Alinma Bank (1150) Earnings Call Transcript & Summary

Good day, and welcome to today's call. Today's conference is being recorded. At this time, I would like to turn the conference over to Waleed Mohsin from Goldman Sachs. Please go ahead, sir.

Thank you, Melissa. Good day, everyone, and welcome to Alinma Bank's Third Quarter '23 Earnings Call hosted by Goldman Sachs. It is my pleasure to welcome Alinma Bank's management on today's call, Mr. Abdullah Khalifa, Chief Executive Officer; Mr. Saleh Al Zumaie, Deputy CEO, Head of Retail and Digital Banking; Mr. Adel Abalkhail, Chief Financial Officer; and Mr. Ahmed Sager, Head of Investor Relations. Please note that today's call is being recorded and is intended for analysts and investors only, and any media personnel should disconnect immediately. So without any further delay, let me pass on the call to Alinma Bank's CEO, Mr. Abdullah Khalifa.

Hi, everyone. Thank you for taking the time to attend our earnings call for Q3 2023. As we used to, we will -- I'll take you through a high-level presentation on the financials, where later on, our CFO, will take you through a detailed discussion on the financials. I will then also touch on our current strategy as a reminder and our progress in implementing that strategy. So I'll start on Slide 10, which shows the high-level financial performance. Our -- we have experienced strong credit growth. Loans grew by 15% year-to-date, and it's not really driven by 1 sector. It's all sectors are having double-digit growth, whether it's in the corporate segment or on the retail segment, all experiencing strong growth. Our total assets also went up by 16% to reach SAR 232.6 million. Our operating income increased by 23% year-on-year and driven mainly by the yield income as well as fees and effects. Net income increased by 28% to reach SAR 3.5 billion. Our NPL ratio reduced from 1.89% last quarter to 1.69% while our coverage ratio improved from 130% in Q2 to now 150.8%, and I've always mentioned our commitment to bring it up to at least 150. So we managed to do that in Q3. Our customer deposits increased by 24% year-to-date. And our CASA also, which is really a significant improvement. We managed to increase CASA year-to-date by 9% despite the challenge of high interest rates. Improved also our cost-to-income ratio. Last year, it was 34.6%. Now we're 31.7%. Our net profit margin or NIMs improved by 22 basis points year-on-year to reach 3.81%. CASA as a percentage of deposits reduced to almost 50% because obviously, with the strong loan growth, we obviously had to fund this through more time deposits, and that was diluting the CASA, even though CASA as an absolute amount has increased by 9%. Our CAR in Q3 reached 17.5%. I will now take you through a quick reminder of our current strategy, our 2025 strategy which basically starts on Page 8 on the presentation. We aim to be the fastest and the most convenient bank in the country. We want to be the best service provider, the quality of service through being #1 in Net Promoter Score as well be employer of choice for -- among the Saudi banks. For more details about business. I will take you to Page 9. So in retail, we want to build and grow our affluent and high net worth in digital franchise with a focus on young customers and offer the best customer service. In corporate, we want to be the core bank, not only for large and project finance, but all segments within our portfolio. We want to also develop high-quality SME business and grow our cash and trade finance. And treasury become also main partner for our client needs, whether it's hedging or for investing. And bank-wide, to do this, we have to build digital factories to scale up digital transformation. We want to foster data-driven decision making. So our advanced analytics and usage of technology to improve our data and use that data to make a business decision is important. And of course, the culture transformation in order for us not only to attract but also retain the best talent in the country. How did we progress so far on that implementation of the strategy? Obviously, the strategy translates into 77 initiatives of which, as of today, we finished 60 out of those 77. Some of the things that we worked on in Q3 included obviously the Youth app. We've already launched the Youth app but in a sandbox environment, still waiting for the final approval from our regulator to go public. We also launched the marketplace through our app. We got full licensing of certification for open banking, for all these standards. We also implemented an advanced analytics anti-fraud system. Our female participation in the workforce reached 21%. In retail, we implemented digital execution or digital application for credit card, and personal finance. We launched expats lending. We have sold also 18 TCR machines, bringing the total to 84. And we were 1 of the 3 banks that was selected for the REDF Price Subsidization Program. For corporate, we launched the first phase of LOS, loan origination system. And we've had significant growth in mid-corporates, 101% growth in mid-corporates followed by also 110% growth in non-funded for mid-corporates, 20% increase in Kafalah and 85% program -- increase in program-based lending. We've achieved high volume in treasury. For FX business, we reached SAR 28 billion. For profit rate swaps, we reached INR 26.6 billion and we continue to develop further derivatives to offer our clients. On Page 11, this is -- we still have 17 initiatives to work on before we complete our full initiatives. Some of the things that we're going to continue to work on is obviously expanding the digital factory and the digital capability that we're going to continue to invest in. Also continue our journey of using RPAs. This month, we will launch our OHI, Organizational Health Index. We're -- we've been working on different initiatives to involve that. As you recall, one of our strategy goals is to become employer of choice. So it's very important for us. We're also working on a new retail credit scoring system, especially for noncarriers. On retail, we are working to enhance our family account ecosystem. We'll continue to our journey to digitize our mortgage mobile journey, continue to implement the male and female branch merging, a merger that we started this year. We're going to continue to expand on that. On corporate, we want to continue obviously delivering on the second phase of LOS, loan origination system. We're also building a new integrated portal for all corporate segments and for treasury, we're going to continue to enhance structured deposits, look for different ways to improve our long-term funding and basically did the cross-sell culture on the bank through the cross-selling treasury products. This is in a quick way, summarizes our strategy and our progress on the implementation of that. And with that, I give the floor to the CFO to take you through a detailed presentation of the financial.

Thank you. Good afternoon, and welcome you again to our earnings call for Q3 results. I'll be walking you through the financial performance and that will be followed by a quick overview on the outlook and the guidance for the remainder of the year. Starting with Slide #13, on the balance sheet trend, we've seen total asset growth 16%, obviously, this was mainly driven by 15% growth in financing and also coubled with 6% growth in the investment portfolio. Total liabilities growth YTD also 18%, and this is, again, driven by the growth in customer deposits. This is 24% growth from December. On the next slide, Slide #14, on the P&L trends, another good quarter bringing the 9 months net profit to SAR 3.5 billion. This is a 28% growth from growth year-on-year, and it was mainly driven by -- as mentioned by the CEO, the growth is 27% growth in funded income, 10% growth in the non-funded income. This was offset by a 15% year-on-year growth in OpEx, and we will have a detailed presentation slides on that. and also year-on-year 30% growth in impairment charge. In the next slide, Slide #15, on the financing, the overall financing growth YTD is 15% this was driven by 16% growth in the corporate financing and 13% growth in the retail portfolio. If we see the graph in the bottom left chart, we have the 15% growth YTD. This was mainly driven home financing was grown 10%, personal financing 17%, large corporate and project financing together 13% growth. Almost doubling up year-on-year the mid-corporate portfolio and also 24% growth in the SME. In the top right-hand graph, you can see the composition of the portfolio, where the large corporates and project financing represents 69% of the overall financing with corporate remains small 3%, SME 4%. Home financing represents 12% of the overall financing book and the remaining 12% for finance -- for personal financing. In the next slide, Slide #16, on the deposits. Despite the challenges in growing CASA in the market, we have managed to grow CASA 9% YTD. And of course, upon the 15% growth in the assets, also time deposits has increased 44%. And this is mentioned earlier, product CASA as a percentage of time deposits around 50%. We recall in Q2, CASA as a percentage of total deposits was 49%. So we have seen 1% growth in the improvement in CASA as a percentage of our total deposits at the end of September. Slide #17 is the income from investment and financing. On the gross income, we've seen an overall 83% growth, that's before cost of funding, of course, 50% was from the growth in the investment income and 89% was the growth in the financing income relating to financing portfolio. If you see in the bottom left chart on the net profit margin movement, we have seen year-on-year 22 basis points expansion and if you look at this on the gross yield, we have seen an expansion of 223 basis points, but this was offset by 200 basis points increase on the cost of funding of 2%. So on the bottom right chart, the net profit margin, you can see a trend whereby the 22 basis points of movement in net profit margin was in line with the improvement -- the gross yield reaching 6.45%, but this was also combined with the increase of cost of funding 2.64%. So this limited the expansion, as you will see later. On the next slide, slide #18 the fee and other income, we may realize this on a sequential basis, 7% decrease in Q3 if we look at -- if we compare it to Q2. But this is the sequential drop, it's not really in the core-funded income, it's mainly on the other income. So as last year, there was one-offs in the other income. But if you look in the top right chart, fees from banking services, and this is both on the funding and the nonfunded income 26%, we have seen exchange income also growth of 22% year-on-year. If you look at the next slide, which is basically slide #19 in the operating expenses, again, looking into the expenses on a sequential basis, we have probably a flat growth since Q4. So looking into Q4 versus Q1 this year, just 1% -- lower 1%. We have seen a little bit of a spike in Q3 in operating expenses but this is in line with the normal business growth. This is still within our expectation. So looking at the graph at the center of the slide, where cost-to-income ratio has reached 31.7%, we recall end of June -- end of last June cost-to-income ratio was 32.6%. So this is a trending -- this trending being lower reaching 31.7% by September. The slide #20, which is the on the impairments for financing. We have 8% lower provisioning charge in Q3 on a sequential basis, but this is as the total charge year-on-year, 26%. So this is also the -- this -- with the improvement in the NPLs as you will see in the next slide, also reduced the cost of risk reaching as of end of September 79 basis points. Again, just to remind also the cost of this YTD at the end of June was 84 basis points. So the impediment allowance composition of SAR 4.4 billion at end of September, 77% of it is for corporate portfolio and 23% of it relates to the retail portfolio. On the next slide, slide #21, on the NPL and NPL coverage ratio. We have seen a sequential basis from Q2 SAR 200 million and this brought the NPL ratio lower to reach 1.69%, as you can see in the top right chart, 1.69% NPL ratio versus where we were in Q2 1.89%. In the bottom left chart on the NPL coverage ratio, again, as mentioned by the CEO earlier, we managed to increase that and bring it back to the towards the 150% level, which we are comfortable on. The graph in the center, stage 1 coverage remained stable year-on-year at 50 basis points, stage 2 coverage has decreased, while the state 3 coverage has increased. But the reason behind that is due to some -- the movements of some of the stage 2 accounts that were carrying higher coverage and which was moved to stage 3. The last slide on the performance and the capitalization, slide #22 and liquidity as well. Pillar 1 capital as of September, 17.5%. This is lower from where we were in June, 18.2%. And obviously, this is mainly for the continuous growth in the assets that we have seen during Q3. On the profitability, ROE standing at 17% as of September up from 16% ROE where we were in the first 6 months this year. On the regulatory and the liquidity ratios on the LCR in the bottom left chart, LCR well above the regulatory minimum, talking about 165%. LDR around 80%, and this is, again, well below the regulatory minimum. NSFR stands at 107%, and again, that is well above the regulatory minimum of 100%. That's very much it in the financial department. I'll be moving into next section, which is basically on the outlook and also our guidance for the remaining of the year. If you recall, our guidance remains for financing, we have seen 15% growth YTD on financing and hence, the guidance for the remainder of the year -- for the full year remains the high teens. On the net profit margin, as we have seen year-on-year 22 basis points expansion so far. We are revising the guidance from previously being 30 to 40 basis points by 10 basis points lower to be 20 to 30 basis points. And as we see the expected growth that we were forecasting on the at least CASA growth. We have been managing to grow this 9%, but also the lower growth that we have initially anticipated along with the continuous increase in the benchmark rates led to the revision of the guidance for the full year to be between 20 to 30 basis points. Cost-to-income ratio is 31.7%. So the guidance remains below 32%. Return on equity 17% and the guidance remains unchanged to be above 17%. On the cost of risk, 79 basis points as for the first 9 months YTD, the guidance, we are keeping the guidance unchanged at 65 to 75 basis points. On the CAR Pillar 1 as I mentioned earlier, still stands at 17.5% and we're still keeping the guidance on the range 17% to 18% for 2023. With that, I will hand over back for the Q&A session.

[Operator Instructions] Our first question will come from Nida Iqbal with Morgan Stanley.

I've got two questions. Firstly, on the funding side of things. So after a few quarters of an increasing trend in terms of term deposit share, this quarter term deposits were actually down 1 percentage point quarter-on-quarter. Can you maybe talk about how you're growing CASA? And what are your expectations in terms of term deposit share looking forward? On the same topic, it would be great to get some thoughts on your expectations of funding costs from here. Should we expect stabilization assuming flat rate? Or do you expect funding cost to increase? And on the asset yields as well, has most of the asset repricing related to rate hikes already been reflected? My second question is a little bit longer term regarding your ROE for 2025. You guide to about 17% ROE this year and target above 18% for 2025. Assuming lower rates by 2025 and therefore, lower margin for Alinma, what do you expect to be the key levers that will drive up returns despite the lower margins? And how should we think about leverage levels for Alinma by 2025? What sort of levels would you be comfortable with?

Nida, just taking the second question first on the 2025 guidance and the ROE. That's where it stands, as we mentioned just now above 18%. And again, we'll be giving you an update in the guidance as we see it. As you know, the ROE guidance for this year is above 17%. And of course, we'll be giving the guidance following Q4 results for 2024. And of course, any reviews of the ROE longer term definitely will be communicated then. On the cost of funding, we have seen a strong growth during the 9 months, as you can see 15%, almost across all segments. And of course, the CASA growth that we hope to see is still we have a 9% growth though we are seeing demand deposits is flat in the markets in the 9 months. The cost of funding that, again, will depend on the level of continuous growth that we would see on the -- in the last quarter for CASA. As maybe before, as we talked -- long before about the NIM sensitivities and the movement there, which, of course, you can see maybe even from the NIMs guidance that the CASA growth that we really hope to see during 9 months maybe didn't come to the level that we have seen and also the increase in average benchmark rate, as I mentioned earlier. So all of this will impact the cost of funding by year end. And that's why as I mentioned just now, we are revising the guidance for the full year to be the 20 to 30 bps expansion.

If I may add to that also, just you mentioned something about liability and we're expecting higher pricing. If you look at Q3 average 3 months SIBOR was 6.8%. In October, it's been hovering around 6.30%. So we should expect to see at least 20-plus basis points increase on the cost of funding. And that's one of the reasons why we have to reduce our guidance on the NIMs expansion as well as what the CFO about, we had very ambitious targets to grow our CASA. We were successful in going -- getting 9% year-to-date. But our aim was by end of Q2, and that's how we're hopeful for more growth in CASA. We also -- I think you mentioned that our time deposits reduced quarter-on-quarter. Yes, we had also compensated that by more CASA. I think by Q2, we have 6% year-to-date growth. So we had 3 more -- 3% increase in Q3 versus Q2, and that helped us to sort of reduce the volume in time deposits. Hope we answered your questions because I think that covered all.

[Operator Instructions] We'll go to our next question from Naresh Bilandani with JPMorgan.

It's Naresh Bilandani from JPMorgan. Congrats on the good set of results. A few questions, please. One is, it would be very helpful if you can share some broad insights into how should we expect to see your NIMs and loan growth for next year. And I completely understand, as you mentioned earlier, this may still be in the planning phase, but any broad thoughts that you can provide, assuming on the trends, if we assume that the rates stay on hold, that would be very helpful for the future part of stock at this stage. So that's first. My second is, in your earlier calls, you had talked about a scope for a sizable recovery, which I think is also somewhat baked and still in your guidance for the cost of risk this year, which is at 65 to 75 with the 9-month level at 79. So could you please share where do we stand on that? And what is your expectation of achieving this recovery going into the year-end? I'm just trying to get some refinement on how should we think of the cost of risk as we go into the year-end. And my third question is, if I take a look at your CET1 ratio, that has dropped just a few decimal points below 14.0%. And you continue to remain the fastest bank -- growing bank in the system. And I wish you the best for staying so. But can you please just share some thoughts on how comfortable you are with the current CET1 and if there is any plan to enhance this further from a dividend perspective or from some other capital management programs, that will be extremely helpful.

Thank you, Naresh. On the NIMs, obviously, we're still working on 2024. Some indicative numbers suggest that it's going to be a good story again next year. We still have to finalize the numbers. And the recoveries, yes, by the way, we -- the significant recovery we had already materialized in Q3, but at the same time, we wanted to have our coverage ratio improved to over 150. That's why the -- we taken that provision, but actually did materialize. I may also make just a comment on that recovery by saying initially, I think the estimation was full recovery. It wasn't full, but was very good recovery. And so we've obviously wanted to improve our coverage ratio. On CET1, Naresh, as you know, the regulator SAMA has actually given a limit on total capital adequacy ratio, including Pillar 1, Tier 1 and Tier 2. So we don't have specific targets for Tier 1. I think I did mention maybe previously in our earnings call in Q2, we are proactively planning to prepare ourselves for the continuous growth in credit demand next year as well as the ability to continue to pay dividends. That's why we probably will do something in the first half next year in terms of improving most likely Tier 1 through [indiscernible] issuance. Yes, I think that covers all the questions.

Got it. All right. That's clear. Just maybe one small follow-up. If the next year's NIMs are still in the planning phase, but you kind of sound optimistic. Would you be kindly to be able to share some light on based on the balance sheet structure as of Q3, how is the sensitivity kind of working like? Like how much have you -- what's essentially the NIM for every 25 bps change. So that kind of gives us some planning material for the NIMs going into '24.

As you know me well, Naresh, I never actually comment on the exact specific NIM. I think ours is open views.

I think yes, Naresh, maybe I've said this before. Just when you look at where we are -- we will be in December and the fact that most of the corporate book are only from floating exposures there would have been repriced already. But again, any -- whatever you see in the yield curve, of course, if you see maybe any reduction in the second half, again, that's as we have seen this already this year is that whatever impact usually hits on the cost of funding first and the upside, you'll get that first and the cost of funding again. If rate goes down, you might get a bit quicker given the shorter-term nature of the time deposits versus volume for the assets is being priced for. So again, the sensitivities -- I mean, if you recall, again, mentioned that earlier in the year, but really all the changes has happened in liquidity. The transition from CASA to time deposits, the challenges also that you have seen in the market sales but also the CASA growth that we would hope to see is really hard to give really a sensitivity, especially in the 9 months now because also a lot of the things have changed since we communicated back in January. But we will hope by year-end, giving a full year plan to see at least a bit of sensitivity that we could communicate by then.

We will take our next question from Shabbir Malik with EFG Hermes.

Just a follow-up question on the NIMs. Would it be possible to give like a repricing lag of your cost of funds or your deposits on how -- what is the kind of lag between the changes in interest rates and its effect on your cost of funds? And similarly, on the asset yield side, what is the kind of lag between changes in interest rates and your asset yield? Second question, you've talked about maybe some comments on credit quality. We've seen your provisioning trend, but what is your sense on the general credit quality in the system? Are you -- because of higher interest rates have there been any pressures, particularly in the mid-tier corporate segment and the corporate segment? And given that you've -- your guidance implies a decline in provisioning in the fourth quarter, you've already realized some recovery, what do you think is going to lead to lower provisioning in the fourth quarter? And finally, the dividend policy that you've kind of pursued over the past 2 quarters of quarterly dividends, that's pretty unique. So how are you -- is this going to be more of a sustainable long-term policy? Or is that something that is constantly going to be reviewed given your growth aspirations and your capital requirements?

Obviously, in terms of repricing, it's well known in the country that lack of long-term liability or significant long-term liability, Saudi banks tend to rely, obviously, on the [indiscernible] rely on higher percentage of CASA typically maybe compared to other markets around the world. But unfortunately, we also rely on very short-term liability, just strictly they grow on, but at the end of the day, they reprice much quicker than our assets, as we mentioned, we have assets that reprice in 3 months, we have assets linked to 6 months LIBOR. We even have some clients that have also linked to 12 months LIBOR. Let me just comment again on the NIM guidance and the reasons for this, maybe just I forgot to mention 1 factor also. So as I mentioned to you, the month -- the quarter average of STIBOR has been 6.08 in Q3. And most of October has been around 6.30. So I would expect to see, as I mentioned that -- at least 20 basis points in Q4 compared to Q3, which means higher cost of funding. We were really targeting very ambitious strong growth on CASA. We managed to get 9%, but we could have -- I mean planned at that time, we're hopeful for higher growth. But obviously, with the interest rate, I think 9% is a significant success. The other factor that I forgot to mention, that's why I want to comment again is the interest rate in Saudi has been gone up above 5%. We can see that banks have reduced the spreads. We see it in multiple cases. We still -- last year, in the first half last year, the aggressive pricing, which obviously ease off -- but we have to compete, and we have obviously to also offer lower spreads that when compared to what we used to charge in maybe '21 and beyond -- and before that, so that's the 3 reasons for the reduction in expansion. I think you had a question on -- sorry.

Yes. On credit quality, your provisioning, I think your guidance indicates lower provisioning going into the year and you've already realized a recovery. So what is your expectations there? And maybe if you can talk broadly on the sector as well in terms of credit quality. Is there anything that you're worried about, particularly in the mid-tier corporate segment or SMEs, et cetera?

Yes. Honestly, I couldn't think of any segment or sector within the economy that is suffering nowadays. I mean, there was obviously a period of corona in certain segments, airlines and hospitality business in Mecca Medina and so on, they did suffer some major difficulties. Steel manufacturer for couple of years ago more they used to have some lack of demand, but now there's big economic stability in the country. And that also leads all the way to retail where unemployment is declining very fast. That's why our guidance is actually 10 basis points lower in cost of risks compared to the year before. So I think that will be an industry wide, and I don't think it's unique to Alinma. I think you had a question about have we experienced some of our clients facing difficulties with higher interest rates. We haven't really seen significant size of that, where most of the corporates are actually able to pass that cost to the ultimate clients. Project Finance, I commented on it before that the new projects are taken into consideration, the current interest rates in their bidding process. As well as the old one, the one that was granted before, most of the co-sponsor of these projects do mandate fixing the interest rates. So they've done hedges and those projects are not subject to this.

And finally, on dividends. So this quarterly dividend policy, is that something of a permanent -- going to be a permanent thing for Alinma? Or it's going to be reviewed looking at your growth and growth aspirations?

No. I think that's something that we did not introduce it for a temporary period. We -- that was our plan to continue to do this. Probably not just that -- I think we announced the dividend for Q3. And with the results, you can see that I think the payout is SAR 45. It's lower than the 30% that we used to do. So that was intentional by us. That's something because of the strong growth we wanted to have -- continue to pay dividends, but maybe not to the same level of 30%. It depends also on our efforts next year for raising small to [indiscernible] that will help us to maintain both growing our loans as well as pay dividends.

And we will go to our next question from Chiro Ghosh with SICO.

This is Chiro Ghosh from SICO. Can you hear me? Okay. So my first question is I see that your liquidity position is quite good. Your LDR is still quite less, can we expect more leverage going forward? I mean, your LDR is still less than 80%, your cash position or the liquid asset position is quite strong. So can we expect more leverage happening in the fourth quarter and going ahead into the next year? That's the first one. Second is the asset quality side. So you told that few of our second -- stage 2 loans were moved to stage 3. If you can share some light on the sectors where it's contributing to? And are you expecting more such transition to happen going forward? And yes, I think, these two should do.

Yes. On the first point -- on the first question actually around the leverage, are we expecting any leverages before year-end? I think this was at the end touched upon by the CEO earlier, which is looking into the growth and the pipeline that we are seeing, especially with the guidance that we are keeping unchanged for the 15% YTD and also the high-teen growth that we are guiding for, for this year. Of course, maybe the capital still to support the growth that we have, but as mentioned also for this year is to continue paying dividend as we go on. But I was really talking about this before December, it's mostly unlikely, but of course, it's part of the planning for 2024. On the Stage 2 and Stage 3 movements, it's just a normal movement, nothing really exceptional there. We cannot really say that this is really unique to a certain sector or a certain group of customers. Just normal migration between Stage 2 and 3. And of course, in the meantime, also, you would see as per the model some reverse migrations from stage 3 to 2, but it's not a trend that we would assume that we will see again in Q4, it's just part of the normal monthly staging within the corporate portfolio.

Just one quick question on -- just a follow-up question. So the previous analyst he asked and you explained that the spread is now lower basically maybe over the interbank rate. So if my understanding is correct, if 2024 end or 2025, once the interest rate comes down, your margin would be less than what it used to be in 2020 or 2021, is my understanding correct?

I mean, the point was before just usually and historically, the margins goes up, as [indiscernible] goes down or rates and the benchmark rates really reach very high levels. Again, you would expect margins not to continue low when benchmark rate goes low is because of the normal margin levels. So just maybe exceptional to what we are seeing currently on the higher benchmark rate environment as commented by CEO before is that usually, you see the margins given for certain corporate customers to be lower than what you would see in the normal environment.

So these are for the new loans or even the existing customers come and renegotiate a thinner spread because the interest rate has gone up. I'm just trying to get an understanding of that market.

That would be for a limited number of existing clients.

Our next question will come from Olga Veselova with Bank of America.

Several questions from my side, please. One is on growth and financing. You keep surprising the market by the speed of loan growth versus the average versus the peers? And I understand your argument that in the corporate segment, you have your niche where you compete very well, project finance. But outside of corporate, you have been growing very well in SME and personal financing. So what helps you to keep growing so much better versus the street? This is my first question. My second question is I noticed that you have been cutting your interbank funding year-to-date massively. What's the logic there? So it was funding from interbank and SAMA. So if you could shed a bit more light on that. And my third question is, again, on the dividends and your CET1 ratio. In the future, would you consider paying dividends in form of bonus share issuance? Or that's not your philosophy, that's not part of your DNA? Nothing imminent, but longer term, is it possible or not?

Well, obviously, we started working hard on our strategy as well as making sure we have the right team in place. So I would say the first 3 years, we've done a heavy investment in terms of attracting the right talent. So you mentioned, for example, in retail, we have very strong retail team, led by Mr. Saleh. He's already been in this business for over 30 years. He made sure to bring the right talent to run this, whether it's product specialists, whether it's sales specialists, whether it's a clear KPIs, whether it's the monitoring, whether it is incentives that we introduced and obviously our turnaround time and quality of the product and an online application for certain products. So we -- that is actually showing a strong growth in retail and all products within retail is the sentiment of the quality of the team that's running this business. Also, the same thing applies for wholesale. Yes, we've been traditionally very strong in project finance and very large corporates. We didn't have anybody in commercial bank in the mid-corporates. So we have no power ground-based lending on SME. That was case by case like in corporate lending. That's not the way to grow SME business, that could be volumes. And so we introduced about 8 program-based lending for SME that really help to accelerate the speed of growth in SME. And as well as creating a whole team in the country for all the 3 main regions to attract mid-corporates and we grew very fast. So we have the right team in place. We have the right policies. We have the right procedures. We have right quality service systems and so on. We continue to invest in this. So naturally, I think what you see as the strong growth in all segments is that none of the segments and even the products within retail has experienced a single-digit growth, all of them double-digit growth. It's basically the results of the hard work done over the last 2 years in terms of having the right team and the policies, and the procedures on turnaround time and quality. And you can go through a long list of that. That's the reason why we're growing very fast. I think you had a question about the dividend. Yes, bonus shares. That option is basically not completely off the table, but it's the time where the Board think that this is something that will be useful, we will consider it. At the moment, my understanding is it's quite favorable to retail investors, not to international and institutional investors. I'm actually surprised I hear this from -- but it's possible. What else was the other question?

The question on the interbank funding. I might take that because you're right, we've seen a 39% lower [indiscernible] Interbank on the funding side. This is basically, now we have completely started closing this option. It's basically two parts. One is really to the bank it doesn't really help that much when it comes to the NSFR requirements. But I think the main other reason is also the [indiscernible] that the bank has been receiving in this last year as an AGI from the Central Bank. It's basically classified as time deposits. Even though it's only from a central bank, what is being [indiscernible] banks on behalf of the government agencies. And as far as the classification is being classified under the customer deposits. So this, in a way, you'll see the time deposits growth versus the funding and the interbank side is pretty lower.

Interesting. So starting from SAMA can be included in customer deposits. Is that -- did I get you correctly?

Not with the refunding, specifically to unanimous government investments that time deposits with banks on behalf of the government agencies these are classified as customer deposits. Any other dealing with SAMA will definitely be within -- due to SAMA lines.

I see. Yes. That's great. And on the first question, if I can just follow-up. So you mentioned that in large corporates, you also see pretty decent growth. Do you start seeing more competition from non-Saudi banks or that is not happening in your niches?

Competition, obviously, for all products out there. But -- and I mentioned this multiple times before. And when it comes to project finance, you'll find a number of players or a number of players that have teams and that business tends to be less than, say, bilateral, normal corporate lending, in fact competition is more. So project finance, there is some competition, but the number of players are certainly lower than the total number of Saudi Banks.

Yes. My question was from non-Saudi banks. Do you see that or not?

Yes. I mean the competition is very -- I mean, I mentioned to you the fact that we, for certain -- maybe some of the small existing number of customers as well as for new lending. We had to reduce, we have to compete in terms of the lower spread than the time we used to charge when interest rate was 70 basis points. That's because of strong competition. So competition is there. It's less maybe on project finance, but competition is very healthy. And I think for all segments is there. It's just -- we manage to depreciate ourselves better because as I said we have done the right investment and the right focus.

And our next question comes from Farid Aliani with SNB Capital.

So I have a couple of questions. The first one is on the liquidity situation in the market. Is it -- how would you classify it in terms of relatively in the third quarter versus the second quarter? And now do you see it improving? Do you see it worsening? Some color -- any color on that would be helpful. Any role of the regulator in there or the GRE support if you're seeing that, any color on that would be very helpful. So -- and that's the first one. The second one is on your NSFR ratio. I think this is -- of the 3 liquidity ratios, this is the one which is the closest in the regulatory minimum at 107%, so just your thoughts on that, that if it's a level that you're comfortable with, would you like to improve this or because it became a point of conversation about a couple of quarters ago, and you did some massive liquidity raising because your NSFR was closer to the borderline and what drivers feed into that ratio as opposed to the LDR ratio and the LCR ratio. So these are a couple of questions.

So obviously, let me cover the NSFR first. Liquidity -- excess of liquidity is expensive. We were last year, I think, up to Q3, we were -- as I mentioned before, we were really focused to be really efficient in liquidity by targeting 85% to 86% range with -- for LDR. But unfortunately, we noticed a drop in NSFR to 103 in September of last year. So this is something we don't want to be close to 100%. So we had to take more and more time deposits in order to support this. The current level is very comfortable for us. we're getting NSFR to the range of 115% and 120% is not going to be a profitable business for us. We want to have enough caution. So I think the level 107% is very comfortable. If it dips to 106% or goes to 108% that's the level that is really ideal. It's not -- it indicates no excessive liquidity. Other results, obviously, LDR will be, I think, 78%, 79% in September. And this is after the change in methodology by SAMA for the given waiting for capital instruments. On liquidity level, I think it's really healthy. We don't see a major issue in liquidity. The AGI, as I mentioned, continue coming. We really want to see more maybe international lenders coming to the market, more higher FDI, that will really add incremental liquidity to the market. Overall, I think liquidity level is good. Is it sufficient today to cover the next -- that level of liquidity to continue to support strong growth in loan in the next few years? Possibly not. Obviously, loans do create deposits, but it would be definitely better to see more liquidity, especially international fresh money coming to the market.

And heading into our next question from Nauman Khan with SNB Capital.

Can you hear me?

Yes, we can.

I think a majority of my questions have been answered. Just a couple of things as well. We do realize that I think the loan growth have largely been squeezed towards corporate as well. If you can highlight which are the sectors that within the corporate that are showing loan growth coming in. I think that would be one. The second thing is, given -- and is this a reflection of mega projects that have been going in the system as well? So talking about -- that's a clarity that we needed to know. Secondly, on the funding side, I just wanted to understand because a lot of other banks are also now tapping into saving deposits as well. Do you have any plans for that? And what mechanisms of pricing of those saving deposits as well? These are my 2 questions.

Yes. So on the first point, talking about what growth comes as mentioned earlier and also on the slide I presented before, it's the growth across all the segments. I mean, looking into the home financing, retail, personal, but also corporate both in the project financing and also the large corporate. Also, as I mentioned, we've seen -- we're doubling up the mid-corporate as well and also the SME portfolio growth that you have seen around 26%. It's across all the business segments. It is also mentioned by the CEO earlier. We don't have a specific segment that is being focused where we are seeing the growth in the other segments. It's all the segments within the business units experienced the growth in the 9 months. Maybe on the other question on the savings deposits, of course, saving deposits will be, of course, more preferable to the banker than the cost, but I may leave this to the [indiscernible].

Yes, we're offering this. The experience we are often serving is through our digital platforms, and this did show growth year-on-year of almost 30% on saving. We see the trend that customers are tend to save more nowadays, especially with the growth of interest rates. And we offer this as other banks, but I think we are unique in the experience. So the subscription and redemption is seamless to the client. And we will also do benchmark in the pricing, and we try to offer the customer best rates.

I just wanted to have more clarity of how the savings are priced at as well? Like how sensitive are they to interpret movement as well? We do understand the time deposits too are priced according to SIBOR. So what's the basic pricing for savings deposit, if you can share some light on that?

Normally saving is [indiscernible]. And as I mentioned, we monitor competition and monitor movement of our clients. So we try to maintain our clients through saving deposits, and we'll keep changing the policy of minimum amount that is marked hold within the saving but it is definitely better than the time deposit. We are -- it is -- and sometimes it's 200 basis points below SIBOR for the saving. Normally, this is the price.

Okay. And how quickly it can reprice, for example, what if the interest rates are coming down next year?

On a daily basis. On a daily basis.

As we are approaching the hour, at this time, I would like to hand over the call to the Alinma Bank management team for any final remarks.

Well, I just thank all of the participants, and I do give my sincere apology, I just recovered from cold so I've been coughing and had to be less active than usual. But thank you. Thank you all. Appreciate it.

This concludes today's call. Thank you for your participation. You may now disconnect.