Alinma Bank (1150.SR) Q2 FY2025 Earnings Call Transcript & Summary

Good afternoon and good evening, everyone. On behalf of EFG Hermes, I welcome you to Alima's Second Quarter and First Half Results Call. My name is Shabbir Malik. Management will start with a commentary on the results and then when we will open the floor for Q&A. I will now hand over the call to Ms. Arwa Alshehri, the Head of Investor Relations to commence the call. Arwa over to you.

Thank you, Shabbir. Good day, everyone. Welcome and thank you for joining us for Alinma's earnings call for the second quarter of 2025. Before I take you through the call's agenda, I would like to invite you to visit [indiscernible] I think much more disclosure than finance publications, including last year's sustainability reports, sustainability metrics performance data providing more comprehensive and transparent view of the bank's activity. Back to the call agenda, our MD and CEO Abdullah Bin Al Khalifa, will begin [indiscernible] After that, our CFO, Mr. Adel Abalkhail will be presenting the detailed financial performance for the first half of this year, ending with the guidance for the rest of the year. We will make sure to have proper time to conclude with the Q&A session where we will be addressing your questions along with our Deputy CEO, Mr. Saleh Abdullah Alzumaie covering digital and retail and our Chief Corporate Officer, Mr. Jameel Alhamdan. With that I'll hand it over to CEO.

Hello, everyone. Thank you for taking the time to attend our earnings call. As mentioned by Arwa I'll take you through a quick presentation covering the high-level performance as well as the reminder and the progress of our current strategy. I'll take -- I'll start with the Slide #6, where our financing increased by year-to-date to reach SAR 18.6 million. And our total asset also net growth of 7%, strong growth of 7%. And our customer deposits increased by 9% year-to-date to reach SAR 229.9 million while our CASA continue our growth of 7% year-to-date to reach SAR 116.5 million, bringing the CASA as a percentage to total deposits to 50.7 million. Our operating income went through an 8% increase to reach 5.76. Our net income increased to 13% to reach SAR 3.81 billion. Cost to income increased slightly to be at 31.6. In terms of credit quality, our NPL ratio stands at 125%, while our coverage ratio is close to 124. Our NIM decreased by 22 basis [indiscernible] first half last year to reach the standard SAR 352 in 2024, the decrease is 18 basis points. Our first half ROE increased by 42 basis points to reach 18.4. On Slide #8, a reminder of our current strategy. And by the way, this is the last year of our 2025 strategy. really developed a 2030 strategy and we're going to present it for the Board for a Board review and hopefully approval in September then we'll come to the market and talk about the new strategy. So our current strategy will basically aspire to be the top most convenient bank in the country, provide the best quality of service, to aspire to be #1 in Net Promoter Score and be #1 employer of choice. If we go to Slide 9. I'll talk more detail about the current strategy, obviously, investing or aspiring to be the most convenient bank It requires significant investment in digital. So we developed our analytics to basically foster data-driven decision-making. And there's a lot of customer -- cultural transformation to able to attract and retain this talent in the country. And retail, the 3 main pillars focusing on growing affulent and high net worth business, as well as attract more use segments and offer the best customer experience and operational excellence. We wanted to be the core bank for large mid-corporate and project finance through diversified sectors. We want to develop our SME proposition and grow our cash and trade business. For trade, I want it to be the core partner for our corporate clients needs, whether it's hedging or investments. I want to grow our FI business as well as having high-quality function. On Page 10 and the second quarter, Out of the current 86 initiatives, we've already delivered on 78 of those. We're still working on 8 more to be delivered and finalized this year before we switch into the new strategy. So bank-wide, we start just automation in order to improve the quality of service as well as the time to market improvement. We will also introduce bank-as-a-service to be able to reach more customers outside our customer base. We hired a new graduate team to go through extensive training in Gen Ai. On retail, we've opened 5 more branches in this quarter. We launched also sustainable saving accounts for [indiscernible] buy now, pay later for our cardholders. In corporate, we launched a new AI engine for next products to buy. We had an overall growth in CVG portfolio of 14%, however, we have a stronger growth on mid corporates, 30% in corporate, 12% on SME. On treasury, we launched -- we've issued $500 million sustainable AT1 sukuk as well as 500 million of unsecured sukuk -- senior unsecured sukuk. And we've done multiple cash flow [indiscernible] hedging this year. [indiscernible] as I mentioned we have 8 more initiatives to work on. Some of the things that we're working on until maybe end of this year, leveraging more advanced analytics and GenAI to drive business inside, optimized operations and deliver personalized customer experience. We'll continue to announce our ESG practices and continue to enhance our product or customer operations for our product for customers. Leveraging data analytics and GenAI to get targeted marketing combine and continue to leverage the branch network in terms of sales of insurance and wealth management products. In corporates, we are soon to launch Phase 2 of supply chain financing. We want to also further -- introduce further enhancements to our digital trade platform. We want to also continue to follow cross-sell and more products and offer them to drive higher growth in liabilities. In treasury, we want to obviously continue to enhance our offering structured deposits, but as well also enhance the sources of funding through diversified sources of funding and obviously, focus on cross-selling our products and [indiscernible] products. On Page 12, that slide for me before I hand it to the CFO. It just shows some of the KPIs as a result of the current strategy. So on retail, we grew 37% on revolving credit card portfolio. Auto lease continued to have very strong growth, 57% year-on-year growth, accounts opening now 93% of our new accounts are opened through online. In corporate we have a bit of a slow start on project finance. However, through the significant approved projects recently, we expect stronger growth in the second half. SME had, as I mentioned before, 21% growth and mid [indiscernible]. On treasury we've both our average yield on investments by 15 basis points. Cost of funding reduced by 27 basis points and [indiscernible] 5%. With that, I hand the floor over to our CFO, Adel.

Thank you. A very good afternoon to you all and welcome again to our earning call for the second quarter of this year. As you [indiscernible] I'll be walking you through the financial performance that will be followed by the -- our outlook and the guidance for the remainder of the year, then we'll open the questions of the Q&A at the end. So starting with Slide #14 on the balance sheet trend. Total assets has grown 7% reaching roughly SAR 300 billion. This was driven mainly by financing to 8% and also the 6% of the growth in our investment book. Also in the slide, total liabilities, we've seen [ 7% ] in line with the growth in the assets. Total liabilities are roughly SAR 250 billion by end of the quarter. This was are clearly driven by customer demand growth at 9% and we have seen a slight drop in the interbank. On the next slide, Slide #15. On the P&L trends and as you have seen the growth in net income, 15% year-on-year and this was mainly driven by an 8% growth in the top line, which is the total operating income. The 8% was mainly driven by 9% growth in the funded income and also complemented by a 5% growth in the noninterest income. This was offset by 9% growth in the OpEx and we'll see some detail later onl. We go to Slide #16, a little bit of details on the financing. 8% growth in YTD [indiscernible] 5% growth from first quarter of this year. The YTD growth of 8% was driven by corporate portfolio growth of 9%. Also the growth was in the retail portfolio of 8%. You can see the same slide on the top right hand, the financing growth -- the gross financing compensation as of June was 65% large corporate [indiscernible] project finance and almost 32% for large corporate, mid-corporate represents 6% of the overall portfolio of the bank, SMEs portfolio 5% and the remaining 24% is the overall retail financing, which is 12% each between the mortgage portfolio and the other 12% is for the consumer finance. In the next slide, Slide #7, seeing a slight drop in because the growth in the sequential basis 1%. However, because the growth YTD and also time deposits have grown 11% since December. So the growth in term deposits on a sequential basis this quarter, it's more than what we have seen recall in Q1, the growth in term deposits from December to March was only 1%. We have more growth, 12% of term deposit this quarter, if you compare it to Q1, which as you can see on the graph in the center of the page has diluted the CASA as a percentage of total demand being 50.7% by end of June -- by end of March, which was in Q1, this percentage was 53.9%, [indiscernible] which is a little bit of details on the NIM. So we have seen the gross funded income amount growing by 8%. And in the financing-related funded income and also 24% on the investment side. If you can see the graph in the bottom left on net profit margin movements as mentioned by the CEO, previously, 22 basis points was a contraction on the NIM from the same period last year. And clearly, this was a result of the reduction of 55 basis points in the financing yield even though there was 6 basis points improvement in the investment yield. However, the drop in the cost of bundling because then the elevated liquidity costs, we have seen only a drop of 28 basis points from the same period of last year. So the graph in the center year-to-date profit margin [indiscernible] we closed at 3.52. This is an 18 basis point reduction from the full year NIM of last year, which was at 3.7%. Slide #19, on the fees and other income, the nonfunded income, you have seen a very strong growth during this quarter on a sequential basis from Q1 this year. The gross in net yield income is 27%. This is actually driven by 22% growth in net fees from banking services on a sequential basis, of course, and 38% growth in other income. So the [indiscernible] the year-on-year growth on the nonfunded income was 6% from fees from banking services and exchange income was 5% and the investment gains and dividends remains flat year-on-year. On the next slide, Slide #20, on the operating expenses. We have seen growth in operating expenses, 1% on a sequential basis from Q1. If you recall in Q1, the growth was -- from the Q4 was 5%. This quarter, the growth on a sequential basis for the quarter was 1%. So if you look at this year-on-year, the growth overall 9% which was driven by 9% growth in personnel cost and 17% growth in depreciation and amortization and we have 7% growth in other G&A. So the growth in overall OpEx 9%, which is lower than the growth, as we have mentioned in the top line as diluted has actually increased the cost-to-income ratio. If you can see in the cost-to-income ratio, if you recall, we closed the year December at 30.9. We closed the first half at a cost-to-income ratio of 51.6. However, the cost-to-income ratio for the quarter has dropped actually from where we closed in March where we closed [indiscernible]. So we have a 60 basis point drop in the cost-to-income ratio. On the next slide, Slide #21 on the impairment. This year, the 6 months charge is led by SAR 86 million from the same period of last year. This is a 15% lower impairment charge for the same period. Cost of [indiscernible] actually 4 basis points increased from Q1. However, if you look at the cost of risk, back in June 2024 [indiscernible] to the same period was 63 basis points. So we closed the first half at 47 basis points, which is actually 16 basis points drop. On the next slide, Slide #22. We have NPL coverage. We have seen NPL has increased by 28%. This is resulting on NPL ratio reaching 101.25% level, has improved. Back in Q1, we were at 56.4%. The coverage ratio as of June 2025 was [ 100.73% ]. Also looking into the state-wise coverage, Stage 1 remains a flat, is 40 basis points coverage. However, as we mentioned in the call for the Q1 results, we are working to improve the Stage 2 coverage, which has increased from 14.4% to 16.5%. And also, we have an improvement on Stage 3 coverage that has reached 70.4% from 54.8% back in the first quarter. Looking also on the Slide #23 on the capitalization and liquidity. So the capitalization has improved by 20 basis points in the total capital, which is [indiscernible] Tier 1 and Tier 2, for [indiscernible] risk, which was in Q1 at 18.3%. So that's a 20 bps improvement. That's also as mentioned by the CEO, part of it is because of the -- the $500 million which was issued with capital term during this Q2. We have also a 40 basis points improvement in ROE with at 18% ROE in Q1. We closed the quarter -- the first half at 18.4%. Looking into the [indiscernible] 123%, which is in line with the previous periods on average and remains above -- well above the regulatory minimum of 100%. And also, we are operating at 82.5% loan to demand ratio, which is the regulatory or [indiscernible] LDR ratio, which is well above -- below the regulatory maximum. And also NSFR remained healthy at 108.2%, which as I mentioned also well above the regulatory minimum. On the second section on the outlook and the guidance on Slide #25. So we closed the first half of the year with financing growth at 8% YTD. We're keeping the guidance and change for the full year as a mid-teens growth for financing. Given the elevated liquidity cost and which you have seen, especially in the first half on the cost of funding side, where we closed the quarter -- where we closed the first half at 22 basis points contraction on the NIM. Year-on-year, also 18 basis points contraction from December compared to the full year of 2024. We're revising the guidance from previously 0 to minus 10 basis point. The new guidance is minus 10 basis points to minus 20 basis points. And in light of that, also, we are revising cost-to-income ratio guidance. So the guidance will be below 31%. This is revised from the previous guidance, was 50.5%. And also, the ROE as a result, ROE also as guidance is being revised to be above 18.5%. This is revised from the previous guidance for ROE, which was above 19%. Cost of risk remains unchanged. We closed the first half at 47 basis points risk, what was mentioned earlier. We are keeping the cost of risk guidance unchanged 50 to 40 basis points. As far as the capitalization for total capital for [indiscernible] Tier 1 and Tier 2, we closed the first half at 18.5 and the guidance is kept unchanged or 18% to 19%. With that, I will hand it over back to the operator to -- for the Q&A. Thank you.

[Operator Instructions] So we'll first go to the line of Chiro Ghosh.

So I have 3 very quick questions. This is Chiro Ghosh from SICO Bahrain. So the first one is related to cost of funding, of course. So in a scenario of 2 to 3 rate cuts, does your cost of funding improves? Or the competition is still very strong for you to see a NIM improvement? That's my first one. Second is how -- where does your CET1 stand considering if you are able -- would you be able to [indiscernible] growth purely from the CET1 perspective. And the third one is, again, quickly the project finance growth was relatively muted -- relatively softer like at 5%. Is there a systemic lower demand or it is a strategic decision to stay away from the segment. Yes. These are my 3 questions.

As far as the cost of funding, if you look at the 3-month average [indiscernible] for the first half this year compared [indiscernible]. But the issue here was the demand on liquidity, driven by strong growth on loans has [indiscernible] forced the bank to be well above to compete for deposits or have further cuts in rates certainly will help generally speaking. But so far, the 2 cuts, let's say, 50 basis points, that's not going to translate in my opinion to a 50 basis point lower cost of funding because banks are still paying higher than, a little bit some of that. So I mentioned before, like I think 27, 28 basis points lower cost of funding because the or average 3 months declined by 83%. So you can see the gap is obviously a lower -- a higher decline on interest that to charge our customers because also coupled with the fact that there is still aggressive pricing in the market for some corporate loans, coupled with higher cost of funding, that's what we -- forced us to change the outlook, always promise investors that we're going to continue to report, preforecast before the earning calls and basically report what we as management see going forward. As far as CET1, we are fully aware that we're maybe operating below market average. However, as mentioned before, we keep getting this issue again, again, the issue is that we can -- on of the tools that we can obviously do is reduce the dividends payout. We haven't done it yet. We don't see an urge need to do it now. But that's one of the tools. And ultimately, you're going for right issue, it's always a possibility. We're not planning to do but that's one of the other options. Now on project finance, and I think I quickly mentioned maybe, Jameel, here is our Chief Corporate Head, Jameel [Audio Gap]

stock growth, but as you know, due to the competition, but we are very selective on deals that are priced well. However, we are catching up and we are positive about the continuing growth as projected before.

So the demand is there. It was a strategic decision, if I can summarize.

It's more of a timing of projects. I think recently, there have been significant size of project finance that's been approved and we're going to see much stronger growth in the second half. .

This is from the line of Naresh Bilandani.

I have 3 questions, please. My first question [Audio Gap] operating environment. So across the board in the sector, we have pressure come through on the NIMs led by funding costs.or due to competitive pressures, as you indicated in the reply to the previous question. But as is also visible in your numbers, we're not seeing any notable slowdown in credit origination. I mean, even your guidance, you're maintaining a mid-teens guidance even though the revenue is going to be softer, probably for the rest of the year. Do you believe this phenomenon of growth despite tight spreads is likely to continue into the next year given the market structure or the opportunity in the industry? Or do you believe the industry participants could eventually start opting towards a lower growth option to conserve the spreads. Keen to understand how do you see the situation, which is kind of unique in the Saudi market right now, pan out beyond sort of like the year 2025 at this stage. So that's the first question. The second question I had was on CET1. In addition to the answer that you offered to the previous question.[indiscernible] through the medium term, I think the level that we saw at the end of last year was 13.2%, in context of that level, what would be the level that you would opt to maintain over the medium term? That's second question. And my third and final question is, we've seen recently changes to the credit cards that were promulgated by the regulator in June. Do you believe changes are going to be meaningful enough to put a pressure on fees in any form in the second half of the year, also keeping in context that the brokerage volumes are relatively sluggish at this stage across the industry.

I think in terms of rate environment and certainly, there is a pressure on liquidity. There is also competition price -- so in terms of the bank's ability to future growth, there is also certainly capacity. Other one is the liquidity. The other one is capital adequacy. And you must have heard in the news that the regulator came up with countercyclical [indiscernible] point, certainly that may have a bit of slower growth. But I don't think the growth will be going down to single digits in the industry. I think as you see multiple years of still double digits in terms of loan growth, the demand is strong and that's the core for banks. And despite maybe lower NIMs, the fact that volume, when we look at cost of funding for banks because the fact that we have significant CASA balances on books, their true cost of funding is not actually. It's below. So in our case, I think it's below 3% in terms of cost of funding. So when you lend at SIBOR, the 100, the 90, the 110 basis points still adds off the bottom line. Yes, it may have contraction, a bit contraction in NIMs but the volume impact should be more than offset that. Now on the CET level -- on CET1, we don't really have a specific targeted level think we see the level currently is comfortable with the decline further it. Certainly, there's a possibility. But as I mentioned, we possibly certainly won't see that double digit. We now want to make sure it never goes to single digits. But does not mean that our target is 10%, it could be obviously higher, but we'll see. What I said in this periodically. We don't have a target, on the credit card changes. Adel?

Yes. Naresh, I can take the credit card part. So the recent regulation -- as you know, it came into effect recently. And it just -- as you maybe have seen them, it's public actually, that -- its specify some of the fees core banks what they can charge as an issuer. We did that [indiscernible] the the impact is immaterial. Especially when you think about it, that is from the point of view that it's also it might increase the acquiring part. So in our fees could also trigger more utilization for the acquired business. So we did the assessment. It's not really material. Some of the fees actually just put there for banks just to specify the rate because it will not be led to banks to this charge more or less, just to be unified among banks. But yes, we did the assessment, it's not really material. .

I appreciate it. Just one final small follow-up. Could you just clarify what is the level of CET1 for the second quarter?

13.2%.

This is from the line of [ Murad Ansari ].

Yes. So on the asset quality, I mean, you've made significant improvement on Stage 3 coverage in particular. I just wanted to get a sense of is -- has there been a reduction in your Stage 3 loan balances, we saw a pickup in the last quarter. So just wanted to get a bit more insight on how it's evolved in -- over the last quarter? Secondly, on this -- just on the rate cuts that have come through, is the book largely now reflecting those rate cuts? I mean, do you see further repricing possibility, downward repricing possibility over there? And third is on loan growth. So you've had a good half, 8% year-to-date. Your guidance is about mid-teens, so about 15%, 16% growth would mean an additional about $16 billion to $17 billion growth in absolute terms, which is similar to what your first quarter absolute -- first half absolute expansion has been in the loan book. But, Mr. Abdullah, already on the call, you said you're expecting second half to be much stronger. So just wanted to get a sense as to is there an upside risk on that loan growth guidance to being higher teens. And lastly, on fee income, a good quarter. Are there any kind of extra one-offs over there? I'm just on what are the drivers for this pickup that we've seen in the fee income.

[indiscernible] and also going be the fees. So on these -- the growth in Q2 was strong on a sequential basis at 27%. So 22% was the growth from Q1 actually was mainly on the banking services fees. We have seen 38% growth in the other income that is part of the yield. So if we look at the fees from banking services for Q2, we have seen improvement across many metrics there. We have seen the improvement on the point of sales business. We have still a pickup versus what you have seen in Q1 and then in Q4 where there was a drop from Q3. And also, we have seen a good improvement on the level of fees we're getting as part of the asset management that is being done by our [indiscernible] capital, which is our investment arm. We have seen also a slight drop in the cards related expenses, but also there was a big improvement coming from the accounts business that would be linked in 1 part to the improvements that we have done in the operating model with some of the international schemes that provides the credit card services, but also the utilization of cards resulted in more interchange income. So collectively, we have seen this translated into the Q2 result. And also on the other hand, on the other income, specifically from banking services, was also seen a pickup from Q1 at a 6% growth in our fixed tax income, volume that has been transacted. And also, we have been this growth in gains and dividends from those investments that we planned for income statement. We have seen also some growth in dividends for some investments and for fair value through other income, there were small also increase on the overall other income as well. And maybe back to Stage 3. Stage 3 as a movement, we haven't seen any significant movement in Stage 3 during the quarter. As far as certain accounts that by model will be usually get staged into Stage 3. And clearly, there will be a Stage 2 before. It is being more meaningful to us. It's look at the stage coverage. So which has improved significantly from the previous quarter where coverage was around 55%. I mentioned in my slides that we are now at 75%, which is slightly higher than what you would see otherwise in the market. Okay. And also on the NIMs, as I said, every time we do the reforcasting before the earnings call, which the forward yeild curve of the markets. We don't build our own yield curve, we just take whatever the markets at that time believes. So that's already taken into consideration. Now the loan growth is that was one of the -- we had a small start on year-on-year growth on project finance. [indiscernible] is stronger growth and project finance in the second half -- as mentioned by Adel, 33% of the total portfolio is actually project finance. You can imagine that the growth rate accelerated as a percentage that has a bigger impact on the overall portfolio growth. And we're going to continue to grow strongly in the areas of SME, project finance and mid-corporates as well as good growth, growth on the retail side.

Next question is from the line of [indiscernible].

I have 2 follow-up questions on capital, please, if I may. So firstly, you had executed some RWA optimization measures in the first quarter. And back then was, I think, on the back of a little collateral. I'm just wondering if you've taken any specific measures this quarter, in the second quarter. And if there are any other pockets of optimization possible going forward? And secondly, just a clarification on the increase in the countercyclical buffer requirement. I remember from our previous conversations that there were still some clarifications needed, whether it would be CET1 or total capital in terms of the lease in the requirement. So could you please clarify whether this will be filled through CET1? Or is it seen from a total capital perspective?

This is Adel .So on the earlier question, that relates to the -- can you repeat your question? Sorry.

Yes, absolutely. So I was just wondering -- yes, yes, absolutely. I was just wondering if there are any RWA optimization measures that you took in the second quarter, similar to the first one. And if there are any other pockets of optimization that you see that you can take going forward?

[indiscernible] Now clear. So yes, as I said during Q1, the risk density has been impacted. The optimization is actually an ongoing excercise. So during Q1, as we -- as you rightly mentioned, we mentioned before that there were certain equity eligible collateral that we started now take into account, nothing really specific to Q2. But however, the overall optimization process, the risk-weighted assets is ongoing exercise. But I wouldn't say, there is some purely specific for Q1. On the CCY, the countercyclical buffer, the order came out from the regulator, which I believe it's public that the countercyclical buffer will be moved from 0 to 1%, so from 0 to 100 basis points. And that, as mentioned in the circular itself that is going to be of the total risk-weighted assets. So there will be the requirements all, of them about the overall capital requirements.

This is from the line of Rahul.

A couple of questions from me. Firstly, on the NIM guidance. So you have sort of downgraded the NIM guidance. We are minus 18 basis points year-to-date and the guidance of 10 to 20 basis points implies that you see a flat NIM through the year-end or an improvement in NIM. So what is sort of driving this NIM? Like how many rate cuts do you factor in, #1? And #2 is, assuming no rate cuts further from here, how do you see NIM panning out? That is #1. And secondly, on the cost of risk perspective, again, coverage ratio has increased while net -- your NPLs hasn't increased. So are you expecting the coverage to increase from here? Or do you expect NPLs to go up? That would be helpful. And sorry, 1 last question. On the loan growth perspective, last 3 quarters, we have seen that Alinma sort of grew either at the market or slightly slower than the market, whereas this quarter again still have to grow faster. So what is it? You mentioned project finance. But apart from that, do you -- you could you just add more color on that? Or is it that you would be clearly focusing on growth over profitability.

To take maybe on the first point on the NIM. So as may be mentioned by our CEO earlier on, on the answer to [indiscernible] we really take the portfolio composition and the profile of the liabilities, along with the expected growth on the assets and also the latest yield curve that we have with the assumptions of the CASA growth as well. And we do that actively and also before, we always run our forecast for the full year, given also with how the NIMS performed in the last previous quarters. So looking into the yield curve in the market now, the assumptions are 2 rate cuts. One end of the year, there will be maybe a cut somewhere December. Today, the major probabilities that maybe -- that was a yield curve that we refused that there might be no rate cuts. So I think if we keep rate flat where the NIMs will move, that would again be really heavily reliant on where the also elevated liquidity cost will be for now until year-end and we have seen that in the first half. Maybe in the cost of risk because the risk has increased, even though NPLs are not really not increased at least on sequential basis. You see improvement on the coverage ratio seen this was a driver also from what I mentioned on our prudence to always have Stage 2 coverage we twin in the market and also the [indiscernible] quarters, as you can see. As we mentioned, we will always be have to be around 150% on coverage ratio, will never that goes above, but that's also part of the growth, managing the coverage ratio itself. Maybe on the loan growth...

I think in the loan growth, you mentioned that so we had the stronger growth in the second half versus first quarter, second quarter, first quarter. I keep mentioning that slow year-on-year growth on the project finance side, we had strong project growth on May on retail, on mid-corporate and large corporates. I forgot to mention large corporates, good growth in the second quarter. These are the main drivers for the growth that we see in the second quarter.

This is from the line of Aybek. We'll move to the next audio question in the queue. This is from the line of Muzamil.

So this is Muzamil from [indiscernible] Research. I have just 1 question. Can you tell what are the spreads you are making on your corporate loan portfolio combined with the SME portfolio? And if they are already low, what will be the strategy that you will offer the loan to the customers, given the rates are already very competitive?

Honestly, I didn't get the question right. Can you repeat that, please?

Sure. I was saying that your spreads on the corporate loan portfolio, combined with the SME portfolio, what are these spreads? And if they are low, then what will be the bank's strategy to catch a customer from the market which is already getting lower rates on the financing?

Okay. Obviously, I did mention in the beginning, I think in the question about loan growth. Certainly, we've seen some aggressive pricing for certain customers. We have to compete but we don't go aggressive on pricing. But at the end of the day, if you don't compete, you lose significant market share. So we did adjust some pricing lower, but not to the level that we heard some clients are getting outside. We'll let go some clients is the rate is relally uncompetitive for us to participate at that level. We're focusing on project finance, corporate, SME, retail good rates and we're very selective on large corporate, but we will be very second quarter grow a large corporate. That's why I think for -- I think over the last few years, that the first time we've seen our loan growth was below the industry average in the first half of this year. We don't want to be aggressive on loan pricing.

This is from [indiscernible].

Just 1 question from my end regarding. Just if you can elaborate a little bit about the segments or from where you see a sharp decline in the asset. During this quarter, we have seen some banks expand their asset. Just if you can say which sector, which segment have seen a decrease in the quarter. .

I think [indiscernible] agree, I think in terms of the segments that you see in terms of tough competetion in terms of pricing that has been in the last quarters. We start feelling in project finance to a certain extent, but mid-corporates also facing some aggressive pricing but not to the level that we see in large corporates.

Okay. We don't have any audio questions. So maybe I'll move to 1 of the questions in the chat box. The name is not clear to me, but it basically asked for your NIM sensitivity to a 25 basis point cut in U.S. rates?

Yes. So on the NIM sensitivity, again, the latest sensitivity we have did not again move much, we've seen this in Q1, which we communicate that around 1.6 to 1.7 basis points drop for a 25 basis point cuts. But as usual, should be [indiscernible] all also qualified that this is really a point-in-time sensitivity because this is subject to many factors and remains typical. As you move 1 day ahead and then any changes to the overall balance sheet composition rather than your growth assumptions could always change. But did not change the sensitivity approach was communicated back somewhere in Q1, just was like part of the basis points drop.

Great. Maybe I can add a couple of questions here. First 1 is on your deposit growth, I think about 5% quarter-on-quarter ahead of the sector growth. How do we -- how should we see that -- should we see this as basically building liquidity in anticipation of stronger loan growth in the second half of this year? That's #1. #2, I know you've discussed this point earlier in some of the questions, but when we talk about the countercyclical buffer of 100 basis points, is this going to be applied uniformly across all the banks or it will be dependent on the growth outlook or the historical growth rates? And related to that, it wasn't immediately clear to me based on your answer if additional Tier 1 capital and Tier 2 capital can also be used to cover for this additional countercyclical buffer? And my third question around, again, on the capital side. You were quite clear that in 2Q, there was no RWA optimization as such. But I was wondering if there are other pockets of opportunities for you in terms of asset sales, et cetera, which could help you generate some extra capital that can be used for for these capital requirements. So those questions, please.

Thank you, Shabbir. I'll cover the first point and leave the others to Adel. In terms of the bulk growth, as I mentioned and it's known in the market liquidity is a bit tight in the market and the future growth in loans is strong. The demand on loans is strong, so we do all our efforts to basically bring up whatever liquidity that we can find at a resonable price. We've been very successful in our CASA. We were successful in onboarding new relationships, whether in government, corporates, affluent, privatesand also in new segments and so on. So this is all helping whatever deposits we see in corporates, we take it. Certainly, as I mentioned, I expect stronger growth on the second half on project side and continue also on the other sectors. So certainly, that's going to help us that level of growth. Adel?

Malik, on the question relating to the and the contracyclical buffer. This is already public and can still find it in the regulatory website. It's basically 0 to 1%, which is of total risk-weighted assets. So that suggests that it's for both -- for the total capital, as I mentioned, including this [indiscernible] unified for all banks, I understand this circular was in to all banks and not specific certain banks. On the risk-weighted assets, as I mentioned, the optimization is an ongoing exercise, honestly. Was there any anything specific this quarter versus last quarter? Not really. However, look forward, as I mentioned, this is an exercise, there was always tools. One of them you rightly mentioned could be the sale of certain mortgages to SRC. We would be also act going forward to my risk weighted assets, of course, in order to -- in order to aim to reduce the risk density for the overall.

Great. Maybe a last question from my side. Just 1 question from my side. The -- there has been some news about, for instance, the most recent 1 is about the PIS, reevaluating some of the NEOM projects. And it's interesting that you mentioned that you've seen a good pipeline going into the second half. So it's very encouraging to see that the pipeline is still looking good. But I think in terms of your industry focus, in terms of your project focus, what is that pipeline being driven by? So -- and has these reprioritization activities not affected you?

[indiscernible] interference from another line. Okay, in terms of project finance, there have been multiple focus. One of the strong area of growth for us has been the renewables, significant amounts of solar stations being awarded and needed finance as well as other projects in the country, mainly in the infrastructure. And of course, some of the companies that have been set up by PIF is also in the market for partners.

Got it. There's 1 question from Fatima [indiscernible] in the chat box. What led to the increase in NPL loans, any specific sector or industry?

So the NPL, the increase in NPL is not -- did not happen this quarter. If you go back to the last 3 quarters. This is where we started to see the pickup. If you recall, [indiscernible] , we did a sizable write-off actually in the last year was higher than the historical average as write-off and of course, the accounting write-off that we do directly in that the level of NPLs as an amount in the books and also have a reflection on the NPL as a percentage. So it's not really growing, is maybe the base was low to compare it to the Q2 or maybe Q1 or in the floor.

We have 1 audio question. Do you have a few minutes to take that question, please.

Yes, it's okay, Shabbir.

Okay. This question is from the line of Yasir.

This is Yasir [indiscernible] Holding Company. Have 1 question regarding the asset yield and cost of funding. We are talking -- if we are taking the previous data that you shared in the first half in '24. If we add 6 basis points, we are talking about approximately 7% in side. In terms of the cost rate or funding side, up to 0.5%. We are talking about 28 basis points and come up with a NIM of 3.5. So my question is, do you have any plan to increase CASA ratio through the remaining of the year?

I mean CASA is always a focus for the bank. And if you look back in the history, we have really seen strong growth in CASA specifically. if we see this quarter, we have percentage drop. It's only 6 months and we already have seen a substantive growth in CASA. It's also compared to double-digit growth that we have seen a lot here in the year before. So it will continue to be a focus. And of course, it's the -- not only the current accounts but also in the savings accounts, we are seeing growth there. And also what goes into that other account. So of course, given the -- where we are in the environment and the elevated liquidity cost and the cost of funding, it's actually more important than. So, of course, it's the focus, of course, it is the focus going forward.

Okay. So could you please give us a guidance in terms of how do you see the cost of funding in the full year?

Yes, I'm afraid we can't, we don't give guidance on cost of funds itself. However, as you mentioned, our NIM guidance is for the full year, if toy recall 3.7% for the full year. Now we just revised the guidance to be minus 10 basis points to minus 20 basis points.

All right. I think that concludes the Q&A section of the call. I'll now hand it back to the management for any concluding remarks.

Okay. Thank you, Shabbir, for hosting the call and thank you, everyone, for your time. If you have any follow-up questions, please contact us at IR e-mail and have a great day.

Thank you, everyone, for joining the call. Have a nice evening.