Kaspi.kz - Earnings Call - Q1 2025
May 12, 2025
Transcript
Operator (participant)
Welcome, everyone, to the Kaspi.kz First Quarter 2025 financial results. If you would like to ask a question and you have joined the call via Zoom, please press the raise hand icon on your screen. If you've joined us on the phone, please press star one on your Telepoint keypad. I will now hand you over to David Ferguson, Head of Investor Relations at Kaspi.kz, to begin. David, please go ahead.
David Ferguson (Managing Director and Head of Investor Relations)
Great. Thank you, Maxine. Good afternoon, good morning to everyone. Thanks a lot for joining us for our First Quarter 2025 financial results. I'm David Ferguson. I'm joined as usual by Mikheil Lomtadze, our CEO and co-founder, Yuri Didenko, and Tengiz Mosidze, our Deputy CEOs, sorry. Mikheil will take you through the strategic update. I'll run you through the operational performance in the First Quarter. I'll do that quickly and then spend a bit more time on the guidance for the remainder of the year. There's a couple of moving parts to discuss, and then we'll open up the call for Q&A. On that note, I'll hand it over to Mikheil. Mikheil, over to you. Thank you.
Mikheil Lomtadze (CEO)
Hello, everyone. Let's just go through our first year performance. In general, we had a good first year. The company itself, it's performing at the levels which we expected, broadly within our expectations. The payments, you know, will continue the strong growth. Revenues plus 16%, net income 21% of marketplace. In the First Quarter, growth grew 20% year over year, and the revenue 33%, net income 19%. The Fintech origination volumes grew 17%, 18% revenue, 8% net income. The monthly transactions have been strong, and we continue to have a very engaged consumer base and a revenue +21%, net income +16%. Overall, the company's underlying performance is probably within our expectations. It could have been better on the GMV side.
There was, requirements to register smartphones, which was introduced in Kazakhstan, and that had a quite significant, you know, temporary impact on the demand for smartphones. On the Fintech side, you know, we see the continuous high interest rate environment, which, again, will continue probably through this year. We are here also introducing higher interest new deposit products, which I will talk a bit as well. Next slide, David, please. The eGrocery, eGrocery, this is the business which we have started, one of, you know, the fastest growing business in our e-commerce. We continue scaling fast and expect to continue strong growth through the year. The active consumers reached almost 1 million. The GMV, 64% up year over year. The purchases are 66% up year over year with 3.3 million purchases in the first year.
As you know, we are operating in the three cities, three larger cities now, and we are planning to enter another two cities. The team continues to execute on the grocery, and you see the average ticket is very good, stable. Yeah, we just continue scaling across the country with, simultaneously, as you know, Kaspi is very good at continuously reforming operational side, but also, scale. We are entering the new cities to support the growth, and we expect eGrocery to continue scaling fast through the year. New term deposits that we have launched for consumers, those deposits are aiming at a higher interest rate. Our interest rate environment has been, you know, basically due to all sorts of factors which have nothing to do with Kaspi itself.
We are in the high-interest environment, and there is a demand for deposits, which on the one hand have high interest. On the other hand, those deposits are for sort of savings, where you can top up deposits basically any time, but the term of deposit is actually fixed to the three or six months. The deposits itself have been very successful on the market. As you can see, we went from basically nothing to 84,000 consumers and almost KZT 379 billion of those deposits. They are growing fast. There is a demand for those deposits, and therefore this product has been quite successful. We will be, you know, as you know, the strategy we have always had historically is those are the best consumers that are saving with you, and in the future, they are making purchases through all our other services.
Therefore, investing into the, acquiring the consumer deposits and the consumers with deposits has been part of our historical strategy always. Again, in the future, interest rates will go down, and therefore there is additional opportunity for the, you know, for profitability. At this stage, we are in the high-interest environment. Therefore, we're taking advantage of this as well. We have been going through the different deposit terms, upgrades. This is just a bit of a timeline for you guys to understand. For example, we did reduce the deposit in February of 2024, from 14% to 15%, but then in 2025, we do have a high-interest environment. We have introduced six-month maturity deposit at 17%. Then we have increased the rate on all our current deposits from 14% to 15%, and then we introduced the three-month maturity deposit at 18% interest rate.
The way that we work with our consumers, for example, when we introduce, when we increase the rate of the existing deposit from 14% to 15%, we reprice our entire portfolio. That is the way our products work, and we have been doing this consistently for, you know, as long as we had basically deposit products. That is something you should keep in mind. As soon as we increase the interest rate, we reprice our entire portfolio. When we went from 14% to 15%, we therefore repriced the existing portfolio of our Kaspi deposit. Now the fastest growing deposits are the ones which offer the higher interest rate of 18% and 17%. A couple of other things. We have raised Eurobonds. This is our first Eurobond, which we have successfully raised $650 million at 6.250%, which is due in 2030.
Again, this was for us, an opportunity to build a track record with fixed income investors. This is the first Euro, first Eurobond we have done. Yeah, considering our strategy for international expansion and investments in Türkiye more specifically, you know, it's good to be in a position of the financial strength. That's good to build a track record, but also specifically that transaction was successful in our Eurobond fundraising. We have also signed the agreement to acquire Rabobank. This is a fully licensed bank, which doesn't really have any customers and doesn't have a branch network. This enables us to, you know, continue developing a Fintech product in Türkiye. Also, our initial plan is that, you know, we'll invest roughly around $300 million in 2025 to fund our Fintech strategy in Türkiye.
David, I'm back to you just to go through the platforms.
David Ferguson (Managing Director and Head of Investor Relations)
Yeah, sure. Thank you, Mikheil. Firstly, on the payments platform, pretty straightforward. Decent volume growth of 17% year on year. Faster TPV growth of 23% year on year. That is a function of higher ticket size, higher inflation. All three of the core payment products are contributing to that: Kaspi Pay, bill payments, and B2B payments. With B2B payments growing and expected to continue growing at a faster rate than overall TPV. Take rate moves down to 1.13%. That is consistent with the trend over the last 12-18 months, and it is simply a function of mix change, namely B2B payments and Kaspi Pay QR growing in share within the mix. In terms of the financials, TPV growth with some yield compression results in 16% revenue growth versus 23% TPV growth. There is slower revenue growth on interest balances.
Average current account balances increased 8% year on year, but overall 16% is decent. As you have consistently seen with payments business, the combination of tight cost control and its inherent operational gearing ensures that strong top line drops through at a faster rate to the bottom line: 21% bottom line growth. Outlook for payments: highly predictable, healthy, and unchanged versus when we updated the market at the end of February. Moving on to marketplace. Marketplace remains the fastest growing top line platform. GMV growth of 20% year on year in the First Quarter, supported by purchases of over 36% year on year. E-commerce and e-grocery particularly playing the part. Actually, again, just like with the payments, all three services, e-commerce, m-commerce, and travel, are contributing to growth.
Take rate moves up, a continuation also of a theme you've seen over the last couple of years, driven by value-added services. Take rate accretion will ensure that fast GMV growth drops through to the revenue at a faster rate. Specifically on e-commerce, e-commerce increased 20%. E-commerce GMV increased 23% year on year on the back of purchases of 97% year on year. Grocery, the main driver of that growth, that high number of growth in purchases. As Mikheil talked about, however, in March of the year, the Kazakh government introduced requirements around the registration for smartphones imported into the country. A number of reasons for this, but one being to ensure the correct duties are paid by importers and merchants. What that meant is a sharp increase in prices on smartphones countrywide and a falloff in demand in the final month of the Quarter.
Smartphones are an important GMV category for e-commerce. They account for around 18% of e-commerce. We estimate the impact of the falloff in demand in March to be around 7 percentage points off growth. That 23% GMV growth would have been around 30%. You can expect this to remain a theme in the Second Quarter of the year. The good news is that this will be temporary. Once this is sort of worked through, demand for smartphones in Kazakhstan is not going to change. Actually, it is perfectly possible you see some catch-up effect in the second half of the year. Moving on to m-commerce. M-commerce also delivered decent growth, GMV of 17%. Take rate accretion in m-commerce is less than for e-commerce. E-commerce is the main beneficiary of value-added services, advertising, delivery, and classifieds.
E-commerce take rate moved up to 12.5%, 140 basis points. M-commerce take rate moved up 20 basis points. M-commerce growth also impacted by the slowdown in smartphone sales in March, but to a much lesser extent than e-commerce. Kaspi Travel continues to deliver good, healthy results. GMV of 22%. Strong growth across the board, but again, TORS, which we introduced around 12-18 months ago, delivering really decent GMV performance and now up to 11% of travel GMV from 0 just 18 months ago and driving the increase in take rate here. Take rate moves up to 5.3% from 4.5%. Further innovations planned in travel over the course of the year. In terms of the financials for marketplace, fast GMV growth, but with take rate expansion in all three platforms, translates into faster revenue growth of 33% year on year. That is versus the 20% GMV growth.
Profit growth is lower, and that again is consistent with trends over the last two years and is primarily a function of growth in e-Grocery. The other point to call out here is that going forward, it is possible that some large ticket size discretionary transactions, which would be largely weighted towards e-commerce, are impacted by broader macroeconomic uncertainty. Categories to call out would be categories like consumer electronics and cars. Keep in mind that a category like cars, one transaction makes a material contribution to GMV, but a negligible contribution to the bottom line. We can come back to that later on. Finally, moving on to the Fintech platform, decent marketplace growth translates into decent TFV origination.
As has been the case over the last couple of years, the growth has primarily been driven on the merchant side of the equation rather than on the consumer side of the equation. That should be a theme that replicates, that continues to be seen going forward. On the balance sheet side of things, for the last two and a half years, you've seen the loan portfolio grow at a faster rate than the deposit portfolio. That will now switch round the other way. The loan-to-deposit ratio is high, and just as you saw in 2022, it will take advantage of a high interest rate environment to once again focus on growing the deposit base as Mikheil talked about. The logic being more deposits will drive more future transactions and will give us more funding, which again will drive more future transactions on the marketplace business.
Pricing trends in Fintech stable year on year. Cost of risk in the Quarter increased to 0.6% from 0.5%. The increase was primarily due to macro provisioning, and that macro provisioning is related to the sharp increase in interest rates in the First Quarter. Underlying credit trends remain unchanged, and for the year, we expect a cost of risk to remain stable. Therefore, cost of risk was a drag on Fintech profitability in the First Quarter, but over the course of the year, again, we expect stable trends. The increase in the MPL ratio versus the end of the year is normal Q1 seasonality. Actually, if you look back on the last Q1 conference calls over the last couple of years, you'll see a similar pattern. Q1 MPLs move up, and then they typically move down again in the Second Quarter related to seasonality.
Decent TFV growth over the last 18 months has translated into decent revenue growth of 18%. Higher cost of risk, muted net income growth in the First Quarter of 8%, but again, we expect cost of risk to be flat over the course of the year. Although, as Mikheil has talked about, higher funding costs now will be a theme as we grow the absolute number of deposits and the cost of those deposits has increased materially. You should keep in mind that we came into this year with interest rates at 14% across the portfolio, and within a couple of months, the latest product has rates of 18%.
That's a substantial increase in costs in a short period of time, but we see it again as an investment in the business, assuming we have successfully attracted deposits over the remainder of the year. Moving on to Hepsiburada, their First Quarter results were published at the close of market on Thursday of last week. You can refer to their disclosures for a detailed update. On the revenue side of things, we just think, Mikheil, the main call out would be the politically driven consumer boycotts in March did materially impact GMV trends. That also meant that the company pulled back on its marketing performance marketing initiatives, which again, exacerbated the negative revenue momentum in the Quarter.
On the cost side of things, the combination, therefore, of negative operational gearing, number one, and growth in loan loss provisions, number two, resulted in a net loss of TRY 355 million. Around 40% of that loss is coming from higher loan loss provisions. That is perfectly normal in the context of early stage Fintech products. You're testing your risk. You're taking your, you're experimenting with different risk models, so higher provisioning is a normal consequence of that, number one. Number two, just to avoid sort of any confusion here, these sort of loan products should not be confused with what Kaspi.kz is doing with its bank acquisition in Türkiye. This relates to product initiatives that were started in Hepsiburada last year and have been part of its strategy over the last couple of years.
So for Kaspi.kz, despite the impact of lower smartphone sales in March and despite higher macro provisioning in the First Quarter, the First Quarter results were broadly where we expected them to be: revenue up 21%, net income up 16% year on year. If you X out the impact of the macro provisioning, net income would have been up around 19% year on year. These numbers exclude Türkiye. Including Türkiye, revenue increased to KZT 834 billion. Net income loss was KZT 200 billion, net income was KZT 254 billion profit. The loss from Türkiye was equivalent to KZT 6 billion, so around sort of 2% dilution. A small negative impact from Türkiye, and particularly small in the context of Kaspi.kz and relative to the long-term opportunity that Türkiye offers. Moving on to the guidance, GMV growth moves to 15%-20% from 25%-30% previously.
Number one, that is a function of the new rules for imported smartphones and higher prices in the short term and temporarily lower demand. Again, this should be a short-term effect that should work itself out in the second half of the year and into the following year. Secondly, increased macro uncertainty and the potential for that to impact higher ticket verticals. I gave the example of cars: average ticket size for one car transaction, $10,000, versus average ticket size for an e-commerce transaction, $30. You can see there how that vertical can have a disproportionate impact on GMV, but almost no impact on the bottom line. That change in outlook should not be confused with a change in outlook for core 3P marketplace business beyond the point we have made on smartphones.
TPV outlook unchanged, TFV growth of around 15% at the lower end of the range, given previously at 15%-20%. That just reflects slower marketplace growth. There are a couple of other factors to point out. Number one, higher interest rates. We have talked about it before. That in itself is probably the sort of biggest drag on earnings. Just to reiterate, whilst that is a headwind in the near term, interest rates in Kazakhstan are extremely high, and over the medium term, that should turn into an important tailwind for the business, number one. Number two, we expect the Kazakh government to introduce a 10% tax on revenue from investment, primarily in government securities. We expect this to be applied to interest revenue for the whole of 2025 at 10%, number one.
Number two, we expect the government to increase National Bank reserves from the summer of this year. Both of these two factors are still to be confirmed, but we think there is a high probability, and hence we include them in our guidance today. The combined effect of those two factors will be around sort of 200, approximately 200 basis points off net income this year. There are a number of moving parts. If the question is, is the guidance conservative? We will try to definitely reflect these different scenarios in the updated guidance to the best extent that we can. On that note, we will open the call up to Q&A.
Operator (participant)
Thank you. If you would like to ask a question, please press the raise hand icon on your screen if you have joined the call via Zoom. If you have joined us on the phone, please press star one on your telephone keypad now. When preparing to ask your question, please ensure that your line is unmuted locally. Our first question comes from Ygal Arunian. Please state your company name and proceed with your question.
Ygal Arounian (Managing Director and Senior Equity Research Analyst)
Hey, guys. Good morning, good afternoon. I think Ygal Arounian from Citi. Maybe just on the macro, 'cause you kind of have a couple of factors. If you could expand on the macro uncertainty in Kazakhstan, is that driven just by the higher interest rates, or are there more things you're seeing there that could help us kind of understand the framework of what's going on there? Then in Türkiye too, with the boycotts, has that changed your—I know it's not gonna change your long-term outlook, but your near-term outlook for the integration area, your expectations around what you can do in Türkiye? We'd love to kind of get a sense on that level. Thanks.
David Ferguson (Managing Director and Head of Investor Relations)
All right, Ygal. Thanks for your question. On macro, I guess there's a couple of things you could sort of point to, but I think let's just keep it simple. Lower oil price can translate into slower GDP growth, number one. Volatility in commodity prices can translate into currency volatility and increased uncertainty, number two. Again, I wouldn't over-exaggerate this. I mentioned earlier we expect payment trends to be resilient throughout the year. Payment trends are indicative of spending in the economy, but some high-ticket discretionary transactions, which would be weighted to marketplace and could disproportionately impact GMV, could be impacted to some extent. We're choosing to take a conservative approach.
The third area, currency weakness, translates into inflation and higher interest rates, which we've talked about, and that is a pressure on earnings in the near term. There are a number of different moving parts. They create some more uncertainty at the margin. We're taking a conservative approach, but again, overall, the outlook for this year remains robust and decent. On Turkey, the simple answer for me is no, but I don't know if Mikheil has anything to add to that.
Mikheil Lomtadze (CEO)
Yeah, I mean, in terms of our plans, we, the has doesn't have any doesn't have any impact. Again, who, you know, whoever has been, who has been following the Kaspi and the way we sort of work, you know, I think it's all about, you know, quality of the products, quality of the consumer, and the merchant experience, and that's what is, you know, important for the long-term success. It's, again, it's not about competition. It's not, it's really about delivering the super quality products and the services to your customers. That has been our most important strategic priority, always, in our operation. That remains our focus.
Ygal Arounian (Managing Director and Senior Equity Research Analyst)
Okay. Thanks. Just to follow up then on Turkey and the Rabobank acquisition, talk about a little bit more of the early steps there and building out the Fintech platform, you know, how much progress have you made, maybe an update on timeline, products, as you roll that out? Thank you so much.
Mikheil Lomtadze (CEO)
At this stage, we are still in the process of getting the approval for the acquisition. That will happen, probably sometime in the second half of the year. Therefore, that's basically the most important immediate step for us, you know, to put it in simple words, you know, a license to launch the product on the market. We do see a lot of opportunities in the digital and online services. As soon as we have approval, then we'll start, you know, yeah, we'll start introducing some of the Fintech products onto the market in Türkiye. We're really excited about the things that we could do and how we can, how we can take Fintech and financial services to another level.
Ygal Arounian (Managing Director and Senior Equity Research Analyst)
Great. Thanks so much.
Operator (participant)
Okay. The next question comes from Darrin Peller from Wolfe Research. Please go ahead, Darrin. Your line is now open.
Darrin Peller (Managing Director and Senior Equity Research Analyst)
All right. Thanks, guys. Can we just start off by going a little further into those one-time factors impacting guidance one more time? I mean, I think the interest rate on securities, just is that a one-year item? Just trying to figure out the timing of that. I mean, even on the smartphone dynamic, if you could explain a little bit more of what's go—what exactly happened, how you estimate it's impacting your numbers. And then putting those aside, what you see as marketplace normalized growth right now, if you were to pull out some of the factors on the macro front that you're just referring to now? Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
Yeah, Darrin. A couple of things. All right. Firstly, let's do the smartphone one. This is a ruling that came into place in March. It relates to the import of all devices, smartphone devices, into the country. The unique code within the device needs to be registered with the authorities. I think this is actually quite common all around the world. There are different reasons for this, security being one, to ensure the relevant sort of import duties are paid, number two, amongst other factors. What that has meant is that across the country, the price of smartphones increased, number one, and demand temporarily fell off. We saw this quite dramatically in our numbers in March, and you can expect that to continue in Q2. It will work its way through relatively quickly.
It's a, I guess, a price adjustment, a short-term price adjustment to the margin. Nothing to the market, nothing has changed in Kazakhstan with regards to people's use of smartphones and, and so on. Demand should normalize in the second half of the year, as I mentioned. There could also be some sort of catch-up effect there. You asked about normalized rate. I would, I mean, I would take the normalized rate. You asked how we can quantify it. We know the size of smartphones as a category within e-commerce. I said it's about 18% of e-commerce GMV. We saw the impact in March. I'd say normalized e-commerce growth rate is around 30% if you adjust for that factor versus the 23% that we reported in the Quarter. That's sort of one-off.
I think the second is interest rates. I mean, that is actually the biggest sort of drag, higher interest rates. We saw that the central bank we came into, we sort of, if you think back sort of six to seven months ago, just as the trend globally, rates were expected to move down. Inflation started to wobble. The central bank moved rates up in December and then again moved them up sharply in March of this year, higher national bank rates to combat inflation, translating to higher deposit rates for us. Again, while this is not one-off, the good news here is that I do not want to speculate on whether interest rates have peaked, but they are incredibly high at the moment, and there is a material drag on earnings in the near term.
It's not unreasonable over the medium term to think about rates normalizing. If you think back to sort of pre-2022, rates were sub 10%. There's a big, big change in costs. What is, for 2025, a headwind does have the potential to be a tailwind over the medium term, although the timing is difficult to predict. On the 10% tax, that's likely to be introduced for liquidity revenue, no, that's not one-off. You should assume that that stays in place going forward. It's not actually material for us. There are other banks in Kazakhstan that have a much larger share of their P&L that comes from investment activities. We're a transaction-based business, but at the margin, it makes an impact. Same also for National Bank, higher potential reserve requirements. It's not huge for us, but again, at the margin, it makes a difference. I talked about sort of those two factors knocking around 2% off growth. There is a number of different moving parts. We've tried to sort of put them all together here and reflected in the guidance, and hopefully we've done that correctly.
Darrin Peller (Managing Director and Senior Equity Research Analyst)
All right. That's very helpful, David. Mikheil, just a quick follow-up would be on the payment side. When I think of the underlying growth rate and I see the B2B side in particular or Bill payments, maybe just break down the key drivers you're seeing more versus less strength in right now, affected by macro perhaps, but on the payment side of the business, if you were to break it down a little bit more than what you're seeing more granularly.
David Ferguson (Managing Director and Head of Investor Relations)
Mikheil, that question was to you.
Mikheil Lomtadze (CEO)
Yeah, sure. I mean, on the payment side, you know, at this stage, I mean, our payments business is really all about, you know, enabling the flow of the money and the purchasing and the transactions and the payments. From that perspective, there is, you know, less impact just because we are the drivers of the cashless transactions. The B2B side, that's something which has been historically growing fast just because of the low penetration, but also the type of services that we launched when the payments can be processed between our merchants and distributors. From that perspective, you know, we feel like, you know, payments business is, yeah, it is in a good place. We constantly, you know, innovate around the payments, as well as, you know, supporting the growth. And B2B is really just one example of what we do.
Operator (participant)
Thank you. The next question comes from Reggie Smith from J.P. Morgan. Please go ahead, Reggie. Your line is now open.
Reggie Smith (Executive Director, Equity Research)
Hey, thanks for taking the question. I just had a follow-up on the, on the mobile phone thing to make sure that I'm understanding it correctly. As I understand it, I guess the government is cracking down on counterfeit phones. A quick search showed that or suggested that, you know, as much as half of the phones brought into Kazakhstan or sold in Kazakhstan were, I guess, believed to be counterfeit. You talked about things improving in the back half. It sounds like it's a supply issue more so than a demand issue. Am I thinking about that correctly? Because if the issue is that there just aren't, I guess, legit phones coming in, how does that correct in the back half of the year?
A second piece of that, was there any signaling prior to the announcement that this could be coming down the pipe? I guess finally, is there anything else that is going on in Kazakhstan that could potentially be a thing or an issue for you guys from a regulatory perspective that we may not be talking about or thinking about today? When I say we, I mean US investors. Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
I mean, from my side, I would not say it is a supply issue. Let us not sort of overcomplicate it. There is no reason why smartphones cannot be imported to Kazakhstan. It is not a supply issue. If devices are being imported the correct way, it just meant a sudden increase in prices. It means the duties are being paid. Actually, this is a good thing in the long run because you are, again, just bringing more transactions into the formal economy, of which we are a beneficiary. This is a blip that will work itself out in the next couple of months. For any e-commerce business, whether you are in Kazakhstan or globally in the U.S., I mean, smartphones are just an important e-commerce category. Any sort of change in demand is hard to escape from, but it will work itself out.
Mikheil, anything else on the coming down the pipe that we need to be aware of?
Mikheil Lomtadze (CEO)
I mean, we did mention about the, you know, 10% tax on revenue from government securities. At the moment, the tax is zero, which, you know, is unusual for many other markets. As part of the new tax code discussions, the new tax of around 10% on revenue for government securities will be introduced. At least we think that it will be introduced. Yeah, I mean, nothing really else comes to my mind. I think we did discuss on a previous call that the bank tax also being discussed as a part of the new tax code, that the bank income tax will be raised from 20% to 25%. The banking is one of the businesses that we have. Yeah, I do not know. I don't think there is anything else at this stage that we believe, or we think might have an impact.
Reggie Smith (Executive Director, Equity Research)
Got it. That makes sense. I guess just to follow up on the mobile phone, and maybe I'm thinking about this wrong, I guess previously there was a large supply of cheaper mobile phones due to counterfeiting or whatever, and that supply is going to go away. Now people are going to have to buy legitimate phones that may be more expensive. Is that the right way to think about it, or have I oversimplified it, or am I missing something?
David Ferguson (Managing Director and Head of Investor Relations)
That's the correct way to think about it.
Reggie Smith (Executive Director, Equity Research)
Got it. Got it. Thank you.
Mikheil Lomtadze (CEO)
Yeah, we estimate that the price for mobile phones will go up.
Reggie Smith (Executive Director, Equity Research)
Got it. Perfect. Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
Thanks, Reggie. Maxine, next question, please.
Operator (participant)
The next question comes from James Friedman. Please state your company name and proceed with your question.
James Friedman (Managing Director and Senior Equity Research Analyst)
Hi, good evening. It's Jamie Friedman at Susquehanna. In terms of the Rabobank acquisition and the overall banking strategy in Türkiye, Mikheil, I'm just wondering how you would compare the opportunity there relative to Kazakhstan, how the strategy may be different as you go to market there versus in your home country, and what the $300 million investment is targeted to achieve to get you standing up there.
Mikheil Lomtadze (CEO)
Okay. I mean, we will be discussing the details, you know, in a due course. The one thing I can mention is that the investment itself should, should the transaction be approved, is a combination of funding the product development, but also the, you know, capital, which, you know, any licensed bank needs a minimum capital to operate. All those things will just, you know, give us an opportunity to innovate around the financial services. I would not expect, you know, anything, or major introduction of new sort of services this year. The approval only itself will take us into the second half. When you think about the financial services in general, it is important to have the very high-quality product from the very beginning because that is what, you know, builds up the loyalty.
Therefore, you know, we will be looking to launch, not, I mean, not launch, but basically just, you know, we have already, I think, the world-class financial products in our mobile application. Those are the things we'll look to launch. You know, I don't expect anything sort of major to happen this year because we need to complete the acquisition first, get the approval, and then set up everything right for the long-term success. We are not in a, we never hurry to launch things. We want to make sure we get them right and perfect, especially in financial services. In the lending business, it's equally important to get paid back when you originate. Originating, you either build the asset or you build the liability.
In our case, you know, you need to build the whole process to make sure that the product is a very high quality, like Kaspi.kz has, but also the cost of risk, which we have historically around 2%, which is world-class, is really the important metrics for any lending operation.
James Friedman (Managing Director and Senior Equity Research Analyst)
Okay. Thank you for that. And then my follow-up is with regard to the relative growth of 1P versus 3P. So in terms of what is embedded in the assumption for the guidance, David, I think you alluded to this in your prepared remarks. Yeah, how should we be thinking about that? Because that can have an impact on take rates, obviously, and margin. 1P versus 3P assumptions as we travel through the cadence of the year. Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
1P is really just grocery.
James Friedman (Managing Director and Senior Equity Research Analyst)
Grocery.
David Ferguson (Managing Director and Head of Investor Relations)
To a much lesser extent, 1P cars. 1P grocery, actually, we pulled it out in the First Quarter. You saw very, very strong growth. I think you can expect it to continue to post numbers not dissimilar to what you have seen in the First Quarter, which is fast and is faster than the 3P business. In response to Darren's question, we talked about 3P business normalized rate of growth in the First Quarter, around 30% versus e-grocery growing north of 50%. The one sort of flag—but again, let's not over-exaggerate it because in practice, it is non-core—is 1P cars, or 1 and 3P cars. Where it makes a difference, the GMV—again, I made a point—so of a $10,000 transaction versus a $50 or $30 transaction. The bottom line impact from that is not material. Do not confuse the GMV downgrade with an equivalent bottom line downgrade. You will get to the wrong answer if you do. Does that answer the question?
James Friedman (Managing Director and Senior Equity Research Analyst)
Yeah. Perfect. Thank you, David.
Operator (participant)
Thank you. The next question comes from Neeraj Chandra. Please state your company name and proceed with your question.
David Ferguson (Managing Director and Head of Investor Relations)
Hey, Neeraj. Can you hear us? Are you on mute now, Neeraj? I think you're on mute. You're showing as on mute to me. Sorry, Maxine. Let's, if, let's.
Neeraj Chandra (Founder & CEO)
Sorry about that, David. I'll follow up with you guys afterwards. Apologies.
Operator (participant)
Sorry, Neeraj. We can hear you.
David Ferguson (Managing Director and Head of Investor Relations)
Do you want to ask your question? I think we've lost him. Let's go to the next question, please.
Operator (participant)
Yep. Our next question is from Gabor Kemeny. Please state your company name and proceed with your question.
Gabor Kemeny (Managing Director and Senior Analyst)
Hi, there. This is Gabor from Autonomous. Thank you for taking my questions. Firstly, on funding, can you help us scale how much more to come in terms of the increase in funding costs from higher deposit rates and possibly the change in the mix? What do you pay on the backbook, and where do you see your incremental costs overall? Secondly, on the pricing of your lending products, have you made changes there? I mean, I seem to recall you were basing pricing the buy now, pay later in the mid-teens interest rates, presumably. You would consider making changes when you increment deposit costs in the high teens. Just finally, on the Turkish lending products Hepsiburada is experimenting with, how comfortable are you with them, you know, introducing new lending products when you are about to scale up the Fintech offering with a different franchise? Thank you.
Darrin Peller (Managing Director and Senior Equity Research Analyst)
Gabor, no change to pricing. Gross yield was flat year on year, 26%. Number one. Number two, increase in percentage cost of funding for the year, annualized, between 100-150 basis points. Number three, just keep in mind that with a banking franchise, a banking license, you can do things at a different scale. You can have deposit functionality. If you have deposit functionality, the rationale is people who save with you will spend with you, number one. Number two, you can use that to fund more lending, which drives more transaction on your marketplace, exactly the sort of thesis behind Kaspi.kz marketplace in Kazakhstan. You can do that at a much bigger scale over time. Hepsiburada does not have anything like that at scale currently. All initiatives are just early in stage, but logical to do.
Gabor Kemeny (Managing Director and Senior Analyst)
Thank you, David. All fair points. Just one small follow-up. The 100-150 basis points, that was the blended average increase in funding costs you expect this year or something different, please?
David Ferguson (Managing Director and Head of Investor Relations)
Correct.
Gabor Kemeny (Managing Director and Senior Analyst)
Got it. Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
Maxine, I'm already for the next question, please.
Operator (participant)
Yep. Our next question comes from Can Demir. Please state your company name and proceed with your question.
Can Demir (Financials Analyst)
Yes. Good afternoon. This is Can with Wood & Co. Thank you very much for the opportunity. I have a couple of questions. On Rabobank, I think it was acquired through the Kazakh entity and not through Hepsiburada, as far as I understand it. I was wondering why you did not acquire it through Hepsiburada when, you know, this bank will work pretty close with Hepsi. That is the first question. The second question is, how do you plan to get out of this boycott-driven drag in Türkiye? Is it marketing? Is it PR? Are there any plans around it? The third question is on your cost of risk and asset quality. The cost of risk is, I think, exceptionally low in Kazakhstan, which is good news.How is it possible that it's not affected by the macro outlook at all when the macro outlook affects GMV and other things? I was just curious about that. Thank you very much.
David Ferguson (Managing Director and Head of Investor Relations)
Can, remind me what the first question was.
Can Demir (Financials Analyst)
The first question is, Rabo was acquired through the Kazakh entity.
David Ferguson (Managing Director and Head of Investor Relations)
Okay. Thanks. Very simple answer. Hepsi doesn't have the money to acquire and subsequently invest. Kaspi has the money. So it simply isn't possible for the Hepsi entity to fund that transaction. That's the answer to number one. In the absence of a capital injection into Hepsi, number one. Number two, the boycott, I mean, that's probably a question that is better directed towards the Hepsi management team. We wouldn't speak on their behalf. They will update in due course on trade and trading in Q2. I think the results will answer that question. Number three, what you need to keep in mind is that the trade-off is not just cost of risk in isolation. It's cost of risk versus volume. You can manage cost of risk stable by turning down volume or you can accept a higher cost of risk with more volume. Whereas you're looking at cost of risk as the variable, I'd look at it the other way and look at volume as the variable.
Can Demir (Financials Analyst)
Okay. On the first question, I mean, why wasn't it possible to inject capital into Hepsi? Because, I mean, it doesn't look that smooth to me when, you know, Rabo will work super close with Hepsi, but Hepsi is, you know, has minorities, right? I mean, isn't that problematic structure slightly?
David Ferguson (Managing Director and Head of Investor Relations)
No. In terms of simplicity, this is the simplest way to progress this transaction in the near term, number one. In the medium term, arrangements can be structured in lots of different ways. Again, you're probably jumping the gun a little bit.
Can Demir (Financials Analyst)
Right.
David Ferguson (Managing Director and Head of Investor Relations)
I would say let's just complete this transaction. It is subject to regulatory approval expected in the second half of the year. Then we'll be in a better position to talk in more detail about how we address the point that you've fairly raised.
Can Demir (Financials Analyst)
Super. Thank you. Thank you, David.
Operator (participant)
Thank you. Our next question comes from Salman Ali. Please state your company name and proceed with your question.
Salman Ali (Portfolio Manager)
Hi. Good evening. I am from Fountainhead Partnership. My question again comes back to the deposit cost. There are two questions related to it. One is that how does your 18% compare with the deposit rates being offered by other banks? And second is that if the central bank is planning to increase the reserve requirements, do you expect another round of increasing deposit costs as other banks try to manage their liquidity? Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
Do you want to talk about the attractiveness of the deposit product, Mikheil?
Mikheil Lomtadze (CEO)
Yeah. Of course. I mean, in general, our strategy has been always to have attractive, you know, products for our consumers, but not the highest, you know, interest rate on the market. Again, you know, our deposit is a bit different from many others because it is an overall application. You know, consumer experience is better, the process is better, the product itself, it is probably better. I would say that our interest rate is, on the comparable sort of term deposits, the low end, that's number one.
Number two, in terms of the national bank reserve requirements, I mean, that's, you know, the impact that it has on the, the potential impact it has on net income is because the additional national bank reserves, as they have been discussed currently, there will be interest free with the national bank. That's where the impact really comes on the bottom line. It's not really a liquidity issue. I don't think it's a liquidity issue for most of the banks, I would assume so. You know, not in our case, definitely. This is why we have it in the net income section, because if it's an interest free balance with national bank, obviously, you know, we don't have real interest revenue associated with this.
David Ferguson (Managing Director and Head of Investor Relations)
Does that answer the question?
Salman Ali (Portfolio Manager)
Yes. Yeah. Thank you. I'm just wondering what is the system LDR? Like, you are at 97%. So do you know what is a system LDR, and does it mean it will squeeze other banks?
Mikheil Lomtadze (CEO)
Oh, can't really help you with the, with other banks.
Salman Ali (Portfolio Manager)
Okay.
Mikheil Lomtadze (CEO)
We, we're really focused on our business, and this is what we care about. Historically, we had anywhere from 80% to pretty much close to 100% multi-deployed ratio. So, you know, it's in, in our, in our case, we're, we're good.
Salman Ali (Portfolio Manager)
Thank you. Thank you very much. Really appreciate it.
Mikheil Lomtadze (CEO)
Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
Maxine, maybe in the interest of time, we can take the final question, please.
Operator (participant)
Thank you. Our final question today comes from Ronak Gurdia. Please state your company name and proceed with your question.
Ronak Gurdia (Analyst)
Hi. Good afternoon. This is Ronak from DNB Markets. Just a quick one on your take rate on payments. We've seen a pretty significant, a consistent decline over the last two or three Quarters. Whereas, you know, if I look at the TPV breakdown, that hasn't, you know, the contribution hasn't changed much. If you could just talk about what's driving the reduction in take rate and where we should expect that to normalize. Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
I wouldn't say it's a dramatic change. I'd say it's a gradual change. If you think about it, the Kaspi Pay is 95 basis points, and B2B is less than that. Just mechanically, if they grow slightly faster, you will see gradual attrition. I think you should expect that to continue for a period of time. That is the expense, which you cannot really see in that chart, of things like interchange on the legacy card product, which would have been a higher take rate business. Your base case going forward should be ongoing gradual attrition in take rate, but it's not substantial. I guess over time, as growth moderates, there will also be a moderation in take rate evolution as well.
Mikheil Lomtadze (CEO)
Yeah. And just to, just to again mention, if you look at the track record, and the last, you know, several years, whatever, our, you know, the main, the fastest growing transactions are the Kaspi take, you know, transactions, 0.95% take rate. We have always said that, you know, as this business becomes, you know, bigger, you know, the take rate basically will be gradually moving towards 0.95%. Exactly for that reason, I think two calls before this one we introduced to give a bit more detail. Before, we would say, like, 1.2% take rate, then we said we started to say two digits, you know, like 1.15% or 1.18%, just so that you can guys track. This strategy and the trend has not changed.
In the medium term, it will be going towards, you know, the lowest take rate business, which is growing the fastest, which is the 0.95% take rate.
Ronak Gurdia (Analyst)
Good. Thank you.
David Ferguson (Managing Director and Head of Investor Relations)
All right. I think we're gonna wrap things up. Apologies if we haven't got to your question, please. We're happy to follow up separately, but we need to move to another meeting now. Thanks a lot for your time today. Thanks, everyone, for your questions. Keep in touch. Let us know if you have any follow-up, and we'll speak to you all soon. Thanks a lot, everyone.
Mikheil Lomtadze (CEO)
Thank you.
Operator (participant)
Thanks to everyone. This concludes today's webinar. You may now disconnect from the call.