Akbank TAS

IST:AKBNK.E

Earnings Call Transcript

[Operator]

Dear friends, this is Kaan Gur speaking. I wish you and all your loved ones a happy New Year. Thank you for joining our fourth quarter earnings call, during which we will also be sharing this year's guidance.

Before going deep into domestic outlook, which continues to improve, thanks to the steps toward policy simplification, supported by better macro fundamentals, I would like to briefly touch upon the global backdrop and its repercussions. While global inflationary pressures have largely subsided, global growth has remained intact around 3%, albeit below historical averages and uneven across economies. For instance, in the U.S. economy continues to display an outstanding growth performance, but at the same time, European countries and China struggle to stimulate their economies.

Despite various risks, including global economic policy uncertainties and geopolitical events, the favorable global environment supports macroeconomic rebalancing in Turkey. This allows our authorities to implement prudent policies and strengthen buffers against external shocks. Policy tools like loan growth caps and Turkish lira deposit rules are still in use. However, the return to orthodoxy such as the reinstatement of the 1 week repo rate as the main policy instrument along with the restoration of market-driven principles for interest rates have supported economic rebalancing and mitigated macro financial risks.

Over the past years, Consumers inflation declined by 21 percentage points to 44%, while the current account deficit to GDP improved significantly from 3.6% to less than 1%. The start of this inflation trend and the remarkable adjustment in external balance have reduced country risk significantly and increased confidence in domestic currency. 5-year CDS has dropped to 260 basis points from elevated levels and narrowed the gap between EM peers. These have all created growing appetite for Turkish lira assets from both foreign investors and domestic residents.

Capital inflows and sustained dedollarization have enabled the Central Bank to improve its net FX position substantially by more than $125 billion rise in net reserves since last April, while Turkish lira appreciated by more than 10% in real terms last year. Net reserves, excluding swaps, have reached $63 billion as of latest. Meanwhile, KKM stock has declined to less than $30 billion and standard Turkish lira deposit shares has risen to 60%. Thanks to ongoing successful macroeconomic adjustments, we anticipate further policy simplification, including the gradual unwinding of the KKM during the year. At the same time, we expect loan growth caps to remain in place for some time as supportive tools for the disinflation processes.

Dear friends, looking ahead, even with the rate cut cycle underway, maintaining a tight monetary and macro prudential stance, along with stronger coordination between monetary and fiscal policies will be crucial for sustained disinflation. We expect inflation to fall below 30% by year-end under a mild pace of economic growth around 3%. Real appreciation trend is likely to continue as the main driver of this inflation. We forecast some widening in the current account deficit due to the strength of Turkish lira, but the risks associated with this deficit and financing need will remain manageable and external deficit is expected to remain below historical averages.

As for the banking sector, it faced significant profitability challenges due to economic rebalancing and a tight monetary policy stance, which elevated funding costs in last year. Macro prudential measures constrained ALM flexibility, further adding margin pressure, which was beyond our expectation. On a positive note, we -- our fee income growth was very strong. However, it was unsufficient to offset the combined impact of NII compression and cost pressure driven by inflation. In the meantime, as anticipated, asset quality also began to show signs of deterioration during the period. All of this led for the sector to witness return on equity challenges. As for this year, we expect the sector's profitability to gain strength as normalization continues.

The anticipated easing in funding costs driven by this inflation trend and the diminishing impact of macro prudential measures following the achievement of policy objectives is expected to support a strong margin recovery, while fee income growth is likely to moderate and cost pressures may, to some extent, persist due to lagging inflation effects. On area that will remain a priority will be asset quality evolution as we expect risk costs to increase, but it will be manageable.

With a focus on sustainable banking, we will continue providing financial solutions such as refinancing and restructuring to customers who meet our risk metrics and demonstrate a clear path to recovery, ensuring both strong relationships and a well-managed balance sheet. All in all, these combined factors are anticipated to support a more favorable return on equity outlook for the sector.

Dear friends, now I would like to shift your focus to our bank's achievements despite the sector-wide challenges. First of all, strategically, we are well positioned for the rate cut cycle. Our team has achieved remarkable progress in expanding our footprint in the retail segment and gaining market share, especially in products where we can boost and lock in margin while extending maturities. We have now dominance in high-yielding longer maturity consumer loans, while have strategically strengthened our position in mortgages by gaining 670 basis points market share and built a strong position in the longer maturity business installment loans. All these are expected to be supportive for margin evolution going forward.

While growing, we continue to manage our risk in a prudent manner with our AI-based and automated loan decision processes. More than 90% of our general purpose loans are sold through digital channels, while around 90% of our micro loans are preapproved, thanks to our micro credit automation initiated last year. These capabilities are key enablers in managing our risk while growing. On the securities front, our treasury department's timely positioning in fixed rate bonds will also be another factor enhancing book value growth. To sum up, we have successfully transformed our balance sheet to maximize the benefit of the rate cut cycle.

As you may remember, at the start of 2023, we presented our 3-year strategic targets. Since then, we have not only achieved significant growth in our customer base, but also expanded deeper into the micro segment using digital innovations, reinforcing our recurring revenue stream for the future. As a result, our fee to OpEx ratio reached 86% and our fee market share climbed above 16%, an increase of 250 basis points since then. The only area where we are seem to be lagging is Turkish lira time deposit market share, which is due to our funding optimization efforts and regulation-induced low Turkish lira loan-to-deposit ratio. We will not stop here. As we enter the final year of our share targets during the year, we aim to share our new ambitions for sustainable customer-driven profitability. This is a never-ending journey.

Dear friends, our robust solvency ratios consistently strengthen our market position, empowering us to advance in our top 3 strategic priorities in an ongoing forward-looking manner. One, expanding our customer base and deepen relationship; secondly, enhance operational efficiency and make strategic investment in talent and technology. Together, these factors position us to deliver sustainable return on equity performance exceeding inflation starting this year.

I would like to take this opportunity to thank our people for their commitment, innovation and teamwork. They are driving force behind our achievements, and I am confident that their talent and determination will guide us to even new chapters of success in the future. And also, I would like to thank all our stakeholders for the trust and belief in our vision. Your continued support empowers us to remain resilient in our mission of creating sustainable growth and lasting impact for all those we serve.

Ebru will now walk you through our 2024 results and 2025 guidance. Following that, Turker, Ebru and myself will be glad to address any questions you may have. Ebru?

[Kamile Ebru GÜVENIR, executive]

Thank you, Kaan Bey. As we have just mentioned, despite the sector-wide profitability challenges, our robust fee income continues to support our core revenues, which increased by 22% year-on-year. Our advancing fee income generation effectively offset the decline in the net interest income. Without any doubt, our commitment to increase our footprint in retail segment and nonstop increase in fee chargeable customer base, along with the robust cross-sell ratio, will continue to solidify our recurring revenue base going forward. On the other hand, regulatory pressure on NIM and rising inflation-driven costs weighed on profitability. Accordingly, our net income decreased by 36% year-on-year to TRY 42.362 billion, resulting in an ROE of 19%, ROA of 1.9% for the full year.

As for 2025, our balance sheet is ready for significant margin improvement, leading to an ROE above inflation, supported by strategically structured TL loan book with longer maturity loans in focus, substantial market share gain in FX loans, which are margin supportive, continued strategic repositioning of the security portfolio and relatively low TL LDR of 82%, which offers room for funding cost optimization with disinflation phase.

Let's dive into this year's financial performance and key drivers of our resilience in achieving sustainable profitability as normalization progresses, starting with the balance sheet. Last year, our TL loans were up by 41%, demonstrating the success of our growth strategy on top of a robust 300 basis points market share gain in consumer loans among private banks in 2023, we successfully increased our market share further by 190 basis points last year. We strategically capitalized on the relatively higher interest rate environment to drive growth in our mortgage book, strengthening our position to support margins over the long term.

Our market share gain in mortgages, as Kaan Bey just mentioned, is phenomenal at 670 basis points, driving our market share among private banks to over 31%. In addition to locking in spread for longer maturities, mortgages offer significant cross-sell opportunities, longer lifetime of customer relationship with delinquencies being nearly nonexistent. On the business banking front, we have a robust positioning in installment loans with a solid 19.8% market share among private banks.

Our business banking installment loans have an average duration of 2 years. Following a substantial 230 bps market share gain last year in this product, we strategically also added 100 basis point market share in the fourth quarter of last year. In SME loans, where we applied our analytical capabilities to already digitized micro segment, we grew prudently while considering longer maturities. We expanded our market share among private banks and SME loans by 210 basis points last year.

In the micro segment, where our loan decisions are almost fully automated, we've made remarkable market share gains among private banks at 650 basis points. This achievement carried our market share among private banks in the micro segment to 17%, underlining our strength to achieve targeted growth. Without any doubt, excellence in digital and sophisticated analytical capabilities are at the core of our growth strategy, driving our robust asset quality. Please note that around 90% of GPLs, business banking, installment and micro SME loans are sold through our digital channels. As for 2025, our growth ambition remains intact, and we target to increase our market shares across these segments with risk return and focus. Our strategy is geared towards supporting and strengthening the margins in a sustainable way.

On the foreign currency loan side, we successfully grew the loan book by a solid 23% last year, which will also be margin supportive. Our bank-only growth was even stronger at 43%, excluding the impact of big ticket redemption during first quarter in our fully owned subsidiary, Akbank AG. This robust growth led us to gain 150 basis points market share among private banks. Our growth was segmented and in blue-chip companies. This year, with the declining interest rate environment, we expect the appetite for investment loans to increase in areas such as infrastructure, energy, and we will be utilizing our strength in investment financing to grab market share in foreign currency loans.

Moving on to the securities slide. We have also successfully structured our TL security portfolio to ensure margin support and further book value growth in the disinflationary phase. In the TL fixed rate securities, we strategically secured positions at favorable rates and longer durations during fourth quarter. With these actions, TL fixed rate securities share in TL securities increased by 3 percentage points quarter-on-quarter and reached 36%. Meanwhile, our TL floating notes are mostly TLF indexed with decent spreads and have 18% share in total TL securities.

As highlighted in several previous communications, our strategic approach also focuses on decreasing the share of CPI linkers in TL securities. As a reflection of our strategy, the share of CPI linkers in total TL securities, which actually peaked in 2022 at 77%, has come down by 32 percentage points since then, reaching 45%. The dynamic rebalancing of our security portfolio towards higher-yielding assets further highlights the strength of our treasury management.

In TL fixed rate securities, we strategically took a leading role in the longer duration government bonds during the fourth quarter. Also, we continue to lead the sector in TL corporate bonds, which is high yielding and with an end of quarter yield of 56% and represents around 9% of our TL securities. As a further note, 70% of our fixed rate TL securities are classified as financial assets measured at fair value through comprehensive income and offer additional support to book value growth in the easing cycle.

On the funding side, we maintained our disciplined funding mix, whereby deposits have continued to be main source of funding. We have a well-diversified deposit base, making up 62% of our total liabilities, while our TL time deposit remained resilient with 59% of total consisting of low-cost and sticky TL time deposits. On top of our strong and widespread deposit base, our TL LDR remains low at 82%, enabling cost-effective funding strategies going forward.

Let's move on to the P&L. As highlighted earlier, pressure on spreads and margin evolution were the major challenges faced by the sector last year. On top of tight monetary stance, high reserve requirements had around additional 80 bps negative impact year-on-year on our full year margin, although we were actually eligible for the maximum remuneration. To put in figures, on average, reserve requirements make up around 15% of our TL assets and 20% of our FX assets. And as you know, on the FX side, we get 0 interest. And interest earned on the TL side is maximum around 38%.

We ended the year with 2.2% swap adjusted NIM, while NIM has been recovering from its bottom in third quarter with limited but ongoing improvement in TL back book spread. Please note that CPI normalized quarterly NIM improved by around 70 basis points quarter-on-quarter to 2.3%. As a positive note, the recent rate cuts of around 500 basis points have already supported our year-to-date TL spread. As for 2025, our strategically designed and robust balance sheet is set to drive further NIM enhancement with visible progress anticipated starting in the second quarter.

How come we previously highlighted, but I'd like to also underline, by concentrating on longer maturity loans, we have effectively increased the duration of our TL loan portfolio while achieving notable growth in FX loans. Additionally, our strategic repositioning and security portfolio will create substantial opportunities for enhancement in the coming period. And on the funding side, as several times we have mentioned, there are opportunities for margin improvement going forward with basically funding cost optimization.

As also highlighted earlier, we are committed to enhance our sustainable recurring revenues, leveraging our robust customer-centric initiatives and innovations. In line with our strategic targets, our active customer base reached 14.5 million, up 72% over the last 3 years with an eye-catching 6.1 million net active customer growth. During the same period, our active customer base in the SME segment increased significantly by 82%, reaching 900,000 with a notably higher cross-sell ratio and profitability contribution underscoring the segment's strategic importance. Without any doubt, our success is fueled by our emphasis on broad-based and risk return focused growth powered by our proven analytical capabilities that we also applied to our already digitized micro SME segment. Meanwhile, our young customer base also continues to grow another 10% year-on-year.

Our digital initiatives have been the driving force in both our customer growth and substantial fee income. Similar to 2023, 2/3 of our new-to-bank customers were acquired via digital onboarding last year. Number of our digital customers reached 12.5 million with a robust 89% growth over the last 3 years, well exceeding our net active customer growth for the same period. Accordingly, digital penetration continues to excel, up by 8 percentage points to 86%, while improvement in digital penetration in SME segment is noteworthy at 17 percentage points, reaching 83% for the same period. As a testament of our advanced digital capabilities, our digital channels have achieved an impressive share, accounting over 90% of our GPLs and commercial installment loans, 66% of our credit card sales 78% of our time deposit account openings and 73% of our bancassurance products sold.

Our fee income more than doubled year-on-year, driven by the strong customer acquisition, broad product portfolio and diverse income base. All business lines contributed to the robust fee income growth with some phenomenal achievements during the year. Example includes we were the fastest-growing private bank for the second consecutive year in number of consumer credit cards.

On the bancassurance side, we not only maintained our top position in total insurance commissions since 2023, but also attained the market leadership in credit-linked life insurance among private banks as of the latest data, which is October '24. Additionally, our subsidiary, AT Asset Management secured the position of market leader in wealth management among private institutions with a total AUM of TRY 849 billion.

I'm delighted to share that we have already reached our 2025 strategic target to increase fee to OpEx ratio above 80%. And this is a result of our nonstop enhancements in our fee chargeable customer base, along with the strong cross-sells. With the fee income growth outpacing OpEx growth, our fee to OpEx ratio improved by an outstanding 22 percentage points since 2022 to 86%, achieving an even higher quarterly figure of 92% during last quarter. More importantly, the bank enjoys a considerably stronger fee income market share, which is up almost 300 basis points over the last 3 years among private banks. This underlines the strength of our well-diversified fee income base. Operating at a new high plateau market share in fees, we are committed to further grow our customer base while deepening our relationships.

On the cost side, OpEx was up by 80%, while tight monetary and macro prudential policies put pressure on revenues, resulting in temporary high cost-to-income ratio. Starting this year, a substantial improvement in cost-income ratio is expected, thanks to the improving outlook for revenue generation, along with prospective easing funding costs and diminishing impact of macro prudential measures on asset liability management. As for the long term, our mid- to long-term ambition of mid- to low 30s remains firmly in place, in line with our historical averages with the dedication to invest for sustainable profitable growth and enhance operational efficiency.

Moving on to asset quality. Our focus on risk return with excellence and advanced analytical capabilities across retail segments, machine learning-based credit decision models and proactive positioning have enabled us to maintain sound asset quality. Despite the sector's wide retail-led NPL inflows, relative strength of our portfolio is evident in credit bureau statistics with key examples, including higher share of green customers in GPLs, higher share of nondelinquent balance ratio in GPL and consumer credit cards as well as lower balance ratio for 1 to 30 days overdue accounts in GPLs and consumer credit cards among our peer group average. Please also note that the share of Stage 2 and Stage 3 in our gross loans, which would be deemed, let's say, more problematic, remained limited at 9% with coverage remaining also strong.

Last year, our total provisions exceeded TRY 46 billion, thanks to our continuous provision reserve buildup. Accordingly, our coverage ratios were solid with Stage 2 and Stage 3 coverage ratio remaining at a robust 28%. We ended the year at 128 basis point net total cost of credit, excluding currency impact. Please note that 9 bp is related with IFRS model update for the mass segment, while the impact of the model calibration on a quarterly net total cost of credit was actually at 34 basis points. This year, we believe our net total cost of credit is well managed within the 150 to 200 basis points, thanks to our diversified loan book, prudent approach in provisioning as well as sophisticated digital capabilities.

Despite the sector-wide profitability challenges, which limit internal capital generation, our total capital, Tier 1 and core equity Tier 1 ratios without forbearances remain outstanding at 17.8%, 15.1% and 13.8%. Our robust capital reserves continue to safeguard against market volatility and challenges, ensuring critical resource for sustainable and profitable growth. On this slide, you may find a summary of our last year's performance. As shared throughout the presentation, main deviation was related with regulatory induced lower NIM and cost pressure.

Looking forward, as shared at the beginning of our presentation, our balance sheet is ready for significant margin improvement, leading to an ROE above inflation. I'd like to repeat, strategically structured TL loan book with longer maturity loans and focus substantial market share gain in FX loans, which are margin supportive, continued strategic repositioning of the security portfolio towards fixed and TLF and relatively low TL LDR of 82%, which offers room for funding cost optimization with the disinflation phase. And as Kaan Bey mentioned earlier, we will continue to advance in our top 3 strategic priorities: number one, expand our customer base and deepen relationships; number two, enhance operational efficiency; and number three, make strategic investments in talent and technology.

Before moving on to Q&A, I'd like to also share a few words regarding our ESG journey. As highlighted in our ESG video at the start of our presentation, we remain committed to integrating sustainability into all aspects of our operations. We achieved notable progress in sustainable financing, as set our 2030 emission goals and expanded social investments and reinforce our governance practices. As a result of all these efforts, our MSCI ESG rating was raised to AA, positioning us among global leaders in resilience to environmental, social and governance risks. This milestone underscores our leadership in sustainability, both locally and internationally. With our strong commitment to sustainability supported by our 2025 action plan, we remain dedicated to driving Turkey's transition to a low-carbon economy, inclusive economy and sustainable future. This concludes our presentation.

[Kamile Ebru GÜVENIR, executive]

Now we'll be moving on to the Q&A session. So please do raise your hand or type your question in the Q&A box. And for those of you who are joining us by telephone, please send your questions by e-mail to [email protected].

And the first question comes from David Taranto from Bank of America.

[David Taranto, analyst]

Could you please elaborate a bit further on the quarterly net interest margin outlook? I would particularly be interested to hear your views regarding the deposit rate outlook and the timing and the level of peak NIM during the course of the year? And the second question is also related to NIM. As you have indicated on the presentation, you have increased your mortgage exposure substantially, extending the duration of your loan book before the rate cut cycle. Do you see potential refinancing as a risk for the NIM outlook? I acknowledge that it will be negative for NIM, but positive for the fees, but just curious on how you see the outlook there.

[Türker Tunali, executive]

David, this is Turker. Thank you very much. To start with your question regarding the NIM outlook, as Ebru has mentioned, so we are expecting full year NIM to be around 5%. But surely, the start into the year will be relatively at a lower level. As you may recall, we ended the fourth quarter at 2.3%. So we expect first quarter NIM to end slightly above 2.3%, maybe close to 3% levels. So we'll see depending on also the rate cut outlook in the first quarter.

And then we are expecting gradual improvements, especially significant starting significant in the second quarter because in March and April, we are expecting further rate cuts of 2.5% each in these 2 MPC meetings, so which will also translate into the NIM improvement. So therefore, actually, we are expecting a gradual improvement in NIMs, where we are expecting to reach the top NIM at around 6% by -- in the fourth quarter, so which will translate into a 5% NIM on a cumulative basis. So that's with regard to the NIM outlook.

And it's reflection to the deposit rates. Actually, already, we have started to -- after the first rate cut in December, actually, significant improvements in marginal deposit costs. Maybe just to give you some figures, in the fourth quarter before the rates -- before the first rate cut, marginal deposits were priced at high 40s levels. Nowadays, these are down to low 40s, like 42%, 43% on the marginal front. So actually slightly below the policy rate. And because of the low loan-to-deposit ratios, I would assume and because of also the growth -- loan growth gap, we may expect that the marginal deposit rates may evolve going forward to be slightly below the policy rates throughout the year.

With regard to the mortgage exposure and refinancing risk, actually, when we build this -- when we have actually increased this book, surely, we are using the interest rate curve for pricing these loans. And therefore, actually, these loans have not been priced at mid-40s, high 30s levels, but rather at mid-30s level. So therefore, actually, considering the rate -- policy rate outlook, we don't expect immediate risk repricing risk for the mortgage book for '25. I hope I was able to answer all your questions.

[Kamile Ebru GÜVENIR, executive]

And also, David, when you look at the past mortgages refinancing, the average refinancing is quite low, especially to carry this particular loan from one bank to the other has a lot of, obviously, operational, let's say, issues for the homeowner. And also, as Turker just mentioned, the interest rates also being lower. So that's why we do not expect like a significant refinancing of this particular loan.

[David Taranto, analyst]

Maybe one follow-up on the NIM. So if the exit NIM expectation is around 6%, and we will probably have further rate cuts in 2026, I know it's too early, but would it be fair to expect further NIM expansion next year?

[Türker Tunali, executive]

Maybe at the beginning of the year, yes. But -- okay, actually, what we have successfully increased our actually duration of our loan book to around 1 year. So therefore, actually, for some time, it will like be a cushion for us. But after a while, also with the repricing of the loan book, so we may expect a normalization in the NIM trajectory. So maybe it also depends on the rate cut outlook, but maybe like still we may see some additional NIM expansion into '26, but this improve may be a bit more marginal. But after a while, we may expect a normalization in NIM.

[Kamile Ebru GÜVENIR, executive]

Okay. There are actually 2 written questions, and they're both regarding our plans for the Eurobond market issuance. What I can say is that we have around $3.5 billion worth of redemptions this year. And obviously, as you know, the bank tries to always extend the maturities in a more -- make the maturity profile basically in a more balanced matter. So looking at this year, depending on the spread, we may also be in the market in different instruments. But right now, there's nothing that I can really share with you. But as I said, around $3.5 billion and extension of the maturities is something that is on our agenda.

The next question comes in from Simon Nellis.

[Simon Nellis, analyst]

Yes, I guess just back on the margin. One of your competitors reported yesterday, they're looking for 300 basis points of margin expansion from a higher level than you achieved last year. Just wondering how much conservatism is in your margin expansion expectations? And why aren't you looking for a bit higher margin expansion this year?

[Türker Tunali, executive]

Simon, again, this is Turker. Actually, when we made prepared guidance and our budget, actually, we kept existing macro prudential measures like unchanged, like high reserve requirements, like existing interest payments to the TL side and no interest to the FX side. So potential is on that front, maybe like more supportive. And as you know, there are so many like parts moving. So that's actually how it will evolve. But I think for the time being, I think so our NIM guidance is a good reference to start with.

[Kamile Ebru GÜVENIR, executive]

Okay. A few -- okay, Mehmet Sevim from JPMorgan.

[Mehmet Sevim, analyst]

I just had one follow-up question on the NIMs. And specifically, could you give us maybe some more color on the development of NIM in the first month of the year so far? I was just trying to understand if the evolution so far is in line with what you were initially expecting amid lower rates? Or do you see trends that are different now, particularly, for example, in terms of the deposit costs?

And Turker Bey, you mentioned deposit -- marginal deposit rates to be slightly below the policy rates throughout the year. I'm just wondering if there are any risks on maybe the regulatory front that at some point, if rates fall too much on the deposit side, there could be some sort of intervention or so that could change the picture? And do you see any such risks? And similarly, maybe connected to this, if you think about what happened in the second half of 2024 in terms of the new regulatory measures, how do you think are the banks this year aligned with the Central Bank's thinking or the government authorities thinking? Do you see any risks that may come that would negatively surprise when it comes to the evolution of NIM?

[Türker Tunali, executive]

Mehmet, start into the year on the NIM front actually is similar to the level actually we have exited fourth quarter at the beginning of the year. On the spread side, so loan-to-deposit spread side, surely, it is evolving like much better. But just to keep in mind, so like still there are like some areas which are like in terms of net interest income generation. So on the negative side, like we are roughly 15% of our TL assets are had at the Central Bank where the cost of funding is like 10%, 15% higher than the remuneration we are getting. On top of it, on the securities side in short term, still there is some negative carry, but where in long term, there's a very strong prospect for us. where we are already like built the fixed rate part significantly towards the end of the year. So therefore, actually deals will be NIM supportive going forward with rates coming down.

With regard to deposit evolution, I hear what you are saying. But with the existing levels like still like low 40s and maybe throughout the year, if we assume that the policy rates will be going down to 30% just towards the end of the year. And again, maybe the deposit rate will stay close to this policy rate. And when we also consider the expected inflation at that time, maybe evolving to maybe low 20s or even maybe levels below 20%. So I don't really think -- expect such a risk -- we don't see such risk very significant. And in terms of our like also communication with the Central Bank and like information exchange, there is really very open communication.

So therefore, actually -- so with regard to the macro prudential set, how it will evolve, we don't expect negative surprises. But surely, for instance, maybe just to consider the growth gaps, we don't expect that in the short term, these will be like e probably maybe in the first 6 months of the year and even maybe depending on the loan growth and like the reading of the Central Bank of the economic growth, they may still make some amendments in the growth gaps as they have done like 2, 3 weeks ago. But like in terms of actually, we don't see significant risks. That's what I can say.

[Cenk Gur, executive]

Yes. Maybe Mehmet, I would like to add some comments on that, giving more color. I would like to frame again the existing situation. All we know that inflation is on a down trend. So in the same time, we know that the tight monetary and macro prudential stance, along with the enhanced coordination with fiscal policy regarding administered prices and wages, those are expected to ensure the continuation of the disinflation. So at the end of the day, we have to expect that the rate cuts go hand-in-hand with the decline in annual inflation. And so the policy rate to remain above actual inflation throughout the year.

When you look at the KKM performances, and we believe in that this is lower 5% of the total deposits below $30 billion. It is a huge trend, diminishing trend there. So KKM is set to be determined soon. So I think most probably by the midyear, those are really under control and very strong coordination among the regulators. So this is very transparent coordination and information among us. So I totally agree with Turker's comments on that. Thank you.

[Kamile Ebru GÜVENIR, executive]

And the next question comes from [indiscernible].

[Unknown Analyst]

I have 2 questions. The first one is on the number of branches versus the number of employee side. As far as I get the number from the union, since the end of 2021, the number of branches in net terms declined by 17, but the number of staff expanded by almost 600. Would you please a little bit give some color what has been changing in such a digital environment, why you need additional people?

My second question is on the net interest margin front. If we assume that some liquidity relaxation comes, for instance, the loan caps removed, should we foresee a lower than expected margin because of the competition and the higher net income -- the net interest income? Or what's your view on that?

[Türker Tunali, executive]

In terms of the number of branches, actually, we are already like at a very optimum level. Surely, time to time, like we are making some changes in the locations of the branches therefore, actually time to time, we may temporarily reduce the number of branches. So as of cutoff date and also time to time also because of the unfortunate earthquake of 2 years ago, there are also like decisions we have made like to, again, to rebuild the branch or again, to change the location of the branch. So actually, that's the main reason like for this change.

With regard to the actually number of employees on the solar base actually, we are almost at a similar level, but also we have some subsidiaries where we are some small slight increases. But other than that, actually, there isn't any strategic change in the way we are looking actually, like we will always keep this optimum level of the resources of Akbank.

[Cenk Gur, executive]

Yes. Actually, location-wise, S, we are really very closely monitoring the potential of where we located. So there are some shifts, and then we are following that trend. So it is a way of optimizing our network. But in terms of the employee numbers, actually, we are almost the same throughout the year. So I agree with the comments from Turker Bey.

[Türker Tunali, executive]

And actually also [indiscernible], actually, maybe we can also check afterwards the sortcia, but also when you look at our consolidated disclosures, actually, you will see that the number of employees of Akbank has just on consolidated basis rising by just '27.

[Kamile Ebru GÜVENIR, executive]

Okay. And if the loan growth caps are removed, the impact on NIM.

[Türker Tunali, executive]

Actually, it will depend on the demand side because at the existing interest rate levels, we've also seen that also -- at least towards the end of year, also the customers have not like created a significant demand. So therefore, actually, maybe this has also impacted the yield evolution last year. There are time to time like we were not able to price the loans at the levels which we would actually desire, especially on the short-term side, like in a scenario where the caps are like even or maybe fully deleted, depending on the demand, it maybe with a slightly positive for yield improvement, but really, we have to see like how the demand also will evolve going forward.

[Kamile Ebru GÜVENIR, executive]

And the next question comes from John [indiscernible].

[Unknown Analyst]

My question is on costs as well. And if you look at the real growth in the cost between 2021 and 2024, it was 27%. And this year, it appears that the cost will grow maybe at a 15% clip in real terms again. So I was just wondering when this cost pressure will abate. I mean it does feel like it's never ending. And I guess the -- it's -- I mean, the ROE this year, we say it's going to be above inflation, but it's also an exceptional year in terms of the margin, right? So when the margin normalizes, perhaps it will still be challenging with this cost base to beat inflation. Is that a fair thing to say? I don't know, but happy to hear your thoughts.

[Türker Tunali, executive]

Actually, last 2, 3 years, actually, it's probably also difficult for the whole sector, maybe not only for banks by bit, maybe for all companies to like to manage the OpEx side because we have surely like a significant number of contracts with our contractors, service providers, also on the IT side. Not to forget, there was not only the inflation in Turkey, but also globally, like because we also have some IT expenditures, which are dollar-based. So therefore, actually, in the last 2, 3 years, the whole sector actually has seen this cost pressure like where the cost evolution -- OpEx evolution was maybe time to time above the 12-month actual inflation levels.

But I think going forward with the normalization of like inflation and maybe also with the inflation expectations, maybe not immediately this year, but starting from next year, I would assume that the OpEx growth will converge to the inflation expectations maybe in 2, maybe maximum 3 years' time. But unfortunately, in the last 2 years, so we've seen such a temporary change. But as you may recall, in the past, where the inflation was more stable at 10% levels, actually, we didn't have such an issue. And also maybe on top of Turkey's inflation like easing inflation path, also this inflation path globally.

So I think starting from maybe next year onwards, we will see some easing, which we have actually already started to see maybe because in the renewal of some contracts, we are already observing that some of the increases are like below the interest rate inflation. But for some of them, it is still at inflation level. So still this -- we are still in this transition phase.

[Kamile Ebru GÜVENIR, executive]

Thank you. As I can see, there are no further questions. Before handing the floor to Kaan Bey for the final closing remarks, I'd like to just say thank you for joining us today. And if you have any further questions, please feel free to reach out to our Investor Relations team. We're always happy to help. We look forward to meeting and updating you on our progress during the year. And now Kaan Bey, the floor is yours for closing remarks.

[Cenk Gur, executive]

Thanks a lot, Ebru, and Turker. Dear friends, actually, thanks again. I believe in that together as a one team, we will continue to build a future of resilience, innovation and success. Thanks you once again for being an integral part of this journey. I look forward to personally meeting many of you throughout the year. Again, wishing you all a happy New Year. Thanks a lot having with us today. Thank you.

[Kamile Ebru GÜVENIR, executive]

Thank you. Bye-bye.