Turkiye Garanti Bankasi A.S.

Good afternoon and thank you for joining Guaranteed BBVA's first quarter 2026 financial results webcast. Today we are joined by our CEO, Mr. Mahmut Akkan, our CFO, Mr. Atul Aziz, and our Head of Investor Relations, Mr. Eda Akıncı. Following management's presentation, we will open the floor for questions. You can either use the raise hand function or submit your questions through the Q&A box. Without further ado, I will now hand over to management.

Hello everyone, we are pleased to be with you again following another quarter of strong financial performance. Before getting into our financial performance details, let's as usual go over the macroeconomic environment we are in. Following 3.6% annual growth in 2025, we now cast a moderate GDP growth of 2.5-3%, in the first quarter. Although this fire remains a possibility, the physical destruction in the region suggests that the recovery on the supply side will take time. Therefore, we evaluate downside risk to our 4% GDP growth forecast for 26. We have revised up our year and policy rate assumptions from 32% to 35% alongside a higher inflation outlook. In line with our above 30% inflation expectation until September, we expect CBRT to keep the funding rate at 40% until June, and if conditions allow, limited rate cuts might resume in July. Moving into current account balance, increased energy prices and vehicle export performance due to subdued external demand put a pressure on the current account deficit. We now expect current account deficit to GDP to be around 3.2% versus around 2% estimate in the beginning of the year. Despite availability in fiscal room, depending on the increasing external financing needs, the fiscal support on growth would be kept mild. Now moving into our financials, I will start with the headline figures. We had a solid start to the year. In the first quarter, we delivered a net income of 34 billion TL, corresponding to 32% annual increase and 25% quarterly increase. Our return on equity was 30% and once again supported by Core Banking Revenues. As you can see on the right-hand side, Core and AI went up by 12% QonQ with the support of expanding spreads. Strong increase in trading income was mainly backed by higher foreign currency buy and sell activity. Net fees and commissions income maintained its growth pace in the first quarter with the increasing contributions from money transfer, insurance and asset management fees. As always, we remained focused on capital-generative growth, which is clearly reflected in our sector-leading SET1 ratio of 12%. A big part of this success comes from our asset mix on slide 7. Our total assets reached 4.8 trillion TL and loans make up 56% of total assets, which supports our recurring revenue generation. In this quarter, I would like to acknowledge that due to the ongoing sale process of our Romania subsidiary, related balance sheet and P&L items have been reclassified under assets held for sale and discontinued operations. Therefore, in our earnings presentation, we have shown Romania impacts separately in previous quarter figures for fair comparison. Quarterly and yearly growth figures also exclude Romania for fair comparison. In foreign currency securities at the quarter end, $3 billion short-term placement to high-quality liquid assets led a temporary increase in foreign currency securities balance. In TL Securities composition, I would like to highlight that we increased floating rate notes. Moving into slide 9 for further insights on the loan portfolio, in the first quarter, we maintained growth pace in credit cards and business banking loans. We preserved our disciplined pricing stance in loans and delivered healthy growth in all loan categories. If we move on to the asset quality, in the first quarter, consumer and credit cards-related flow to Stage 2 and 3 continued. Share of Stage 2 in total loans modestly increased to 11% due to flow to SICR and restructuring. Increasing SICR portion reflects our prudency since 84% of SICR portion is non-delinquent at all. Due to the respective regulation, restructuring in consumer loans gained pace notably. Our Stage 2 coverage ratio declined slightly to 7.5%, mainly due to mixed effects and improved repayment performance in certain individually assessed loans. I should highlight that there is no change in our product provisioning and staging policies. Higher risk segments are supported by strong collateral structures and coverage buffers, particularly in SME and wholesale portfolios. If we move on to the net cost of risk on page 11, net provisions declined slightly in the first quarter from the high base of FortQ. On an annual basis, provisions increase due to the retail inflows and normalizing collections from the wholesale book. As a result, consolidated cost of risk relies at around 2%, pairing in line with our expectations. Now moving into the other side of the balance sheet. Not only in assets, but also in funding, we rely on customer-driven sources. Total customer deposits exceeded 3 trillion TL, constitute 66% of total assets and remain TL heavy. Share of free funds is by far the best among peers, which merits our net interest margin stress. In TL demand deposits, due to point-in-time data, there seems to be a slight decline, But on an average basis, we continued to expand our TL demand deposit base. On foreign currency side, deposit increased by 3%. One third of that growth was due to gold price increase related parity impact compared to the fund rank. Moving on to external funding, we maintained our diversified funding mix. Our total external debt currently stands at $9.5 billion, of which $3.7 billion is short-term. Against this, we maintain a comfortable and strong foreign currency liquidity buffer of $9.4 billion. Now let's move on to the net interest margin on page 15. In the first quarter, we were able to expand our net interest margin by 25 basis points with the support of increasing loan-to-deposit spreads, as you can see on the right-hand side. As you may recall, in our previous earnings webcast, we had expected a decline in the first quarter margin. However, until March, TR deposit costs failed lower expectations. coupled with timely loan growth and rising gap management, we were able to expand our core spread notably. In this net interest income base, for prudence, we used 23% assumption in our first quarter CPI evaluation, while current expectations point to a potential realization closer to 28% by October. As a result, our net interest margin reached 6.1%, we continue to have by far the highest net interest margin and net interest income level among major peers, and our aim is to preserve this leading position. If we move on to the other P&L items fee, our fee base remains robust, up by 42% year-over-year and 4% Q2. Payment system fees continue to be the main driver of the growth. In this quarter, contribution from money transfer, insurance, as well as asset management fees gains momentum. We are number one in money transfer fees and in life and non-life insurance fees. This leading stance is the result of our expanding customer base and increased digital engagement. One in every two banking customers in Turkey is guaranteed BBVA customer. With over 2.4 million new customer acquisitions, our total number of customers has reached 30.6 million. With 18 million active mobile customers, one in every five mobile banking transactions in Turkey is conducted through Guaranty BBVA Mobile. If we move on to the operating expenses, we are keeping costs under control, growing in line with the budget and was up by 57% year-over-year. Quietly, HR cost growth reflects annual salary adjustment. As we have been communicating, our strategic investments to enhance customer experience and increase customer penetration support our revenue generation capability. As a result, significant portion of our operating expense base is covered by fee income, and we have the lowest cost-income ratio. Our capital-generated growth strategy continues to support solvency. Consolidated Set 1 realized a 12% raw capital-advocacy ratio, which is 16.2%. We maintained sector-leading capital ratios even after 20% dividend payouts and annual operational risk adjustments. These two had 1.4% impact on CAR in the first quarter. The foreign currency sensitivity on our capital adequacy ratio remains limited, with 12 basis points negative for every 10% depreciation. We have a strong 149 billion TL excess capital, which will support us to absorb any volatility. With that, let me walk you through our 26 operating plan guidance and our current outlook. First, let's start with macro assumptions on the left as they form the foundations of our planning framework. Back in January, our baseline scenario assumed 32% policy rate and 25% inflation. However, given the ongoing conflict in the middle east, we have revised our year-end policy rate ascension upward to 35%, alongside a higher inflation outlook. As I mentioned earlier, in line with our expectation of inflation remaining above 30% until September, we expect CBRT to maintain funding rate at around 40% until June, with the possibility of limited rate cuts resuming in July. Under this updated macro framework, while we continue to track in line with our balance sheet growth targets and our P&L performance remains broadly aligned with our expectations on fees, costs, and provisioning, we do see some downside risk on our net interest margin guidance due to higher funding costs. Let me elaborate on this. In this second quarter, we expect average funding costs to increase compared to first quarter, contrary to our initial projections. While we had anticipated a gradual improvement in core spreads, rising funding costs since March have weighed on this trend. We have already incorporated this increase into our loan pricing. However, due to duration gaps, the positive impact on yields will come with a lag. Higher than expected CPI is another buffer to offset this impact. In first quarter, for prudence, as I mentioned, we used 23% in the valuation of CPI increase. Overall, we continue to expect margin expansion for the full year, even under a more conservative funding cost assumption. As loan repricing catches up, we expect margins to recover relatively quickly in the second half. A faster than expected normalization in funding costs would further support this recovery. In terms of return on equity, at the beginning of the year, under 25% inflation assumption, we guarded for mid-single-digit real return. With the revised inflation outlook and the pressure on margins, there is some downside risk to our real return. However, in nominal terms, we may still be able to deliver our targets. Please note that expected contribution from the sale of our Romanian subsidiary may provide additional support towards the event. This concludes my presentation. We are now happy to take your questions.

Welcome to the Q&A session. As a reminder, you may ask questions by raising your hands or by using the Q&A box. When your name is called, please unmute yourself and proceed with your question. One moment for the first question. We have a written question. Should we expect a NIM compression in the second quarter?