Turkiye Garanti Bankasi A.S.

Good afternoon and thank you for joining Garanti BBVA's third quarter 2026 financial results webcast. Today, representing Garanti BBVA, we are joined by our CEO, Mr. Mahmut Akten, our CFO, Mr. Atil Özüz, and our Head of Investor Relations, Ms. Ceyda Akinç. Following management's presentation, we will open the floor for questions. You may either use the raise hand function or submit your questions through the Q&A box. Without further ado, I will hand over to management.

For financial results on October 28, I'm sure most of you have already had opportunity to go through the numbers. Therefore, I will keep the presentation in brief, focusing on key highlights and full year outlook, leaving more room for your questions. So let's start with macro highlights. We maintain our year-end GDP growth forecast at 3% with downside risk due to high energy prices and weaker than expected economic activity. In terms of inflation, we maintain our year-end inflation forecast at 30% with energy prices remaining the main upside risk. With inflation likely to stay sticky around 30% until late first quarter of 27 and upside risk persisting, there could be limited room for monetary easing in the near term. In terms of current account deficit, current account balance has been more resilient than expected. We estimate that the deficit may widen only 15% $10-15 billion in the fourth quarter. This reflects weaker than expected domestic demand, resilient tourism revenues, and increasing share of renewables in electricity production. Fiscal discipline continues to support macroeconomic stabilization. Improved income tax collection and disciplined spending have supported the budget balance. Now moving into our financials and I will start with the headline figure. In the first nine months of the year, we generated 98 billion TL in net income, up by 16% year on year, while recording 27.5% return on equity. A strong recovery in net interest income, together with sustained fee momentum, more than offset higher provisioning costs. Our sector-leading core banking revenues provide a solid foundation for sustainable earnings growth. A key driver in the third quarter was a strong recovery in net interest income, which increased by 23% quarter-on-quarter, supported by improving funding conditions and our disciplined loan pricing. Fee income also maintains its solid momentum, growing by 5% quarterly and 36% year-on-year. Trading income presents 3% of our gross income on a cumulative basis and is inherently more sensitive to market volatility. Our earnings profile continues to be driven by NAI and fee income. The key driver of our performance remains our lending-driven asset mix. Our total assets reached 5.6 trillion TL and loans contribution increased further to 56%. In TL Securities, we continue to selectively increase our floating rate notes. Moving into slide 9 for further insights on loan portfolio, we maintained our growth pace in TL loans and continued to gain market share across all major lending segments. Business banking loans were the frontrunner in the third quarter, while we strengthened our position in consumer loans and credit cards. As our loan mix continues to evolve towards consumer lending and credit cards, we continue to proactively identify and classify these exposures. Share of Stage 2 increased to 14% from 12%. Here I would like to highlight that 90% of this increase was coming from the SICR and SICR portfolio reflects our prudent approach as 85% of this portfolio is non-delinquent. The higher share of early stage SICR exposures also lowered our stage 2 coverage ratio. In terms of restructured loans, it declined in the second quarter and third quarter following the migration of previously restructured loans into stage 3 with the end of the related regulation. In terms of NPL, the trend observed in stage 2 was also evident in NPL inflows with around 70% of new NPL inflows was coming from consumer loans and credit cards. In addition, the end of the restructuring regulation resulted in a temporary increase in NPL inflows in the second and third quarters. In terms of cost of risk, our cost of risk increased on a quarterly basis, reflecting increased NPN inflows in consumer loans and lower-than-expected provision reversal. The higher-for-longer interest rate environment is prolonging the normalization of our portfolio's asset quality. As a result, we expect cost of risk to finish slightly above our initial guidance. On the funding side, our long-standing customer relationships continue to support our broad deposit base. Total customer deposits reach 3.6 trillion TL, constitute 65% of total assets. Quarterly decline in TL time deposits reflect a normalization following the strong growth recorded in the second quarter. Underlying TL deposit growth remained strong on an average basis. Foreign currency deposit growth driven by tactical funding costs and liquidity optimization. This reflects our dynamic approach to the balance sheet and funding cost management as we continuously optimize our funding mix depending on market conditions as it was evident in our net interest margin progress. With TL deposit costs currently trending down, pouring currency deposits have already returned to the more normalized levels. Moving on the external funding, we also further diversified base through subordinated debt issuance and DPR financing transaction completed in October. Our total external debt currently stands at around $10 billion, of which $4.3 billion is short term. Against this, we maintain a comfortable foreign currency liquidity buffer of $8.6 billion. In the third quarter, net interest margin recovered strongly, supported by widening core spreads as you can see on the right-hand side. We benefited from lower deposit costs as we swiftly passed through the CBRT's late August easing to deposit pricing. alongside proactive funding mix optimization. At the same time, loan yields continue to improve, benefiting from repricing of loan portfolio ahead of normalization in CBRT's funding conditions. On the CPI linker side, we revised our inflation assumption from 27% to 29%, resulting in 10 bps positive impact on net interest margin. Overall, our cumulative net interest margin reached 6%, putting us in a strong position to deliver our initial full-year guidance. Our fee performance also continued to stand out. Our fee base was up by 26% year over year. Although payment system fees continued to be the key driver, contribution from money transfer, insurance, and asset management fees further gained momentum. In the first nine months, our OPEX growth is faring better than initially expected, particularly on the non-HR side, reflecting our continued focus on cost discipline. We continue to have the lowest cost-income ratio. In terms of capital, 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 slightly increased our common equity tier 1 to 12% and capital adequacy ratio to 16.1%. The foreign currency sensitivity on capital ratios remained limited. We have a strong 169 billion TL excess capital, providing ample capacity to absorb market volatility while supporting future growth. With that, let me walk you through our operating plan guidance and our current outlook. Despite the revisions in the market assumptions, we will manage to deliver better than what we promised in the revenue items. Landing growth is progressing in line with our guidance. In net cost of risk, the higher for longer interest rate environment is prolonging the normalization. As a result, we expect cost of risk to finish slightly above our initial guidance. Our margin outlook has improved since the second quarter. We are now well positioned to deliver our initial net interest margin with potential upside depending on interest rate developments. Our fee growth performs in line with the expectations. Our OPEX is also performing better than initially expected, particularly on the non-HR side. We therefore expect OPEX growth to remain below our initially guided range. All in, stronger margins, sustained fee momentum, and cost efficiency continue to help offset asset quality headwinds. However, with inflation now expected at 30% compared to our initial assumption of 25%, we no longer expect to meet our real array target. We remain well positioned to deliver our nominal RE guidance. This suggests that current RE levels is expected to be sustained, which represents by far the best level among Tier 1 banks. This concludes my presentation. Now we can take your questions.

Welcome to the Q&A session. As a reminder, you may ask your questions either by raising your hand or by using the Q&A box. When your name is called, please unmute yourself and proceed with your question. Let's begin with our first question from David Taranto. Hi David, please go ahead.