Abu Dhabi Commercial Bank PJSC (ADCB) Earnings Call Transcript & Summary

Good afternoon, good morning, everyone. My name is Aybek Islamov. I'm an Emerging Market Banks Analyst at HSBC. Today, I would like to welcome you to Q4 2024 Earnings Call of Abu Dhabi Commercial Bank. With no further ado, I'd like to pass this call to Mr. Harsh Vardhan, Head of Investor Relations. Please go ahead, Harsh.

Thank you, Aybek. Good afternoon, ladies and gentlemen. I would like to welcome you to this call on ADCB's Fourth Quarter and Full-Year 2024 Financial Results. We will be referring to our earnings presentation, which can be found on the Investor Relations page of our website. I'm joined today by Deepak Khullar, Group CFO; Paul Keating, Group CRO; Robert Muller, Group Treasurer; and Monica Malik, our Chief Economist. We will be taking you through key highlights and our new 5-year strategy and guidance before opening the floor for questions. I will now hand over to Deepak to begin the presentation from Slide 5.

Thank you, Harsh, and welcome, everyone, to the call. Before we provide details on our full-year 2024 financial results and discuss the new 5-year strategy announced today, I would like to take a moment to reflect on the progress ADCB has made over the last 5 years on Slides 5 and 6. Since the launch of our strategy in 2020, despite the challenges of the global pandemic, the bank surpassed all its ambitious goals. As a major financial institution intrinsically linked to the UAE's dynamic growth, ADCB has transformed in terms of scale, profitability and sophistication. Since 2020, ADCB has increased profit before tax at a CAGR rate of 28% to exceed the AED 10 billion milestone in 2024, a year ahead of the schedule we set ourselves. Return on average tangible equity post-tax has increased to 15.3% in 2024 from 7.3% in 2020. The creation of significant value is reflected in a 5-year total shareholder return, TSR of 75%, supported by a dividend payout that has more than doubled to AED 59 fils per share as proposed for the 2024 financial year. ADCB's strong market position has driven significant balance sheet expansion, with assets increasing 59% since the end of 2020 to surpass AED 650 billion. Net loans have expanded at 10% CAGR, accompanied by a strategic rebalancing of the loan book, which has seen GRE exposure increase to 27% of gross loans from 21% in 2020 and real estate investment reduced to 14% from 29%. Meanwhile, ADCB's strong franchise has attracted significant deposit inflows at 14% CAGR since 2020. An important feature of our growth is the broadening of customer relationships, driving fee income and resulting in well-diversified revenue streams. Non-interest income has increased progressively to 32% of operating income in 2024 from 22% in 2020. Our growth is characterized by investment in talent and technology to enhance productivity and our sharp focus on efficiency has improved the cost-to-income ratio to 31% in 2024, representing a reduction of 530 basis points from 2020. We have also prioritized asset quality through disciplined risk management, driving an improvement in cost of risk to 58 basis points from 145 basis points in 2020. The NPL ratio of 3.04% in 2024 was at its lowest level over the last 5 years. Turning to Slide 8 and a high-level summary of our full-year 2024 performance. ADCB continued to achieve strong growth, with profit before tax increasing 26% to AED 10.6 billion. Net profit after tax for the year was AED 9.4 billion, representing a return on average tangible equity of 15.2%. Net loans increased 16% to AED 351 billion, driven by solid demand from both retail and corporate customers and deposits also increased 16% to AED 421 billion, following a strong inflow in quarter 4. CASA deposits represented 44% of total deposits at year-end. The bank continued to enhance the diversification of revenue streams, with non-interest income rising to 32% of operating income. Meanwhile, cost-to-income ratio improved 130 basis points year-on-year to 31% in 2024, driven by operational efficiencies and disciplined cost management. Last year, we revised guidance in light of the bank's performance, and I'm pleased to report that ADCB has delivered on its key metrics, as you will see on Slide 9. The bank has now embarked on a visionary growth strategy to substantially increase ADCB's scale and reach, attuned with the pace and promise of the UAE's economic transformation. We believe it is important to set out our direction of travel to all stakeholders, investors, business partners, customers and employees, and to hold ourselves to account in the years ahead. The strategy has been developed in detail over the course of 2024 and has been endorsed by the Board. The targets are bold and ambitious, and we are confident they are achievable given the management's strong track record of delivery. This is a 5-year program with a detailed blueprint for implementation. We will update the market on progress on a quarterly basis and provide nearer-term guidance with our first quarter results. On Slide 10, you will see updated medium-term guidance metrics set by the 5-year strategy. The bank aims to double net profit to reach AED 20 billion within 5 years, with circa 20% annual growth rate while consistently delivering a return on equity above 15%. We intend to maintain cost of risk at below 60 basis points and sustain the CET1 ratio above 12%. Our approach to dividends is to increase payouts progressively year-on-year with a targeted total payout of over AED 25 billion over the 5-year period. Of course, this is subject to Board, regulatory and shareholder approvals. On Slides 11 and 12, you will find income statement highlights for the full year and fourth quarter. For the full year, we delivered 15% growth in operating income to AED 19 billion. Net interest income was up 7% year-on-year and non-interest income increased 39%. In the fourth quarter, operating income increased 17% to AED 5.5 billion, while operating expenses were up 5% year-on-year. This was the 14th consecutive quarter of growth in profit before tax, which increased 15% year-on-year to AED 2.9 billion. Net profit after tax was AED 2.6 billion, representing a return on average tangible equity of 16.6%. Turning to Slide 13. The bank continued to target high-quality, low-risk credit counterparties to enhance the profile and resilience of our loan portfolio. In this context, full year risk-adjusted NIM remained broadly steady year-on-year at 2.03%, while NIM decreased by 25 basis points to 2.58%, which was in line with our guidance. Notably, NIM in Q4 increased by 17 basis points sequentially to 2.58%, driven by an improvement in cost of funds amid lower benchmark rates and a net inflow of AED 16.5 billion of CASA deposits in the quarter. Turning to Slide 14. Non-interest income increased by 39% year-on-year to AED 6.3 billion in 2024, accounting for almost 1/3 of total operating income. Net fees and commission income was up 27% year-on-year to AED 3.1 billion, primarily driven by a 33% increase in gross loan processing fees and a 20% increase in gross card-related fees. ADCB was the largest issuer of cards in the UAE in 2024, with 243,000 new cards issued, up 7% year-on-year. Net trading income was up 30% to AED 2.1 billion on higher foreign exchange income, derivative gains and a net gain from financial assets held at fair value through profit and loss. Other operating income more than doubled to AED 1.1 billion, primarily on account of gains on extinguishment of corporate loans in the fourth quarter. This relates to largely provided for corporate loans that have been taken over by a sovereign with new terms and conditions. Under IFRS, the accounting treatment for exchange of a loan where the conditions and net present value of the new loan are significantly different, it is considered an extinguishment of the earlier loan. The resulting gain or loss on derecognition of the original loan is part of the income statement. On Slide 15, the bank continues to operate efficiently at a greater scale. This is reflected in the cost-to-income ratio, which improved by 130 basis points during the year. In the fourth quarter, strong operating income resulted in a cost-to-income ratio of 28.6%, an improvement of 340 basis points year-on-year and 360 basis points quarter-on-quarter. ADCB continued to make broad-based investments in the growth of the business, primarily in areas such as IT infrastructure, digitization, AI and sales, which contributed to an 11% year-on-year increase in 2024 operating expenses. Please turn to Slide 16. We continue to achieve substantial balance sheet growth in 2024, with total assets increasing 15% during the year, and we also saw a 21% growth in our customer base. ADCB maintains a strong liquidity position with liquidity coverage ratio of 137.3%, a liquidity ratio of 32.4% and a loan-to-deposit ratio of 83.3% as at December end. Turning to Slide 17 for a closer look at our loan book. Net loans and advances to customers increased 16% year-on-year, in line with our guidance. This growth was well balanced across diverse economic sectors, including government-related entities, financial institutions and trading as well as retail customers. The bank increased exposure to low-risk credit counterparties, including GREs, which accounted for 42% of gross loan growth in 2024. GREs now comprise 27% of total loans, up from 25% a year earlier, with real estate investment representing 14%, financial institutions 9% and trading 8%, while personal loans accounted for 21%. Geographically, our loan book is well diversified, with Abu Dhabi accounting for 51%, Dubai 22% and Other Emirates 6%. Our exposure outside the UAE stood at 21% as the Corporate and Investment Banking Group, CIBG, continued to support clients operating across the region and internationally. I will now hand over to Robert to discuss the investment portfolio, customer deposits and capital position.

Thank you, Deepak. And turning to Slide 18, please. Investment securities stood at AED 143 billion at the end of December, and that's up 11% year-on-year. Bonds represent 99% of this portfolio, with 64% accounted for at amortized cost and 36% at fair value through other comprehensive income and mark-to-market on a daily basis. The portfolio is stable in terms of rating profile and geography. The duration of the portfolio at this point in time is very short. It's slightly above the 1-year mark. The negative mark-to-market on our amortized cost portfolio is approximately minus AED 2.5 billion as per the end of 2024. If we move to Slide #19, the bank's strong franchise drove broad-based growth in customer deposits, which increased 16% year-on-year. In a generally higher interest rate environment, time deposits increased by 20% during the year, while CASA deposits increased 11% year-on-year and remained well represented across the business lines. We continue to focus on growing our low-cost CASA and the various business lines are very much focused on this. As you will see on Slide #20, ADCB remains well capitalized, supported by robust earnings growth, a Tier 2 issuance in Q3 and efficient capital deployment, which has enhanced the risk-weighted asset profile. Post proposed dividend of AED 59 fils per share. The bank's Basel III capital adequacy ratio was 16.13% and our CET1 ratio was 12.56% as of December end. This is after taking into account the proposed dividends. I will now hand over to Paul to discuss asset quality, subsidiaries and digital transformation.

Thank you, Robert. And turning to Slide 21. The bank achieved improved asset quality metrics in 2024. The NPL ratio was 3.04% at December end, its lowest level over the last 5 years and reduced from 3.73% at the end of 2023. The bank's provision coverage ratio was at 110%, the highest level in the last 5 years compared to 102.5% at the end of 2023. Including collateral held, the ratio was 188% versus 168% a year earlier. In 2024, the cost of risk improved by 21 basis points on the previous year to 58 basis points. In Q4, the cost of risk was 72% versus 102 basis points a year earlier and 42 basis points in the previous quarter, with the sequential increase partly due to the implementation of the new credit risk management standards introduced by the Central Bank of the UAE. Please turn to Slide 22 for updates on Al Hilal and ADCB Egypt. Under the leadership of newly appointed CEO, Jamal Al Awadhi, Al Hilal Bank is implementing a new transformational growth strategy to gain further market share. This includes enhancing liability products, refining segmentation strategies and automating processes to enhance service and productivity. In 2024, the bank achieved a significant milestone by migrating all customers to a cloud-based platform. This has laid a solid foundation for further scaling up and enhancement of the customer journey. Through the new platform, the bank is expanding the customer base, with an average of over 14,000 customers onboarded monthly. Meanwhile, ADCB Egypt delivered a strong financial performance against the backdrop of increased macroeconomic stability. The bank doubled its net profit to EGP 3.6 billion based on IFRS, representing a return on equity of 34%. Net loans increased 45% during the year to EGP 52 billion, while total deposits were up 35% to EGP 116 billion. On Slide 24, we present an update on ADCB's digital transformation. Digital channels drove a significant expansion in our total customer base. In 2024, 83% of the 741,000 new customers were onboarded digitally. Throughout the year, digital engagement increased, with subscriptions to online and mobile banking surpassing the 2 million milestone during 2024 to cover 91% of the total retail customers. The bank has developed a new cloud-based mobile banking platform that will be the center of -- centerpiece of ADCB's banking proposition in the coming years. By the end of 2024, around 50% of the bank's IT workload was hosted in the cloud. The platform allows for the highly scalable and efficient expansion of the bank's digital and AI-driven customer offering. In 2024, the bank accelerated adoption of AI across operations, introducing more than 20 high-value use cases, including process automation and risk management, with additional applications planned for 2025. I'll now hand back to Deepak.

Thank you, Paul. On Slide 25, ADCB was added to the FTSE4Good Index Series in December 2024, reflecting our strong progress on sustainability. Inclusion in the index was driven by an assessment conducted by FTSE Russell, which placed ADCB above the global financial industry average across all ESG criteria. The bank was rated highest on corporate governance, receiving a score of 4.6 out of 5. ADCB also received a significant ESG rating upgrade by MSCI to AA and the category of industry leader in quarter 4, reflecting progress in sustainable finance initiatives, ESG due diligence, industry-leading data privacy management and security, as well as business ethics. We have also initiated the Net Zero Banking Alliance, NZBA target setting process for carbon-intense sectors, with the expectation to complete by May 2025. Turning to Slide 27 and the operating environment. The UAE's macroeconomic fundamentals remain very strong alongside positive business and consumer confidence. PMI data remained in strong expansionary territory throughout 2024, supported by robust domestic demand, while the external-facing sector is also performing well as illustrated by trade data. Liquidity in the banking system remains comfortable, with deposits continuing to outpace credit growth in 2024. Turning to Slide 29. I would like to conclude this presentation with a high-level summary. ADCB delivered a strong operational and financial performance in 2024, capping a 5-year period of significant transformation in terms of earnings, loan and deposit growth, asset quality, diversification of revenues and operational efficiency. The Board has endorsed a new strategy to sustain this pace of accelerated growth in the years ahead. Organic growth of our core businesses remains a priority in the context of the dynamic transformation of the UAE economy and the country's increasing investments domestically and internationally. As a progressive financial institution, ADCB will accelerate deployment of digital and AI technology to elevate customer experience, enhance risk management and boost productivity. We look forward to the next exciting phase of strong growth in 2025 and beyond. Thank you. And we will now open the floor to questions.

Thank you, everyone. Thank you, Mr. Deepak, for a detailed presentation. So we'll be shortly going into the Q&A session. But I think before we kind of -- while we are collecting the question queue, I'd like to kick off with a few questions, if I may. I think, firstly, I think what was noticeable about Abu Dhabi Commercial Bank in [ Sa ] '24, earnings revisions were quite positive, forward-looking, especially for Sa '25, north of 10%. I think the expectations were kind of building up. Your release of the 5-year update looks very promising. I'm sure there will be many questions around that. I think one of the areas, international growth where you achieved very strong results. The question I would have is, could you comment, first off, about the quality of the international growth? Could you give us some metrics, some tangible metrics maybe around the NPL ratios, around the risk costs in the international, how that compares to domestic? That will be my first question. And secondly, with regards to the 5-year plan to double your net income, are you factoring in any spin-offs of non-core assets or any sale of non-core assets within that guidance? Any other maybe inorganic actions or transactions you have in mind when you have this 5-year plan? Thank you very much, and we'll go into Q&A after this.

Thank you, Aybek. I think there are a number of questions here in terms of international growth. We're currently at 21% of the loan book. And the UAE remains core to our strategy, and organic growth also remains core to our strategy. We are expanding internationally, supporting our clients who are also moving internationally. So, that percentage may go up in the range of 20% to 30% over the 5-year period. So, that's one thing. NPL ratios, we do not break down by domestic and overseas, but you can see the NPL ratios are one of the lowest we've seen in the last 5 years with our provision coverage ratio at 110%. So, we're well provided for those. And we've also seen some good recoveries come through in 2024, and we expect those to come through in 2025 and beyond. In terms of the 5-year plan spin-off of non-core assets, the major non-core asset we had was ADCP, which we spun-off in 2023, realizing a gain of roughly AED 500 million in 2023. And just to add, our performance of 2024 has been on top of the one-off gain that we got in 2023, which we've covered for and then expanded another 26%. Inorganic transactions, there are no current plans for inorganic transactions at this stage. So, I hope that answers your questions.

Yes. Thank you very much, Mr. Deepak. So, we are heading into the Q&A session. [Operator Instructions] So the first question comes from the line of Edmond Christou.

Great set of results and very ambitious strategy. So, I would like to discuss the strategy if possible. Just trying to model the next 5 years. It's quite interesting to see the assumption, which is, as you say, very ambitious assumptions. So when I talk about -- you say there is no organic -- non-organic growth, so we should not factor in any M&A in the near term. So if that is true, are you aiming for a mid-double-digit growth on the asset side, on the credit side? This was the first question. The second question, if possible to give some color on the margin trajectory over the next 5 years. I think it's very difficult to -- for us to use the sensitivity and see what the market is expecting for the next 5 years of Fed monetary policy because it remains unknown. But is it true that your model will be most likely pricing and margin, stable margin, relatively stable margin in the next 5 years? And the same question fall into the cost of risk, which you expect it to be below the 60 basis points. But you have mentioned that recovery will come in 2025. And I'm not sure if NMC Health could also increase the recovery potential for you, if it results in a profitability. So, I just want to understand what potential for the cost of risk to fall to 50 basis points or 40 basis points?

Thank you, Edmond. Again, a number of questions here. In terms of loan growth, we expect the same momentum of 2023 and 2024 to continue in '25 and beyond. So yes, we expect double-digit growth, low double-digit growth to mid-double-digit growth in the years to come. And we're very positive on the UAE economy, where we see that growth coming from primarily -- so yes, inorganic growth is not on the horizon at this stage. Margins, we would expect to maintain the margins going forward. Even if interest rates come down, we would expect our cost of funds to come down and a higher proportion of CASAs to feature in our overall deposit mix. Cost of risk below 60 basis points, yes, it is difficult to forecast 5 years from now. But based on what we're seeing, we've rebalanced the book over the last 5 years or at least 3 years to 4 years. And the book is performing very well. NPLs are at its lowest level, provision coverage at its highest levels. And even the new formation of NPLs that we see is minimal. And therefore, we feel confident around the 60 basis points or below 60 basis points. NMC recovery, NMC is working on that in terms of going out to market. I cannot comment on the timing of when that will happen or be realized, but that is something we will see when it happens and NMC will obviously make that decision. Is there anything I missed? Okay. I think those were the questions you had. But Paul, if you want to add something on the cost of risk, please go ahead.

Yes, No, I think you're right in terms of your comments and reflections. We're not seeing pressure in the retail portfolio or we're not seeing requests coming through in terms of large restructuring within the corporate portfolio, and that is both domestically and offshore at the current time.

Yes. Maybe to add on the margin side, again, like I said, we said in the presentation, there is a constant focus on increasing CASA, especially the low-cost CASA, that is something that we also incentivize the businesses to create more of it or to get more of it. So, that will continue to be a focus also during the next coming period of -- next coming 5 years.

So, we move to the next question from Rahul Bajaj.

Am I audible?

Yes.

Yes. This is Rahul Bajaj from Citi. I have 2 questions, Deepak. The first one is on the strategy and the second one is more on the fourth quarter trends. So on the strategy, I'm slightly confused why you decided to move from an ROTE target to an ROE target. Is there a specific reason why you moved from the greater than 14% ROTE target, which you had? I'm just trying to understand the building blocks here. So, I mean, if I had to take the more than 14% ROTE target, which was there earlier, which was -- the ROE number would be lower on that. So ROE numbers, my hunch would be more in the 12.5% to 13% ROE. That moves to 15% now. So where is this delta coming from? What gets you from that, whatever, 12.5%, 13% ROE earlier expectation just in November to more than 15% in 3 months' time? What has changed in terms of how you think about growth? Because I mean, most other metrics that you talked about growth, which is loan growth, which is very similar to last year, cost of risk, again, less than 60 basis points, similar to last year. So no big change. What is getting us from that kind of 12.5%, 13% ROE to more than 15% ROE? So, that's my first question. The second question is on the fourth quarter cost of risk. I understand you mentioned that part of it was -- part of the jump was driven by the new regulatory sort of changes. I just wanted to understand to what extent the back book cleaning or the full impact of the back book from the new regulatory changes has been totally taken in the fourth quarter results? Or is it just a start and you will -- we will see continued impact of this kind of provision changes over the course of the next 4 years to 5 years. To my understanding, banks do have over a 5-year period to implement any back book delta on cost of risk, which might occur because of the new regulatory changes. So, have you taken all the hit in 4Q or there's more to come? Of course, it will -- your net-net number will be below 60 basis points. But then is there more to come from the regulatory changes? So that's my second question. Those are my 2 questions.

Thank you, Rahul, for those questions. And to take your first question in terms of our strategy, why we decided to put out what we have put out. Firstly, let me just reiterate what I said earlier. Our strategy sets out targets that are bold and ambitious, and achievable based on the management's strong track record of delivery. It's a 5-year program with a detailed blueprint for implementation. And we set this, a, to make ourselves also accountable and to give a direction of travel to all stakeholders, investors, business partners, customers and our employees. And in terms of our ROE, it's 13.5% for the full-year 2024. And going forward, we see good momentum coming through on the loan book, but more importantly, also on the non-interest income. So, we are expecting to see higher growth in non-interest income coming from trading income, fee income that we are working on, and we expect to see that grow faster. And we put out an ROE target of 15%, '25 and beyond. Fourth quarter cost of risk and the implementation of CRMS standard, I'll let Paul comment on that, and then we'll take the others.

Thanks, Deepak. So firstly, to your statement, yes, our forecast in terms of the less than 60 basis points does include the impact of the credit risk management standards as we go forward. Those standards have been under consultation with the industry and the Central Bank for a substantial period of time, but they were released in their final format this year and became effective at the start of December. So the '24 results do factor in some initial calculations and impacts, particularly within Stage 1 and Stage 2. So the ECL factors are wrapped in. And then for Stage 3, to your point that there is a phase-in period, yes, the discounts on the collateral for Stage 3 happen over a 5-year period. So again, some of the impact was taken as part of the 2024 period, but the balance is spread over the next 4 years. And it depends upon our negotiations, our recovery rates, et cetera, with those customers and the provisions that we're sitting on. If the provisions are above the Central Bank requirements if you go into year 2 or year 3, then obviously, we won't need to take additional provisions at that point in time. So at this stage, just coming back again to the top, we would expect the cost of risk to stay within that 60 basis points as we go forward.

Robert, if you want to comment a little bit more on the trading income?

Yes. Again, I think that has been growing steadily over the last couple of years, and we expect that to continue going forward as well. Again, this is also part of ADCB scaling up in terms of capabilities. We are getting a bigger pie of client wallets, and we're actively competing for that. And we now also have the skill set to match that. And I think we're quite bullish as to what that will bring to ADCB over the next few years. And specifically, if I look at trading in the past, we were very much focused on FX. That was our bread and butter. Over the last couple of years, we've added other product lines, and we have a detailed plan for the next 4 years, 5 years to add more product lines to this. And that's not only because we want to trade those products because we have clients lined up who are very active in this space. And with growing clients, with growing flow, we will naturally make more money out of this.

Hope that answers your question, Rahul.

So, we'll move on to our next question, which comes from the line of Olga Veselova.

I have a couple of questions. One is on net interest margin outlook for the next 5 years. You mentioned that you plan to protect it broadly at the level of 2024. And my question is, how do you plan to protect it given that the growth is coming predominantly or increasingly from GREs, which have lower asset yields and also there is a competition? And I hear you that you want to press on with CASA, but CASA ratio has been going down over the past 2 years. And last year, margin did go down year-over-year. So, your thoughts on ability to protect margin would be very welcomed. This is my first question. And the second question is back to non-interest income. You mentioned that one of the gaps between old ROTE target and new ROE target is actually non-interest income, including fees. Where exactly this shall come from? I hear you want to expand the product lines. But if you could give us the CAGR for fees in your 5-year strategy and which products, it will be very helpful.

So thank you, Olga. On NIMs, yes, I mean, it's difficult to project out into 5 years where exactly the NIM would be. But our aim is to try and protect that NIM and primarily through the cost of funding. And when you say CASA ratio has come down, that is correct because in a higher interest rate environment, clients typically put larger money in term deposits than keep in CASA. But also, if you look at our investor presentation or the earnings presentation on Slide 13, you will see that CASA deposits are increasing quarter-on-quarter. In September 2024, CASA deposits were AED 169 billion, which increased to AED 186 billion in December. So, quite a significant increase just in 1 quarter. And as interest rates, if they come down, we would expect the CASA ratio also to improve. At one stage when interest rates were very low, our CASA ratio was above 50%. So, we will continue to work on that and make sure that we try and protect that net interest margin. In terms of the growth coming through GREs, yes, that will continue, but that doesn't mean all of the growth is going to come through GREs. We will also be seeing growth coming through other corporate clients. And in terms of the mix, the mix that you see in 2024 is what we would see going forward into 2025 and beyond. But probably if, Robert, you'd like to add something on CASA?

No, I think on the CASA front, I think we've covered most of it. Again, for us, it's very important that we continue to incentivize the businesses to grow CASA and that's exactly what we're doing, especially as we have pointed out in previous calls, our aim is to grow the low-cost CASA, the operational deposits from clients and from the low-cost CASA from retail clients. That's where our focus is. And we are, from a treasury perspective, financially incentivizing the businesses to grow that line aggressively, and they have been quite successful over the last quarter. We'll move on to our next....

Sorry, can I just follow-up on this?

Yes.

Apologies. Yes. So, you mentioned that you expect loan mix to remain broadly stable versus now, which means that your loan growth in future years will not necessarily be driven by GREs. Then I have to ask the question about loan growth drivers because in the past 2 years, your fantastic loan growth, 16%, 17% per annum was driven by GREs. So if it's not GREs, then which are the segments you think will grow that well in the next 5 years?

No, what I said is that the loan growth that we've seen in 2024 is what we see coming through in 2025 as a proportion as well. So, we will continue to see GRE growth coming through based on the strong investments that we're seeing in the country. So, that proportion will continue. What we're trying to say is that it's not that we are not going to be doing other corporate loans, and that loan growth will also continue. So, we expect the proportion of the loan book to be similar to what it was in 2024, with the growth rates also being similar to what they were in 2024 going forward.

We'll also benefit by our operations in KSA opening up in 2025 as well in terms of the outside UAE portion.

I hope that answers the last question. So, we'll move on to the next question. This comes from the line of Waruna Kumarage.

Am I audible?

Yes.

Yes. This is Waruna Kumarage. I'm from SICO Bahrain. So, I have a couple of questions. The first one is related to loan growth. Until now, you've been winding down your real estate portfolio. Now going forward, do you expect to -- so based on your remark, it suggested that even the real estate portfolio can also grow. So, I want to know what's your outlook on that? And secondly, in terms of funding, to fund this loan growth in addition to the deposit gathering, what are the other avenues that you're pursuing in terms of the borrowing from capital markets? Those are my 2 questions.

Okay. Thank you. On the first one, in terms of loan growth and real estate, we're not winding down the real estate portfolio. It's kind of remained in that AED 50 billion to AED 60 billion mark, but the overall loan book has grown. The GREs have grown faster, and therefore, the proportion of real estate loans to the total loan book has come down. If you look at Slide 12 of our deck, you would see that the real estate loans are roughly around AED 50 billion. In 2023, they were AED 54 billion, but the increase in GREs went from AED 79 billion to AED 99 billion in the same period. And the question is, do we still expect to grow real estate? Yes, we do expect to grow real estate as well. So if it's in that 14% to 17%, 18% mark of the total loan book, we're quite comfortable with that. And on the second piece, I'll let Robert take that one.

Yes. Sure, Deepak. On the funding side, let me point out that at this point in time, there is sufficient liquidity here in the system in the UAE. It's a competitive market. But if you look at the surface in the market, it's there. So from our perspective and as we have demonstrated over the last couple of years, we have been able to grow our deposit base, both in CASA and term deposits here in the market. However, from a contractual point of view, these are relatively short. So, we do have a need for long-term funding. And I think over the last couple of years, we have expanded our product offering into the wholesale funding market. So, we issued our inaugural AT1. We issued the Tier 2. I think going forward, over the next 5 years, we will be more active in the international wholesale funding markets to attract duration in our liability profile as well. And again, I think this is part of the normal growth process that you see happening at this point in time within ADCB.

All right. And just if I may follow-up, I have one more question related to the cost to income. So, what kind of cost-to-income ratio do you expect as your 5-year strategy?

So, we ended the year at 31%. And over the 5-year period, we expect it to come below 30%. We will continue to invest in the business. The absolute amount of the cost base will go up slightly, but the revenue should outpace that cost growth. So, we expect the ratio to come below 30% in the coming 5 years.

We will move on to our next question coming from the line of Jon Peace.

Can you hear me okay?

Yes.

Yes. Jon Peace from UBS. So first question, please, is just, if you are planning to grow your loan book in the low-to-mid double digits at a relatively stable NIM, then presumably, you're expecting your net interest income to grow similarly in the low-to-mid double digits. And that's already quite well ahead of the 8% guidance that you gave us last quarter. So, I was wondering what's changed in your thinking to upgrade the NII growth even further? And second question, please, is just back of envelope, if you're going to generate AED 20 billion of net profits in 5 years, as well as pay AED 25 billion of dividends along the way, then I would estimate you need to calculate -- you need to average a return on equity of about 18% over the period. It's a bit higher than 15%. Do you recognize those kind of math? And then lastly, I appreciate you said you would give us some nearer-term guidance with the Q1 results. But is there any sort of ranges you could give us today for loan growth or revenue growth for this year? It sounds like you already anticipate loan growth to remain fairly strong.

Thank you, Jon. In terms of loan growth, as we mentioned earlier, we expect the momentum we've seen in '23 and '24 to continue into '25 and beyond, so in the low double digits to mid-double-digit growth coming through. And so that is something we expect to continue. In terms of NIM, we expect the net interest margin to keep that stable and net interest income will also grow probably slightly above the 8% mark as well. And the way we're looking at it is that, yes, we expect to have net profits about AED 20 billion at the end of 5 years. And in terms of dividends as well, progressively grow the dividends to pay out a total dividend of AED 25 billion in this 5-year period. So, your math may be right in terms of where we'll end up with ROE at the end of 2028, '29 in terms of above 15% to where you're saying. So, what we've given guidance today is above 15%. And as we progress during the strategy, we will continue to upgrade that guidance as well as we see that progress coming along. So, I hope that kind of answers your question. But Robert, if you want to add anything?

No. I think you've covered it.

Anything on the 2025 outlook specifically?

No, other than to say that we expect a 20% CAGR on profit for the 5-year period, which is what we've communicated to the market. And I've given you the loan growth guidance as well. We've given guidance on capital and cost of risk. And with the quarter 1 results, probably you will get some more granularity around where we are trending and we can provide you some more granularity with our quarter 1 results.

Aybek, we might have time for some final questions now.

Sure. Yes. So the next question comes from the line of Murad Ansari.

This is Murad Ansari from GTN. Congratulations on a great set of results for the fourth quarter and the medium-term strategy as [ CFO ] said, quite ambitious but quite a bit of excitement as well. So, 2 questions on -- one question on strategy and a couple of questions on the fourth quarter results. On the strategy bit, I mean, just wondering -- you mentioned you expect international to be about 20% to 30% of contribution of business. How big is Saudi going to be in all of that? And within Saudi, I mean, any broad view if you could provide in terms of how you plan to expand? Or is it just a single branch corporate kind of focused operation bank introduction [Technical Difficulty] focused on? On the fourth quarter results, just a couple of things on margins. We've seen margins improve this particular quarter after steadily declining, obviously, partly driven by the mix. So, just some thoughts on -- if you could share on how you see the fourth quarter exit NIM? Is that the base to work on going into 2025? And what's helped margins in the fourth quarter? And lastly, if you could just...

I'm sorry, Murad, I can't hear you very clearly. If you can kindly come closer to the mic probably?

Is this better?

Slightly better. Yes. So, you got my first question on Saudi? The second question was just the sequential improvement on NIMs. The exit NIM is higher than what we -- if we were seeing steady decline in the past 3 quarters. So, fourth quarter was a bit of a different from that point of view. So just what helped that? And is that the baseline we use for next year? And lastly, the one-off gain...

Sorry, buddy. We have a lot of background noise on your end. I think we've got 2 of your questions, so we might just proceed with answering them.

So in terms of growth internationally, we are at 20% of the loan book outside the UAE. And as I mentioned earlier, over the 5-year period, we expect it to go between 20% to 30%. In terms of how much coming from Saudi, we don't break that out, particularly to Saudi, but a significant portion will come from Saudi as well. That's why we've decided to have a branch, which we expect to open very soon in the first half of this year. So, Saudi will be a key driver of growth as well. But other than that, there will be other parts as well. Egypt franchise also be growing quite nicely. We brought in the Kazakh business into our corporate banking directly here in the UAE. So, we expect some growth over there and in the Central Asian countries. Margins again, I would say, yes, we saw an uptick. A large portion of that is also due to the funding mix. CASA balances grew. So, we've seen that come through. And a couple of interest and expense reversals as well. But overall, we expect to see margins around similar levels going into 2025.

No, again, you pointed it out. So if you look at our composition as per September '24, there we had AED 237 billion of deposits that went down to AED 235 billion. We saw an uptick in CASA, which is, on average, cheaper than time deposits that helped explain why the NIM was going up as well.

And to your question on KSA, just reconfirming what we said in the past that we're not going to participate in the retail or the SME market. It's very much that top end corporate, the government-related entities in terms of the growth in that part of the market.

Thank you. We're almost on top of the hour. And I think at this point, I'd like to thank all the participants. We can see that there are still further questions outstanding and I would refer all the questions to the Investor Relations team of Abu Dhabi Commercial Bank. I'd like to hand over the call back to Mr. Deepak for any closing remarks. Thank you.

Thank you, Aybek. And no, I'd just like to thank all participants and for their questions. If there are any remaining questions, please forward them to Harsh Vardhan at Investor Relations. And we will come back to you fairly quickly on those questions. But again, thank you very much for your participation. Thank you all.