Q & A Highlights

Q: Can you comment on the margin outlook for the second half of 2025, particularly regarding the downgrade in guidance for margins? How does the 500 bps rate hike in March affect this, and what are your assumptions for policies in Turkey? A: (Tuker Tunali, CFO) The net interest margin (NIM) revision from 4% to 3% was influenced by the 5% rate hike and ongoing reserve requirement increases. The competitive pricing, especially on the commercial lending side, also played a role. We expect a gradual improvement in NIM towards the end of the third quarter and into the fourth quarter, with potential rate cuts contributing positively, albeit marginally, towards the end of the year.

Q: What drove the significant market share gain in SME loans, and do you expect this trend to continue? A: (Kaan Gur, CEO) The trend began in the last quarter of last year, with a focus on Turkish lira loans and leveraging our digital and credit underwriting systems. We are targeting specific areas like earthquake-affected cities and agriculture, which allow for healthy market share growth. This focus on SMEs also enhances cross-sell opportunities and demand deposit base.

Q: How do you see asset quality trends developing, particularly in credit cards and SMEs? Also, what are your plans for FX issuances next year? A: (Tuker Tunali, CFO) Asset quality remains strong with no broad-based rise in delinquency rates, though credit cards are the most affected. We use machine learning-based credit decision models to manage risk effectively. Regarding FX issuances, we remain opportunistic and will consider market developments and our capacity to grow the FX balance sheet.

Q: Can you explain the impact of swap costs on funding and NIM dynamics in the second half? Have you started using reverse swap facilities with the Central Bank? A: (Tuker Tunali, CFO) Swap costs were similar in the second quarter due to gradual policy rate increases. We haven't yet utilized reverse swap facilities as no auctions have occurred. The second quarter NIM was 2.1%, and we are seeing improvements, though the low LDR and growth cap limit recovery pace.

Q: With the current growth caps, how much would your loan book grow if there were no caps, and when do you expect these caps to be adjusted? A: (Kaan Gur, CEO) We anticipate growth caps will be lifted after policy rate cuts, likely starting in the first quarter of 2025. Without caps, high interest rates would still curb demand, but we expect normalization in policy rates and growth caps lifting to support growth.

Q: How sustainable is the fee and commission income growth in a more normalized rate environment? A: (Tuker Tunali, CFO) Despite high growth this year, we expect fee income growth to remain above 100% levels. We aim to further improve our fee-to-OpEx ratio, leveraging our increased customer base and diversified fee income sources, which should sustain growth even as interest rates normalize.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.