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Operator: Ladies and gentlemen, welcome to the VakifBank Audio Webcast Third Quarter 2025 Bank-only Earnings Results. [Operator Instructions] With that, I will leave the floor now to our host. First of all, Mr. Ali Tahan, the Head of International Banking and Investor Relations at VakifBank, and Ms. Ece Seda Yasan Yilmaz, the Head of Investor Relations, also at VakifBank. Speakers, the floor is yours.
Ali Tahan: Thank you, Rob. Good afternoon, everybody, and welcome to VakifBank Third Quarter 2025 Earnings Presentation Call. As usual, I will be starting with the presentation quickly and thereafter, to the extent possible, leave the floor for the Q&A session. Starting with the first page in this quarter, in the third quarter of 2025, as you can see on the right-hand side above chart, we delivered TRY 11.9 billion quarterly net income, which is almost TRY 1 billion higher than the market consensus of TRY 10.9 billion. And this number itself comes with almost 20% increase on a Q-on-Q basis from TRY 10 billion to almost TRY 12 billion. And with this quarterly performance, year-to-date net income of VakifBank increased to TRY 42 billion, which is up by 54% compared to same term of the previous year. And with this 54% net income, we are glad to see that we outperformed the sector net income growth of 45%. And on top of this, we are still keeping TRY 4 billion free provisioning as a buffer in our balance sheet as of third quarter end. And on top of that, most importantly, as we will discuss more in detail, we will be delivering the best quarterly net income of 2025 within Q4 in the upcoming quarters, thanks to sizable potential interest income from our CPI linkers as we are one of the most conservative bank so far in terms of using the very conservative CPI estimation. With TRY 42 billion net income in the first 3 quarters period of the year, we delivered an ROE -- average ROE of 23% and quarterly it is 19%. And this 23% year-to-date average ROE, thanks to the strong Q4 of the year, we believe full year average ROE will be increasing to high 20s. Remember for the full year, we were guiding high 20s average ROE. And with a very strong Q4, we believe it will be easily achievable and doable. And another point I would like to take your attention on this slide is related to core banking revenues and pre-provisioning profit growth. On the core banking revenue side, similar to net income growth, we have another 56% year-over-year growth in our core banking revenues, reaching to almost TRY 140 billion. And in terms of this core banking revenue composition, we have slight increase in the share of net fee and commission income, which was 37% a year ago versus 38% as of today. And the remaining 62% is mainly coming from net interest income. And on the pre-provisioning profit side, the increase is much more visible with 147% increase compared to net income growth or core banking revenue growth, which take us to the conclusion that as a conservative state lender, we set aside provisioning too much for the credit risk and other different risk factors. To continue with the presentation for the sake of the time, I will be jumping to net interest margin page, where you can see the details on Slide 5. Starting with the net interest margin. Reported net interest margin in this quarter, as you can see with the red -- sorry, yellow dot line increased from 2.93% a quarter ago to 3.61% in this quarter, which corresponds to 68 basis points increase in just 1 quarter period of time. And similarly, swap adjusted net interest margin increased from 2.59% to 3.07% area, a very similar trend. And the good thing is those numbers achieved via a very conservative and humble CPI estimate. As you can see on the left-hand side above chart, as of third quarter, we used 26.9% CPI estimation during Q3, which is the lowest level among the peer group banks. But the eye-catching reality is despite such a very conservative CPI estimation, still reported net interest margin-wise as well as swap adjusted net interest margin-wise, VakifBank delivered one of the strongest quarterly performance within third quarter. As you know, in the beginning of November last week, October-to-October inflation announced officially with 32.9% area and all the correction will be reflected in Q4. And as a result of such big correction, we are expecting to receive additional TRY 16.5 billion additional interest income from CPI linkers. As you can see in the presentation, as of third quarter, we enjoyed almost TRY 20 billion interest income from CPI linkers. And on top of that, net-net total interest income from CPI linker portfolio will be reaching to TRY 35 billion, which will be the main driver of very strong quarterly performance within Q4. And another point I would like to take your attention is related to Turkish lira core spreads. Yes, it is true that for Q4, we will have additional sizable contribution from CPI linkers. But on top of that, additional positive news will be coming from the Turkish lira core spread development. As you can see on the below chart right-hand side, during Q3, we have additional expansion of Turkish lira core spreads, and now it reached to 450 basis points, which was 420 a quarter ago. So Q-on-Q-wise, Turkish lira core spreads extended by additional 30 basis points. And with the ongoing cycle, we believe within 2025, Turkish lira core spreads will reach to the peak level within Q4. So therefore, for the very short period net interest margin outlook for Q4, there will be a sizable contribution not only from CPI linker portfolio, but also from additional expansion of Turkish lira core spreads, it's coming, it's on the way. And therefore, we are quite optimistic for both Q4 net interest margin performance as well as overall profitability of the period actually. The next page is related to net fee and commission income. And on top of very eye-catching top line performance on the net interest margin and on the net interest income, another strong performance is visible on the fee and commission income side. Similar to net income growth, we also have outperformance in terms of yearly and quarterly growth on the fee income side. Total fees increased by 61% year-over-year versus 50% for the sector. And in terms of the quarterly evolution, we have another 19% quarterly fee income growth versus sector average of 14%. So therefore, core banking revenues, high-quality revenue generation capacity of the bank remain intact and further developed actually during the Q3. And in terms of the source of fee income, as you can see on the right-hand side, the bulk is coming mainly from the payment systems with more than 50% stake, followed by mainly lending-related fees, both cash lending as well as noncash lending. And in terms of quarterly and annual growth, the most visible growth rates are coming from payment systems and cash loans. And as a result of such strong performance on the fee income side, all fee-related KPIs seems to be in a very good shape like fee over OpEx or fee over income, fee total income. So therefore, on top of a very strong net interest margin performance, we are very happy to see and reflect another good results -- set of results on the fee income side. The next page is related to OpEx. And OpEx growth is more or less in line with the fee income. Both of them are above 60% year-over-year. And in terms of the OpEx rather than HR side, especially non-HR OpEx items like promotion expenses we are paying to payroll clients, this is the main driver of quarterly OpEx growth for Q3 as for the entire 2025. With Page 8, we can move to asset side. On the asset side, as of third quarter, our total balance sheet reached to TRY 5 trillion level, which corresponds to $120 billion equivalent. And out of this asset growth, more than 50% is coming from the lending side as the main activity. And on the lending side, in this quarter, we have a quarterly total lending growth of 9.1%, which is slightly higher than the sector average of 8.6%. So in this manner, on the total lending side, we continue to grow, and we continue to gain market share. And as of September end, our market share in total lending further increased to 12.5% area, which is the first ranking among the listed banks of Turkey. And in terms of the currency breakdown, we have another 9.8% quarterly lending growth, which is specifically the same compared to sector average. And on the hard currency side, we have additional 3.4% quarterly lending growth in dollar terms on the hard currency side. And when we look at the year-to-date numbers, year-to-date Turkish lira lending growth came at almost 29% and hard currency lending growth in dollar terms came at 18%. And these are the numbers actually we were sharing for the full year during the budget process. So on the lending side, as of September end, we are fully in line with the full year budget. In terms of the portfolio breakdown, during this quarter, most of the lending growth came from the SME side. So in this manner, third quarter was slightly different compared to first half of the year. Remember, during the first half of the year, quarterly lending growth was mainly coming from the corporate and commercial segment. But this time, due to commitment for some IFI-related projects, the main driver of lending growth was coming from the SME segment rather than corporate and commercial segment. And as a result of that, we have 16% Q-on-Q growth on the SME portfolio, which is followed by corporate and commercial segment with 7% quarterly growth. And on the retail side, we will continue to be on the conservative side and on the shy side. And therefore, our market share continued to diminish on the retail side, which is relatively lower compared to total market share on the total lending or our market share on the non-retail segment. Retail market share came down to 9.2%. However, on the corporate and commercial segment, we are almost reaching to 14% market share for both SME as well as non-SME side, which is fully in line with the strategy and the priority of the senior management. For the sake of the time, I am moving to Page 10, which is related to asset quality. On the asset quality, there are a couple of points I would like to share with you. Let me first start with the good part. The good part is related to collection performance. For the collection performance during this quarter, quarterly collection amount reached to almost TRY 6 billion, which is almost 2.5x higher than the last year average. So in this manner, collection numbers and collection performance seems to be in a very good shape, thanks to strong collateralization, thanks to our collateralized lending policy. That's the one part of the asset quality. The other part is related to simply ratios. And on the ratio side, we are calling this period as a normalization with the long-term average actually. At this stage, I would like to take your attention to NPL ratios. During this quarter, VakifBank NPL ratio further increased to 2.77%, which was 2.5% a quarter ago and which was almost 1.8% in the beginning of the year. So if we just look at from NPL ratio point of view, NPL ratio increased by almost 100 basis points year-to-date, mainly because of the NPL inflow driven by retail. And indeed, in this quarter, in terms of NPL inflows, we are having around TRY 19 billion NPL inflow. And out of this NPL inflow, almost TRY 11 billion is coming from the retail and credit card business and the remaining TRY 8.2 billion is coming from the corporate and commercial segments. And because of those NPL ratios -- because of those NPL inflows, NPL ratios are increasing. But on the flip side, it is normalizing with the sector average because if you look at the asset quality metrics from a long-term perspective, especially in this manner, as you can see in the middle of the page, we are indicating the NPL ratio of VakifBank during the period of 2008 to 2019. 2008 refers to the period with the global banking financial crisis period and 2019 simply refers to pre-pandemic period. And during that period of time, our NPL ratio in average was hovering around 4.3%. So from this perspective, actually, we are approaching to long-term cycle averages, which is also in line with our budget in terms of the budget and in terms of the expectations. For the full year, we were guiding up to 3% NPL ratio and 150 basis points net cost of risk. And indeed, as of today, we understand that those numbers and those guidance seems to be quite realistic as NPL ratio is hovering around 2.8% and full year cumulative net cost of risk is hovering around 154 basis points. So in this manner, especially related to NPL ratio, it is simply normalizing as the denominator effect to some extent is fading away. And the last point I would like to take your attention is related to slight contraction in the share of Stage 2 loans. As you can see on the right-hand side above chart, the share of Stage 2 loans within total loan portfolio contracted from 9.1% to 8.8%, but this is mainly simply a shift from Stage 2 to NPL. But within Stage 2, the share of restructured further increased from TRY 108 billion to almost TRY 125 billion, and this is simply a reflection of the regulation change, which simply makes easier for any kind of restructuring with the regulation introduced by the regulator as of July. With Page 11, we can move to deposit and liability side, starting with the deposit side. As of this quarter, for the first time, the amount of total onshore customer deposits exceeded TRY 3 trillion level. And year-to-date, our deposits increased by 23%. And in terms of the quarterly evolution, total deposit growth was up by 7.1% for Q3 specific and 23.4% year-to-date, and both numbers are slightly lower than the sector averages. In terms of the currency breakdown, our Turkish lira deposits are up by 5.7% and 18.8%, respectively, for quarterly and year-to-date. And those numbers are also slightly lower than sector trends. Because during 2025, we were mainly focusing in terms of making our deposit portfolio much more granular, much more retail-oriented and much more supported by the demand deposit side. And indeed, that strategy seems to be worked efficiently. In terms of the demand versus term deposit breakdown, the share of demand deposits in total increased to 30% area, which was less than 25% a year ago. And on top of that, the share of retail deposits also increased to 48%. These are the retail deposits and demand deposits. These are the main target areas for us in terms of deposit composition and all the numbers so far simply shows that this strategy worked very well, efficiently. The last -- another page I would like to take your attention is related to Page 13, where you can see the details of wholesale borrowings. As you know, during 2025 for Turkish banks, all wholesale borrowing channels are wide open and all of them are working efficiently. As of September end, total wholesale borrowing of VakifBank increased to $22.5 billion, which makes around 20% of total liabilities. And thanks to additional transactions we achieved during the first -- during October actually, that number further increased to almost $24 billion as of today with the new fresh DPR of $1 billion and with the recently issued additional Tier 1 of $500 million. Especially one important aspect of this very recent AT1 transaction is simply related to the fact that among all Turkish banks, including state banks and private banks, this transaction itself has the lowest yield with 8.2% and has the lowest reset spread margin. So therefore, we are extremely happy with the outcome and with the strategy. And our focus on the wholesale funding is still quite alive, especially with the further focus on long-dated IFI transactions and long-dated projects, and there will be much more transactions going forward. The last page I would like to take your attention is related to solvency ratios. As of September end, total reported CAR ratio materialized at 14.7%. Tier 1 ratio materialized at 12.34% and CET1 ratio materialized at 10.01% area. And as you can see on the right-hand side, we are also transparently showing the solvency ratios without BRSA forbearance measures, both bank-only basis and consolidated basis, including pre-provisioning. Given especially SIFI buffer, systematically important financial institution buffer, taken into consideration on a consolidated level rather than the bank-only level, we believe BRSA -- without BRSA forbearance numbers makes a lot of sense when we look at on a consolidated basis rather than bank-only basis, which take us to 9.56% as of September, which is quite a comfortable level compared to minimum requirements imposed by regulators as well as compared to our internal risk buffer. The last point I would like to share with you is related to the impact of very recent AT1 with the amount of $500 million. This transaction itself has a potential positive impact of 75 basis points in our Tier 1 ratio and Tier 2 ratio as of today. And that's the last point I would like to present to your attention. Thank you very much for your time, and thank you very much for listening to us. For the time being, we would like to conclude the presentation and leave the floor to Rob actually again. Thank you.
Operator: Thank you, Mr. Ali Tahan. Thank you very much indeed. And yes, indeed folks, we're now going to start our question-and-answer session. [Operator Instructions] All right. Mr. Tahan, I see we have a written question. No audio questions so far, if you'd like to maybe have a look at that. [Operator Instructions] And I see we have written questions, Tahan, I hope you can hear me. Perhaps we can do that while we wait for an audio question.
Ali Tahan: Sorry, Rob, I was muted actually. I couldn't reach out to you. Now I guess you are hearing to us. And we have one written question from Valentina from Barclays. She is asking different questions. Let me go over those questions. The first one is related to key guidance metrics and how VakifBank performed compared to guidance. She is also asking about 2026 guidance. As of today, unfortunately, given the budget process not finalized, we don't have the official guidance for 2026. But at least for 2025, we can try to summarize. In terms of the guidance on the lending side, for the Turkish lira lending growth, we were guiding high 20s. And as of now, we are already at 29%. So Q4 -- with Q4, I think we will be overshooting our Turkish lira loan growth. As of today, it is clear that Turkish lira lending growth will be above the 30%. And compared with the inflation, we understand full year Turkish lira lending growth will be in line with the inflation side. Given the year-end inflation is 32%, we believe Turkish lira lending growth for the full year will be also in line with the inflation growth on the Turkish lira lending side. On the hard currency lending side, we were guiding high teens in dollar terms for the full year. And as of September, it is already 18%, and it is already achieved actually. So for Q4, we don't expect too much room for hard currency lending. So more or less, it will be also the number for the full year. In terms of net cost of risk, it is also quite realistic. We were guiding 150 basis points net cost of risk. And as of September, on a cumulative basis, we are there actually. The specific number we are having is 154 basis points. On the swap adjusted net interest margin, we were guiding compared to previous year, 200 basis improvement. It will be also overshooting. I mean, probably the expansion on the swap adjusted net interest margin will be lower than what we were guiding. And I think in this manner, all the banks are in the same category compared to what we were expecting in the beginning of the year. We understand as of today, net interest margin expectations in the beginning of the year was quite optimistic and the numbers we are all delivering will be slightly lower than the guidance. So net-net, maybe rather than 200 basis points swap adjusted net interest margin improvement, we will end up with around 100 and 125 basis points net interest margin expansion. On the net income and OpEx growth, all of them were referring to above the inflation, and they are in line with each other. As you can see from September numbers, both on the fee income side as well as on the OpEx side, we have more than 60% growth on an annual basis for each, and this is also in line with the guidance. And all those numbers will take us to high 20s average ROE for the full year. That was our guidance. As of September, we are at 23% area, slightly lower than what we were guiding. But because of very strong net interest margin outlook and profitability outlook for Q4 because of the both core spread expansion as well as because of the sizable additional interest income from CPI linkers, we believe for the full year, high 20s average ROE is quite doable and realistic. So that was the brief summary of our guidance and what we achieved so far. For the second question, is related to asset quality. Do you see asset quality pressure in the SME or commercial segment? For the micro SMEs, partially, yes. However, for the midsized SME and for the commercial and corporate sector, we don't see a general weakness or we don't see a general trend actually. As you can see from the presentation so far, since the beginning of the year in the first 3 quarters of 2025, vast majority of NPL inflow was coming from the retail side. We believe going forward because of the restructuring easing, NPL inflow from the retail segment will be much more slower starting from Q4 onwards. And restructuring easing, which introduced from BRSA in July, it was an important game changer, and it will work efficiently. However, for the specific part of your question for the asset quality pressure in the SME, for micro SMEs, partially, we can say yes. But for the midsized SME and corporate and commercial segment, we don't see such general trend yet actually. The third question is related to hard currency liquidity as of third quarter. Maybe as of today and as of September, in terms of hard currency liquidity, all the banks are enjoying the most ample liquidity conditions in the hard currency. As of September end for us, it is hovering around $9 billion actually. And this number is one of the highest compared to the beginning of the year or compared to previous years. The next question is related to consolidated CET1 ratio. Does it include the free provisioning? Yes, that number assumes in case we are also releasing TRY 4 billion to the P&L actually. Without that number, it would be around 9.45%, 10 bps lower than what we are suggesting. I think that these are the questions. The last question is related to RWA without forbearance on consolidated and unconsolidated basis. We will come back on this via written e-mail to you, Valentina, after the call. I don't have the specific numbers with me for the time being. Another question is coming from the Goldman Sachs, Mikhail Butkov. Mikhail is asking simply would like to double check on CPI linker income contribution in Q4. Would it be TRY 16.4 billion incremental increase on top of normal income contribution? Yes, your understanding is correct, Mikhail. As of Q3, we are having around almost TRY 20 billion interest income from CPI portfolio. So with the actual numbers, given it is announced, we will make the full year correction and rather than TRY 20 billion, we will be enjoying around almost TRY 36 billion total interest income in Q4. I think that's the answer for your question. And the last question, actually a couple of questions. We have another question from Furkan Vefa Tirit. You were talking about TRY 35 billion income from CPI linkers. Is this the total CPI linker income in Q4? Yes, the total income in Q4 from CPI linkers will be TRY 35 billion. Where do you see the exit net interest margin for this year? And lastly, how do you see the net interest margin trajectory next year? I mean for the net interest margin side, of course, Q4 by far will be the strongest quarter of the year because of the peak level within 2025 of Turkish lira core spread evolution as well as because of the additional sizable interest income from CPI portfolio. So in terms of 2026, as we discussed, we will be discussing more in detail once the official budget is ready and approved by the Board, which is not the case. But in a [ bulk ] explanation, what we can tell to you, of course, we will be entering to the 2026 with a very good level of Turkish lira core spread level. And there will be more room for additional Turkish lira core spreads in the first half of the year as Central Bank of Turkey in our base case scenario, continue to cut rates. Of course, the level of cuts may not be as strong as 2025. Just to remind you, during 2025, Central Bank of Turkey start cutting rates by 350 basis points. And thereafter, [ they increased ] it to 250. And in the last MPC meeting, they cut by an additional 100 basis points. So in line with some of the research suggest in our base case scenario, we expect 100 bps rate cut at every MPC for next year. But as of today, of course, Central Bank of Turkey didn't announce yet the calendar and the number of MPC meetings for 2026. But as long as inflation is standing at the current trend, there will be more room for Central Bank of Turkey to cut rates. So therefore, it will be much more beneficial from Turkish lira core spread and expansion point of view. However, of course, at least in the first quarter compared to Q4, CPI linker contribution will be quite weak in the first quarter of 2026 compared to Q4 2025. But to some extent, it will be compensated by additional expansion of Turkish lira core spreads. These are the general trends for a very short period of time. But as of today, unfortunately, we are not in a position to quantify those trends in numbers. But of course, we will be happy to share our expectations once the budget is approved by our Board of Directors. Another question is coming from Mustafa Kemal Karaköse. Mustafa is asking, does ROE guidance include any provision reversal in the next quarter? What is breakeven NPL ratio in terms of required capital ratios? I mean we don't have any sensitivity for the second question. But for the first part, we -- in our base case scenario, we don't touch to remaining TRY 4 billion free provisioning, and we are still keeping it in our balance sheet. For your information, among the listed banks, top Tier 1 banks of Turkey, we are the only bank who still have free provisioning in the balance sheet. And in our base case scenario, when we are talking to high 20s full year average ROE, we don't take into consideration any free provisioning reversal. Rob, actually, these are the written questions I am seeing on the screens. As far as I understand, there is no audio questions. If there is any -- if I'm mistaken, please correct me. Otherwise, we will take 1 more minute for closing.
Operator: Thank you, Mr. Tahan. Yes, indeed, no audio questions are coming through. And you're right, there don't seem to be any other written questions. So unless there are any other questions, I think, yes, we can -- you can move to the conclusion. Thank you, Mr. Tahan.
Ali Tahan: Thank you. Thank you, Rob. Thank you very much for everybody for joining the call. Together with Ece and all IR colleagues in case of need, we are at your disposal and happy to answer any kind of follow-up questions. Thank you very much for your time and patience again and looking forward to talking in the first possible occasion.
Operator: Thank you, Mr. Tahan. Thank you much for your presentation. And that, ladies and gentlemen, concludes today's conference call. We thank you for your participation. You may now disconnect.