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

Ladies and gentlemen, thank you for standing by. I'm Constantino, 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 first quarter 2026 financial results conference call and live webcast. At this time, I would like to turn the conference over to Mr. Kursad Keteci, CSO; and Ms. Hilal Varol, Head of Investor Relations and Strategic Analysis. Mr. Keteci, you may now proceed.

Thank you. Good afternoon, and thank you all for joining our first quarter 2026 earnings call. I will start with a brief on operating environment. Strong start to the year has been threatened by geopolitical tension started at the end of February. Central Bank and governmental authorities took timely and relevant actions to overcome the potential impact of the volatility up until now. Central Bank halted weekly repo auctions at 37% and started to fund the market at 40% overnight, implying a 300 basis points implicit rate hike. Central Bank actively managed the situation in order to have limited impact on disinflation program. Equally important, fiscal support strengthened the [indiscernible]. We anticipate that disinflation program to continue at a slower pace for the rest of the year, depending on the evolution of the war situation. All incorporated before war macro developments were supportive in terms of Turkish lira loan deposit spread -- loan deposit spread evolution and net interest margin, especially for us, Yapi Kredi. Our strong performance will provide a significant buffer for the rest of the year. Now let's look at our eye-catching first quarter performance. I'm moving to the second page of our presentation. We had a head start to '26 with an exceptional leap in return on tangible equity reaching to 31.5% in first quarter. Our net profit reached TRY 20 billion, more than doubling quarterly and increasing 78% year-on-year. Our performance in the quarter was significantly stronger than our expectations and thus our guidance. This performance definitely created a good buffer for the volatility since March and for potential volatility in the rest of the year. Main driver of the performance was the strong top line. Net interest margin widened 56 basis points quarterly, 93 basis points year-to-date, reaching to 3.2%. On the fee side, thanks to our diversification efforts, we managed to offset the lower fee contribution from credit cards. Trading income continues to be strong and supports net profit. All incorporated, pre-provision profit went up by additional 37% quarterly. On the top of our revenue performance, I would like to add that, we are committed to efficiency improvement in 2026 and beyond, putting a focus on cost elimination efforts. Meanwhile, I would like to also say that our commission income coverage over OpEx is around 90%. As you know, we have a steady performance rather than a zigzag in quarterly, and we have a steady performance around these levels. Outstanding performance on the top line was further supported by resilient asset quality. Net NPL inflows came down 13% quarterly, yet we continue to set aside provision increasing the total coverage further to 4%. As a result, this quarter, our cost of risk stood at 176 basis points in consolidated financials. Several other factors contributed to our performance are, as always, our demand deposit share in total deposits continues to be best-in-class, further supporting cost of deposits and reflecting the effectiveness of our customer originated strategy. Turkish lira loan deposit spreads continued widening by 54 basis points quarterly, and this demonstrates our active loan and effective deposit pricing strategy, again, thanks to our service model and strong customer franchise as well as our strong network workforce. Now I'm handing the floor to Hilal. She is going to provide the details behind our exceptional performance. Hilal?

Thank you very much, Kursad, and I thank you all for joining our call today. I will start with Page 3. In the first quarter, our focus continues to be on timely and capital-generative growth on the lending side. Both Turkish lira foreign currency loans increased 5% quarterly, and Turkish lira loans surpassed TRY 1.2 trillion, while foreign currency increased to $15.6 billion. We have a very well-diversified loan mix. With a 10% quarterly and 58% year-over-year increase, the share of individual loans stands at 19%. Now on the company side, our FX adjusted loan growth stood at 6%, making up the 23% of the loan portfolio. Our individual credit card portfolio was almost stable quarter-on-quarter and up 50% year-over-year. Note that just 8% of our loans are SMEs, which is supporting our asset growth at the moment. Given the competition and lower interest rate environment, mainly in the first 2 quarters of the year, we witnessed a deceleration in the lending rates in the market, while keeping the rates above the sector, around 500 on the Turkish lira consumer side and around 400 bps on the Turkish lira company side. And just for the nonrevolving part of the credit cards, Turkish lira loan yields came down and controlled 211 basis points in first Q. Now I'm moving to the funding side. We are on Page 4. We had an impressive deposit cost management in the quarter. This continues, and this is -- thanks to well-structured deposit base through our customer-centric approach. Making up 53% of the portfolio, Turkish lira customer deposits were stable Q-on-Q with 25% annual increase. We continue to increase the share of Turkish lira deposits, demand deposits, thanks to the ongoing strength and is driven by individuals. Share in Turkish lira went up by an additional 98 basis points and now stands at 29%. Thus, our market share also went up a hefty 254 basis points, reaching to 19.8% among private banks. Foreign currency deposits on the other hand, increased 2% quarterly, up 19% year-over-year. But on the foreign currency demand deposit side, it was also strong, up by 6% Q-on-Q, and 27% year-over-year, meaning a further 297 basis points increase in the share. All incorporated, our demand deposit share in total further improved 236 basis points quarterly and it is very strong at 48%. On the unconsolidated, it is even higher at 50%. And I believe this even might be -- continue to be the highest level among our peers. Also supporting our cost of deposits, small ticket deposit base continues to go up, increasing an additional 130 basis points quarterly. Low-cost small ticket deposit share reached to 76% and around 69% is individual, and around 8% is from SMEs. Thanks to this strong performance and definitely our agile pricing strategies, Turkish lira deposit costs came down 156 basis points quarterly and 293 bps year-to-date to 28.3%. Now moving to the details of our very strong profit, starting with our top line. Now we are on Page 5. Our strong core revenues, coupled with high trading gains resulted in 13% quarterly and 54% year-over-year increase in revenues, which reached to TRY 73 billion. Net interest margin expanded 56 bps quarterly and 93 basis points year-to-date. This is significantly better than our initial expectations at the beginning of the year. And definitely, this is -- thanks to the net interest loan deposit spread improvement, which widened 54 basis points quarterly and 43 basis points year-to-date. This performance supported the core revenue margin, which went up to 7.3%. This expansion is around 30 bps quarterly and 63 bps year-to-date. Once again, a proof of sustainable strong trading income supported by AI-centric customer activities and timely actions taken by our treasury, trading income stood above TRY 10 billion in first quarter. Thanks to this strong performance, all is creating a good buffer for the rest of the year, and we are still ambitious to achieve our full year NIM guidance of at least 100 bps improvement in 2026, but let's see how the rate environment will continue. Now moving to our fees. Our resilient high level of fees underpinned by diversification and strength in customer penetration. Offsetting the lower payment systems contribution, our fees increased a slight 0.5% Q-on-Q, a strong 34% annually. Recall that credit card cap rate had been reduced in December and since then stable, this resulted in 12% quarter-on-quarter decline in net fee generation from our payment business. However, money transfers up by 18%. Bancassurance, 67%; investment products, 19%, and lending-related fees up 16% quarterly more than compensated for this lower contribution. Once again, our strong customer franchise will continue to support our already high level of fee generation. Looking at the OpEx, we are on Page 7. In 2026 and beyond, as we mentioned in our previous call also, we are committed for efficiency improvements through cost and elimination actions, putting data analytics and AI in the heart of the operations. In first quarter, our OpEx increase stood at 35% year-over-year and so resulting in fee coverage of OpEx is still very strong at 91%. Cost-to-average asset ratio down to 3.9%. All incorporated, we are committed with our lower than 35% OpEx increase guidance for the full year. So moving to a very hot topic, I believe, asset quality. Now we are on Page 8. Despite the macroeconomic volatility, our net NPL inflows were better than what we have been foreseeing for first quarter. Net NPL inflows stood at TRY 11.2 billion, 13% lower than 4Q, but I also need to mention that, it's still higher than the quarterly average of 2025, and this is mainly through the unsecured consumer loans. Note that given the small ticket sizes and restructuring efforts that we have, the pressure is manageable and quite contained. This ongoing strong performance is thanks to our diversified loan portfolio. The highest sector share is at 6%. The share of salaried customers in general purpose loans portfolio is above 65%, very low lifetime probability of default PDs, and limited 8% share in the overall loan portfolio. All incorporated, even in first quarter, cost of risk is in the range of our guidance at 176 basis points. Now I'm moving to Page 9. I would like to deep dive our conservative staging and prudent provisioning approach. Our total coverage, as Kursad mentioned, further increased to 4% and adjusted for the TRY 2.2 billion NPL sales in the quarter, it was 4.1%. NPL ratio stood at 4.1% with further increase in the coverage despite the NPL sales and it stood the coverage stood at around 62%. Stage 2 loan share stood at 12% with a strong 9% coverage. I want to dig into our Stage 2 loans, showing why we do not see any significant mitigation from this portfolio. So 61% of the Stage 2 loans are restructured and around 40% of this portfolio is, I can call, I think, legacy files that we restructured in late 2018 and 2019, in which we have already covered, recovered, collected around $1.5 billion. Despite this strong performance, we have a hefty above 20% coverage in this portfolio. 33% of the restructured portfolio is from unsecured consumer loans with a very strong 65% recovery rate. 36% of the Stage 2 portfolio is SICR. This means significant increase in credit risk in which we have a very conservative classification approach. More than 80% of this portfolio is without any past due payments. And just a limited 3% of the portfolio is due to the past due classification in which we might see some mitigation, but it's quite -- we are quite comfortable with that also. So this shows how prudent we are in staging, and we wanted to give a brief detail on the Stage 2 breakdown. Now moving to Page 10, solvency. As we have stated again in the last call, internal capital generation support is now visible despite the macroeconomic backdrop impact. And note that in first quarter, we had a one-off 42 basis points negative impact from operational risk. As all the banks, we use basic indicators approach to calculate the operational risk. And on top of the negative impact of the macro, it is around 43 basis points. So with 80 basis points support from internal capital generation, CET1 ratio came down a limited 9 basis points, almost stable at 9.7%. The buffer is 167 bps. With 77 basis points internal capital generation support, Tier 1 ratio is at 11.6%, 206 basis points buffer and 14.1% capital adequacy ratio, buffer is at 211 bps. I just want to restate the sensitivities. They are quite limited. First, 100 basis points move on the interest rate, 13 basis points impact. 10% depreciation on CET1, the impact is 30 basis points and no impact on capital adequacy. And we have a huge room for NPL breakeven. This is a third service calculation. NPL ratio should go up to 9.4%. Now moving to Page 11, showing a summary of our 2026 guidance versus realization in first Q '26. And as we have stated, we created a very good buffer for the rest of the year, mainly for the potential pressure in the second quarter with a very strong 13.5% ROE. Thus, for the moment, we are maintaining our mid- to high 20s ROE guidance. Now I'm leaving the floor to Kursad for closing remarks. Okay. We will just have the questions. Let's jump into the Q&A.

The first question comes from the line of Cihan Saraoglu with HSBC.

Congratulations on the results. I have 2 quick questions. One is with regards to the recoveries, which if I see correctly, is TRY 12 billion in the quarter. So what's driving that? That's one. And second is, maybe you have already mentioned this during the presentation, I didn't hear. But with regards to the very strong trading income, so what's driving that? And how sustainable is that? Is it by any way related with the 7% drop in the securities book that you have? So basically, did you take profit on those?

Cihan, thank you for the question. I just maybe need to find this TRY 12 billion recovery, you mean the NPL recovery or provision reversal, just to clarify.

Sorry, the provision reversal. I meant the provision reversal.

Okay. I will touch upon it. And let me start with the second question, trading income. Within the trading income, there are a couple of components, which are, firstly, the FX income coming from the FX transaction volume. We have put a quite concentration to improve FX -- for the FX transaction volume together with the treasury as well as the network. Therefore, a majority of the trading income is coming from this volume increase on the trade -- the FX activity. And also, we are actively making moves on the security side. We did quite preparation for the start of the year. You remember last quarter, [indiscernible] last year, we acquired, repurchased some couple of fixed rate securities. There is also some upside coming from sale of those at the good levels and the volumes. And the third one, which we are not in, the mark-to-market valuation of the derivatives. We don't have any mark-to-market valuation of the derivatives in the trading income because we are mainly applying hedge accounting. That's the reason why you don't see any trading activities from swap or IRS, et cetera, mainly the FX transaction volume and security trading. And for the recoveries, you see as an other income, at the start of the year, it's all the same for the all banks. And if you have any provision reversal and additional provision, addition, let me say, first, you release the provision from last year and you put it as an other income. And then if you are increasing the provision, you apply a new provisioning as if it's starting this year and you put it on the ECL line. That's the reason why we are putting all these 2 lines together as a net ECL. You only see that huge recovery all in the first quarter of the year, then it's going to stabilize. That's why it is better to look at the net ECL. I hope I am clear on that, but it is all for the accounting treatment you see on the other income.

The next question comes from David Taranto with Bank of America Merrill Lynch.

My first question is a follow-up on Cihan's question. Last quarter, you highlighted purchases of long-term Turkish lira securities, which appear to have contributed to trading performance -- strong trading performance in this quarter. And Turkish lira securities, excluding CPI linkers are quite down in nominal terms in this quarter and also as a percentage of the assets. Given the current volatility in rates and the implications for the trading income and mark-to-market movements on the book value, could you provide some color on your positioning duration and strategy for the security portfolio in the as of first quarter? And second question is on the capital. In the capital evolution slide, you highlight a macro impact of around 40 bps. Could you please elaborate on what is captured within this line? Based on my calculations, mark-to-market losses appear to account for around 20 bps. Could you clarify what constitutes the remainder of the macro impact? And lastly, would it be fair to say that part of the loss recognized in other comprehensive income has already been reversed as of second quarter currently?

Thank you, David. For the first question about positioning, securities portfolio positioning, we are actively positioning the security portfolio. And I can confirm that we are quite best-in-class. And the position we took on the last quarter last year is all cleared. Therefore, we did it before this turmoil, luckily, and thanks to our treasury team. Therefore, the position we have done in the fourth quarter last year is all cleared. And we are looking again opportunistic. When the time comes, we will step in again. But we don't have any, how you say, something coming from the last quarter as a minus in our financials. I can confirm it. And for the CET1 macro environment impact, One of them is, as you mentioned, the mark-to-market losses. And also, we have something about the FX movements. We are not putting it within the business growth. We put it in the macro environment impact. That's the reason why you cannot reconcile. What you see on the business growth is like-for-like basis, excluding FX rate changes. I hope it's clear on your side.

The impact of the mark-to-market is 32 basis points, the AFS change and 11 basis points is coming from the FX impact. We are putting the sub debt, plus FX loans. So the net is 11 basis points.

Ladies and gentlemen, there are no further audio questions at this time. And I will now pass the floor over to management to accommodate any written questions.

We have a couple of written questions. So one is from [indiscernible]. Congratulations on the strong results. Could you give color on progression of Turkish lira deposits and loan rates? What were the levels of end of March and April? And what do you expect NIM trajectory for the second quarter?

Also congrats for your new position. Good luck. And for Turkish lira deposit and loan rates, on the Turkish lira deposit rates, I can say that it's around 39% as we speak now. And on the loan rate, new loans, we are lending is about 45% minimum. And this is increasing -- the loan part is increasing compared to March, as you may guess, as well as on the deposit part also, but we are able to manage the overall deposit cost around 39% levels on average. And our expectation on the NIM trajectory for the second quarter, we are going to see a downside compared to first quarter, depending on how deepen the current macro situation. But as we speak now with the current condition, we are going to see some decrease on the net interest margin, manageable, let me say. And again, without any acceleration in the current war situation, third quarter NIM is going to be in line with the first quarter, and then fourth quarter is going to be higher than third quarter. Therefore, we are still sticking on our guidance. And in case of an acceleration of this war situation, then we will be guiding accordingly. But as we speak now, we are going to keep our guidance with the trajectory I mentioned.

So second question is from Valentina. Can you please share your macro assumptions, which you use for the guidance and any changes you have made lately?

And sure, also part of NIM dynamics in the first Q. On the NIM dynamics, our NIM improvement is mainly coming from core NIM. And we are improving core NIM by, let me say, around 43 basis points quarterly. On the top of core NIM improvement, also we are benefiting from non-deposit funding as we have been saying for the last couple of quarters. This non-deposit funding contribution is around 166 basis points, thanks to a quick repricing where the first 2 months of the year, there was a decrease on the rates. And for our -- and Q2, as I said, is going to be lower than Q1 and Q3 is going to stay the same. And for the macro assumptions at the beginning of the year, we have said inflation to be around -- and according to that, around 500 bps addition to reach the policy rate. And without having more data points, we are not able to say where the inflation is going to stay and where also the policy rate to be. We would like to see more data points and also how the situation is going forward. Therefore, I am not able to say any revision, but I can say that the direction is on the upwards, and we may see an inflation levels close to 30%. But again, it's all depending on the situation, how to accelerate or decelerate.

Your CET1 buffer has been below 200 basis points for a few quarters already. How comfortable you feel?

And for CET1 buffer, 200 basis points, it is 170 bps as we speak now. What is important for us this quarter, we generated internal capital. This is a good sign to recover our CET1. And we believe this generating internal capital going to stay for the rest of the capital. And then we will be, as always, in our comfortable zone. But again, I would like to add that we are the only IRB bank in Turkey and being an IRB bank is making the capital calculation more strict. Another example, I will reiterate that, for example, we are providing capital for unused credit card limits. None of the banks are doing the same, and it adds some basis points on the capital. And that's why having 170 bps, having 150 bps, even having 100 bps buffer against regulatory limits is quite comfortable compared to standard methods. That's how we look at it. But meanwhile, we will keep increasing our internal capital generation.

What was the amount of your FX liquidity and how it compares with total short-term FX maturities? So our FX liquidity immediately is around $11 billion as of first Q. This covers more than upcoming maturities in 1 year is $6.9 billion. So the total external debt is 4 billion. And this note that includes syndications and also around USD 1.9 billion of this is also short-term syndication. So we are very, very, very comfortable. FX LCR also very strong at 380 levels and total is 133 million as of first Q. So we are very comfortable in terms of liquidity. And can you provide your bond plan issuances?

Firstly, let me add before Hilal says our approach. Currently, market is not supportive, and when the markets become supportive, then as always, being a market leader on this transaction side, we will be on the market. But today, we are not able to make any guess until the market gets open.

Opportunistic. We will always be opportunistic, we can say. So I don't see any further questions anywhere. So we thank you all for joining our call today. And if you have any further questions, we are always here to support. Our IR team is also with us, and you can reach us all the time. Thank you. Thank you very much. Bye-bye.

Thank you. Bye-bye.