Hello, and welcome everyone to the Kaspi.kz First Quarter 2025 Financial Results. [Operator Instructions] I will now hand you over to David Ferguson, Head of Investor Relations at Kaspi.kz to begin. David, please go ahead..

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 CFOs -- Deputy CEOs. Sorry. So 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. So on that note, I'll hand it over to Mikheil. Mikheil, over to you. Thank you..

Hello, everyone. So let's just go through our first Q performance. In general, we have a good first Q. The company itself, it's performing at the levels which we expected broadly within our expectations. The payments, will continue the strong growth revenues plus 16%, net income 21%.

The marketplace in the first group grew 20% year-over-year, and the revenue 33%, net income 19%, and 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 the revenue plus 21% net income plus 16%.

The 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 temporary impact on the demand for smartphones.

And then, on the fintech side we see, the continuous high interest rate environment, which, again, will continue probably through this year. And we are here also introducing, higher interest new deposit, products, which I will talk a bit as well. So next slide, David, please.

So the e-Grocery, e-Grocery, this is the business which we have, started one of 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, and then, the purchases are 66% up year-over-year with 3.3 million purchases in the first Q. As you know, we are operating in the three cities, three largest cities now, and we are, planning to enter another two cities. So the team continues to execute on the grocery, and you see the average ticket is very good stable.

And, yeah, we'll just continue scaling across the country with simultaneously as you know Kaspi is very good at in continuously from an operational side, but also, scale. And we are entering the new cities to support the growth, and we expect, e-Grocery to continue scaling faster 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 basically due to all sorts of factors which have nothing to do with the 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 deposit basically anytime, but the term of deposit is actually fixed through 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, yeah 84,000 consumers and almost, yeah, 379 billion in Tenge of those deposits. So if they're growing fast, there is a demand for those deposits, and therefore, this product has been, quite successful.

And we will be 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're making purchases, through all our other services and therefore investing into the acquiring the consumer deposits.

And the consumers with deposits have been part of our historical strategy always. Again, in the future, interest rates will go down, and therefore, there is additional opportunity for the profitability. At this stage, we are in the environment. Therefore, we're taking advantage of this as well.

We have been going through the different deposit terms upgrades. So this is just a bit of a timeline for you guys to understand. So for example, we did reduce the deposit in February of ‘24, from 14% to 15%. But then in '25, we do have the high interest environment. So we have introduced six month maturity deposits 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.

So that's the way our products work, and we have been doing this consistently for as long as we had basically deposit products. So that's something you should keep in mind. As soon as we increase the interest rate, we reprice our entire portfolio. So when we went from 14% to 15%, we therefore repriced the existing portfolio of our Kaspi deposit.

And now the fastest growing deposits are the ones which offer the higher interest rate of 18%, 17%. Couple of other things. We have, raised the euro bonds. This is our first euro bond, 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 the fixed income investors, and this is the first euro bond we have done. And, yeah, considering, our strategy for international expansion and investments in Turkey more specifically. It's good to be in a position of the financial strength.

So that that's a good to build a track record, but also the specifically, that transaction was successful in our euro bond fundraising. We have also signed, the agreement, to acquire Rabobank, and this is a fully licensed bank, which doesn't really have any customers and doesn't have branch network.

And, this enables us to continue developing a fintech products in a Turkey. And, also, our initial plan is that, we'll invest roughly around $300 million in Feb 2025 to fund our fintech strategy in Tokyo. So, David, I'm back to you just to go through the platforms..

Yeah. Sure. So thank you, Mikheil. So firstly, on the payments platform, pretty straightforward. Decent volume growth up 17% year-on-year. Faster TPV growth up 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, 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 to 18 months and 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.

And then as you've 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 February. Moving on to Marketplace. Marketplace remains the fastest growing top-line platform. GMV growth up 20% year-on-year on in the first quarter supported by purchases of over 36% year-on-year.

E-commerce and e-Grocery particularly playing the part. But, 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 -- e-commerce GMV increased 23% year-on-year on the back of purchases, up 97% year-on-year. Grocery, the main driver of that growth, that high number of growth in purchases.

As Mikael 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.

And what that meant is a sharp increase in prices on smartphones countrywide and a fall-off 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, and we estimate the impact of the fall-off in demand in March knocked around seven percentage points off growth.

So that 23% GMV growth would have been around 30%.

You can expect this to remain a theme in the second quarter of the year, but the good news is that this this will be temporary once this is sort of worked through demand for smartphones in Kazakhstan is not going to change, and, actually, it's perfectly possible you see some catch up effect in the second half of the year. Moving on to m-commerce.

M-commerce also delivered a decent growth GMV up 17%. Take rate accretion in m-commerce is less than for e-commerce. E-commerce is the beneficiary of value add as the main beneficiary of value added services, advertising, delivery, and classifieds. So e-commerce take rate moved up to 12.5%, 140 bps. M-commerce take rate moved up 20 bps.

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 up 22%.

Strong growth across the board, but, again, tours do it, which we introduced around 12 to 18 months ago, delivering really decent, GMV performance and now up to 11% of travel GMV from zero just 18 months ago and driving the increase in take rate here. So take rate moves up to 5.3% from 4.5%.

Further innovation is 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 up 33% year-on-year. That's 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. So 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 been primarily been driven on the merchant side of the equation rather than on the consumer side of the equation. And, again, that should be a theme that replicates its continue to be seen going forward.

On the balance sheet side of things, for the last 2.5 years, you've seen the loan portfolio grow at a faster rate than the deposit portfolio. That will now switch around the other way. The loan to deposit ratio is high.

And just as you saw in Feb 2022, we'll 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, on the line credit trends remain unchanged for the year, we expect the 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 NPL ratio versus the end of the year is normal Q1 seasonality. Actually, if you look back on the last, the Q1 conference calls over the last couple of years, you'll see a similar pattern.

Q1 NPLs move up and then they typically move down again in the second quarter related to seasonality. So 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 or 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 of 14% across the portfolio. And within a couple of months, the top 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 successfully attract 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 say make 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, exasperated the revenue, 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 TRY355 million. Around a 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 take you're experimenting with different risk models. So higher provisioning is a normal consequence of that, number one. And number two, just to avoid sort of any confusion here, these sort of loan products should not be confused with what Kaspi is doing with its bank acquisition in Turkey.

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, 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 Turkey. Including Turkey, revenue increased to TRY834 billion, Tenge. Net income loss was 200 -- net income was TRY254 billion profit.

The loss from Turkey was equivalent to TRY6 billion at Tenge, so around sort of 2% dilution. So a small negative impact from Turkey and particularly small in the context of Kaspi relative to the long term opportunity that Turkey offers. So moving on to the guidance, GMV growth moves to 15% to 20% from 25% to 30% previously.

So number one, that is a function of the new roles rules for imported smartphones. They meant higher prices in the short-term and temporarily lower demand. But 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.

So 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 the core 3P marketplace business beyond the point we've made on smartphones.

TPV outlook unchanged, TFV growth of around 15% at the lower end of the range given previously a 15% to 20%. And again, that just reflects slower marketplace growth. There's a couple of other factors to point out. Number one, higher interest rates. We've talked about it before. That in itself is probably the sort of biggest drag on earnings.

But, again, 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 investments, primarily in government securities. We expect this to be applied to interest revenue for the whole of 2025 at 10%, number one. And number two, we expect the government to increase our 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 bps of net income, this year. So there's a number of moving parts.

If the question is, is the guidance conservative, well, we try to definitely reflect these different scenarios in the updated guidance to the best extent that we can. On that note, we'll open the call up to Q&A..

[Operator Instructions] Our first question comes from Ygal Arounian from Citi..

It's Ygal Arounian from Citi. Maybe just on the macro because I 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 if you could help us kind of understand the framework of what's going on there? And then in Turkey too with, the boycotts, has that changed, your -- I know it's not going to change your long-term outlook, but your near-term outlook for, the integration here, your expectations around what you can do in Turkey? We'd love to kind of get a sense on that level..

Thanks. Alright, Ygal. So thanks for your question. So 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.

And 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 pressure on earnings in the near-term. So 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, simple answer for me is no, but I don't know if Mikheil has anything to add to that..

Yep. I mean, in terms of our plans, we there has doesn't have any impact. Again, who -- the -- whoever has been -- who has been following the Kaspi, 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 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, and that has been our most important strategic priority, always, in our operation. So that remains our focus..

Okay. Thanks. And if just a follow-up then on Turkey and the Rabobank acquisition. Talk about a little bit more of the early steps there in building out, the fintech platform how much progress have you made, maybe an update on timeline products, as you roll that out..

At this stage, we are still in the process of getting the approval for the acquisition. So that will happen, probably sometime in the second half of the year. And therefore, that's basically the, the most important immediate step for us to put it in simple words a license to launch the products on the market.

We do see a lot of, opportunities in the digital and online services. So as soon as we have approval and then we'll start yeah, we'll start introducing some of the fintech products on to the market in Turkey, but we're really excited about the things that we could do and how we can take fintech and financial services to another level..

The next question comes from Darrin Peller from Wolfe Research..

Hi, Thanks guys. Can we just start off by going a little further into those onetime 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.

And even on the smartphone dynamic, dynamic, if you could explain a little bit more of what exactly happened, how you estimate it's impacting your numbers? And then putting those aside, what do 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?.

Yeah, Darren. So a couple of things. So alright. Firstly, let's do the smartphone one. So, this is 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 mean, this is actually quite common all around the world.

There's 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 over 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, I guess, a price adjustment, a short-term price adjustment to the margin. Nothing hit to the market. Nothing has changed in Kazakhstan with regards to people's use of smartphones and so on.

So 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. Well, I would take the normalized rate. You asked how we can quantify it. Well, 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. So I'd say normalized e-commerce growth rate is around 30% if you adjust for that factor versus the 20%, I think, 3% that we reported in the quarter. So 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.

You 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. 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 translates into higher deposit rates for us. But, again, whilst this isn't one off, the good news here is that, well, I don't wouldn't 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 change in costs. So what is for 2025 a headwind does have the potential to be a tailwind over the medium term, although the timing 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 stays in place going forward. It's not actually material, for us. There's 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% of growth. So there is a number of different moving parts.

We've tried to sort of put them all together here and reflect that in the guidance, and hopefully, we've done that correctly..

Alright. 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 payment, 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 on what you're seeing more granularly?.

And, Mikheil, that question was to you..

Yeah. Sure. I mean, on the on the payment side at this at this stage, I mean, it's -- I mean, our payments business, it's really all about enabling of the money and the and the purchasing and the transactions and the payments. So from that perspective, there is 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 a low penetration, but also the type of services that we'll launch when the payments can be processed between our, merchants and distributors. So from that perspective, we feel like, payments business is, yeah, it is in a good place.

And also, we constantly innovate around the payments, as well as, supporting the growth, and B2B is really just one example of what we do..

The next question comes from Reggie Smith from JPMorgan..

Hey, thanks for taking the question. I just had a follow-up on the mobile phone thing to make sure that I'm understanding it correctly.

So as I understand it, like, I guess, the government is cracking down on counterfeit phones and, like a quick search showed that or suggested that 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.

I'm not thinking about that correctly? Because if the issue is that there just aren't, I guess, legit phones coming in, like how does that correct in the back half of the year? And then the second piece of that, was there any signaling prior to the announcement that this could be coming down the pipes? And 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 U.S.

Investors..

I mean, from my side, I wouldn't say it's a supply issue. Let's not sort of, overcomplicate it. There's no reason why smartphones can't be imported to Kazakhstan. So it isn't a supply issue. If devices are being imported the correct way, it's just meant a certain 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, which of -- which we are a beneficiary of. This is a blip that will work itself out in the next couple of months.

But for any e-commerce business, whether you're in Kazakhstan or globally in the U.S., I mean, smartphones are just an important e-commerce category. So 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?.

Well, I mean, we did mention about the 10% tax on revenue from government securities. So at the moment, the tax is zero, which is unusual for many other markets. So 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.

And, 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 of the new tax code that the bank and income tax will be raised from 20% to 25%. And the banking is one of the businesses that we have.

So, yeah, I don't know -- I don't think there is anything else at this stage that we believe or we think it might have a impact..

Got it. That makes sense. And then 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. And so 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?.

That's the correct way to think about it..

Yeah. We’re assuming that the price for mobile phones will go up..

The next question comes from James Friedman..

Hi. Good evening. It's, Jamie Friedman at Susquehanna.

In terms of the Rabobank acquisition and the overall banking strategy in Turkey, Mikheil, I'm just wondering how you would compare the opportunity there relative to Kazakhstan, what this 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..

Okay. Well, I mean, we will be discussing the details in a due course.

And the one thing I can mention that the investment itself should the transaction be improved is a combination of the funding, the product development, but also the capital, which any licensed bank needs minimum capital to operate? So all those things will just give us an opportunity to innovate around the financial services.

I wouldn't expect anything or major introduction of the new sort of services, this year. The approval only itself will take us into the second half.

And when you think about the financial services, in general, it's important to have the very high quality product from the very beginning because that's what builds up the loyalty, and therefore we will be looking to launch, not I mean, not launch, but basically just, do -- we have already, I think, the world class financial products in our mobile application.

So those are the things we'll look to launch. But, I don't expect anything, sort of major to happen this year because we need to complete acquisition first, get approval, and then set up everything right for the long term success. So we're not in we never had it to launch things.

We want to make sure we get them right and perfect, especially in financial services. And in the lending business, it's equally important to get paid back when you originate. So originating, you either build asset or you build the liability.

So in our case you need to build the whole process to make sure that the product is a very high quality like has, but also the cost of risk, which we have historically around 2%, which is the world class, is the really the important metrics for any Atlantic operation..

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 margin.

1P versus 3P assumptions as we travel through the cadence of the year..

Well, 1P is really just Grocery. To a much lesser extent, 1P cars. So 1P Grocery, actually, we pulled it out in the first quarter. You saw very, very strong growth, and I think you can expect it to continue to post numbers not dissimilar to what you've seen in the first quarter, which is fast and is faster than the 3P business.

In response to Darrin'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 to flag it but, again, let's not over exaggerate it because in practice, it's noncore, is 1P cars but 1P and 3P cars, but where it makes a difference to GMV.

Again, I made the point sort of a $10,000 transaction versus a $50 or $30 transaction, but the bottom-line impact from that is very is not material. So don't confuse the GMV downgrade with an equivalent bottom-line downgrade. You'll get to the wrong answer if you do.

Does that answer the question?.

Yeah. Perfect. Thank you, David..

The next question comes from Neeraj Chandra..

Hey, Neeraj. Can you hear us? Are you on mute now, Neeraj? I think you're on mute. You're showing us on mute to me. Alright, Maxine --.

Sorry about that, David. I'll follow-up with you guys afterwards. Apologies..

Sorry, Neeraj. We can't hear you..

Do you want to ask you a question? I think we've lost him. Let's, let's go to the next, question, please..

Yeah. Our next question is from Gabor Kemeny..

Hi there. This is Gabor from Autonomous. Thank you for taking my questions. Firstly, on funding, can you help us scale, how much more -- how much is more to come, in terms of the increase in funding costs from higher deposit rates and possibly the change in the mix.

So what do you pay on the back book and where do you see your incremental bounce costs overall? Secondly, on the pricing of your lending products, have you made changes there? I mean, I seem to recall you were pricing the buy now pay later in the mid-teens, interest rates.

Presumably, you would consider making changes when you increment deposit cost in the high-teens.

And just finally on the Turkish lending products, Pepsi is experimenting with, how comfortable are you with them introducing your new lending products, when you are about to scale up the Fintech offering, with a different franchise?.

Thank you. So, Gabo, 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 to 250 bps. Number three, just keep in mind that with a banking branch a banking license, you can do things at a different scale. You can have deposit functionality.

If you have dot 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 Marketplace in Kazakhstan. So you can do that at a much bigger scale over time.

And Kaspi doesn't have anything like that at scale, currently. All initiatives are just early in in in stage but logical to do..

Thank you, David. All fair points. Just one small follow-up.

The 100 to 150 basis points, that was the blended average increase in funding cost you expect this year or something different, please?.

Correct..

Our next question comes from Can Demir..

Yes. Good afternoon. This is John with Wood & Co. Thank you very much for the opportunity. So I have a couple of questions. So on Rabo, I think it was acquired through the Kazakh entity and not through Hepsiburada as far as I understand it.

And I was wondering why you didn't acquire it through Hepsiburada when this bank will work pretty closely with Hepsi. So that's the first question.

The second question is how do you plan to get out of this boycott, driven drag in Turkey? Is it marketing? Is it is it PR? Are there any plans around it? And the third question is on your cost of risk and asset quality. So the cost of risk is, I think, exceptionally low in Kazakhstan, which is good news.

But how is it possible that it's not affected by the macro outlook at all when the macro outlook affects GMV and other things? So I was just curious about that. Thank you very much..

Can't remember what the first question was..

The first question is Rabo was acquired through the product entity..

Yeah. Great. Thanks. I mean, simple answer, Hepsi doesn't have the money to acquire and subsequently invest, Kaspi has the money. So it simply is impossible for the Hepsi entity to fund that transaction. That's the answer to number one. Number -- 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 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. So you can manage cost of risk at stable by turning down volume or turn it you can accept a higher cost of risk with more volume. So 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..

Okay. And on the first question, so, I mean, why wasn't it possible to inject capital into Hepsi? Because, I mean, it doesn't look that smooth to me when Rabo will work super closely with Hepsi, but Hepsi has minorities.

Right? I mean, is it isn't that a problematic structure slightly?.

No. So in terms of simplicity, this is the sort of 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. But, again, you're getting you're probably jumping the gun a little bit. And I would say, let's just complete this transaction.

It's subject to regulatory approval expected in the second half of the year. And then we'll be in a better position to talk in more detail about how we address the point that you've fairly raised..

Our next question comes from Salman Ali..

Good evening. I am from Fountainhead Partnership. My question again comes back to the deposit cost. 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 amount of increase in deposit cost as other banks try to manage their liquidity?.

Do you want to talk about the attractiveness of the deposit product, Mikheil?.

Yeah. Of course. I mean, in general, our strategy has been always to be -- to have attractive, you know, products, for our consumers, but not the highest interest rate on the market. And, again our deposit is a bit different from many others because it's a mobile application, consumer experience is better the process is better.

The product itself, it's probably better. So 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 the impact that it has on the potential impact it has on the net income is because the additional national bank reserves as they have been discussed currently, there will be interest fee with the National Bank. So that's where the impact really comes on the bottom line.

So it's not really an liquidity issue. And I don't think it's a liquidity issue for most of the banks, I would assume so. But not in our case, definitely. But it just said this is why we have it in the net income section because if it's an interest free balances with National Bank, obviously, we don't have, interest revenue associated with this..

Does that answer the question?.

Yeah. Thank you. I'm just wondering that what is the system LDR. Like, you are at 97%.

So do you know what is the system LDR, and does it mean it will squeeze other banks?.

Well, can't really help you with other banks. We we're really focused in our business, and this is what we care about. Historically, we had anywhere from 80% to pretty much close to 100% loan to deposit ratio. So, it's -- in our case, we're good..

Our final question today comes from [Ronak Gurdier]..

Hi, good afternoon. This is [Ronak from Danros]. Just a quick one on your take rate on payments. We've seen a pretty significant, a good consistent decline over the last two or three quarters, whereas if I look at the TPV breakdown that hasn't the contribution hasn't changed much.

So if you could just talk about what's driving the reduction in take rate and where we should expect that to normalize?.

I wouldn't say it's a dramatic change. I'd say it's a gradual change. But if you think about it, the Kaspi Pay is 95 bps and B2B is less than that, then just mechanically, if they grow slightly faster, then you will just see gradual attrition, and I think you should expect that to, continue for a period of time.

And that is, like, the expense which you can't really see in that chart of things like interchange on the legacy, car product which would have been a higher take rate business. So your base case going forward should be on ongoing gradual attrition intake rate, but it's not substantial.

I guess over time as growth moderates, then so also will there'll be also a moderation in intake rate dilution as well..

Yeah. And just to just to, again, mention if you look at the track record, and the rest several years, whatever, our -- transact the main the fastest growing transactions are the cost to pay transaction 0.95% take rate. So we have always said that as this business becomes bigger the take rate basically will be gradually moving towards 0.95%.

And exactly for that reason, I think two calls before this one, we have introduced to give a bit more details. So before, we would say, like, 1.2 take rate, then we said we started to say two digits, like 115 or 118 just so that you can guys track. But this, strategy and the trend hasn't changed.

So in the medium-term, it will be going towards the lowest take rate business, which is growing the fast, which is the 0.95% take rate..

Alright. So I think we're going to wrap things up. Apologies if we haven't got your question, please. We're happy to follow-up separately, but we need to move to another meeting now. So 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..

Thank you..

Thank you, everyone. This concludes today's webinar. You may now disconnect from the call..