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Edited Transcript of YKBNK.IS earnings conference call or presentation 30-Apr-20 10:59am GMT

Q1 2020 Yapi ve Kredi Bankasi AS Earnings Call

Istanbul May 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Yapi ve Kredi Bankasi AS earnings conference call or presentation Thursday, April 30, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gokhan Erun

Yapi ve Kredi Bankasi A.S. - CEO & Executive Director

* Hilal Varol

Yapi ve Kredi Bankasi A.S. - Head of IR and Strategic Analysis

* Kürsad Keteci

Yapi ve Kredi Bankasi A.S. - EVP of Strategic Planning & IR

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Conference Call Participants

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* Alan Ramsey Webborn

Societe Generale Cross Asset Research - Equity Analyst

* Ali Dhaloomal

BofA Merrill Lynch, Research Division - Emerging Markets Corporate Credit Analyst

* Deniz Gasimli

Goldman Sachs Group Inc., Research Division - Associate

* Konstantin Rozantsev

JP Morgan Chase & Co, Research Division - Associate

* Mehmet Sevim

JP Morgan Chase & Co, Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I am Gail, your Chorus Call operator. Welcome, and thank you for joining the Yapi Kredi conference call to present and discuss the first quarter 2020 financial results. Today's presenters are Mr. Gokhan Erun, CEO; Mr. Kürsad Keteci, Strategic Planning and IR EVP; and Ms. Hilal Varol, Head of Strategic Analysis and IR.

Now I hand over the presentation to Mr. Erun. Sir, please go ahead.

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [2]

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Thank you. And good afternoon, and thank you for joining our first quarter 2020 earnings call. First of all, I hope yourselves and your beloved ones are in good shape and healthy. We are going through a different situation compared to any other crisis or volatilities before. Due to lockdown actions taken by the countries, real economies are expected to slow down. However, there is still lots of uncertainty on the magnitude of such slowdown and period of pain.

As it is the case in all around the world, Turkish governmental bodies also are taking necessary actions in a timely manner to increase liquidity in the market, easing the lending conditions, increasing the level of support to impacted businesses and individuals and also taking forbearance measures for banks. I believe that banking system is one of the most important parts of recovery actions. At Yapi Kredi, we will be keeping -- doing our best to contribute this recovery. Therefore, we aim to act responsibly against the market, and we are trying to be as much as transparent as we can since the beginning of the process, and we will continue to do so.

Before starting the presentation, I'd like to thank the dedicated workforce of Yapi Kredi, to my team, for their extensive effort during and for showing again their commitment to the country and to their bank. During today's presentation, we are targeting to give information about our corporate and operational responses, customer relief initiatives and disclosures around effective loan portfolio as well as asset quality, liquidity and capital evolution. Therefore, I'll start my presentation by giving actions that we have done so far against COVID-19 downturn.

So Page 2. Before the first confirmed case in Turkey, we have started our actions at the beginning of February. So the first case was mid of February. So we started at the beginning of February. Crisis management activated with an action plan set for 5 phases of severity and IT setup tested for remote working. During March, we activated the remote working plan. All head office personnel and call center team started the home office. Half of the branch personnel started to rotate on a weekly basis. Customers are served via increased utilization of mobile approvals.

In April, branch backup process started and around 25% of our branch network backed up. Remote customer services capacity increased via shared sources created for call centers and RMs. Overall, we have taken 333 actions, of which 178 of them related to remote working, 103 of them related to regulation changes and 52 of them related to customer experience. Majority of the actions will be permanent. Meanwhile, we kept informing our customers timely about the actions as well as fully open communication with the personnel.

Moving to Page 3. In summary, we targeted safety of franchise and the employees and customers, first, with sustained customer services alongside with solid fundamentals. With respect of the employees, 75% of workforce moved to home-office, which is close to 12,000 employees, and branch personnel continued to give services via their [high-tech] tablets on a remote basis. Our initial incurred costs totaled to TRY 40 million 4-0 and possible new business model also against more savings. We were able to serve our customers without any interruption.

From a customer point of view, we have activated economic support package and postponed loan installments by 3 months for around 320,000 customers. Total amount of installments postponed represents close to 1% of our loan book. In between, we are not reporting to Credit Bureau for this unpaid loans during this process. We started to disburse CGF, credit guarantee fund, lending to our customers. Up to now, we were granted around TRY 4.5 billion of limit and utilized roughly 30% of it. We are ranked as #1 in check financing and #3 for OpEx lending. On top of these 2 actions, we are utilizing available limits of customers with additions, if needed.

Lastly, regarding of the fundamentals, we have applied severe stress scenarios for liquidity and capital. In terms of liquidity, under severe stress test scenario, our LCR is close to 150% levels. In terms of capital sensitivity, based on our severe stress test scenario, our capital buffers stays solid around 200 basis points versus regulatory limits.

Moving to Page 4. As we have been sharing with you, our liquidity levels are strong, and we have around $16 billion of liquidity up to 1 month. Just to give you an idea, this level of liquidity covers are short-term external debt by 3.8x. Also, our liquidity level is able to pay all the total of our FX external debt, which totals up to $11.9 billion. So we are very comfortable about our liquidity level. After the brief update regarding the COVID-19, now I can summarize the performance of the bank.

Page 5. Our net profit at TRY 1.1 billion, corresponding to 11.4% ROTE. Our performance was driven by very strong preprovision profit, which increased by 23% year-on-year. Core performance strength is the driver behind the better performance. We have improved NIM by 21 basis points, year-to-date basis. We benefited around 100 basis points from loan-to-deposit yield improvement, thanks to balance in loan yields, change in composition of deposits towards individuals, together with strong demand deposit improvement as well. Slight quarterly contraction in fees despite negative impact from regulation.

In this quarter, due to a lack of full visibility, we have dramatically increased our total provisions to TRY 2.2 billion. It represents 39% year-on-year increase. Within this TRY 2.2 billion of provisions, around TRY 1.3 billion represents ordinary provision. On top, we increased also coverages for both Stage 2 and Stage 3 as well as put other provisions and also pension fund provisions. We will be giving more details with the coming slides.

As a result of our strategy, our cost of risk was 2.68%. Ordinary cost of risk was 186 basis points, excluding other provisions. When we look at our fundamentals. In terms of total LDR, we are at 94%. And we also reduced Turkish lira LDR, which is also important, to 112%. Resilience levels of LDR achieved through improvement in especially retail deposit and cautious foreign currency lending. Our strategy to focus on small tickets and transactional banking are paying off, and we reached 206% in terms of LCR and foreign currency LCR, so there is a number of 468%, close to 500% for the FX LCR. So highly, highly liquid bank. Tier 1 ratio at 13% without forbearance actions. With forbearance, the number is 13.7%. This level represents 344 basis point buffer against regulatory limit. CET1 ratio at 11.8% with 375 basis point buffer against the regulatory limit. And last but not least, total cash at 15.8% with a buffer of 380 basis points.

And now I'm leaving the floor to Hilal.

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Hilal Varol, Yapi ve Kredi Bankasi A.S. - Head of IR and Strategic Analysis [3]

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Thank you very much, Gokhan bay. I hope all of you are well and healthy. Let me provide you the details of our results. On page, we will start with the volumes. Both loans and strong deposit growth was driven by Turkish lira in first Q '20. Cash loans increased 6% year-to-date with a 3% growth in Turkish lira. Deposits growth was stronger at 9%, with 12% increase in Turkish lira. Demand deposit increase was very strong at 17% in the quarter. We maintained our focus on small tickets. Sale of retail loans in total reached 46% with a 4 percentage points increase over 2019. Sale of demand deposits, up by 6 percentage points to 23%. While retail time deposits are 55% of total. This is thanks to our customers' trust and strong efforts of our sales team.

Moving to Page 7. You can find the sector breakdown of cash and noncash loans. We have a very well-diversified loan portfolio with sound coverage in sectors with the possibility of deterioration. Energy loans have 12% share in total with a 14.6% coverage. 46.6% of the loans are under Stage 2 and the risky Stage 2 coverage is as high as 37%. Share of real estate loans are limited at 2.8%. Stage 2 coverages at 17%. Commercial real estate is just 1.3% of loans. Possible stressed ones are less than 0.5% of total loans. Tourism is another sector with potential deterioration. The share in total is at 2.8%. Stressed loans are less than 0.1% of total loans. Transportation, 3% of loans. Stressed loans are less than 0.5% of loans. SMEs share in total is 7%. 50% of this is under credit guarantee funning scheme. Also, very important to note that FX loans came down 23% in the past 2 years. We have reduced 98% of our company loans, and possible stressed files are just 1.4% of our total loan portfolio.

We are on Page 8. Our revenues increased 22% year-over-year with a strong support from core, which was up by 21%. Core revenue margin improved 21 basis points year-to-date to 5.2%. Equally important, trading income support was very strong in the quarter, thanks to timely actions of our treasury.

On Page 9, you can see the net interest margin details. Swap-adjusted net interest margin widened 21 basis points year-to-date to 3.7% with a strong 97 basis points support from core NIM. The decline in securities was limited at 17 basis points given the repricing as well as our efforts to lower the duration. Retail requirements had 18 basis points negative impact. Last, but very importantly, past liquidity levels had some mix impact on our net interest margin performance.

Moving to Page 10. Our loan deposit spread improved 57 basis points in the first Q, with 138 basis points widening on the Turkish lira side. Our ALM strategy with small ticket focus are helping us significantly. TL deposit costs improved 284 basis points, resulting a 143 basis points decline in total deposit costs, when we had a controlled 85 basis points decline in nonyield.

We are on Page 11. In first Q '20, our fee growth was still very strong at 14% year-over-year. That said, in March, we started to feel the pressure on fee revenues due to regulation changes, less commercial activity as well as our supportive actions to our customers during pandemic. As you can see on the very top figures, we are putting significant effort to increase the number of transactions to offset the negative impacts. Money transfer transactions were up by 26% and payment systems by 10% even though we are the market leader. Diversification efforts are made support to our performance. Bank assurance fees were up 57%, asset management 106% year-over-year.

We are on Page 12. Cost increase was 20% year-over-year. It was mainly due to increase in regulatory costs that went up 52%, adding around 3%, and actions taken against COVID. Cost income ratio, under control at 36%. Please note that our full year guidance on cost growth was mid-teens, and we maintain our guidance.

Looking at the cost breakdown. The sale of regulatory costs increased to 8%. Running costs, that includes the additional COVID-19 investments, are under control at 34%. Share of digital in main products sold increased as much as 11 percentage points in first Q '20 to 47%, showing our strength in digital transformation. This will be very supportive on our costs in the rest of the year.

The composition of financial transactions per channel is changing with COVID-19. In March, transactions to branches came down 18%; ATM, 9%, when digital continued to increase. On top, transactions to our call center increased by 40%, 4-0, following the COVID. This trend is likely to continue until we see a normalization regarding the health concerns.

Looking at the asset quality developments on Page 13. Cost of risk improved 24 basis points over 2019 to 268 basis points, with limits to NPL inflows of collections, although we have cautiously increased the current levels further. The currency impact was 62 basis points, which is fully hedged. Our ordinary cost of risk is 186 basis points, and we had around 85 basis points precautionary provision impact on cost of risk. I want to add that 186 basis points is not just related with the net NPL inflows but also includes the usual proactive increase in coverage of big tickets. On top, this quarter, we set aside TRY 413 million, other provisions, including pension funds.

On Page 14. As we promised you in several occasions, you can find the details of net NPL inflows based on monthly averages. In first Q, NPL inflows were very supportive with strength in the collections. This NPL inflows came down as much as 83% with the support of all segments. Consumer and credit cards down by 44%. SMEs were in negative territory. Corporates and commercial improved 87%. This strong performance in first Q will provide us some buffer for the deterioration in the upcoming months due to COVID-19. Gokhan bay will provide you the details of 2020 outlook in the upcoming slides.

Now we are on Page 15. We continue to have the highest coverage in all stages. Stage 1 coverage at 0.6%. Stage 2 coverage further increased to 15%. Stage 3, up by 4 percentage points to 66%. Adjusted for the fully covered write-offs in the quarter, our coverage will be 67%. NPL ratio improved to 7.1%, even adjusted for the write-off, down by 30 basis points to 7.3%. All included, our coverage to gross loans increased to 7.3% without taking into account other provisions.

Looking at the capital on Page 16. Excluding the positive impact of the regulatory forbearance, our buffers are 350 to 400 basis points higher than under the regulatory threshold, despite negative impact of macro and operational risk. As Gokhan bay mentioned, we are very comfortable about our buffers even in severe stress. Exchange rates and mark-to-market trade impact related with the regulation was around 73 basis points on Q1. And please note that after first Q, BRSA announced that risk weight of state treasury FX risks will be at 0 without giving an insight, which will also support our ratios by 70 to 80 basis points.

I now hand over to Gokhan bay for 2020 guidance and closing remarks.

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [4]

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Thank you, Hilal. Today's operating environment, 2020 expectations are different compared to the ones at the beginning of the year and the magnitude of the change is not fully -- that we cannot calculate it. It's not calculate -- it's not measurable yet. Therefore, we'd like to give you the potential risk levels for each guidance in this quarter. And as soon as we have more clear picture, we will be sharing it with you.

In terms of fundamentals, there is slight downside risk for CAR, capital adequacy ratio level, due to possible macroeconomic assumptions -- changes. We can think about levels around 16% to be kept. And LDR, LDR, I think on the LDR side, we are not seeing anything on the risk side. So that should be okay on the LDR side, 105%. We are comfortable with 105% of LDR. As we mentioned that the bank is quite liquid. In terms of TL loan growth, our initial guidance was high teens again. We are seeing a slight downside risk for this growth due to slow down on the demand side.

In terms of revenue, fee part is mostly impacted due to both regulation change and lack of activity. We may have a single-digit contraction on a year-on-year basis. In terms of NIM, rate environment will be supportive. This is what we see, but we may experience more pressure on the TL lending side especially. Therefore, a possible slight downside risk for NIM. In terms of cost growth, mid-teens levels of growth achievable. We don't see a risk here. Lastly, the asset quality. As you all know, due to postponement of NPL recognition, we may not have significant NPL ratio increase. Whereas, it's quite sure that cost of risk levels will be higher than stated at the beginning of the year due to prudent level of provisioning. As a result of this, there is potential downside risk for ROE levels.

So going forward, we'll ensure the continuation of strong revenue performance while maintaining also our strong fundamentals and conservative risk appetite, driven by customer-centric approach, responsible growth, sustainable revenue generation through value-added services and increased transactional banking. With our strong branch, rich organizational culture, fully committed workforce and support of our shareholders, we'll seize the opportunities ahead of us and reach to greater achievements, which will also contribute to our country's economy. I hope a sustainable recovery from this situation.

I'd like to take this 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 my bank.

On behalf of the whole team, I'd like to thank you for joining our call. And now we can take your questions.

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Questions and Answers

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Operator [1]

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The first question is from the line of Gasimli Deniz with Goldman Sachs.

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Deniz Gasimli, Goldman Sachs Group Inc., Research Division - Associate [2]

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I have 2 questions from my side. One is on cost of risk and just on the breakdown. You booked around 83 basis points of precautionary provisions, I think, you based on exactly (inaudible). How does this work exactly? If you can provide more specifics. Is this just kind of a blanket approach of provisioning for, let's say, Stage 2 or Stage 3 exposures? Or did you maybe decide on specific exposures to sectors and tie it to provision for that, like what drives the precautionary provisions component of your cost of risk. Also, I think there's no macro overlay adjustment component to this quarter's cost of risk. I want to ask if there is a possibility that in the second quarter, maybe later quarters, there will be a macro overlay adjustment on your cost of risk.

So -- and just the second question on deposits, very strong deposit growth this quarter, 12% sequential deposits. And there is -- from the breakdown the sector levels I think it's driven by demand deposits, quite a significant increase there. I just wanted to ask how did you -- like what was the driver of such a significant increase.

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [3]

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Let me take the deposit part. So yes, very strong results on the demand deposits especially, but also on the time deposit, TL time deposit as well. So this is a continuation of our strategy, so small tickets working more a number of customers rather than focusing only -- or more on the wholesale banking or big tickets, and it's paying off. So the value of our services to our customers is now paying off. So this is the strategy that we started already back in 2018 May. If you recall, when we had the Capital Markets Day in London at that time, so this was the message. So in terms of, for example, demand -- the share of demand deposits of -- in total deposit was lower than our competitors. And this was one of the focus items. Small tickets, being very close to the network and customers, and it's being off at the moment, so -- and we like it. So as you know that -- we said it has been more than 2 years at the moment. So our balance sheet should be more in TL rather than in foreign currency, and it's now happening actually. It's not one thing that happened only in a quarter. So it is a journey that we are living. And I strongly believe that my team will continue to perform further.

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Kürsad Keteci, Yapi ve Kredi Bankasi A.S. - EVP of Strategic Planning & IR [4]

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And Deniz, for your first question regarding the cost of risk breakdown, and this is on the presentation, the ordinary cost of risk and then we have the addition cost of risk. In terms of additional cost of risk and the majority more than half, it is related to macroeconomic scenario changes, right, as well as we added some planned coverage increases in the coming quarters and even some of them in this quarter in order to have a room in the upcoming quarters for a possible COVID-related risk. That's why -- and you may take all of them into consideration as a COVID-related additional provisioning. But one thing to estimate, it is more important than the addition Hilal was mentioning during her presentation. Within the ordinary one, there is another breakdown of it. The regular cost of risk based on the NPL inflow is just 114 basis points. And there is another around 70 basis points of additional coverage increases both on digital and Stage 3. And as well as there is another -- other provisions which is not included in the ECL calculation that you may follow it on the annex. It's around TRY 413 million.

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Deniz Gasimli, Goldman Sachs Group Inc., Research Division - Associate [5]

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And do you care -- do you foresee any, like, I guess, macro overlay adjustment provision? Or maybe the COVID-19 even like the cost of provisions, do you expect that to kind of repeat in coming quarters or just rolling stuff?

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Kürsad Keteci, Yapi ve Kredi Bankasi A.S. - EVP of Strategic Planning & IR [6]

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In terms of macro adjustments, we are expecting to have some additional macro adjustment on this year. Then we have more clear picture about macro assumptions. And therefore, this is not done yet in the first quarter. We just try to open as much as space in the upcoming quarters to stay in our CAR.

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Operator [7]

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The next question is from the line of Rozantsev Konstantin with JPMorgan.

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Konstantin Rozantsev, JP Morgan Chase & Co, Research Division - Associate [8]

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I guess 2 questions, if I could please ask. First of all, about the loan demand. So how do you see the loan demand has changed in the recent past from the borrowers across different lending products provided by the bank in corporate, unsecured, retail, mortgages? If you could, give some color on this since the start of March, since the start of this crisis. And also in terms of the borrower standards for the bank, how do you expect this to change going into this challenging period? Do you expect to tighten, to keep unchanged, to ease the borrower requirements going forward?

And secondly, the second question I had, from what I've seen in the presentation, it looks to me that the bank has reduced quite substantially the rates on the Turkish lira deposits during this quarter. I think it was a bit more compared to what has been seen in the market. So could you please give some details, some guidance why it has happened? Do you have some excess liquidity? Or are there any other reasons for this? Why does the Turkish lira deposit cost dropped so much in the first quarter?

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [9]

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So in terms of loan demand, we do not see a strong demand at the moment, although the interest rates for loans dropped significantly. And also, I think we have to mention, especially -- nothing, of course, March. But in April and the last weeks of April, thanks to this asset ratio introduced by the BRSA, so that's why we are seeing that especially on the supply side, the banks are trying more constructive on the loan side. That's why the interest rates on loans are going down, of course, with the help of the Central Bank's rate cut as well, 100 basis points in the last MPC meeting. But the loan demand is very weak, still very weak. So looking at mortgages, for example, that you asked, is we do not see that it is picking up. Although the rates, historically -- looking at the historic rates, the interest rate for mortgages are below 1% per month, let's say, 12% per year, per annum, so which is typically the right interest rate for the demand to pick up for Turkish citizens, it's not picking up at the moment. So this is due to, I think, talking about -- more about macro environment that people are feeling not confident about, I think, their jobs at the moment.

So that's why it will be -- I will not be surprised to see still a weak demand in May for the loan side because according to our scenario, the pick up again will be starting -- our normalization period, will be starting from June, 1st of June onwards. This is what we are also hearing from the Health Minister as well as the President Erdogan. So what they are saying is, so we are successfully coping with the COVID-19 virus. So the cases are going down, obviously, in Turkey. But to relax some of the measures, it is too early to do so. That's why, still, for example, as of this midnight, today -- midnight, tonight, there will be, again, a ban to go to the streets for 31 cities, big cities in Turkey. And most probably this will continue every weekend so to keep the social distance and to push further down this COVID-19 effect lower. So that's why the demand is still low on the loan side. This is the first thing.

And the second question was, I think, on the deposit rate market in general and how we are doing. So also, I think there are 2 aspects. First, the interests are on -- paid for the deposits, Turkish lira deposits are going down for sure, thanks to also MPC meeting Central Bank cutting rates. And second also, thanks to this asset ratio introduced by the BRSA. So that's why being highly liquid comes with a cost obviously or with a -- if you overlook it, then you have to pay the penalty for that. So that's why also the deposit rates are going down significantly. What we are seeing at the moment, what we are paying to the Turkish lira interest rates, we are paying less than 9%. This is the maximum that Yapi Kredi is paying at the moment, less than 9%. And also for the foreign currency deposits, for the dollar deposit, for example, these are talking -- we are talking about the time deposit, we are paying 75 -- the maximum that we are paying is 75 basis points. So which means that there is quite the possibility that we'll be benefiting out of this cost of funding. But on the asset side, of course, in terms of lending sites, because of lack of demand, the interest will be going down as well.

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Konstantin Rozantsev, JP Morgan Chase & Co, Research Division - Associate [10]

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Understood. So it does seem to me that the deposit rates for Yapi, they dropped much more significantly during the first quarter compared to pure banks. Is there a specific reason for that, specifically for Turkish lira deposit costs?

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [11]

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Yes. The same reason that I mentioned earlier. So the reason is small tickets. So it is individual deposits rather than corporate deposits, first answer, which is more sticky and also helping the LCR because it is -- because of the stickiness because it's less haircut. And second, of course, because of the individual deposit, individual deposit comes with a less cost. And I think my network did very well there. So what we did? So as a strategy, it is about the service that we are providing. And the second, for the balance sheet management part, we've been also -- we pushed a lot during December to be very liquid also for the bank balance sheet so that we had some buffer to push -- to compensate. Also the big tickets, get rid of the big tickets from our balance sheet. That is the reward for the strategy that we run the bank's balance sheet.

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Konstantin Rozantsev, JP Morgan Chase & Co, Research Division - Associate [12]

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Understood. That's very clear. And just a quick confirmation on the first question that I had. In terms of the [range] supply for Yapi Kredi, in terms of the borrower requirements, so clearly into this challenging period, do you expect the borrower requirements to tighten, to stay and change and to ease for the banks specifically?

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [13]

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I think it will not change. It will be unchanged. So there is almost very weak demand. This is what we are seeing.

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Operator [14]

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The next question is from the line of Webborn Alan with Societe Generale.

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Alan Ramsey Webborn, Societe Generale Cross Asset Research - Equity Analyst [15]

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What do you think the trend is going to be in areas such as sort of loan postponements? Any sort of payment holidays you might be offering and so on? Do you expect that's going to accelerate to a much higher proportion of your loan book in the second quarter? I mean just give us an idea about how you feel the companies are -- both companies and individuals are working. And outside of the sort of changes in interest rates, do you think that sort of the more support, the less margin you'll get in the short term? I mean, do you think that you're going to see an appreciable impact on your margin as we go forward as a result of more of these restructuring, more support and so on? I just wondered how you feel the industry will move across. Presumably, the second quarter is going to be the most difficult quarter, followed by recoveries thereafter. I'd just be interested in your thoughts on that.

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [16]

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Thank you. About the payment holiday, so whoever comes to our bank for -- asking for payments holiday for 3 months, we are doing that. So further, to continue like this for -- I think it will be less likely. So if, of course, the environment continues to do so with the contraction, let's say, double-digit contraction, et cetera, then it's a different story. Then we might still see some more payment holidays. But this is not our base case scenario. That's why I'm saying that after 1st of June, there will be, as expected, normalization. It's not only in the production side as well as on the [premium] side as well. So this is the expectation that we are hearing from also the Minister of Health. So we have seen -- I think the ballpark we have seen already, I think, in terms of payment holiday.

In terms of margins, I think we'll be enjoying for some time the cost of funding going down significantly, as I mentioned to you. And being -- so maybe I should also tell you that Yapi Kredi is already meeting the asset ratio, which means -- we don't know, of course, our competitors. But as Yapi Kredi, because our balance sheet has been very balanced and also we had the liquidity not only from the deposit but also from the wholesale side, from our Eurobond issuance, that -- you all know that Yapi Kredi has been very active in the last 2, 3 years with the capital markets and with the markets. So that's why we are now enjoying what we did earlier. So that's why we have been very comfortable about the liquidity, and that's why, thanks to our strategies and liquidity, we can manage the asset ratio at the moment without any problem. That's why we do not have any issue with the margin side. So we do not have to make big moves on the balance sheet to distort our margins.

So on the contrary, this move will be helping Yapi Kredi in the short term. That, I confirm. But apart from this, of course, the macro environment is important. So if there will be a very limited demand for loan side, for the asset side of the balance sheet, then it will put pressure on the margin side. That's why I'm not 100% certain about the net interest margin going forward. And about the restructuring, it very much depends on the business model. At the moment, if you look at our transactions, for example, from our network, from our branches, it is 1/3 of our normal transactions. So if you look at from that point of view, then it is not sustainable. And for sure, that's why we are looking for June to start rapidly the engine again.

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Alan Ramsey Webborn, Societe Generale Cross Asset Research - Equity Analyst [17]

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Okay. Could I -- I'm sorry if I missed this. But did you -- what do you think your share of the credit guarantee scheme -- or sorry, credit guarantee fund is going to be of the sort of incremental amount that's being promised?

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [18]

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So this was TRY 4.5 billion is the limit for us. And we utilized as of yesterday 1/3 of it. But we are accelerating. We were -- actually, we've been waiting for this for a long time. So our network was ready. But the point is that this time, the credit guarantee fund is not for 36 months. It's only for 12 months. So which means that for some part of our customers, it is not enough to lend for -- in installments for 1 year. That's why it's not the only source that we are lending to our customers. But we are, as I said, we are active in both tranches, which is one tranches for check payments, we are #1 there. And for the OpEx transactions, OpEx part, we are #3. But the difference between the top 3 banks, 3 private banks are not huge. So we are very close as a total.

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Operator [19]

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The next question is from Sevim Mehmet with JPMorgan.

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Mehmet Sevim, JP Morgan Chase & Co, Research Division - Associate [20]

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It will be on fee income, please. So you mentioned during the presentation that you expect a single-digit decrease in fee income now for this year. As you are one of the leaders in fee income, especially when it comes to transactional fees, what are some of the measures you're thinking in order to mitigate some of the impact from the new regulations? And you've also provided some useful statistics on the usage of digital channels in the first quarter. Can you talk about the most recent trends, maybe with the outbreak of COVID-19, et cetera? And what kind of opportunities this may offer going forward, both in terms of maybe fee generation but also in terms of cost savings, for example?

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Kürsad Keteci, Yapi ve Kredi Bankasi A.S. - EVP of Strategic Planning & IR [21]

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Mehmet, regarding to your first question, in terms of fee income, and yes, we have the impact coming from the crisis, but we tried to show in the presentation in terms of the number of transactions, they are improving. And this is the most important actions we are taking against the regulation changes or negative impact on the fees. And as well as in terms of money transfers, we are reassessing all kinds of our money transfer rules. And we need to first increase the number of transactions, and we will continue to do so.

And regarding the digital channel usage, we have seen an increase in terms of digital transactions, as we show in the presentation. And apart from that, and we are also seeing increases in GPL than through digital, which is now close to 75% of the overall GPL lending in the bank. This 1 month of period was kind of a test about the new banking business models that may happen in the coming years. And therefore, we are trying to get as much as data to be able to set our strategy for the coming years. And what is the visible then, just an example of what we did, from the branches, we talk about 25% of the branches backed up and 50% of the personnel was working at home. And then we mentioned working at home. We were not mentioning that they are answering the questions of the customers via phone. They are literally approving all the transactions through their [high-tech] tablets and through mobile approvals. And as well as we have the remote video channel services to the customers, which we tested during this process. And these 2 will be the most important ones in the upcoming period for sure. But it is not easy to say the banking is going to change -- is going to be totally digital. But it was just (inaudible).

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Mehmet Sevim, JP Morgan Chase & Co, Research Division - Associate [22]

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Okay. That's very helpful. And just a quick clarification on the new asset ratio. So is this unfair to assume that this will not lead to any significant change in the shape of your balance sheet as of how it stands right now? Is that correct?

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [23]

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Yes, Mehmet, it is correct. So as I told you, as of today, we are meeting the threshold already even with the buffer. So which means we do not have to. But of course, it depends. You know that we've been very actively managing the balance sheet with my team. So if there is an opportunity in some ways that we see, of course, we'll be looking -- very much looking into it.

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Operator [24]

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The next question comes from the line of Dhaloomal Ali with Bank of America.

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Ali Dhaloomal, BofA Merrill Lynch, Research Division - Emerging Markets Corporate Credit Analyst [25]

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I have just 2 quick questions. The first one is in regards of these loans deferred. Can you give us the total principal of these, I mean, customers that have asked for loan deferrals, how much it represents, just because, I mean, your number is much lower compared to peers? So just to compare them with peers, it will be better if we can get the -- I mean, the principal exposure to these names.

And my second question is in regards of your liquidity. I mean you have a really strong liquidity of $16 billion. I was wondering how much of it sits abroad that correspond on banks. If you can give us a little bit of, I mean, granularity and color about it.

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [26]

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Thank you, Ali. So we shared the number, and this is 1%. 1% is the amount of the installment. So that's why maybe if you want to compare some numbers with our competitors, the total amount of the capital of the loan is TRY 13.5 billion. So 1% that I mentioned was the only installment that we deferred. But the total amount of the loan that, of course, we are looking it on daily basis, is TRY 13.5 billion.

Second, what was the second question? Ah, yes, about the liquidity. Of this liquidity, obviously, some part -- the major part is with the Central Bank, that we are keeping with the Central Bank, and also with our correspondent banks, which is close to $2 billion is with our correspondent banks.

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Operator [27]

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Ladies and gentlemen, there are no further audio questions at this time. I will now turn the conference over to Ms. Hilal Varol for any webcast questions. Thank you.

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Hilal Varol, Yapi ve Kredi Bankasi A.S. - Head of IR and Strategic Analysis [28]

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So we have a couple of questions. One is, are you concerned about the implementation of asset growth rate by the regulator? Does it change the credit [short term]? I think we have already answered that question.

And did you witness any unusual deposit outflows, withdrawals in April? No, we didn't. It's the same process, as you can see in the BRSA results as well weekly. There is nothing on system as well. And we answered the following questions about the postponement. And do you expect credit cost in second Q to be similar to first Q or higher?

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Kürsad Keteci, Yapi ve Kredi Bankasi A.S. - EVP of Strategic Planning & IR [29]

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Regarding to this question, it is not easy to say. But what we can say, it will be something starting with 200 basis points. But it is not easy to say. If we have this opportunity, we will update the guidance. Sorry about that.

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Hilal Varol, Yapi ve Kredi Bankasi A.S. - Head of IR and Strategic Analysis [30]

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So one question is about postponement. How do you provision these loans, the postponement?

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Kürsad Keteci, Yapi ve Kredi Bankasi A.S. - EVP of Strategic Planning & IR [31]

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And regarding the postponement, it is fair to understand the reason behind the postponement is not just the deterioration of asset quality. Customers are using this as a first alternative. And it will be more visible whether it is a credit deterioration or not. It's the date of the postponement, which is June. And we will have better picture in June. That's why they are still in Stage 1. And we are keeping it as Stage 1 provision.

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Hilal Varol, Yapi ve Kredi Bankasi A.S. - Head of IR and Strategic Analysis [32]

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And one last question. FX and interest rate sensitivity of capital adequacy ratio. 10% depreciation on Tier 1 is 52 basis points, and 100 basis points Turkish lira rate increase is 13, 1-3 basis points.

I think we don't have any further questions. So we can conclude the call. Thank you all for participating. If you have any questions, we are here always to answer. Thank you.

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Gokhan Erun, Yapi ve Kredi Bankasi A.S. - CEO & Executive Director [33]

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Thank you.