. But also given ongoing customer acquisition efforts, business cost -- related costs also increased 33% year-over-year. And I would like to once again mention that we have gained more than 2.6 million new customers in the year. And these all efforts, yes, we are spending, but also is paying off and is visible in our numbers. So fees OpEx improved 7 percentage points year-over-year at 74%, and this is the highest level among our peers announced the results so far where I believe it will be the highest. Looking at the digital development. I'm now on Page 10. Number of digital customers increased 1.5 million in 2021. And since 2017, we have added more than 4.5 million digital customers. We had 43% increase in month leverage loading versus [ 2020 ] average. More than 80% of our GPL sales, General purpose loan sales and 85% of bill payment orders are through digital. Meaning starting at digital and lending is our digital definition so I'm adding it every quarter and it's without any physical touch. All incorporated share of transaction numbers through digital channels reached to 67% versus 48% as of '19, and 60% as of 2020. Now I am on Page 11, looking at the asset quality. We have further increased our coverage levels at Stage 2 and Stage 3. Stage 1 coverage maintains at 1%. It is an elevated level for a Stage 1 coverage. Stage 2 further, we increased 140 bps quarter-on-quarter and 3 percentage points to 19%. Stage 3, so the NPL cover at 73%. It has also increased 160 bps quarterly. And our NPL ratio improved to 4.7%, [indiscernible] with strong growth. Also limited flows and very strong recoveries in the year, which next page, I will explain in details. Important to mention that 3% of our Stage 2 loans are past due more than 30 days. Our total coverage stands end at 7.3%, very high levels despite the ongoing loan growth. So as I said, looking at the NPL formation, excluding Gokhan Bey explained this, I want to go through the numbers once again. Excluding the impact of regulatory forbearances, TRY 1 billion [indiscernible]. Net NPL formation increased slightly in the last quarter of the year, still limited around TRY 650 million, and this is mainly through individuals. As you know, we have been guiding that. Please note that also I want to mention TRY 1 billion that we classified is already provisioned as NPL, so no impact on cost of risk. Thanks to very strong recoveries in the year, amounting to TRY 3.3 billion, our net NPL inflows were TRY 800 million and excluding the TRY 1 billion negative [indiscernible] TRY 200 million. With prudency in both clarification and coverage, our cost of risk stood at 87 basis points. So solvency ratios capital, we are on Page 13 of the presentation. We are at very comfortable levels. At all the capital ratios, we have more than 300 bps buffer over the regulatory threshold. And support from profit generation, as always, was very strong, and it was at 324 basis points. Our CET1 at 11%, our Tier 1 ratio at 12.6% and our capital adequacy ratio at 15%. We are definitely at very comfortable levels in terms of solvency. What we have accomplished in terms of sustainability, now I'm on Page 14. In terms of funding, with 70% of 2021 generation, our sustainable linked funding reached to 30% of total and the other we will continue to increase the share. As a sustainable focused company, we are included in this Sustainability Yearbook 2022 within the scope of S&P Global's Corporate Sustainability assessment. We are one of the 4 companies included from Turkey. With more than 60% of our workforce in women, we are included in the Bloomberg Gender-Equity Index. It is based on 5 pillars: female leadership and talent pipeline; equal pay and gender parity; inclusive culture; special harassment policies; pro-women brand. On July 2021, we are committed to science space targets initiative. And therefore, with all these efforts, we have further improvement in the ratings in the quarter. We have the best sustainable ECG risk management score again further in 3.4 points to 17.1, low weathering here. [indiscernible] ESG company score at 77%, up 14 points in 2021 and our combined score at A-. So what we are planning to do, what are goals on sustainable on Page 15. On Scope 1 and Scope 2, we will be carbon neutral this year. For Scope 3 earlier than 2050 and we have a very detailed road map. We will integrate climate risk to our credit risk framework. We will continue to increase the number of sustainable products and will continue to increase the sale of funding. So on Page 16, this is a summary of our robust performance in 2021 versus our guidance. I will try to summarize very shortly. Definitely, I will start with the ROE performance 19.6%, much better than our mid-teens guidance. And every year, we are improving. LDR in lines are below 110% guidance at 94%. Capital adequacy ratio slightly lower just due to the southern volatility. Turkish lira loan growth, stronger than projected with a health profile. Net interest margin, in line with the guidance with a limited 59 bps contraction. This is thanks to our agile ALM and all the supportive strategies, we are always talking such as demand deposit growth small secret focus, CPI linker portfolio. These are all timely actions for us. Fees up 40%, significantly better, thanks to a number of transactions to new customer acquisitions. Cost increase higher than guidance, and this is, as I explained, due to higher-than-expected inflation levels. NPL ratio at 4.6%, given limited inflows and half the collections. Cost of risk, we said below 150 bps. We finished at 87. So now I'm leaving the floor to Gokhan Bey to share our 2022 guidance for closing remarks before taking the questions. Gokhan Bey?

Thank you, Hilal. 2022 guidance for consolidated financials are as follows. In terms of volumes, we will continue to focus in lending, Turkish lira lending. We target to have high 20s TL loan growth, focusing on value-generating segments, and we foresee further contraction for the foreign currency lending. So we are deleveraging on foreign currency lending side. In terms of core revenues, we expect the net interest margin to widen in the range of 100 basis points. With our Agile ALM, also CPI linkers will help here to. We had a very strong 40% increase last year in fees, diversification efforts, hike in number of transactions, definitely our leadership in payment systems helped a lot. This year, we target to have high 20s increasing fees on top of this last year's performance. Ongoing new customer acquisition, higher transaction numbers will continue to drive the performance. Note that we have gained more than 2.6 million customers last year. Cost growth will be below average inflation in the year will not sacrifice, we will not sacrifice from our HR costs. Our people is always in the center of our attention. One area that we will not also sacrifice is business growth-related costs, so with ongoing digital investments. So customer satisfaction new customer acquisition will continue to improve. That said, we will continue to keep the running costs under control and sustained cost savings in that area. In terms of asset quality this year, we foresee a through the cycle normalization NPL inflows will increase year-on-year, normalized mainly through individuals and SMEs. We witnessed the primary signals already last quarter, which is -- which was limited. We still continue to improve our collection efforts, and we hope and we see the results already this year. It started very strong. So we have high hopes for the collection sites as well. All in all, we foresee the cost of risk to be less than 100 basis points for this year. Since 2018, so in the last 4 years, we are improving our return on equity. I believe that we have already confirmed that the improvement is not just one-off, 1-year event. In 2022, we target to further improve our ROE, which was last year's 19.6%. I'd like to take the 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 and short commitment -- huge commitment to the country and to our bank. On behalf of the whole team, I'd like to thank you all for joining our call. And now we can take your questions.

The first question is from the line of Mohsin Waleed with Goldman Sachs.

I have 4 quick questions for you, please. So first, on the customer acquisition strategy, you've had great success, 2.6 million customers supporting the growth of noninterest-bearing deposits as well as on the growth on the lending side. If you could please elaborate a little bit more in terms of how you've gone about it. I know it's been a journey, and you've talked about it. But maybe if you could talk a little bit more about what happened in 2021. It's a pretty strong achievement on the customer acquisition side? That's my first question. And then a few quick questions. One, if you could talk about the target mix of your balance sheet. What would you think the CPI linker portfolio will comprise as a percentage of total balance sheet. And linked to that, you've mentioned that you're targeting around 100 basis points of NIM expansion during 2022. So if you could kindly unpack this into the contribution from CPI linkers, your underlying assumptions around inflation and then there's a portion which is coming from elements other than non CPI. And my last and final question is on your normalized return on tangible equity. So obviously, the high inflation environment, CPI linkers is going to help your return on tangible equity in 2022. But once inflation normalizes in 2023, where do you see your return on tangible equity?

So 4 questions. Quick answers also. For the customer acquisition, there are many aspects below this 2.6 million customer acquisition. One of the aspect is the digital onboarding. This is one of the main aspects that we focused on. Second is definitely the salary payments that we are acquiring. So this is both from the customers -- from the corporate commercial as well as also from the SMEs. We see a strong growth also from the SME side, especially this year. So that it will help the cost of customer acquisition, bringing down. On top, the -- one of the best franchise, especially on the payment system, being the leader in the payment systems. Still, these efforts is helping us all a lot. So overall -- and the fourth point is definitely we have more than [ 300 ] branches and more than 16,000 employees working for Yapi Kredi, thanks to the strong franchise. We are acquiring from all from those 4 pillars. That's why we have 2.6 million -- more than 2.6 million customer acquisition last year. And we'll continue to do so. Not to forget also Waleed that Yapi Kredi has always been the retail bank of Turkey in the last maybe more than 30 years or so. So which means that we have a pile of inactive customers that would like to activate, and we are doing that. So that's why the potential is huge. So that's why I believe that we can sustain with this active customer acquisition efforts. So second question, CPI linker portion. So it depends on the environment. It's definitely -- if you look at in the last 4 years, the percentage of our CPI portfolio increased significantly. And thanks to our ALM management. We foresee the volatility coming and it was a good hedge for us also to hedge our equity and also to cover our cost base to be front. So we continue to invest. It depends on the environment. So where we foresee the environment is moving. And once we see that the [indiscernible] is kicking in, in the volatility then I think also there will be a normalization on the CPI portfolio, linker portfolio as well. Coming to Page -- to question 3. Net interest margin to break it down for this year, I think it will not be fair to say that because it's not only -- don't miss the point that the CPI linkers is not a bonus thing for us. It is effective on both sides, if CPI is going up. On the other hand, the cost of funding goes up. And also, normally, it goes up or and also the cost is going up. So that's why if I cannot exactly tell you that, that part is coming from the CPI linkers. It's not the case because if CPI goes up, then we have a hedge. So it's not fair to say this 100 basis points is coming from the CPI linked or the majority is coming from the CPI linker side. It's not also fair also to the franchise to the people working for Yapi Kredi. It's only coming from or mainly coming from the CPI linker side. I know that it's a hot topic for many analysts, but it's not totally CPI linker that makes Yapi Kredi. So page -- the fourth question was there are already normalized figures. I think the fair question -- fair answer would be, we should be beating the cost of equity. So whenever we beat the cost of equity, which happened past years, unfortunately, nowadays, we do not see that we are beating the cost of equity. Then it is -- we'll be feeling much better towards our investors. I think we covered for all the questions.

The next question is from the line of Saraoglu Cihan with HSBC.

I have a few quick questions. First, could you share your macro forecasts for 2022 with us, especially the forecast for policy rate and inflation and currency. That's one. Second is, you're guiding for high teen high 20s fee growth, right? But considering the inflation, which probably is going to average around 40%, 50%. That's quite low. And I believe that some of the fees are actually increased each year in line with inflation. So if you could timely explain the dynamics behind the below inflation fee growth guidance? And last question is -- you mentioned that there is TRY 1 billion of NPL inflow coming because of forbearance measures. But where are the other NPLs coming from? I believe you've mentioned a couple of specific files or did I mishear you?

So the answers to -- starting from the last one, TRY 1 billion was because of forbearances. And if you recall, the other earnings call that we shared with you, those were all provisions already. So that's why. And other than that, we do not have any specific inflow, NPL inflow kicking in it. So this is one thing. Second question was the fee, whether it's high enough because of the inflation being close to 30% or so. So I think you are -- it's a fair question, but the point is looking at our fee base, and it's coming also important -- one of the important aspect is the payment systems. And looking at the regulator and where the regulatory is having caps towards the credit cards and the acquiring business, this is impacting our fee-based, unfortunately. That's why we would like to remain on the conservative side for our fee growth base. Of course, on the -- for example, on the -- as we grow on the retail side, stand-alone basis, for example, for the insurances will grow for the insurance fee income, definitely, this is the bank insurance part. Money transfers very strong. This is working very well. It will be better. Landing voice definitely, I see a room there. Also on the investment product side, a strong start also for this year. But as I said, payment systems is the one that will be bringing down the pace down to those 20 levels for the fees. And last question is on the first question of yours macro side. GDP growth, 3.5% to 4%. In an environment like last year, more than 10%, we will not be seeing that. Inflation also -- the inflation you have -- whether you have the ask for the inflation -- I don't know, but inflation-wise, 25% to 30% for the whole year. So we remain with the outlook of the guidance of the Central Bank of -- which was 23.2%, which was the mid plus 5% for the upper band, so which makes 28%. We are that to for this year at least to start with. And other than that policy rate, let's see we have several assumptions accordingly, which is impacting also the CPI linkers, et cetera. But for the time being, we are seeing that policy rate for -- as I mentioned, for the -- at least for the first quarter, we are seeing the policy rate to remain at those levels and look further beyond if any revision needed.

Can I have a follow-up. So when you did the math and calculate the 100 basis points net interest margin expansion forecast, did you assume post rate to stay stable? Or is there any sort of change embedded in that forecast?

Cihan, as I stated earlier, for Waleed's question, I got your point, but we run several assumptions. That's why I said it's not only the CPI linkers that is affecting. If CPI linkers will be contributing more than on the other side, our excessively. Then on the other side, cost of funding should be also increased -- or doing the cost on our side. So that's why during all the assumptions, that's why we came up with the solution is the bottom line and ROE improvement.

The next question is from the line of Nellis Simon with Citibank.

Just one quick one for me, which is on dividends. I think the regulator is asking banks not to pay dividends maybe, but can you just share your thoughts on the outlook for dividend payment?

On the dividend pace as you said, we -- the regulator asked from us not to pay any dividends to all the banks in general. But still, we are keeping our hope to be able to pay dividends. So we asked the regulators to be able to pay any dividend this year. And we are waiting for the approval of any answer from the regulator, and we are pushing for that. I think -- looking at the very strong results, great results of Yapi Kredi, I think our shareholders deserve our investors deserve to be paid back in cash as dividend this year, looking at our very strong capital base, both on CET1, Tier 1 and also capital adequacy levels even highest volatility times. I think we can easily pay some dividends this year.

And can you give us an indication of what kind of payout? I think last year, you were allowed to pay out 10%. I guess you'd be hoping to pay a bit more than that, if you could?

So for the time being, I cannot give any guidance, unfortunately. But we are -- the first step is to pay something and to get the approval from the BRSA from the regulator, then it will go, of course, to the Board and then to be able to pay the dividend.

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.

So we have a couple of questions from webcast. So one is I'm referring to Gokhan Bey, do you see shifts away from effective deposits towards the new deposit scheme? How much is the new type of the deposits growing?

So yes, we see some conversion happening at -- for the time being. Let me put it in the breakdown, it's into two. There is a steady conversion but smaller numbers on the retail side, this is the FX conversion from Central Bank deposit scheme. This is what we are calling. So this is going -- ongoing for the retail side. On top of this, we have this FX protected deposit scheme. And this is going very well. This stopped the people buying dollars against Turkish [indiscernible], against Turkish lira. So this is going very well on the retail side. And let me give you a rough number, at least for the -- this is what we call the treasury side, 15% to 20% of our daily retail redemptions inflows from the TL deposit side is moving towards that part. So 15% to 20% of the retail deposit moves as the maturity comes moves to the treasury deposits. On the FX conversion side, I think there, we are seeing more the corporates and commercials converting their excess liquidity to Turkish Lira site. And I think it will be very fair to say that in terms of tax benefits, once the tax benefit is there, which is roughly 10% flat return for them, let's say, for 6 months, they will be benefiting for 10% flat, which makes 20% yearly hard currency dollars, return for them. On top of that, they are getting on the Turkish lira interest rate side. So which means that this is a huge benefit for 6 months, 20% yearly annual income. So that's why because of the tax benefit, that's why we are seeing many corporates and commercials converting their excess liquidity to that. We are hearing numbers from the administration that it reached close to $8 billion already from this conversion side. And on our side, it will -- I think it has an accelerated conversion that we are seeing, especially the deadline -- more of the deadline for the taxes, I think, 17th of February. Towards that, we are accelerating. We are seeing those numbers accelerating already. So in that sense, and in general, maybe about the FX market, conversion from dollar to TL is happening on the retail side for sure for the individual from the individual side. And the appetite to buy excess foreign currency is stopped at moment. That's why we are seeing 13.5% levels well, for the last almost 30, 40 days, I think, we are seeing similar levels. And we see that at least we forecast that it will continue at least for a few months to stay at those levels.

Okay. We have a lot of questions coming. So I will [indiscernible] for you. How do you see evolution of cost of deposits in 2022? Is 17% FX in deposit rate sustainable?

17% is the cost that we are seeing already. You are right because of -- mainly as I mentioned earlier, first, for the state one -- the treasury deposit is at 17% capped, and we are giving 17% too, with smaller numbers less than 17%. And also the FX conversion of the Central Bank deposit is also 17% kept at the moment. So at the moment, at least for the foreseeable future, at least for us, 2, 3 months more, 17% is the rate that we'll enjoy. We'll enjoy for the time being. Furthermore, and I got your question whether the 17% is sustainable. It comes with the question whether the inflation is sustainable with 20%, 25% going downwards. So this was also, I think, answered in the last 2 questions that I answered personally. So if the inflation comes down, and we hope and we foresee that the inflation will be coming down. So also 17% of the deposit should be around those levels. But if not, so this is another issue. But this also depends on whether this scheme will continue for another 6 months or so that we do not know at the moment. So from the Central Bank point of view or the treasury point of view. What we know at the moment is 3 months for the treasury is there. So we did it already or Central Bank side for the combo corporate and commercial 6 months. It is there for the time being. But we do not see further beyond those times. That's why I cannot confirm with the 17% at the moment

Question for Thomas as well. How from the sequence from inflation, energy prices were high, 50% wage inflation for SMEs. How this will impact your asset quality? And do you see unemployment going up this year?

Thomas, this is Kursad. For your question specifically, we have been assuming an increasing NPL flow for this year. And flow that you also mentioned from SMEs or individual will be diversified and it is at manageable levels. And that's why we see this year a cost of risk to be normalized levels. It is not a big problem in terms of asset quality..

What measure are you planning to contain cost growth below CPI?

And for that one, since 3, 4 years, our main assumption on the cost increasing costs related to business growth to be higher than inflation because we keep investing but we are always eliminating some running costs through our digitalization and optimization efforts. That's why we think that our efforts, especially for the optimization and digitalization will keep overall cost growth below average inflation.

So one question from Permar from [indiscernible]. As for ROE guidance for 2022, would you think that you could deliver cost of equity saying 26%, 27%?

And Permar, for your question, let me also reiterate what you can be said. We have not run just one simple scenario for our budget guidance, we run different scenarios. And then we look at all the scenarios to be on the conservative side, we try to put an achievable one which will be valid for any scenarios. Therefore, there is no specific scenario behind in terms of loan yields, in terms of cost of funding. But in overall, in each scenario, we see that we will be having an ROE higher than 20%. And also during the call, the aim is always to beat cost of equity.

I will take this one. There is a business from [indiscernible] as well. There is large good to restructured loan inflow in 4Q, are those loans restructured by average loan rate of 4Q. Actually, we haven't seen significant sense on any inflow. But a significant portion of our Stage 2 loans are in [indiscernible]. So taking into consideration the volatility on the exchange rate, it seems that there is a jump on the restructured portfolio. So that is the main reason. So if there is no file, this is my answer. So the next question is from [indiscernible]. You said that CPI increase behaved like it has against a rising funding cost driven by the inflation. But at least so far, this year, funding costs remain almost stable despite higher inflation. Do you expect any increase in funding costs looking forward?

I think then we gave some answers to the previous questions. Your questions also being answered, but just to restate. And with any different scenarios, we are trying to -- we have tried to find a solution between each scenario. Therefore, there is no specific one single scenario, [indiscernible]. And if the cost of funding will be higher and the FX from the CPI linkers will also be much better, and then it will equalize. That's the way we did.

So a similar question from [indiscernible]. So he's asking our October-October inflation assumption. And what portion of the CPI will increase in 100 bps informed. I think we answered those but, Kursad, can you comment on that?

Sure. For October-October inflation, as you know, today, we have just seen the January inflation. And assuming January inflation, our assumption is for October- October inflation to be higher than 30%. And when we say to be higher than 30%. Currently, the scenarios we run is on the more conservative side, lower part of 30%, but we see an upside on this October-October inflation assumption, but you can assume that it is more than 30%. It will be more than 30%. And for the breakdown, as we discussed, we are not looking at it in separate silos. It is there all asset liability management of the bank.

And also swaps. We are not looking at separately, is that...

Yes. Yes. It's a part of funding since we are not carrying any position, and we have a duration much lower than the market. We see it as a part of the whole balance sheet.

So one last question from Valentina. We answered your first part, and I will answer the second part. Capital ratio [indiscernible] what are your targets for this year to stay 200, 300 bps. No, we are always willing to have more than 200 bps buffer on Tier 1 but sometimes we are having a volatility, and it happens very fast. So what we are doing is we are looking at the levels, and we are looking at the internal generation capability. Very, very strong as in the past 4 years, we are doing great on that. So our initial target is to remain above TRY 200 million, what I can say. I cannot see any further questions. And -- so thank you very much, everyone, for joining. And if you have any further questions, you can always call us. Thank you.

Thank you. Have a nice evening.