Turkiye Garanti Bankasi A.S.

Good afternoon and thank you for joining Garanti BBVA's first half 2026 financial results webcast. Today, representing Garanti BBVA, we are joined by our CEO, Mr. Mahmut Akten, our CFO, Mr. Atil Özus, and our Head of Investor Relations, Ms. Ceyda Akinç. 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 solid set of results. First, let me begin with macroeconomic environments we are in. GDP growth was 2.5% in the first quarter and we now cast a similar level as of June. Activity is expected to recover modestly in the second half of the year, thus we maintain our 3% growth forecast for the full year. On the right-hand side, you can find our inflation and interest rate forecasts. Higher food and energy prices slowed down the improvement in headline inflation. Nevertheless, preserved tight financial conditions and fiscal discipline have supported our 30% year-end CPI forecast. Authorities continue to pursue a carefully balanced policy mix combining gradual monetary normalization with tight macroprudential measures. Therefore, we expect the funding rate to gradually converge toward the policy rate by September. The timing of the first easing step remains data dependent and may be affected by oil price volatility. If conditions allow, limited rate cuts might resume in the fourth quarter. Moving into current account deficit, weak foreign demand and high commodity prices lead to a worsening in external balance, yet resilient tourism revenues and moderation in economic activity could prevent further deterioration. We now expect current account deficit to GDP to be around 3.5% versus around 2% estimate in the beginning of the year. Evolution of energy prices will determine the external outlook. Fiscal discipline on the right-hand side continues to support macroeconomic stabilization. Expenditure discipline remains broadly intact, while income taxes continue to support revenue performance. We expect fiscal deficit to be close to the medium-term plan target of 3.5% in 2026. Now moving into our financials, I will start with the net income. In the first six months of the year, we generated 64 billion TL in net income, up by 20% year-on-year, while recording 28% return on equity. Well-defended NIR, robust fee generation and stronger contribution from financial subsidies reinforced solid earnings delivery. On a quarterly basis, we had a single-digit decline in net income, mainly due to Lower trading income and increased provision that I will elaborate more on the following slides. I would like to highlight that we used 27% CPI rate in the valuation of CPI linkers income. If we had used 30% rate, our net income would have been close to 2 billion TL higher. Our diversified revenue sources once again enabled earnings resilience, now moving into slide 7. Against the challenging macro backdrop, we managed to defend our sector-leading core banking revenues. Strong fee generation and the growing contribution from our financial subsidiaries helped cushion cyclical pressure on net interest income and trading. I will discuss net interest income and fees in more detail on the following slides. Here I would like to briefly touch on trading income. In the first quarter, the upward shift in swap curves resulted in mark-to-market gains on our swap portfolio. As swap curves normalized in the second quarter and these short-term positions matured, this positive contribution faded. Lower client foreign currency activity also weighed on the trading income. Therefore, we had lower trading income in the second quarter. That said, trading income represents less than 5% of our gross income. and more sensitive to market volatility, our earnings profile continues to be driven by sustainable core banking revenues, namely interest income and fee generation. As a result, we delivered 43% year-on-year growth in core banking revenues. If we look at our asset mix, our total assets reached 5.2 trillion TL and loans make up 55% of the assets, supporting sustainable and recurring revenue generation. We maintained our growth pace both in TL and foreign currency loans. In foreign currency securities, you may notice a sharp decline in the second quarter. This mainly reflects the maturity of our $3 billion short-term placement made in high-quality liquid assets at the end of the first quarter. Excluding this temporary impact, our foreign currency securities increased modestly QonQon. In TL Securities, we continued to selectively increase our floating grade notes. Moving into slide 9 for further insights on TL Loan Portfolio, we maintained our disciplined growth strategy, further strengthening our presence in micro and small enterprises, while reinforcing our leading position in general purpose loans and credit cards. Now let's look at the evolution of our asset quality. As our loan mix continues to evolve towards consumer lending and credit cards, we continue to proactively identify and classify these exposures. Accordingly, the stage 2 share in total loans increased modestly to 12%, mainly reflecting higher SICR classifications as you can see on the right-hand side. Importantly, 84% of the SICR portfolio is non-delinquent at all, highlighting our prudent and forward-looking risk management approach. The higher share of early-stage SICR exposures also lowered our stage 2 coverage ratio. Consumer loans and credit cards now account for around 75% of the SICR portfolio, consistent with the evolving loan mix. Here, I would like to also mention that around 55% of new general purpose loans are originated to salary customers, while credit card revolving rates have remained broadly stable at around 35%. In terms of restructured loans, as you can see on the chart, declined during the quarter following the migration of previously restructured loans into stage 3 with the end of the related regulation. If we move on to NPL inflow, the trend observed in stage 2 was also evident in NPL inflows. Around 70% of new NPL inflows was coming from consumer loans and credit cards. And the end of restructuring regulation resulted in a temporary increase in NPL inflows during the second quarter and effect may also continue in the third quarter. We expect it to normalize in the fourth quarter. In terms of cost of risk, as we discussed on the previous two slides, cost of risk increased during the quarter reflecting three main factors. First, we updated our provisioning models to incorporate the latest macroeconomic assumptions. Second, we continue to see MPI inflows from consumer loans and credit cards as our loan mix shifted towards these segments, largely due to regulatory caps. Third, the end of the restructuring regulation led to the migration of previously restructured bonds into stage 3. While the first two reflect our portfolio strategy and operating environment, the regulatory migration effect expected to normalize in the fourth quarter. As a result, we continue to expect full-year consolidated cost of risk to finish within the guided range, though towards the upper end due to combined impact of these quarter-specific factors and higher for longer interest rate environment. If we look at annual comparison on the right hand side, first off 25 cost of risk benefited from exceptionally large provision reversals. As provision reversals normalized in 26, the year on year comparison naturally resulted in higher blended cost of risk. Moving on to funding, similar to our asset strategy, we continue to rely on customer-driven funding sources. Total customer deposits reached 3.5 trillion TL, constitute 66% of total assets and remain TL-heavy. Importantly, our share of free funds continues to be the highest among private banks, providing a key structural advantage for margin resilience. On foreign currency side, half of the decline was due to gold price related parity impact while the remaining decrease reflected customer shift from foreign currency into TL assets. On external funding, we maintained our diversified funding mix. Total external debt currently stands at $9.8 billion, of which $4.5 billion is short-term. Against this, we maintain a comfortable foreign currency liquidity buffer of $6.1 billion. We further diversified our funding mix in the second quarter. We successfully completed our first thematic syndicated loan. In addition, we completed three thematic bond issuances in line with orange bond principles and climate change adaptation. And more recently, in July, we completed 4 billion TL asset-backed securities issuance, further optimizing our capital structure. Moving on to net interest income, our first half margin performance continued to stand out. The funding cost headwinds that emerged in March became more pronounced in the second quarter, putting pressure on margins and TL loan deposit spreads. Even so, we limited the quarterly decline in net interest income to just 5%. This quarter, as I mentioned in the beginning, we also revised up our CPI estimate to 27% from 23%. Yet current inflation expectations still point to further upside. Assuming a 30% CPI assumption, net interest income would have been around 3 billion TL higher and year-to-date net interest margin expansion would have been 20 bps higher. Let's move on to the P&L item. Fees. Our first-offee performance remained one of the strongest in the sector. Our fee base was up by 42% year-over-year, 39% year-over-year, and 12% Q&Q. Strength in payment systems continued to be the main driver of the growth. Money transfer fees, insurance fees, as well as asset management fees further gained momentum. and over the past year, we welcomed 2.4 million new customers, bringing our total customer base toward 1 million. We also maintained our leadership in customer satisfaction, ranking first in net promoter score across retail mass, SME and mobile banking. Now moving into operating expenses, we are keeping our costs under control, growing in line with the budget and was up by 45%. We continue to have the lowest cost-income ratio among our peers. As always, we remained focused on capital generative growth, which is clearly reflected in our sector-leading capital ratios. Supported by strong earnings generation, we maintained our common equity tier 1 ratio at around 12%. There was a limited decline in capital adequacy ratio due to sub-debt amortization impact. The foreign currency sensitivity on capital adequacy ratio remains limited and we have a strong 149 billion TL excess capital providing ample capacity to absorb market volatility while supporting future growth. With that, let me walk you through 26 operating plan guidance. I will begin with the macro assumptions on the left as these form the foundations of our planning framework. Our January baseline macro scenario, while assuming 32% policy rate with 25% inflation, since then ongoing geopolitical developments, as you all aware, and heightened uncertainty have led us to revise our macro assumptions twice. Our current base case assumes that funding costs will gradually converge towards policy rate by September. And now we expect year-round inflation to be around 30%. Against this macro backdrop, we maintain our loan growth guidance for both TIA and foreign currency loans. As discussed earlier, we also remain on track to deliver our full-year consolidated cost-office guidance, although quality-specific factors and higher for longer interest rate environments are likely to keep us towards the upper end of the guidance range. Turning into margins, we have consistently communicated since April that funding costs will normalize only gradually. While we continue to expect margin expansion this year, the pace of improvement is likely to be modest than initially anticipated. Going forward, evolution of funding costs and macroprudential measures will continue to be the key swing factors for margins. In terms of fees and OPEX, we are also on track with our expectations. Finally, regarding profitability, the upward revision to our inflation assumption naturally creates downside risk for our real RE outlook. In nominal terms, however, our guidance looks achievable depending on rate evolution. This concludes my presentation. Now we can take your questions.

Welcome to the Q&A session. As a reminder, you may ask questions by raising your hand 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. Let's begin with our first question from Mehmet Sevim, JP Morgan. Mehmet, please go ahead.

Hi, good evening. Thanks very much for your time. I have just one question on the deposit balances, please. It seems you've grown your TL deposit base quite significantly this quarter. I'm aware of the regulations, but I was wondering if this is simply a function of regulation or was this a deliberate decision to shore up liquidity, maybe to be a bit more comfortable later in the year? or was there any other reason behind it given obviously your TL loan to deposit ratio has declined about 10 percentage points in a single quarter. So I'm trying to understand if the steep NIM drop maybe is partly related to that and maybe if this is front loaded and may result in a better performance later in the year. and connected to this, how are you thinking about the NIM evolution over the coming quarters, say if in different scenarios of the rate trajectory? Thanks very much.

Thanks Mehmet, good questions. Number one, the decrease in NIMH is mostly related to really the post-war increase in the policy rate, or not more than policy rate, it's the really funding rate by central bank, which has been increased. So when we did have the first quarter, we had only one month of Thank you very much. Yeah, deposit balances, we typically go beyond ratios regardless, and especially quarter ends, we have more inflow. But we also optimize sometimes duration based on our beliefs as well. So now we see an opportunity to grow, but we actively manage our deposit base is partially reflected in our numbers. But really, the real story is higher cost of funding and maybe more issues in the sector in terms of competing for deposit costs. with the ratios at times. And that's the reason overall cost of funding has been higher than the first quarter. That's affecting them. Going forward, when you look at the three lines in the last chart, that shows are January, April, and I think it was June or July. Going forward, the policy normalization is not going to happen before September, it looks like. So this is a much higher funding estimate than we have initially thought, which is affecting the NIM. We may or may not hit the 75 pips that we have forecasted. It's a bit hard to say at the moment, but in the beginning of the year, late last year, when we discussed about... We have been always, as you know Mehmet, relatively cautious because there is so much variable and we typically put numbers that we believe that we can hit. It is still 75 pips achievable, but there is risks around it. The third quarter cost of funding will be still relatively high. The NIM will be relatively flat, but the fourth quarter we expect more improvement. But day-to-day, we are actively trying to manage between swap lines, between onshore, offshore and deposit funding. Right, Atul? Would you like to add anything?

Yes, indeed. I mean, conservatively speaking, I think, as you said, the third quarter net interest margin could be similar to the second. And fourth quarter will be increasing. But also, there's an upside risk that, I mean, even in the 2020s, Thank you very much. Thank you for watching.

Thank you very much. Not an easy target, but still achievable depending on how things evolve. And if you look at the last six, seven months of 2025, there was a good flow. And even January and February was very good months in terms of cost of funding. But the situation with the war and further tightening of policy rate or funding rate has deferred our new development. New development is like this, but we are hopeful that it will be better based on the one month information as well. Hopefully these answers to your questions.

It does. Thank you, Mahmut Bey.

Thank you, Atil Bey. Our next question comes from Ashfat from Goldman Sachs. Please go ahead.

I have a few questions.

The first, I think it was mentioned that if the inflation assumption was to be revised upwards to 30 basis, I mean 30%, that would add another 20 basis points in terms of the NIMH. Perhaps that's also one of the levers that could be used, I suppose, in addition to lower funding costs if the rate cuts still happen or the policy rates normalize. I just want to check my understanding on that. and the second part I wanted to ask was around fee growth in OPEX. Fee seems to be performing better than the guidance range, whereas OPEX is also at the lower end. So potentially, is that another lever to help achieve your ROE target for the year or at least close to it? And the final question I had was around The impact of the Romanian subsidiary sale. I was just wondering if you could quantify the impact of that in terms of an expectation of ROE in terms of basis points and also whether that's embedded into your guidance of that I'll go with the first two ones and then leave the last one to Atil.

who has been spending a lot of time on the subsidy sales. But overall, the inflation assumption 27% to 30%, you know, it's just it happened to be the case that we have not adjusted in the second quarter just on time. But I think major competitors in the sector, everybody is actually raising to 30%. I want to mention that because if we have made that adjustments, we're almost making the same number with Q1 despite the These are at the moment within our forecast to reach to 75% improvement. As I said to Mehmet as well, I'm optimistic we will get close. We might hit the number or we might get very close, which includes this assumption. And now you mentioned on your second question, fee growth and OPEX. Those are really good points. Ceyda didn't mention those upsides but in fees actually if you see if you look at the numbers we have been always with a strong and payment area in terms of customer acquisition in terms of fee generation it has been really year-over-year 35-36 percent is above inflation good growth in fees but also you probably notice two more areas I mean insurance and brokerage and securities There we had 65% to I think 79% or so improvement. These are areas we have focused a lot in the past. I mentioned transactionality and wealth management areas is very important for us in terms of ROE improvement as well and like capital approach. And for instance, in asset management, our company two years ago was number five in terms of ranking and profitability and now it's number one. Thank you very much. Ceyda Akinç, Osman Bahri Turgut Thank you very much. will continue to do so. But on both sides, we have extra pluses because of our strategy. And third one, question for you about Romania.

Yes, you know, it's a process and so far it's on track. and normally we expect it to be concluded in the fourth quarter, mid-fourth quarter. This is, I mean, the current expectation. And previously in the first quarter results, We thought that the net income, in fact, will be over 100 million euro and the capital impact would be over 80 basis points in terms of capital-debit ratio. And return equity impact, depending on all these figures, is subject to, let's say, FXX or a couple of other things. But, I mean, normal expectations around 1.3%, 1.5% return equity ratio. and it's included in our guidance that I mean we could reach our non-return equity target.

Thank you. Thank you.

Our next question comes from Mustafa Kemal Karaköze, TEP Investment. Please go ahead.

Hi, thank you for the presentation. Do you hear me? Yes, we hear you. Yeah. My first question is about cost of risk guidance for 2026. You maintained cost of risk guidance for 2026, but parent company BVA Second quarter points out worsening outlook for the rest of the year. And especially we saw huge MPL inflow in July for the sector. Do you see significant downside risk to your cost of risk guidance at the moment?

Yeah, okay, that's a great question. First of all, BBVA, we are calculating cost of risk slightly different than us, and their baseline was 200, they, I think, increased to 220. So, number one is that. And number two, we mentioned in the past as well, and today we briefly touched on it, there is a normalization in cost of risk overall, regardless of the segments over time. For the sector, not just for our bank, I'll give you a few data points. If you go back to 2017, for instance, the banking sector NPI ratio was 3.1%. Right now it's again 3.1%, but in the meantime, between 2017 to 2020, Thank you very much. As you recall, we discussed this, there has been two restructuring initiatives by the regulator that we were allowed to do restructuring of both credit card and unsecured lending. And that basically, yes, when you structure customers, when you extend the duration of your loan, On the credit card to five years, you actually make it more affordable, make it possible for certain customers to pay back. But not everybody is able to do it. Thank you very much. Thank you very much. In the third quarter, the MPLs of the second restructuring will continue to flow in, but the fourth quarter it will be normalized. So there is two normalizations. One normalization over years, there has been normalization of cost of risk and MPL when you look at the last 10 years, but at the same time, This year and late last year, there have been two restructuring efforts in credit cards and GPL, unsecured lending. And third item, maybe third factor to think about is, since pretty much many of the loan products are capped, credit card, along with few business products like, you know, agricultural loans, things like that, is the main area that's not capped. and it has been growing like about 40 percent so the uh from our numbers as well you know the majority of our NPL and post office is related to retail at this time around and that affects those numbers as well the overall uh relatively higher number than the past years but uh what we see is uh there is a movement from one quarter to another on retail segments And then in our presentation, we also show you the overall consolidated cost of risk numbers, which includes big ticket items. Big ticket items also deviates or make the numbers less apple-apple. It is actually last year, for instance, first half, we had several big ticket collections and risk reversals. Thank you very much. And on top, I'd like to say that as well, you know, our BBA culture as well, our BBA work and pricing discipline, those categories with slightly higher cost of risk also has very high work at the same time. That's the reason we continue to grow on those product lines. The one non-cap is credit card, which is very important in retail business. The unsecured lending, which is limited, is also still relatively profitable versus other products. So we continue to use our cap and limits. So overall, we are not concerned much about the cost of risk.

Maybe one thing I can add, I mean, you know, our guidance was 2 to 2.5 percent. Now we're seeing that it's also in the first presentation, we'll be toward the upper end, 2.5 percent. So we didn't guidance, but toward the upper end. So I think it's in parallel to what our parent also guides, I mean. So we provide a range, now we're saying it's toward the upper end. So I think it's parallel.

Yeah.

Thank you.

Now moving on to the written questions. Our first question comes from Valentina. She asks, could you briefly comment on the key drivers of the SET1 decline? Any RWA optimization plans? What is the effect sensitivity on SET1 ratios from 10% TRY depreciation to dollar and also SET1 sensitivity from interest rates? Thank you.

Atil, do you want to take this one? Yes, thank you for the question. The first part was related to the decline in the second quarter. You know, we have a sublet and Over the period, there is a part that starts amortization. There is a negative impact on capital adequacy ratio. If we exclude that part during second quarter, our internal capital generation was enough to compensate for the RWA growth. In the third and fourth quarters, we will see that most probably our capital ratios will be increasing because of the internal capital generation. So impact of this amortization will be limited. In terms of sensitivities, In terms of the 10% depreciation in the currency, capital adequacy ratio is almost 15 base point on total ratio and 33 base point on the set one ratio for 10% depreciation. And the other one, Kucubi, do you mind?

Yes.

Set one sensitivity from the interest rate. Ceyda.

Our interest rate sensitivity on capital is very limited since we have a low share of available for sale securities. So therefore, very negligible.

In fact, only three qubits impact we have.

Okay.

Next written question comes from Hakan Aygün. He is asking how do you see the evolution of NPR formation looking forward? Do you see any faster growth in your NPR figures, especially in July? Thank you.

July will be pretty much flat or 2-3% lower than June, actually. Our most recent forecast is 2-3% below June. But overall, June, July, August, and maybe partially September, our NPL Thank you very much. Thank you very much. Every product, we don't see any deterioration actually. But it's just the 52% of our Turkish loan growth is coming from credit card and non-cap area. That there's a product mix issue in the NPL flow. But in terms of role, in terms of return, in terms of post office, we don't see any major issues. But I've given you the exact number, 40 July versus June, whatever it is.

Thank you for the question.

It looks like we don't have any further questions and I think we are at the second analyst's earnings, so there might have been sectoral questions in the past as well. Again, thank you for joining us today and your interest as well. This year is a milestone for us. We just celebrated in June our 80th year of Garanti BBVA and it was a very important milestone for us. And in that, we always mentioned that we like to think about the future in the eight years that has been the case, always thinking about what we could do for transforming our bank. So we continue to do that in our strategy and I think you have seen some of the numbers today like you know we mentioned last year we'll be better in wealth management and we see that in the fees generation for instance we'll see more of these going forward as well and this year we just announced this week as well we are the master global partner of the COP 31 that's going to happen in November in Turkey so we use As you know, in our strategy, we mentioned in the past, sustainability is a growth engine for us. We like our climate ambition to turn to action and we'll be happy to see all of you in COP31. I'd like to note that as well. But overall, we finished a very strong quarter within the sector and we believe that we have the right strategy and with BBVA to compete globally and locally and this is reflected in our confidence as well that we will see every quarter strong results and that's all I will say the same strategy long term and I know there is some volatility quarterly numbers in certain items Thank you very much again for listening us and hopefully in three months we'll be again together to go over the numbers. Have a nice vacation for those who haven't taken vacation like myself.

Take care.