Joint Stock Company Kaspi.kz

Hello and welcome everyone to the CASBKZ first quarter 2025 financial results. If you would like to ask a question and you have joined the call via Zoom, please press the right hand icon on your screen. If you've joined us on the phone, please press star one on your telephone keypad. I will now hand you over to David Ferguson, Head of Investor Relations at CASBKZ to begin. David, please go ahead.

Great. Thank you, Maxine. Good afternoon. Good morning to everyone. Thanks a lot for joining us for our first quarter. 2025 financial results. I'm David Ferguson. I'm joined, as usual, by Michal Luntata, our CEO and co-founder, Yuri Dodenko, and Tengiz Mesici, our deputy CFOs, deputy CEOs, sorry. So, Michal will take you through the strategic update. I'll run you through the operational performance in the first quarter. I'll do that quickly. and then spend a bit more time on the guidance for the remainder of the year. There's a couple of moving parts to discuss, and then we'll open up the call for Q&A. So on that note, I'll hand it over to Mikael. Mikael, over to you. Thank you.

Hello, everyone. So let's just go through our first few performance. In general, we had a good first few. itself, it's performing at the levels which we expected within our expectations. The payments, you know, continue the strong growth. Revenue is plus 16%. I think I'm 21%. The marketplace in the first group grew 20% year over year, and the revenue 33%, and I think I'm 19%. and the FinTech origination volumes grew 17%, 18% revenue, 8% net income. The monthly transactions have been strong, and we continue to have a very engaged consumer base, and the revenue plus 21% net income plus 16%. The overall, the company's underlying performance is probably within our expectations. It could have been better on the GNV side. There was requirements to register smartphones, which was introduced in Kazakhstan, and that had a quite significant, you know, temporary impact on the demand for smartphones. And then on the Fintech side, you know, we see, the continuous high interest rate environment, which, again, will continue probably through this year. And we are here also introducing higher interest new deposit products, which I will talk a bit as well. So next slide, please. So the eGrossery, this is the business which we have started one of, you know, the fastest growing business. In our e-commerce, we continue scaling fast and expect to continue strong growth through the year. The active consumers reached almost 1 million. The GNV 64% up year-over-year, and then the purchases are 66% up year-over-year with 3.3 million purchases in the first few. As you know, we are operating in the three cities, three largest cities now, and we are planning to enter another two cities. So, the team continues to execute on the grocery, and you see the average ticket is very good, stable, and yeah, we just continue scaling because the country would simultaneously, as you know, is very good at continuously from an operational side, but also scale. And we are entering the new cities to support the growth, and we expect eGrocery to continue scaling fast through the year. New term deposits that we have launched for consumers. Those deposits are aiming at a higher interest rate. Our interest rate environment, has been, you know, basically due to all sorts of factors which have nothing to do with FASB itself. We are in the high interest environment, and there is a demand for deposits which, on the one hand, have high interest. On the other hand, those deposits are for sort of savings, where you can top-up deposit basically any time, but the term of deposit is actually saved through the three or six months. The deposits itself have been very successful on the market. As you can see, we went from basically nothing 84,000 consumers and almost 379 billion intenge of those deposits. So they're growing fast. There is a demand for those deposits. And therefore, this product has been quite successful. And we will be, you know, as you know, the strategy we have always had historically is those are the best consumers that are saving with you. and in the future, they're making purchases through all our other services, and therefore, investing into the acquiring the consumer deposits and the consumers with deposits have been part of our historical strategy always. Again, in the future, interest rates will go down, and therefore, there is additional opportunity for the, you know, for profitability. At this stage, we are in the high-interest environment. Therefore, we're taking advantage of this as well. We have been going through the different deposit terms upgrades. So this is just a bit of a timeline for you guys to understand. So for example, we did reduce the deposit in February of 24 from 14 to 15%. But then in 25, we do have the high interest environment. So we have introduced six month maturity deposit at 17%. Then we have increased the rate on all our current deposits from 14 to 15%. And then we introduced the pre-mortem maturity deposit at 18% interest rate. The way that we work with our consumers, for example, when we introduce, when we increase the rate of the existing deposit from 14 to 15%, we reprice our entire portfolio. That's the way our products work, and we have been doing this consistently for, you know, as long as we had basically the product. So that's something you should keep in mind. As soon as we increase the interest rate, we reprice our entire portfolio. So when we went from 14% to 15%, we therefore repriced – the existing portfolio of our custody deposit. And now, the fastest growing deposits are the ones which offer the higher interest rate of 18 and 17%. A couple of other things. We have raised Eurobonds. This is our first Eurobond, which we have successfully raised 650 million at 6.250%, which is due in 2030. Again, this was for us an opportunity to build a track record with fixed income investors, and this is the first Eurobond we have done. And, yeah, considering our strategy for international expansion and investments in Turkey more specifically, you know, it's good to be in a position of the financial strength. That's good to build a track record, but also specifically that transaction was successful, you know, Eurobond fundraising. We have also signed the agreement to acquire Rabobank, and this is a fully licensed bank, which doesn't really have any customers and doesn't have branch network. And this enables us to, you know, continue developing a FinTech product in Turkey. And also, our initial plan is that, you know, we'll invest roughly around $300 million in 2025 to fund our FinTech strategy in Turkey. So, Derrick, I'm back to you just to go through the platforms.

Yeah, sure. So, thank you, Michal. So, firstly, on the payments platform, pretty straightforward. Decent volume growth of 17% year-on-year. Faster TPV growth of 23% year-on-year. That is a function of higher ticket size, higher inflation. All three of the core payment products are contributing to that, cash we pay, bill payments. and B2B payments with B2B payments growing and expected to continue growing at a faster rate than overall TTV. Take rate moves down to 1.13%. That is consistent with the trend over the last 12 to 18 months and is simply a function of mix change, namely B2B payments and CASB Pay QR growing in share within the mix. In terms of the financials, TPV growth with some yield compression results in 16% revenue growth versus 23% TPV growth. There is slower revenue growth on interest balances. Average current account balances increased 8% year on year, but overall 16% is decent. And then as you've consistently seen with payments business, The combination of tight cost control and its inherent operational gearing ensures that strong top line drops through at a faster rate to the bottom line, 21% bottom line growth. Outlook for payment, highly predictable, healthy, and unchanged versus when we updated the market at the end of February. Moving on to marketplace. Marketplace remains the fastest-growing market. top-line platform, GMV growth up 20% year-on-year in the first quarter, supported by purchases up over 36% year-on-year. E-commerce and e-grocery particularly playing the part. But actually, again, just like with the payments, all three services, e-commerce, e-commerce and travel, are contributing to growth. Take rate moves up, a continuation also of a theme you've seen over the last couple of years driven by value-added services. Take rate accretion will ensure that fast GMB growth prostitutes the revenue at a faster rate. Specifically on e-commerce, e-commerce increased 20, e-commerce GMB increased 23%. year-on-year, on the back of purchases up 97% year-on-year. Grocery, the main driver of that growth, that high number of growth in purchases. As Mikael talked about, however, in March of the year, the Kazakh government introduced requirements around the registration for smartphones imported into the country. A number of reasons for this, but one being to ensure the correct duties are paid by importers and merchants, and what that meant is a sharp increase in prices on smartphones countrywide at a fall-off in demand in the final month of the quarter. Smartphones are an important GMB category for e-commerce. They account for around 18% of e-commerce, and we estimate The impact of the falloff in demand in March knocked around seven percentage points off growth, so that 23% GMV growth would have been around 30%. You can expect this to remain a theme in the second quarter of the year, but the good news is that this will be temporary. Once this is sort of worked through, demand for smartphones in Kazakhstan is not going to change, and actually it's perfectly possible you see some catch-up effect in the second half of the year. Moving on to e-commerce, e-commerce also delivered decent growth, GMB up 17%. Tape rate accretion in e-commerce is less than for e-commerce. E-commerce is the beneficiary of value-added, the main beneficiary of value-added services, advertising, delivery, and classifieds. So e-commerce tape rate moved up to 12.5%, 140 bits. E-commerce tape rate moved up 20 bits. E-commerce growth also impacted about a slowdown in smartphone sales in March, but to a much lesser extent than e-commerce. Cafe travel continues to deliver good, healthy results. GMB up 22%. Strong growth across the board, but again, tours, which we introduced around 12 to 18 months ago, delivering really decent GMV performance and now up to 11% of travel GMV from zero just 18 months ago and driving the increase in take rate here. So take rate moves up to 5.3% from 4.5%. Further innovations planned in travel over the course of the year. In terms of the financials for Marketplace, Fast GMB growth bought with take rate expansion in all three platforms translates into faster revenue growth of 33% year on year. That's versus the 20% GMB growth. Profit growth is lower and that again is consistent with trends over the last two years and is primarily a function of growth in e-grocery. The other point to call out here is that going forward, It is possible that some large ticket-sized discretionary transactions, which would be largely weighted towards e-commerce, are impacted by broader macroeconomic uncertainty. So categories to call out would be categories like consumer electronics and cars. Keep in mind that a category like cars, one transaction makes a material contribution to GMB, but a negligible contribution to the bottom line. We can come back to that later on. Finally, moving on to the FinTech platform. Decent marketplace growth translates into decent TFV origination. As has been the case over the last couple of years, the growth has been primarily being driven on the merchant side of the equation rather than on the consumer side of the equation. And again, that should be a theme that replicates it continues to be seen going forward. On the balance sheet side of things for the last two and a half years, you've seen the loan portfolio grow at a faster rate than the deposit portfolio. That will now switch around the other way. The loan to deposit ratio is high. And just as you saw in 2022, we'll take advantage of a high interest rate environment to once again focus on growing the deposit base, as Mikhail talked about, the logic being more deposits will drive more future transactions and will give us more funding, which again will drive more future transactions on the marketplace business. Pricing trends in fintech are stable year on year. Cost of risk in the quarter increased to 0.6% from 0.5%. The increase was primarily due to macro provisioning, and that macro provisioning is related to the sharp increase in interest rates in the first quarter. Underlying credit trends remain unchanged, and for the year, we expect a cost of risk to remain stable. Therefore, cost of risk was a drag on fintech profitability in the first quarter, but over the course of the year, again, we expect stable trends The increase in the MPL ratio versus the end of the year is normal Q1 seasonality. Actually, if you look back on the Q1 conference calls over the last couple of years, you'll see a similar pattern. Q1 MPLs move up and then they typically move down again in the second quarter related to seasonality. So decent TFD growth over the last 18 months has translated into decent revenue growth, up 18%. Higher cost of risk, muted net income growth in the first quarter, up 8%. But again, we expect cost of risk to be flat over the course of the year. Although, as Mikael has talked about, higher funding costs now will be a theme as we grow the absolute number of deposits and the cost of those deposits has increased materially. You should keep in mind that we came into this year with interest rates at 14% across the portfolio, and within a couple of months, the latest product has rates at 18%. That's a substantial increase in costs in a short period of time, but we see it again as an investment in the business, assuming we have successfully attracted deposits over the remainder of the year. Moving on to Hep C Varada. Their first quarter results were published on the close of market on Thursday of last week. You can refer to their disclosures for a detailed update. On the revenue side of things, we just think the main call-out would be the politically driven consumer boycotts in March did materially impact GMB trends. That also meant that the company pulled back on its marketing, performance marketing initiatives, which, again, exacerbated the revenue, negative revenue momentum in the quarter. On the cost side of things, the combination, therefore, of negative operational gearing, number one, and growth in loan loss provisions, number two, resulted in a net loss of 355 million Turkish lira around 40% of that loss is coming from higher loan loss provisions. That is perfectly normal in the context of early-stage fintech products. You're testing your risk. You're experimenting with different risk models. So higher provisioning is a normal consequence of that, number one. And number two, just to avoid sort of any confusion here, these sort of loan products should not be – confused with what CASB is doing with its bank acquisition in Turkey. This relates to product initiatives that were started in Hepsi Berada last year and have been part of its strategy over the last couple of years. So for CASB, despite the impact of a lot of smartphone sales in March, And despite higher macro provisioning in the first quarter, the first quarter results were broadly where we expected them to be, revenue up 21%, net income up 16% year on year. If you x out the impact of the macro provisioning, net income would have been up around 19% year on year. These numbers exclude Terti. Including Terti, revenue increased to 834 billion tenge. Net income loss was 200, net income was 254 billion profit. The loss from Turkey was equivalent to 6 billion tenge, so around sort of 2% dilution. So a small negative impact from Turkey, and particularly small in the context of Caspian relative to the long-term opportunity that Turkey offers. So moving on to the guidance, GMV growth moves to 15 to 20% from 25 to 30% previously. So number one, that is a function of the new rules for imported smartphones, higher prices in the short term and temporarily lower demand. But again, this should be a short-term effect that should work itself out in the second half of the year and into the following year. Secondly, increased macro uncertainty and the potential for that to impact higher ticket verticals. I gave the example of cars. Average ticket size for one car transaction, $10,000, versus average ticket size for an e-commerce transaction, $30. So you can see there how that vertical can have a disproportionate impact on GMB, but almost no impact on the bottom line. That change in outlook should not be confused with a change in outlook for core 3P marketplace business beyond the point we've made on smartphones. TPV outlook unchanged, TFC growth of around 15% of the lower range of the range given previously at 15% to 20%. Again, that just reflects slower marketplace growth. There's a couple of other factors to point out. Number one, higher interest rates. We've talked about it before. That in itself is probably the sort of biggest drag on earnings. But again, just to reiterate, while that is a headwind in the near term, interest rates in Kazakhstan are extremely high and over the medium term that should turn into an important tailwind for the business number one number two we expect the Kazakh government to introduce a 10 tax on revenue from investments primarily in government securities we expect this to be applied to interest revenue for the whole of 2025 at 10 percent number one and number two We expect the government to increase national bank reserves from the summer of this year. Both of these two factors are still to be confirmed, but we think there is a high probability, and hence we include them in our guidance today. The combined effect of those two factors will be around sort of 200, approximately 200 bits of net income this year. So there's a number of moving parts of the question is, is the guidance conservative, but we try to definitely reflect these different scenarios in the updated guidance to the best extent that we can. On that note, we'll open the call up to Q&A.

Thank you. If you would like to ask a question, please press the red hand icon on your screen if you've joined the call via Zoom. If you've joined us on the phone, please press star 1 on your telephone keypad now. When preparing to ask your question, please ensure that your line is unmuted locally. Our first question comes from Egal Arunian. Please state your company name and proceed with your question.

Hey, guys. Good morning. Good afternoon. Egal Arunian from Citi. Maybe just on the macro, because I have a couple of factors. If you could expand on the macro uncertainty in Kazakhstan, is that driven just by the higher interest rates, or are there more things you're seeing there that could help us kind of understand the framework, what's going on there? And then in Turkey, too, with the boycotts, has that changed your – I know it's not going to change your long-term outlook, but your near-term outlook for the integration, your expectations around what you can do in Turkey. We'd love to kind of get a sense on that level of things.

All right, Egal. So thanks for your question. So macro, I guess, is a couple of things you could sort of point to. But I think let's just keep it simple. Lower oil price can translate into slower GDP growth, number one. Volatility in commodity prices can translate into currency volatility and increased uncertainty, number two. Again, I wouldn't over exaggerate this. I mentioned earlier we expect payment trends to be resilient throughout the year. Payment trends are indicative of spending in the economy. But some high-ticket discretionary transactions, which would be weighted to marketplace and could disproportionately impact GMB, could be impacted to some extent. And we're choosing to take a conservative approach. The third area, currency weakness, translates into inflation and higher interest rates, which we've talked about. And that is a pressure on earnings in the near term. So there are a number of different moving parts. They create some more uncertainty as a margin with taking a conservative approach. But again, overall, the outlook for this year remains robust and decent. Our uncertainty simple answer for me is no. But I don't know if Macau has anything to add to that.

Yeah, I mean, in terms of our, in terms of our class, we, it doesn't have any, it doesn't have any impact. Again, you know, whoever has been, who has been following in the way we sort of work, you know, I think it's all about, you know, quality of the products, quality of the consumer, and the merchant experience, and that's what is, you know, important for the long-term success. It's, again, it's not about competition. It's not. It's really about delivering the super quality products and the services to the customers. And that has been our most important strategic priority always in our operation. So that remains our focus.

Okay, thanks. Just a follow-up then on Turkey and the Bravo Bank exhibition. Talk about a little bit more of the early steps there in building out the syntax platform, you know, how much progress has been made, maybe an update on timeline products as you roll that out. Thank you so much.

At this stage, we are still in the process of getting the the approval for the position. So that will happen probably sometime in the second half of the year. And therefore, that's basically the most important immediate step for us, you know, to put in simple words, you know, a license to launch the product on the market. We do see a lot of opportunities in the digital and online services. So as soon as we have approval and then we'll start introducing some of the FinTech products to the market in Turkey. But we're really excited about the things that we could do and how we can take FinTech and financial services to another level.

Great. Thanks so much.

The next question comes from Darren Keller from Research. Please go ahead, Darren. Your line is now open.

All right. Thanks, guys. Can we just start off by going a little further into those one-time factors impacting guidance one more time? I mean, I think the interest rate on securities, just is that a one-year item? Just trying to figure out the timing of that. And even on the smartphone dynamic, if you could explain a little bit more of what exactly happened, how you estimate it's impacting your numbers. and then putting those aside, what you see as marketplace normalized growth right now, if you were to pull out some of the factors on the macro front that you're just referring to now. Thank you.

Yeah, Darren, so a couple of things. All right, firstly, let's do the smartphone one. So this is ruling that came into place in March. It relates to the import of all devices, smartphone devices, into the country. The unique code within the device needs to be registered with the authorities. I think this is actually quite common all around the world. There's different reasons for this security being, one, to ensure the relevant sort of import duties are paid, number two, amongst other factors. What that has meant is that across the country, the price of smartphones increased, number one, and demand temporarily fell off. We saw this quite dramatically in our numbers in March, and you can expect that to continue in Q2. It will work its way through. relatively quickly. It's, I guess, a price adjustment, a short-term price adjustment to the market. Nothing has changed in Kazakhstan with regards to people's use of smartphones and so on. So demand should normalize in the second half of the year, as I mentioned. There could also be some sort of catch-up effect there. You asked about a normalized rate. Well, I would take the normalized rate You asked how we can quantify it. Well, we know the size of smartphones as a category within e-commerce. I said it's about 18% of e-commerce GMB. We saw the impact in March. So I think normalized e-commerce growth rate is around 30% if you adjust for that factor versus the 20, I think, 3% that we reported in the quarter. So that's sort of one-off. I think the second is interest rates. I mean, that is actually the biggest sort of drag, higher interest rates. You saw that the central bank we came into, we sort of, if you think back sort of six to seven months ago, just as the trend globally, rates were expected to move down. Inflation started to wobble. Central bank moved rates up. in December, and then again, move them up sharply in March of this year, higher national bank rates to combat inflation, translating to higher deposit rates for us. But again, while this isn't one-off, the good news here is that, well, I wouldn't want to speculate on whether interest rates have peaked, but they are incredibly high at the moment, and there is a material drag on earnings in the near term. It's not unreasonable over the medium term to think about rates normalizing. If you think back to sort of pre-2022, rates were sub 10%. So there's a big change in costs. So what is for 2025? A headwind does have the potential to be a tailwind over the medium term, although the timing, difficult to predict. On the 10% tax that's likely to be introduced for liquidity revenue, no, that's not one-off. You should assume that that stays in place going forward. It's not actually material for us. There's other banks in Kazakhstan that have a much larger share of their P&L that comes from investment activities. We're a transaction-based business. But at the margin, it makes an impact. Same also for National Bank higher potential reserve requirements. It's not huge for us. But again, at the margin, it makes a difference. I talked about sort of those two factors knocking around 2% off growth. So there is a number of different moving parts. We tried to sort of put them all together here and reflect it in the guidance, and hopefully we've done that correctly.

All right. That's very helpful, David. Mikael, just a quick follow-up would be on the payment side. When I think of the underlying growth rate and I see the B2B side in particular or bill payment, maybe just break down the key drivers. We're seeing more versus less strength than right now. affected by macro perhaps, but on the payment side of the business, if you were to break it down a little bit more on what you're seeing more granularly.

question is here.

Yeah, sure. I mean, on the payment side, you know, at this stage, I mean, it's, I mean, our payments business, it's really all about, you know, enabling the, of the money and the purchasing and the transactions and the payments. So from that perspective, there is, you know, there is, you know, less, you know, less impact just because we are the drivers of the cashless transactions. The B2B side, that's something which has been historically growing fast just because of the low penetration but also the type of services that were launched the payments can be processed between our merchants and distributors. So from that perspective, you know, we feel like, you know, payments business is, yeah, is in a good place. And also we constantly innovate around the payments as well as, you know, supporting the growth. And B2B is really just one example of what we're doing.

Thank you. The next question comes from Reggie Smith from JPMorgan. Please go ahead, Reggie. Your line is now open.

Hey, thanks for taking the question. I just had a follow-up on the mobile phone things to make sure that I'm understanding it correctly. So, as I understand it, like, I guess the government is cracking down on counterfeit phones, and like a quick search showed that or suggested that, you know, as much as half of the phones brought into Kazakhstan or sold in Kazakhstan were, I guess, believed to be counterfeit. You talked about things improving in the back half. It sounds like it's a supply issue more so than a demand issue. Am I thinking about that correctly? Because if the issue is that there just aren't, I guess, legit phones coming in, like how does that correct in the back half of the year? And then a second piece of that, was there any signaling prior to the announcement that this could be coming down the pipe? And I guess finally, is there anything else that is going on in Kazakhstan that could potentially be a thing or an issue for you guys from a regulatory perspective that we may not be talking about or thinking about today? When I say we, I mean U.S. investors. Thank you.

I mean, from my side, I wouldn't say it's a supply issue. Let's not sort of overcomplicate it. There's no reason why smartphones can't be imported to Kazakhstan. So it isn't a supply issue. If devices are being imported the correct way, it's just meant a sudden increase in prices. It means the duties are being paid. Actually, this is a good thing in the long run because you are Again, just bringing more transactions into the formal economy, which we are a beneficiary of. This is a blip that will work itself out in the next couple of months. But for any e-commerce business, whether you're in Kazakhstan or globally, in the US and smartphones are just an important e-commerce category. So any sort of change in demand is hard to escape from, but it will work itself out. Mikhail, anything else on the coming down the pipe that we need to be aware of?

Well, I mean, we did mention about the you know, 10% tax on revenue from government securities. So at the moment, the tax is zero, which, you know, is unusual for many other markets. So as part of the new tax code discussions, you know, the new tax of around 10% on revenue for government securities will be introduced. At least we think that it will be introduced. And yeah, I mean, nothing really else. comes to my mind. I think we did discuss on a previous show that the bank tax also being discussed as part of the new tax law that the bank income tax will be raised from 20% to 25%. And the banking is one of the businesses that we have. So, yeah. I don't know. I don't think there is anything else at this stage that we believe or we think might have Got it.

That makes sense. And I guess just to follow up on the mobile phone, and maybe I'm thinking about this wrong, I guess previously there was a large supply of cheaper mobile phones due to counterfeiting or whatever, and that supply is going to go away, and so now people are going to have to buy, legitimate phones that may be more expensive. Is that the right way to think about it, or have I oversimplified it, or am I missing something?

That's the correct way to think about it.

Got it. Got it. Thank you. Yeah, we estimate that the price for mobile phones will go up. Got it. Perfect.

Thank you.

Thanks, Rocky.

Matthew, next question, please. The next question comes from James Friedman. Please state your company name and proceed with your question.

Hi.

Good evening. It's Jamie Friedman at . In terms of the Rabobank acquisition and the overall banking strategy in Turkey, Miguel, I'm just wondering how you would compare the opportunity there relative to Kazakhstan, how the strategy may be different as you go to market there versus in your home country, and what the $300 million investment is targeted to achieve to get you standing up there.

Okay. Well, I mean, we will be discussing the details, you know, in due course. The one thing I can mention that the investment itself should the transaction be improved is a combination of funding the total development, but also the, you know, capital, which, you know, any license needs a minimum capital to operate. So all those things will just, you know, give us an opportunity to innovate around the financial services. I wouldn't expect, you know, anything or major introduction of the new sort of services this year. The approval itself will take us into the second half, and when you think about the financial services, in general, it's important to have very high-quality products from the very beginning, because that's what, you know, builds up the loyalty, and therefore, you know, we will be looking to launch, I mean, not launch, but basically just do, you know, we have already, I think, the world-class financial products in our mobile application, so those are the things we'll look to, to launch, but, you know, I don't expect anything sort of major to happen this year because we need to complete acquisition first, get approval, and then set up everything right for the long-term success. So we're not, we are not in a, we never had it to launch things. We want to make sure we get them right and perfect, especially in financial services. And in the lending business, it's equally important to get paid back when you originate. So originating, you either build assets or you build the liability. So in our case, you know, you need to build the whole process to make sure that the product is a very high quality like Kafka has, but also the cost of risk, which we have historically around 2%, which is the world class, is really the important metrics for any lending operation.

Okay, thank you for that. And then my follow-up is with regard to the relative growth of 1P versus 3P. So in terms of what is embedded in the assumption for the guidance, David, I think you alluded to this in your prepared remarks. Yeah, how should we be thinking about that? Because that can have an impact on take rates, obviously, and margin. 1P versus 3P assumptions as we travel through the cadence of the year. Thank you.

Well, 1P is really just grocery, to a much lesser extent, 1P cars. So 1P grocery, actually, we pulled it out in the first quarter. You saw very, very strong growth. And I think you can expect it to continue to post numbers not dissimilar to what you've seen in the first quarter. which is fast and is faster than the 3P business in response to Darren's question. We talked about 3P business normalized rate of growth in the first quarter around 30% versus e-grocery growing north of 50%. The one sort of flag, but again, let's not over-exaggerate it because in practice it's non-core, is 1P cars. bought one-hound 3P cards, but where it makes a difference to GMV, again, I made the point it's sort of a $10,000 transaction versus a $50 or $30 transaction, but the bottom line impact from that is not material. So don't confuse the GMV downgrade with an equivalent bottom line downgrade. You'll get to the wrong answer if you do. Does that answer the question?

Yeah, perfect. Thank you, David.

Thank you. The next question comes from Neeraj Chandra. Please state your company name and proceed with your question.

Hey, Neeraj, can you hear us? Are you on mute, Neeraj? I think you're on mute. You're showing as on mute to me. Sorry, Maxine. Let's if, let's. Sorry about that, David. I'll follow up with you guys afterwards. Apologies.

Sorry, Neeraj. We can hear you.

Do you want to ask me a question? I think we've lost him. Let's go to the next question, please.

Yeah, our next question is from Gabor Komeny. Please state your company name and proceed with your question.

Hi there. This is Gabor from Autonomous. Thank you for asking my questions. Firstly, on funding, can you help us scale how much more to come in terms of the increase in funding costs from higher deposit rates and possibly the change in the mix. So what do you pay on the back book and where do you see your incremental costs overall? Secondly, on the pricing of your lending products, have you made changes there? I mean, I seem to recall you were pricing the buy now, pay later in the mid-teens interest rates, presumably. you would consider making changes when your incremental deposit is posted in the high teens. And just finally on the Turkish lending products, Pepsi is experimenting with how comfortable are you with them, you know, introducing your new lending products when you are about to scale up the FinTech offering with a different franchise. Thank you.

So, Gabor, no change to pricing. Gross yield was flat year-on-year, 26%. Number one. Number two, increase in percentage cost of funding for the year, I realize, between 100 to 150 bps. Number three, just keep in mind that with a banking franchise, a banking license, you can do things at a different scale. You can have deposit functionality. If you have that deposit functionality, the rationale is people who save with you will spend with you, number one. Number two, you can use that to fund more lending, which drives more transaction on your marketplace, exactly the sort of thesis behind Kasi Marketplace in Kazakhstan. So you can do that at a much bigger scale. over, over, over time. And HEPC doesn't have anything like that at scale currently. All initiatives are just early in stage, but logical to do.

Thank you, David. All fair points. I just want to follow up. The 100 to 150 basis points, that was the blended average increase in farming costs you expect this year or something different, please? Correct. Got it. Thank you.

Maxine, I think we're ready for the next question. Please.

Yes, our next question comes from . Please state your company name and proceed to the question.

Yes, good afternoon. This is John with . Thank you very much for the opportunity. So I have a couple of questions. So on rubble, I think it was acquired through the Kazakh entity and not through HepsiBoroda as far as I understand it. And I was wondering why you didn't acquire it through Hepsi rather than, you know, this bank will work pretty close with Hepsi. So that's the first question. The second question is how do you plan to get out of this boycott driven drag in Turkey? Is it marketing? Is it PR? Are there any plans around it? And the third question is on your cost of risk and assets quality. So the cost of risk is, I think, exceptionally low in Kazakhstan, which is good news. But how is it possible that it's not affected by the macro outlook at all when the macro outlook affects GME and other things? So I was just curious about that. Thank you very much.

Remember what the first question was?

The first question is rubble was acquired through the Kazakh entity. Great.

Thanks. But in simple answer, Hep C doesn't have the money to acquire and subsequently invest. CASB has the money. So it simply isn't possible for the Hep C entity to fund that transaction. That's the answer to number one. Number, in the absence of a capital injection into Hep C. Number one. Number two, the boycott I mean, that's probably a question that is better directed towards the HEPC management team. We wouldn't speak on their behalf. They will update in due course on trading in Q2. I think the results will answer that question. Number three, what you need to keep in mind is that the trade-off is not just cost of risk in isolation. It's cost of risk versus volume. So you can manage cost of risk stable by turning down volume or turn it, you can accept a higher cost of risk with more volume. So, whereas you're looking at cost of risk as the variable, I'd look at it the other way and look at volume as the variable.

Okay. And on the first question, so, I mean, why wasn't it possible to inject capital into Hep C? Because, I mean, it it doesn't look that smooth to me when, you know, Rabo will work super close with Hep C, but Hep C, you know, has minorities, right? I mean, isn't that a problematic structure slightly?

No. So in terms of simplicity, this is the sort of simplest way to progress this transaction in the near term, number one. in the medium-term arrangements can be structured in lots of different ways. But, again, you're getting, you're probably jumping the gun a little bit. Right. Let's just complete this transaction. It's subject to regulatory approval expected in the second half of the year, and then we'll be in a better position. to talk in more detail about how we address the point that you've fairly raised.

Super. Thank you. Thank you, David.

Thank you. Our next question comes from Salman Ali. Please state your company name and proceed with your question.

Good evening. I am from Mountainhead Partnership. My question again comes back to the deposit cost with two questions related to it. One is that how does your 18% compare with the deposit rates being offered by other banks? And second is that if the central bank is planning to increase the reserve requirements, do you expect another round of increase in deposit costs as other banks try to manage their liquidity? Thank you.

Do you want to talk about the attractiveness of the deposit products, Michail?

Yeah, of course. I mean, in general, our strategy has been always to be, to have attractive, you know, products for our consumers, but not the highest, you know, interest rate on the market. And again, you know, our deposit is a bit different from many others because it's a mobile application, you know, consumer experience is better. the process is better, the product itself, it's probably better. So I would say that our interest rate is on the comparable sort of term deposits, you know, low end. That's number one. Number two, in terms of the National Bank reserve requirements, I mean, that's, you know, the impact that it has on the potential impact it has on that income is because the additional national bank reserves, as they have been discussed currently, there will be interest fee with the national bank. So that's where the impact really comes on the bottom line. So it's not really a liquidity issue. And I don't think it's a liquidity issue for most of the banks, I would assume so. But not in our case, definitely. But this is why we have it in the because if it's an interest, we balance this with National Bank, obviously, you know, we don't have interest associated with us.

Does that answer the question?

Yes. Yeah, thank you. I'm just wondering that what is the system LDR? Like you are at 97%. So do you know what is a system LDR, and does it mean it will squeeze other banks?

We can't really help you with other banks. We're really focused on our business, and this is what we care about. Historically, we had anywhere from AP to pretty much close to 100% loan-to-deposit ratio. So, you know, in our case, we're good.

Thank you very much. Really appreciate it.

Thank you.

So, Maxine, maybe in the interest of time, we can take the final question, please.

Thank you. Our final question today comes from . Please state your company name and proceed with your question.

Hi, good afternoon. This is Ronak from Danros. Just a quick one on your take rate on payments. We've seen a pretty significant decline over the last two or three quarters, whereas, you know, if I look at the TPV breakdown, that hasn't, you know, the contribution hasn't changed much. So if you could just talk about what's driving the reduction in take rate and where we should expect that to normalize. Thank you.

I wouldn't say it's a dramatic change. I'd say it's a gradual change. But if you think about it, the CASB pay is 95 bps and B2B is less than that, then just mechanically, if they grow slightly faster, then you will just see gradual attrition. And I think you should expect that to continue for a period of time. And that is the expense which you can't really see. in that chart of things like interchange on the legacy cart product, which would have been a higher take rate business. So your base case going forward should be on ongoing gradual attrition in take rate, but it's not substantial. I guess over time, as growth moderates, then there'll be also a moderation in take rate dilution as well.

Yeah, and just to, again, mention, if you look at the track record and the rest, you know, several years, whatever, our, you know, transactions, the main, the fastest growing transactions are the Tuskegee Take, you know, transaction 0.95% take rate. So we have always said that, you know, as this business becomes, you know, bigger, you know, the take rate basically will be, gradually moving towards 0.95. And exactly for that reason, I think, two calls before this one were introduced to give a bit more details. And before, we would say, like, 1.2 take rate. Then we started to say two digits, you know, like 115 or 118, just so that you can guys track. But this strategy and the trend hasn't changed. So in the medium term, it will be going towards... you know, the lowest takeaway business, which is the report 95% takeaway. Thank you.

All right. So, I think we're going to wrap things up. Apologies if we haven't got to your question, please. We're happy to follow up separately, but we need to move to another meeting now. So thanks a lot for your time today. Thanks, everyone, for your questions. Keep in touch. Let us know if you have any follow-up, and we'll speak to you all soon. Thanks a lot, everyone. Thank you.

Thank you, everyone. This concludes today's webinar. You may now disconnect from the call. Goodbye.