Release Date: November 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Turkiye Is Bankasi AS (IST:ISCTR, Financial) registered a 41% quarterly increase in swap adjusted net interest income, benefiting from asset repricing while controlling funding costs.
- The bank achieved a 13% quarterly increase in net fee income, with an impressive annual growth of 155%, driven by strong performance across various fee-generating businesses.
- Asset quality indicators remained robust, with an NPL ratio of 1.9%, supported by prudent policies and strong collection performance.
- Turkiye Is Bankasi AS maintained solid capitalization levels, with a capital adequacy ratio of 15.4% and a common equity tier one ratio of 12.6%, ensuring resilience against economic adversities.
- The bank's focus on sustainable funding resulted in 62% of total funding being ESG-related, reflecting a commitment to sustainability and diversified funding sources.
Negative Points
- The ongoing pressure on funding costs and delayed rate cuts have led to a downward risk on the net interest margin guidance for 2024, with expectations not meeting the initial 4% target.
- Operating expenses increased by around 30% due to salary adjustments and one-off payments, impacting overall cost management despite being budgeted.
- High inflation and macroprudential measures have created challenges, delaying the expected margin recovery and impacting profitability.
- The bank's cost of risk is expected to increase to around 150 basis points in 2025, indicating a slight normalization as the economy cools down.
- Despite a strong performance, the bank faces challenges in maintaining margins due to high funding costs and growth caps, which limit loan repricing.
Q & A Highlights
Q: Can you provide guidance on the net interest margin (NIM) evolution into the year-end and 2025, considering the delayed rate cut expectations?
A: Izlem Erdem, Deputy Chief Executive, explained that the initial guidance for a 4% NIM exit level by year-end is unlikely due to elevated funding costs and delayed rate cuts. The NIM is expected to be in the 2% to 3% range at the beginning of 2025, with potential improvement as monetary easing progresses.
Q: How are you seeing trends in asset quality, particularly in the corporate and SME segments, as we approach 2025?
A: Izlem Erdem noted that the NPL ratio remains stable at 1.9%, supported by prudent policies and strong collections. While there is some deterioration in credit card NPLs due to macroprudential measures, the overall impact is manageable. The SME segment shows no significant deterioration, with a low NPL ratio around 1.1%.
Q: What is the current status of your FX liquidity, and will you exercise the call option next year?
A: Izlem Erdem stated that the bank has a solid FX liquidity buffer of $8 to $9 billion, with a comfortable FX liquidity coverage ratio of 356%. The decision on exercising the 2025 call option will depend on financial market conditions.
Q: How did the bank manage to increase its swap-adjusted net interest margin despite challenges?
A: Izlem Erdem highlighted that the bank optimized its funding mix and benefited from asset repricing, resulting in a 90 basis point increase in the swap-adjusted net interest margin, despite ongoing pressure from funding costs and macroprudential measures.
Q: What are the expectations for cost of risk in 2025?
A: Izlem Erdem mentioned that the cost of risk is expected to be around 150 basis points in 2025, reflecting a slight normalization as the economy cools down, but the bank remains comfortable with its current risk management strategies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
