Q2 2026 Halyk Bank Joint Stock Co Earnings Call
Speaker #1: Deputy CEO of Finance Subsidiaries Compliance and International Activities, Mr. Dorian Sartag, First Deputy CEO, B2B Banking Marketing PR and Acquiring, and Transactional Banking; Ms. Olga Vurus, Deputy CEO, Corporate Banking; Mr. Nariman Mukhurshid, Deputy CEO, GR GovTech and Ecosystem; Mr. Mikhail Hassen, Deputy CEO, IT; Mr. Kirill Bacharov, Deputy CEO, B2C Banking; Mr. Almas Mohanov, Financial Director; Mr. Viktor Skril, Strategy Director; and Mr. Rustam Telesh from IR team.
Speaker #1: The session will start with a presentation by our team, and we'll be followed by a Q&A plan, and please note that the call is being recorded.
Speaker #1: Let me start with our B2C business update. The first half of 2026 continued to demonstrate strong engagement across the Halyk Super App Ecosystem, with transaction activity growing at a healthy pace.
Speaker #1: As the 1st of July, monthly active users reached 8.6 million, while daily active users stood at 2.8 million. Monthly transacting users reached 6.1 million, and our active client base stood at 11.5 million.
Speaker #1: The scale of customer engagement is also reflected in transaction activity. During the first half of 2026, the number of payments and transfers increased by 8.1% year-on-year to 234.7 million.
Speaker #1: While transaction volumes grew by 14.1% to 10.5 trillion tenge, we also maintained a strong position in our core customer segment, with active salary cards representing 39.3% of the country's employed population.
Speaker #1: Overall, the first half performance demonstrated continued engagement with the Halyk Ecosystem and the scalability of our digital platform. Turning to our retail lending business now.
Speaker #1: The retail gross loan book reached 4.8 trillion tenge as of 1st of July 2026, which is up 10.7% year-on-year. From an asset quality perspective, the NPL 90-day supplies ratio stood at 9.2%, with coverage at 81%.
Speaker #1: Loan issuance in the second quarter amounted to 730 billion tenge, up 16.8% year-on-year, demonstrating a recovery in registration and in origination activity following the regulatory tightening impact seen earlier in the year.
Speaker #1: We continue to maintain a strong market position, with 17.8% market share serving approximately 1.83 million borrowers. Digital channels remain a key part of our distribution model, with 88% of loans issued digitally by number.
Speaker #1: Now turning to retail deposits. Our retail deposit portfolio reached 8.3 trillion tenge as of the 1st of July, increasing by 10.5% year-on-year. We maintained a strong market position, with 26.9% market share while tenge denominated deposits accounted for 75% of the portfolio, supporting the stability of our funding base.
Speaker #1: Digital adoption remained strong, with 95% of new deposits opened digitally. The combination of a large and growing deposit base—strong digital adoption and a high share of local currency funding—continues to support the resilience of our retail funding franchise.
Speaker #1: Now let me turn to our B2B Ecosystem. Online Duchenne continues to scale rapidly, strengthening the connection between merchants, distributors, and Halyk's retail customer ecosystem.
Speaker #1: Quarterly GMV increased strongly, reaching 68.9 billion tenge in the second quarter, which is up 35.6% year-on-year. The number of connected stores reached 18,800, representing approximately 2.8 times the level of the second quarter of 2025.
Speaker #1: This continued expansion strengthened the network effect between merchants, suppliers, and Halyk customers, and creates additional opportunities to increase the share of Halyk payments within the merchant ecosystem.
Speaker #1: Online Duchenne is therefore becoming an increasingly important component of our broader B2B and transactional banking proposition. Let me now turn to the performance of our online bank platform.
Speaker #1: We continue to maintain our leading position in B2B digital banking in Kazakhstan, and as of the 1st of July, monthly active users reached approximately 317,000, while daily active users stood at 145,000.
Speaker #1: Monthly transacting users reached approximately 232,000. The platform continued to demonstrate healthy growth in transactional activity, during the first half of the year the number of KZT payments increased by 10% year-on-year to 29.4 million, while transaction volumes increased by 25% to 89.6 trillion tenge.
Speaker #1: In the second quarter, payment volumes also remained strong, increasing by 23% year-on-year. Next slide, please. Now turning to our corporate lending business. The gross corporate loan portfolio reached 6.8 trillion tenge as of 1st of July, increasing by 11.3% year-on-year.
Speaker #1: The portfolio remains well diversified across industries, with no single sector representing a dominant concentration. This diversification continues to be an important strength of our corporate franchise, and supports overall portfolio resilience and risk management.
Speaker #1: Local currency loans represented 54.7% of the corporate portfolio. Next slide, please. Turning to our corporate business performance now. We continue to maintain strong relationships with our corporate clients, serving approximately 3,000 active clients, and product presentation remains quite high, with an average of 4.5 products per client, while the total quarterly number of transactions reached approximately 3 million.
Speaker #1: Our borrower base also demonstrates a high level of engagement, with an average of 5.9 products per borrower. We continue to maintain our leading position in corporate banking, with 86% penetration among Kazakhstan's largest taxpayers, a 47.6% share of loans to legal entities, and 31% share of deposits of legal entities.
Speaker #1: Asset quality remains strong, with the NPL 90-day plus ratio at 2.6% and coverage at 122.6%. Now turning to our SME business. The SME segment continued to be one of the key growth areas of the bank during the first half of 2026.
Speaker #1: The SME gross loan portfolio reached 2.4 trillion tenge as of 1st of July, increasing by 24.7% year-on-year. Loan issuance also remained very strong, increasing by 23.7% year-on-year during the first half, while second quarter issuance grew by 19.8%.
Speaker #1: Digital lending continues to be an important growth driver here. And the digital loan portfolio for legal entities reached 413 billion tenge, representing an increase of almost 52% year-on-year and 20.4% growth compared with the beginning of the year.
Speaker #1: Now turning to portfolio quality and client activity in the SME segment. Asset quality was strong, with the NPL 90-day plus ratio at 5% and coverage at 105.8%.
Speaker #1: At the same time, client engagement remains high. Our SME customers use an average of 2.7 bank products per active client, while monthly transaction activity reached 5.2 million transactions with a total monthly transaction volume of 16.3 trillion tenge.
Speaker #1: Digitalization remained a key feature of our SME franchise, with 93% of loans issued digitally by account. Taken together, this segment dynamics demonstrate the continued strength of SME business and its role in the bank's broader digital ecosystem.
Speaker #1: Now let me hand over the call to my colleague from IR team, Rustam Talish. Thank you.
Speaker #2: Thank you, Mira, and good day, everyone. Now we will take you through the financial results for the first half and second quarter of 2026.
Speaker #2: Here you can see the decomposition of the net income in the first half of 2026 versus the first half of 2025. Net income for the first half of 2026 is down 15.3% year-on-year due to the impact of increased minimum reserve requirements tighter regulations in retail lending, and increased average interest rates on amounts due to customers emit flat average interest rate on loans.
Speaker #2: At the same time, net interest income showed positive growth of 2.6% despite the pressure from minimum reserve requirements and tighter regulations in retail lending.
Speaker #2: Let me briefly highlight key balance sheet trends. Total assets of the group increased by 5.4% year-to-date. Average total interest earning assets in the first half of 2026 grew by 6.2%, while average total earning per liabilities grew by 7.9%.
Speaker #2: Total deposits to total liabilities ratio was at the level of 80.8%. As of the end of the first half of 2026, total equity of the bank increased by 5.1% compared to the year-end 2025, due to the net profit earned.
Speaker #2: Loans to deposit ratio was at the level of 89.2%. Interest income for the first half of 2026 was up 12.2% versus the first half of 2025, mainly due to increase of average balance loans to customers.
Speaker #2: Interest expense for the first half of 2026 increased by 21.6% versus the first half of 2025, mainly as a result of the increase in average interest rate and balances of amounts due to customers as well as the growth in the share of tenge amounts due to customers.
Speaker #2: Consequently, net interest income for the first half of 2026 grew by 2.6% versus the first half of 2025. Net interest margin decreased by 6.8% for the first half of 2026 compared to 7.3% for the first half of 2025, due to the introduction of new minimum reserve requirements coefficients.
Speaker #2: NIM adjusted for the effect of tightened minimum reserve requirements would be 7.2%. Net fee and commission income for the first half of 2026 decreased by 19.6% versus the first half of 2025, mainly due to negative dynamics of BNPL transactional income emit tighter underwriting resulting from regulatory changes.
Speaker #2: As well as the gradual path through of VAT on certain banking services to clients. At the same time, net fee and commission income for the second quarter of 2026 increased by 18.4% versus the first quarter of 2026.
Speaker #2: Here is an overview of operating expenses, which increased by 5.5% versus the first half of 2025, mainly due to the indexation of salaries and other employee benefits, as well as IT development-related costs and increase in VAT.
Speaker #2: The cost-to-income ratio increased to 19.2% compared to 17.2% for the first half of 2025, emit lower operating income in the first half of 2026.
Speaker #2: Year-on-year loans to customers increased by 13.2% on a gross basis and by 13% on a net basis. Compared with the end of the first quarter of 2026, loans to customers were up 4.1% on a gross basis and 4% on a net basis.
Speaker #2: The share of tenge loans to total net loans was at the level of 74.3%. Expected credit losses are in line with. This full-year cost of risk in the first half of 2026 was at the normalized level of 1.4%.
Speaker #2: Stage III loans increased to 8.6% as of the end of the first half of 2026, as a result of continuing moratorium on the sale of probable retail loans to collector agencies, as well as a lower retail loan portfolio growth.
Speaker #2: On a year-on-year basis, deposit of individuals increased by 10.5%, while deposit of legal entities increased by 5.4%. Compared with the year-end of 2025, deposit of individuals were up 3.8% and deposit of legal entities were up 3.6%, with total deposits up 3.7% year-to-date.
Speaker #2: As of the end of the first half of 2026, the share of total retail tenge deposits was 75%, while for legal entities it was 67%.
Speaker #2: Capital adequacy ratio of the bank decreased in the second quarter of 2026 due to the dividend payments. RWA increased by 3.2% year-to-date. As of the end of the first half of 2026, RWA density stood at 89% compared to 87% at the end of the first quarter of 2026.
Speaker #2: Based on our six-month financial results, we have updated the outlook for the full year of 2026. Retail net loan portfolio growth is expected to be in the area between 8% to 10%.
Speaker #2: Corporate and SME net loan portfolio growth is expected to be in the area between 10% to 13%. Total net loan portfolio growth is expected to be in the area between 9% to 12%.
Speaker #2: Net fee and commission income is expected to increase by 10%. Cost of risk is projected to be in the area of 1.5%. Consolidated net income is expected to be in the area of 1 trillion tenge.
Speaker #2: Return on average equity is expected to be in the area of 29%. Net interest margin is estimated to be in the area of 6.8%, and cost-to-income ratio is projected to be in the range of 18% to 20%.
Speaker #2: Dear ladies and gentlemen, that's a look through the financials. We will now open the floor for your questions. Just a quick instruction: to state your question, you can raise your hand in the Zoom, or if you join via cell phone, please press star 9 to raise your hand.
Speaker #2: You can also enter your question in the written form via chat. While stating your question, please also mention your name and company. And the next question comes from Ian Ian, please go ahead.
Speaker #1: Hi, hi guys. Thanks for sending things, Mira, for the presentation. It's Ian's Ian Mackie from Cavendish. Two questions from my side, if that's all right.
Speaker #1: Firstly, just on the NIM and sort of the structural earnings power there, I appreciate we've seen an impact from the higher minimum reserve requirements of, I think it was 40 or basis points or so.
Speaker #1: But just looking beyond that mechanical effect, how should we think about the underlying margin given sort of what you see in terms of deposit repricing and the current competitive environment?
Speaker #1: I appreciate you reiterated the guidance of in the area of 6.8%. How should we think about that going forward? Is that 6.8% a level that you think is sustainable?
Speaker #1: And then secondly, just on net fee and commission income, I appreciate sort of the year-to-date trends and some of the recovery in the second quarter.
Speaker #1: If we separate the impact we've seen from the BNPL regulation and the VAT from the underlying trends, so what do you see in terms of underlying transaction activity and customer monetization trends?
Speaker #1: And yeah, where do you think the run rate could go once we've really absorbed these regulatory changes? Thank you.
Speaker #2: Ian, thank you very much for your questions. Regarding the net interest margin, I would say there were two reasons which were driving NIM recently.
Speaker #2: One is indeed the impact from higher minimum reserve requirements, and we actually provided how the net interest margin would look like in the absence of increase in minimum reserve requirements, which actually happens in two stages.
Speaker #2: One, September last year, and the second one, mid of April this year. So actually, in the absence of this increases, the net interest margin would be standing at 7.2%.
Speaker #2: Another trend which was influencing the net interest margin was increase in deposit rates in tenge for retail clients, where you saw that sector-wise during last year, especially in the second half of last year, we've stabilization of the rates and the cycle of base rate decreases, which was started by the National Bank this year.
Speaker #2: We saw not only the stabilization, we see that some banks start gradually reducing the rates including us among some few banks. It's not, let's say, the widespread reduction yet, but this is, I would say, the early signs that the rates on retail deposit might follow the world trend in rates reduction.
Speaker #2: Regarding the net fees and commission, we were pointing during the Q1 a couple of reasons which was influencing decrease in net fees and commission.
Speaker #2: One was the introduction of VAT or some of the banking services, particular so-called documentary business, which would include guarantees and LCs, which was issued and for us it required in some cases three negotiation, in some cases the incorporation of VAT with new instruments, which would be issued.
Speaker #2: And secondly, the regulatory tightening as well as our more cautious approach for some e-commerce-related financing, specifically BNPL, and you'll see in the presentation this presentation as well as the presentation of the first quarter, where we saw that where we were showing that share of BNPL was decreasing as a part of our retail portfolio.
Speaker #2: Apart from that, as you see from the presentation, we see strong underlying business. The number of transaction and the volume of transaction continue to increase both on retail as well as on B2B segments.
Speaker #2: So for us, it means that the client activity remains robust. And once the impact of the mentioned items would start fading out, I think we might come to a level of increase in fees and commission, which we saw in periods before we saw this disruption.
Speaker #2: Saying that, we see quite tight competition. On the transactional banking, specifically on retail parts, but that part of the business and irrespective of that, I think we should be able to come to the positive result on the fees and commission starting from the next year.
Speaker #1: That is very clear. Thank you, Maura.
Speaker #2: And probably I will add, you rightly pointed that in the second quarter we already see a turnaround. Why we're still showing the negative guidance for the full year because the result of the first quarter was strong.
Speaker #2: Strongly negative and we think that where we'll be able to start reversing that as it was witnessed in the second quarter. That will not be enough in order to compensate the impact of the Q1.
Speaker #1: Super. Thank you.
Speaker #2: And the next question comes from Bernhard Koller. Bernhard, please go ahead. Hello? Bernhard, do you hear? And the next question comes from Miloš Paps.
Speaker #2: Miloš, please go ahead.
Speaker #3: Yes, hi. Thank you for the presentation, taking my questions. I have three if I may. Firstly, can we maybe talk us through the reasons for the somewhat weaker net interest income in the second quarter?
Speaker #3: In particular, the spike in the net finance insurance expense. Then secondly, maybe you can also give us some background to the strong sequential growth in deposits in Q2.
Speaker #3: Then finally, on in terms of your guidance for retail loan growth, it applies a pickup in the second half of the year is it because you see an improving credit quality across the retail market?
Speaker #3: Maybe partly driven by the reduction in interest rates. Or any other factors that would be helpful. Thank you.
Speaker #2: Miloš, thank you for your question. We were mentioning during the first quarter call that on insurance income, there are a few items which was impacting.
Speaker #2: One specifically was higher loss ratio on one of the products related. It's mandatory, so we cannot not to accept that related to auto loans.
Speaker #2: And a couple of items which was influencing that result. One thing is inflation. So actually cost of covering cases when there was insurance case was is triggered became higher.
Speaker #2: But tariffs revision is lagging, so we hope that in the second half of this year the tariffs would be revised and the profitability start improving on that product.
Speaker #2: Secondly, on the on other line on insurance expenses, that is partially related to increase in certain premier on certain product last year. Which was translated in some higher payments on the claims.
Speaker #2: And third one related to net finance insurance expenses one thing related to some revision of insurance liability assessment. So we think that is having mostly one-off effect.
Speaker #2: And secondly, it's related to increase in certain annuity related products. Where the accrual on the liability is accounted in the insurance expenses portion. But the profitability side is actually sitting in the interest income side.
Speaker #2: So it's not visible in, let's say, the particular insurance lines, but it's visible in the interest income side. So I hope that probably explains the dynamics on insurance side.
Speaker #2: I missed your second question if you would repeat that.
Speaker #3: Yes, sure, of course. So I was wondering if you could give us some background for the quite strong sequential growth in deposits in the second quarter specifically compared to Q1.
Speaker #2: I think we saw increase both in the corporate in retail portion. On I think it's broad-based. It's probably difficult to point out any specific one particular specific reason in why it's related.
Speaker #2: So probably we might see some slowdown in growth in the second half, but indeed it's a sector-wise. It's not specifically related to Halyk. We saw similar increase sector-wise.
Speaker #2: Regarding retail loan increase, I think there are a couple of reasons for that. First of all, during a number of previous quarters we saw slowdown in retail loan growth.
Speaker #2: That means that we now seeing some stabilization in the base. And when we see that it became a bit easier to start growing back.
Speaker #2: And because during the previous quarters we saw that the market share of Halyk in retail lending was decreasing. I think we just start gradually going back to the market share which we had 12 to 24 months ago.
Speaker #2: This is reason number one. Secondly, if you see we start increasing more secured portfolio specifically auto loans. That was the second reason.
Speaker #3: Excellent. Thank you.
Speaker #2: And the next question comes from Will Kelly. Will, please go ahead.
Speaker #1: Hi. I was Will Kelly from Tora Capital. Thanks for the call. I just wanted to ask we track the monthly figures that are reported to the NBK.
Speaker #1: And I know these are bank-only figures, but there was a pretty significant divergence between these numbers and what you reported this quarter that I haven't really seen before.
Speaker #1: Could you describe what might have contributed to that? I mean, it seems like it might have been a weaker insurance and non-interest income result, things that are outside of the bank-only numbers.
Speaker #1: Is that correct?
Speaker #2: Yeah, Will. Thanks for the question. Yeah, I can probably repeat what I told as a response to one of the previous questions. That we saw some weaker results in the insurance income.
Speaker #2: This is because of the high loss ratio on one of the product related to auto insurance. And second is related to some I would call it model revision in terms of the assessment of insurance liabilities.
Speaker #2: So that is probably a couple of reasons which might explain the difference between consolidated and solar results.
Speaker #1: Understood. Thank you.
Speaker #3: And the next question comes from Simon Kitchen. Simon, please go ahead.
Speaker #4: Thank you. This is Simon from Emerging Frontier Capital. There was something where the National Bank, Central Bank has been talking in recent comments about the difficulty for them of predicting an inflation path because of fiscal and quasi-fiscal stimulus.
Speaker #4: And in the last comment they put out, they said that there had been an agreement between the National Bank and the government and Beta Rec Holdings on the scope of this quasi-fiscal stimulus.
Speaker #4: So I've got a question in two parts. One is how, if at all, has that quasi-fiscal stimulus you've seen, how has that affected Halyk in the past six months?
Speaker #4: And the second question is how has this how will this agreement between these various authorities how will that affect this quasi-fiscal stimulus in future on what does that mean for loan growth, for fee and commission income in future?
Speaker #2: Simon, thank you for your question. I would probably start answering that question probably by providing comments what was the reason for inflation decrease. Partially, it's was also reflected by the National Bank, but also it's to some extent is shared by our economist.
Speaker #2: So basically, the continuation of relatively tight monetary condition is one of the reason. Secondly, the strengthening of tinge because part of inflation in previous periods was considered as an imported because of some tinge weakening.
Speaker #2: The third reason which the National Bank is highlighting is actually stabilization of consumer demand. In previous periods, also Central Bank was pointing to high increase in consumer loans as one of the reason why consumer inflation was staying high.
Speaker #2: And because of the recent cooling on the consumer lending, they also pointing that that now becoming one of the factor of inflation deceleration. And the fourth elements is monetarium, which was agreed last year between National Bank and the governments.
Speaker #2: The monetarium on tariffs increase and regulated prices increase. Basically, it's related to utilities prices as well as the prices on petrol. Despite the fact that indeed the Central Bank made decrease in base rates already during two meetings, they pointing that in the second half they potentially might see certain vulnerabilities.
Speaker #2: And indeed they are pointing that it's a bit unclear in terms of what the government would be doing in terms of previously imposed moratorium on the regulated tariffs.
Speaker #2: So this is reason number one. And secondly, indeed we also saw this comments from the National Bank which says that they came to certain agreement with the government, particularly with Beta Rec in terms of how the previous plans of Beta Rec might be revised in order not to put additional pressure on the inflation side.
Speaker #2: One thing. And secondly, without unnecessarily stepping into sphere of the commercial banks. What we understand is that first of all, they say that they will not be touching loans which is mostly considered medium-sized loans like below 15 billion tinge.
Speaker #2: And secondly, trying to limit financing from Beta Rec, which would also include the development bank of Kazakhstan, to larger projects infrastructure related ones. We actually see that the plans of Beta Rec is not too much affecting us.
Speaker #2: We see quite strong pipeline on our large corporate space. We also saw quite strong dynamics of our SME business in the second quarter. So we think that that is enough in order to reconfirm our guidance for the full year in terms of the long portfolio growth.
Speaker #4: Thank you.
Speaker #3: And the next questions come from Dan Mihailov. Dan, please go ahead.
Speaker #5: Hello. This is Dan from Vergent. Congratulations on the results. Just one quick question from me. Given that this year obviously contains a few one-offs that are distorting the underlying performance of the bank, the minimum reserve requirements as well as microprudential measures on the consumer side.
Speaker #5: How should we think about the dividend for 2026? Should we think of it as being the usual sort of 60% dividend payout ratio? Would you consider having a higher dividend payout ratio to reflect the underlying profitability as opposed to the 1 trillion tenge that we'll see on the headline basis?
Speaker #2: Dan, thank you for your question. Indeed, we see that specifically to a certain extent the third quarter as well as second quarter had some one-offs.
Speaker #2: Which probably do not fully correlate with underlying business and clients activity, which we see. We expect we already saw actually larger long portfolio growth in the second quarter.
Speaker #2: I think we remain optimistic regarding the second half results. So we think that capital would be needed to support our growth going forward. Saying that we also probably as a matter of showing our I would say confidence in the banking results, probably decided to bring the second dividend payment slightly upfront.
Speaker #2: Because last year we did that a bit later into the year. So this time we are making that in the third quarter. Of course, subject to shareholder decision.
Speaker #2: Shareholder's decision.
Speaker #5: Claire, but for next year, we can would you say we can fairly comfortably assume that the payout ratios from the previous years would continue given the strong capital generation?
Speaker #5: Anywhere between 50 to 60% dividend payout ratio?
Speaker #2: Of course, I cannot say with certainty whether it will be, let's say, 50, 55 or 60 or some other figure. Because it's subject to recommendation from board of directors and then subject to decision on the general shareholders meeting.
Speaker #2: But we as the management looking still at strong profitability of the bank. We see the strong capital position of the bank. And even with continuation of growth, which we at least see until this year ends and hopefully would continue to see into the next year, it's still gives us, I think, belief that we would be striving to stick to the dividend policy.
Speaker #2: Which actually says the dividend payout 50% plus.
Speaker #5: Thank you so much.
Speaker #3: And the next question comes from Simon Dellis. Simon, please go ahead.
Speaker #6: Oh, hi. Thanks for the opportunity. Yeah, my question would be just on fees. You're guarding for 10% down now. But that would still mean that you're looking for around 30% growth in the second half versus the first half.
Speaker #6: So I'd be interested in knowing where you're so optimistic about a recovery in fees. Where is it coming from? And then I guess a related question is, you change your fee guidance quite substantially.
Speaker #6: It's like a 25, I think, billion tenge drag. But you're reiterating your trillion earnings guidance. So where do you expect to make up the difference?
Speaker #6: Thank you.
Speaker #5: Yeah, thanks for your question, Simon. We already saw increase in the second quarter compared to the first quarter. And if you would look for last few years, actually, you would not see a big difference between second and third quarter.
Speaker #5: So that is probably one of the reasons why we think that the second half should be stronger. Because the second quarter already providing us some comfort.
Speaker #5: In terms of where we are looking that revival and what would be the reason, one is gradual revision with new instruments to be issued, which would already incorporate VAT.
Speaker #5: So that was one of the reason of the second quarter. And that would continue to influence into the second half. We see increasing clients activity.
Speaker #5: As the base. And we tactically revised fees on certain products.
Speaker #6: Which how large were those increases? And what percentage of your product suite did you increase pricing? If I may ask.
Speaker #5: We did some tactical for SME and for retail. It's a number of products. It's not probably high from the client perspective. Because that probably affecting some I would say mass products.
Speaker #5: But in terms of the volumes, it's adding some positive delta to fees and commission.
Speaker #6: And then maybe just one last one on fees. I mean, once these kind of one-offs clear, where do you think your fee growth returns to?
Speaker #6: Like on a normalized state?
Speaker #5: Of course, it's subject to competition. Because competition might also drive the tariffs up or down. If we assume that that would not be the factor which would be influencing fees and commission, we think that we can come to around 10% growth might be higher.
Speaker #5: But again, it's not the official guidance. I think it's better to wait until we provide the, let's say, more specific guidance. It's just estimation based on fees and commission traction, which we saw before 2026.
Speaker #6: Understood. Thank you very much. That's all from me.
Speaker #3: And the next question comes from Raman. Raman, please go ahead.
Speaker #7: Hello. Hi guys. Can you hear me?
Speaker #5: Yes, Raman.
Speaker #7: Great. Thank you for the presentation and for taking my questions. I just wanted to follow up on Simon's question. So I didn't understand clearly from your response about where the offsetting income would be coming from to offset the reduction in expected fees and commissions for the year.
Speaker #7: I'm a little surprised because it seems like if you're expecting 29% ROE for the full year and the first half realized outcome was around 25, it would suggest that the second half would be 30% plus?
Speaker #7: Is that right? I'm surprised that I guess the business performance would improve so dramatically half on half. I understand that there's some seasonality to that, but I would have thought that I guess the headwinds that you've absorbed both on net interest income and on fees in the first half is some extent would still continue to affect second half if you look at it year over year.
Speaker #7: But this looks like it would be quite a strong outcome for the second half based on what you're suggesting for the updated guidance. Maybe if you could just talk about that in a little more detail.
Speaker #7: Thank you.
Speaker #2: Raman, are you talking about the guidance for net income?
Speaker #7: Yeah. Yeah, that's correct.
Speaker #2: Yeah. First of all, we already see increase in loan portfolio. Particularly, we see quite good dynamic in retail and SME. Portfolio which already happens in the second quarter.
Speaker #2: So it's already good starting point in terms of start increasing our interest income. Secondly, as I mentioned before, today, we start seeing some early signs not only on stabilization of retail deposit, but some tactical decrease on some retail deposits.
Speaker #2: So further adding to net interest income dynamics in the second half. The third reason is the cycle of interest rate decreases, which is started by the National Bank.
Speaker #2: We saw also that the rates for some medium-term and longer instruments, specifically the government securities, also start decreasing. And that should lead to some mark-to-market changes, which also would be adding to net interest income.
Speaker #2: The third thing is net fees and commissions. As we discussed, we continue to expect strong results on our FX and dealing business. And the thirdly, some negatives which we saw on the insurance, we also expect it will be it will start reversing in the second half.
Speaker #2: And insurance portfolio if we talk about the asset side, specifically the investment portfolios, also should start generating some positive result because of the interest rate dynamic which I mentioned.
Speaker #2: And partially the portfolios was also affected by stronger TGA because some portion of investment portfolio of insurance companies their linked to US dollar. And the stabilization and the potentially some revision reversal of TGA appreciation might also add to positive interest rate return of our investment portfolio, investments portfolio.
Speaker #7: Okay. And maybe just to come back to the previous question about the difference in bank-only results reported by NBK and the IFRS consolidated figures you just reported.
Speaker #7: Can you just maybe quantify what the impact was from the insurance side? And were there any other factors aside from the insurance result that contributed to the difference between those two sets of numbers in this quarter?
Speaker #2: Yeah. Raman, I think that is probably the biggest I would say impact. During consolidation, there are some actually netting, but I don't think that they played a bigger role.
Speaker #2: So the biggest I would say it's results of insurance subsidies.
Speaker #7: Okay. Thank you guys.
Speaker #3: And the next question comes from Alex Vasiuk. Alex, please go ahead.
Speaker #5: Yes. Hello. Can you hear me?
Speaker #2: Yes.
Speaker #3: Please go ahead.
Speaker #5: Hello. Yeah. Yeah. Thank you guys. Alex Vasiuk from Prosperity. Just a quick follow-up on asset repricing and your net interest margin. If we exclude the impact of the minimum reserve requirements, look at the underlying rates, I'm just trying to figure out the asset liability repricing.
Speaker #5: And how are you positioned in this cycle? Because average loan yields have been remarkably stable. You show around 17.2 to 17.4% relatively stable. Rates over the last year?
Speaker #5: Against the deposit and overall funding cost moving higher. So my question is, what is really preventing the asset side from repricing more meaningfully over the last 12 months when the TGA interest rates were increasing in fact?
Speaker #5: Hello?
Speaker #2: Yeah. Yeah. Alex, thank you for your question. I think my microphone was muted. The main reason probably was slightly increase in dollar portion of the loan portfolio.
Speaker #2: And despite of strengthening of TGA, vis-à-vis US dollars, the portion of foreign currency loans actually increased. That's why the average rate on loans actually didn't change that much year over year basis.
Speaker #2: And on deposits portion, as I mentioned, there was some increase in retail deposits particular in the during 2025. And there was no change actually on the base rate during this period.
Speaker #2: The changes in the base rate is also is only happened during last couple of months. And we expect that start translating in some changes in the rates dynamic in the second half of this year.
Speaker #5: Okay.
Speaker #2: Probably less to the third quarter, but more pronounced in the fourth quarter.
Speaker #5: Yeah. And in terms of the outlook for over the next 12 months or so, let's say, I mean, your commentary suggests that you should be positively exposed to interest rate declines.
Speaker #5: Is that a correct interpretation? On a net basis.
Speaker #2: Yeah. Yeah. We were constantly saying that the bank has longer assets longer tenure on the asset side compared to liability side. And the reduction rates typically showing to quicker repricing of liabilities compared to the asset side.
Speaker #5: Okay. Thank you very much.
Speaker #3: And the next question comes from Bernhard Kohler. Bernhard, please go ahead.
Speaker #6: Hello. Can you hear me?
Speaker #5: Yes.
Speaker #6: Yes. Seems to be a problem because I have not any question or raised my hand. Maybe some technical problem.
Speaker #5: Oh, okay. Okay. No problem.
Speaker #6: Thank you. Good quarter.
Speaker #5: Thank you.
Speaker #3: And the next question comes from Simon Nellis. Simon, please go ahead.
Speaker #2: Hi. Yeah. Just a quick follow-up on the asset liability gap. What's the tenure? How long does it take before the lower rates actually start to negatively impact the margin?
Speaker #2: Because I guess initially you see liabilities repriced faster. But then that will stop and then the assets will reprice. And I guess the margin settles at a lower level.
Speaker #2: So just wondering how fast that process takes and yeah, what's your base case in terms of where you think you bought them in this cycle and where your margin bottoms?
Speaker #2: Thank you. Yeah. It's typically I would say lagging probably by around two quarters, sometimes three quarters depending on how the yield curve is reacting.
Speaker #2: So it's not like always the same reduction. But on average, it's probably two to three quarters. And where do you expect rates to bottom in the cycle or is that too difficult to know at this to call at this point?
Speaker #5: Well, if I read the let's say the monetary documents of the National Bank, they saying that the ultimate target on the inflation is 5%, I think by 2028.
Speaker #5: And in some other policy documents, they were saying that they want to have the real rate between 2 and 4%. So if that goes well through, at some point of time, we might see the base rate might go down as low as 9%.
Speaker #5: But it's probably the base case. But still, even if we say that realistically, the base rate might go down at least to 12%, it's already providing substantial roots downwards, which we have ahead of us during hopefully we'll have in front of us for the next two or three years.
Speaker #2: And if rates go to 12.
Speaker #5: But again, subject to that there is no let's say external factors, which is affecting and the anti-inflation measure, which is conducted by the National Bank with some coordination from the governments, would achieve its purpose.
Speaker #2: And if rates do go to 12 and then stay there for some time, what do you think is your natural margin? I know again, it's difficult given it depends on mix and other factors, but.
Speaker #5: Yeah. Yeah. It's a very difficult question because it's indeed depend on the mix of the portfolio.
Speaker #2: Okay. Thank you.
Speaker #3: And the next question comes from Anna Hari. Anna, please go ahead. Hello, Anna.
Speaker #5: We're not hearing.
Speaker #7: Sorry. Sorry about that. Thank you. Can you hear me now?
Speaker #3: Yes.
Speaker #7: Perfect. So can you give us more details on the dynamics of the BNPL activity? What were the reasons of the decline and how are you seeing the dynamics moving forward?
Speaker #7: Thank you.
Speaker #2: Anna, thank you for your question. I'll hand floor to Kirill Bachvarov. Who actually joined us earlier this year. As a head of retail, and Kirill previously was a CEO of Home Credit Banking Kazakhstan, very successful retail bank.
Speaker #2: So Kirill, this is your.
Speaker #5: Well, thank you for the question, Anna. This is actually a BNPL is my bread and butter. And I can assure you that the decision to downscale in the BNPL segment is by no means an exit strategic exit from the segment.
Speaker #5: It just reflects the risk adjusted return currently. So we looked at the risk, we priced it, and we decided not to take it because in our opinion, this segment actually this type product is writing relatively thinner margin into the households that both macro and the regulator has been pointing at in terms of, I would say, decreasing solvency.
Speaker #5: So this is why we strategically took the decision to scale collateralized loans, car loans, and mortgages. And we are ready to re-enter or I would say reactivate the BNPL market as soon as we see the intrinsic profitability return.
Speaker #7: All right. Thank you so much.
Speaker #3: And next questions come from the chat. Next two questions comes from Patrick Pastroling. Hello. Thank you for your presentation. I have two questions. There has been a significant reduction in the short-term deposit with National Bank of Kazakhstan in Tinge.
Speaker #3: Which has been mostly replaced with deposits with OECD-based banks. Denominated in foreign currency. Can you explain why you made this change? The second question.
Speaker #3: After the increase in NPLs over the past year, provision has remained almost flat and NPL coverage ratio has declined to historical lows, particularly in the retail portfolio.
Speaker #3: Could you explain why you remain confident in the current level of provisions and why you think that increasing the provision level is not necessary?
Speaker #5: Sure. Patrick, thank you for your question. The short-term deposits with National Bank of Kazakhstan was actually substituted with short-term NBK notes. When the period of decreasing base rate started.
Speaker #5: And increase of deposits with OECD banks actually international banks was due to inflow of USD liquidity from our corporate clients. Regarding your second question, yeah, in terms of NPLs, yeah, also Kirill would answer on this question.
Speaker #2: Well, I would say the short answer that forward-looking, this is the mix. The mix is moving toward better quality collateralized loans. Basically, we see the accumulation of NPL due to the fact that we are not able to sell the portfolios right now.
Speaker #2: But this is not reflecting the current reality of the loans that we take on book. We see the new vintages being of much better quality.
Speaker #2: And we assured them once the ban on selling loans has lifted, we will be able to very quickly normalize. But the intrinsic quality of the loans that we book right now, as well as, let's say, the shift towards higher collateral, requires structurally less coverage.
Speaker #2: So we believe we are adequately provisioned that reflects the current composition of the book and trend.
Speaker #3: Next question already answered. So we go to the question from Brett Verbitsky. In terms of credit quality, do you think that your NPL ratio has peaked in second quarter or do you think it will continue to rise?
Speaker #3: And what do you think is normalized NPL ratio in your B2C lending book B2C lending book absent recent regulation changes?
Speaker #5: Brett, yeah, yeah, thank you for your our question. I think Kirill provided the reason and I think in our materials also provide the reason why NPLs continue to climb.
Speaker #5: Just to reiterate, because we saw a lower retail growth in previous quarters. So the portfolio became more mature. And continuation of moratorium of sale of retail loans to the collectors.
Speaker #5: Saying that we also track the quality of retail portfolio through so-called cost of risk. Actually, when the lost provision runs through our P&L, for unsecured retail portfolio, that ratio actually remained fairly stable during the last few quarters at around 3%.
Speaker #5: So we don't expect that that ratio would going up. In a better credit cycle, we might see even some reduction. Of cost of risk on unsecured consumer lending.
Speaker #3: Next question comes from James O'Leary. If timing on dividend payments will be moved up, what is the outlook of for timing on that?
Speaker #5: Yeah, the results of general shareholder meeting is expected to be well, actually the voting counts is expected to be done this week. And in case of approval, the dividend payment would start as far as I remember the 7th of September.
Speaker #5: So it will depend on the how, let's say, the process will work including the brokers on the shareholder side.
Speaker #3: Seems that there are no questions left. Let's this completes our presentation. Thank you very much for your participation. As usual, our IR team remains open for any of your further questions.
