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Operator: Good afternoon, and welcome to Garanti BBVA's Third Quarter 2021 Financial Results Webcast. Thank you for joining us today. Our CFO, Mr. Aydin Guler; and our Head of Investor Relations, Ms. Ceyda Akinç, will be presenting today. [Operator Instructions] With that, I would now like to hand over to management for their presentation.
Ceyda Akinç: Hello, everyone, and thank you for joining us. We are excited to be with you on another earnings call. Before getting into our financial performance, let's, as usual, go over the [Audio Gap]. Turkish economy grew by 1.6% Q-on-Q in the second quarter. And for the third quarter, we nowcast 0.5% to 1% Q-on-Q growth. This implies a slowdown on a quarterly basis, yet it could still generate 4% to 4.5% annual growth. Therefore, we view risks to our full year GDP growth forecast as balanced and keep our forecast at 3.7% for '25 and 4% for '26. In terms of inflation and monetary policy, following September inflation reading, we revised up our year-end inflation expectation to nearly 33% and policy rate assumption to 38.5%. Pace of rate cuts will depend on disinflation gains and we evaluate the ex-post 6, 7 percentage points real rate can be required due to sticky service inflation and uncertainty on pool inflation. We expect CBRT to maintain gradual rate cuts with ongoing reliance on macro prudential measures for longer. In terms of current account deficit, we assume private consumption staying much lower than its long-term trend, thus keeping current account deficit moderate in short term. We forecast current account deficit to be 1.2% of GDP in '25 and 1.5% of GDP in '26, which can be easily financed. Led by moderating noninterest spending below inflation trend and still strong tax revenues, cash primary deficit to GDP came down to 0.6% of GDP in September. We observed an increasing effort on fiscal consolidation since April, resulting in a negative fiscal impulse. Accordingly, in our current macro baseline, we assume 3.6% of budget deficit to GDP in '25 and 3.7% in '26. Now moving into our financials. I will start with the headline figures. At Garanti BBVA, we could sustain the quarterly growth in earnings also in the third quarter. With a 9% quarterly growth, third quarter net income reached a new record level of TRY 30.9 billion. This brought our 9 months net earnings to TRY 84.5 billion, which translates into 31% ROE with relatively low leverage. During the quarter, strong NII improvement and stellar fee generation more than offset the increase in net provisions. Earnings outperformance once again enabled by core banking revenues. Moving on to Page 7. We delivered consistent growth for 7 consecutive quarters in core banking revenue. As we will discuss in the following slides, recovery in core margin was better than expected on the back of opportunistic liquidity management and well-managed spreads. Trading income increased supported by securities trading and the absence of derivative transactions, mark-to-market losses that paid on second quarter base. Net fees also held up well, growing 11% on the back of payment systems and strong lending activity. As a consequence, our core banking revenues to assets reached 7.8% in 9 months, which suggests the highest level among peers. A big part of this success comes from our asset mix. Now moving on Slide 8. Our asset growth continued to be fueled by customer-driven sources, namely loans. Performing loan share in assets remained strong at 57% and lending growth was across the board. In securities, we had opportunistic foreign currency security additions and realized some gain from TL fixed rate security portfolio. Moving into Slide 9 for further insights on loan portfolio. In the third quarter, we recorded 10% growth in TL loans. Credit cards and consumer loans were the front runners with 15% and 12% growth, respectively. Our market share in TL loans increased further to 22% with outperformance in consumer GPL and mortgage loans. Our SME focus remains intact, and we preserved our market position in micro and small enterprises with around 24% market share among private banks. We continue growing in profitable way, focused on segments where we see more value. Now let's look at the evolution of our asset quality. In the third quarter, there was retail restructuring-related increase in Stage 2 loans. As you may know, in line with our prudent provisioning strategy, once loan is restructured, we classify this loan under Stage 2. Due to the respective regulation, restructuring in consumer loans gained pace notably in the third quarter, and thus, our restructuring loans under Stage 2 increased. However, please also note that as of October, this regulation has been terminated. Our Stage 2 coverage ratio declined due to improved repayment performance of some individual assessed firms. While our Stage 2 coverage is now 9%, if we look at TL and foreign currency breakdown, our foreign currency Stage 2 loans coverage remains healthy at 18%. Now let's walk through the evolution of NPLs. Our NPL ratio rose modestly to 2.8%, in line with the expectations. We are witnessing the national consequence of robust consumer and credit card growth that sector registered in the last couple of years. Retail and credit card portfolio still accounted for around 70% of net NPL flows. If we move on to the net cost of risk on Page 12. In the third quarter, net provisions increased Q-on-Q, mainly due to the exceptionally low base of second quarter, which has benefited from large ticket provision reversals. Yet on a cumulative basis, net provisions continue to perform better than expected. As a result of this trend, we also revised down our net cost of risk expectation for this year-end, which I will explain in more detail in final slide. Now moving to the other side of the balance sheet, how we are funding our balance sheet growth. Not only in assets, but also in funding, we rely on customer-driven sources. Total deposits make up 69% of total assets and remain TL heavy. This quarter, in TL time deposits, our growth was flattish due to cost optimization to support spreads. On an average basis, TL deposit growth was strong, and we continue to meet the required regulation in TL deposits rate. Growing demand deposit base in line with our expanding customer base supported TL deposit growth. On foreign currency side, deposits increased by 14% due to gold price increase and flow from maturing KKM deposits. Excluding subsidiaries impact, foreign currency deposit growth was 10% and 40% of quarterly increase was purely coming from surge in gold prices. Our active funding management is also visible in net interest income on Page 14. In the third quarter, our core margin recovered better than expected by 44 basis points with the support of opportunistic liquidity management. Let me elaborate on this. In the third quarter, we created excess TL liquidity with utilizing more repo and swap funding and then placed this TL liquidity to depo facility at better yields. On spreads, as you can see on the right-hand side of the slide, our TL loan to time deposit spreads remained flat in the third quarter. We managed to fully reflect 300 basis points July rate cut to our funding costs. However, in September, pace of decline in TL time deposits was more gradual than expected, mainly due to the impact of TL deposit regulations. In the fourth quarter, on average, we expect spreads to progressively improve. We are expecting another 100 bps cut in December, which may bring down fourth quarter average TL time deposit cost to below third quarter average. Another component of NIM was swaps. You may notice the increase in swap costs as we utilized more swaps in the third quarter due to its funding cost advantage relative to TL time deposit costs. Lastly, in terms of CPI linker income, CPI rate used in the valuation increased to 30% from 28% following September inflation data, yet CPI linker income contribution to NIM remained flat due to redemptions from the portfolio. Here, I would like to mention that October CPI reading will be announced in the coming days, and we are expecting October CPI rate to be around 33%. If it realizes at this level, we will once again adjust our CPI linker income valuation and reflect the full year adjustment into the fourth quarter. Putting all this together with the help of lending growth, we were able to register 20% growth in NII base. As you can see on the left-hand side, with 5.3% net interest margin and TRY 46.5 billion NII, including swap, we have the highest net interest margin and NII level among Tier 1 private peers. And our balance sheet positioning lie at the heart of this unmatched performance. We would like to present this slide every quarter in order to underline that our margin reliance is rooted in high share of TL loans and TL deposits. First, TL loans make up 62% of TL assets. In a current environment where loan yields are about 2x higher than securities, this presents a sustainable revenue advantage. Please also note that while our securities share in assets is the lowest among peers, when we look at the components, it's mainly because of low share of CPI linkers. We are not lagging behind peers in terms of fixed rate securities. CPI linker share is only 38% and in a disinflationary environment, yield gap may widen further. And 58% of TL securities are fixed rate securities at attractive rates, which will again serve as a hedge in a declining interest rate environment. On liabilities, TL time deposits represent 69% of TL liabilities. And here, we continue to preserve our funding cost benefit versus repo in the 9 months. Here, I would like to underline that, as you know, there are 3 main funding sources for us: customer deposits, repo funding and swap funding. On a daily basis, we manage our funding sources by taking into consideration margin and risk metrics. As our track record shows, we have operational agility, and we are well positioned to respond. Now let's move on to the other P&L items, fees. Our fee base remains robust, up by 54% year-over-year. On an annual basis, payment system fees continued to lead to growth. On a quarterly basis, strong cash and noncash loan growth, which supports lending-related and insurance fees, followed by increasing wealth management fees. Digital engagement continues to rise and number of active -- digital active customers reached 17.6 million. Moving to our operating expenses. Our OpEx base growing in line with expectation. OpEx base increased by 70% in the 9 months due to planned investments to fuel sustainable revenue generation streams. As we have been communicating, we have been investing in customer acquisition through salary promotions and to enhance customer experience and to increase customer penetration, we have been leveraging the power of artificial intelligence and digitalization, which in return supports our revenue generation capability. Hence, our OpEx base is largely covered by fees, and we continue to have the lowest level of cost/income ratio among peers. As per our capital strength, in the third quarter, our solvency ratios improved with strong support from profitability and Tier 2 issues we had in July. As you know, in October to support our capital base for future growth, we successfully issued $700 million Tier 2 in October, which will provide 92 basis points uplift to our capital adequacy ratio and reduce currency sensitivity by 5 basis points. Let's now summarize our performance before closing. We sustained our unmatched leadership in earnings generation capability. Backed by our customer-driven balance sheet growth, we defended our NII well. Remarkable fee performance enabled us to cover 84% of operating expenses, better-than-expected net cost of risk trend sustained with exceptionally high provision reversals. As a result, we ended the first 9 months with 30.9% ROE while maintaining sound capital ratios. Now let's look briefly at what's ahead. In terms of guidance, our message remains fully aligned with what we communicated in the second quarter call. In this quarter, to enhance transparency, we quantified the underlying impacts and formally revised our guidance for select PL items. Yet our ROE guidance remains unchanged. Let's take a closer look at what we revised. We lowered our year-end net cost of risk expectation to below 2%, given exceptionally high provision reversals recorded during the year. Due to the change in policy rate expectation and the impact of TL deposit regulations, we revised our NIM expansion guidance down to 1.5% to 2%. Please note that in the beginning of the year, our policy rate assumption for this year-end was 31%, which we now revised upward to 38.5%. On a year-to-date basis, we were able to increase our margin by 1% on a consolidated basis and by 1.3% on a bank-only basis. In the fourth quarter, we expect TL spreads to improve Q-on-Q, while the contribution from CPI linkers is also increased. Taken together, this gives us confidence that we will achieve NIM expansion within the revised range. Lastly, we revised up our fee growth guidance, and now we expect fee coverage of OpEx to be 90% to 95% on a [Audio Gap] better-than-expected trend in net provisions and fees will mitigate headwinds on net interest margin. As a result, ROE is likely to settle near the lower bound of the guided range. This concludes my presentation. Thank you for listening. Now we can take your questions.
Operator: [Operator Instructions] We have first question coming from [indiscernible], HSBC. Seems like there's a problem with the line. So now as we have no further questions, this concludes our Q&A session. I would now like to hand the floor back to our management for their closing remarks.
Aydin Güler: I think Ceyda probably explained everything very clearly. So we don't have any written even questions, right? So let me conclude the meeting by saying thank you all for joining us today. We are pleased to close another strong quarter that reflects our solid fundamentals and disciplined execution in a dynamic environment. So numbers speaks for themselves. That's what we are saying. During the third quarter, we managed our margin effectively, strengthened our leadership in Turkish lira loans and continue to expand our deposit base as well. Clear indicators that we remain our customers' primary bank. We also continue to advance our digital transformation and sustainability efforts, consistently creating long-term value through innovation and operational excellence. With our strong capital position and focus on balanced TL-driven growth, we are confident in our ability to continue delivering sustainable value for all our stakeholders. Thank you once again for your participation. Have a nice day. Thank you.