Alinma Bank (1150) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Alinma Bank Q1 2024 Earnings Call. My name is Chach, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to your host, Naresh Bilandani from JPMorgan to begin. Naresh, please go ahead.

Thank you. Good day, everyone. Welcome to the first quarter 2024 results call of Alinma Bank which JPMorgan is very pleased to host. I'm Naresh Bilandani, your MENA Financial Analyst and the Head of MENA Equity Research at JPMorgan. We are very pleased to have with us today Mr. Abdullah Al Khalifa, the Group CEO of Alinma Bank; Mr. Adel Abalkhail, the Group CFO; Mr. Saleh Alzumaie, Head of Retail and Digital Banking; Mr. Jameel Alhamdan, Head of Corporate Banking; and Mr. Ibrahim Alkhudair, the acting Head of Investor Relations. I will pass the call now to the Alinma Bank management team to commence the presentation. Thank you.

Thank you, Naresh. Good evening, everyone. Welcome to our earnings call for the first quarter 2024. As usual, I'll take you through a quick presentation covering high-level financial performance as well as the strategy and the progress on implementing the strategy, then I'll give the floor to our CFO to take you through a detailed presentation on the financial performance. So I'll start my presentation on Page 6, where our financing increased to SAR 180.7 billion, that's up 4% year-to-date and 18% versus last year -- same period last year. Total assets increased by 14.6% year-on-year, and that's a 3% year-to-date. Our first quarter operating income increased by 17.7% to reach SAR 2,565 million. Our net income increased by a higher level by 36% to reach SAR 1.3 billion. Our NPL ratio improved down from 2.11% same period last year to 1.28%. Our coverage ratio also improved from 121.5% last year to 181.1% this year. Growth on customer deposits is only 1%, but more importantly is the growth on CASA. We successfully increased CASA year-to-date by 6%. One of the reasons for lower growth of deposits is, if you recall, we issued $1 billion of Tier 1 Sukuk, which according to some regulation is actually calculated part of the LDR actually weighted, carry a weight of 170. CASA as a percentage of total deposits reached almost 51%. Cost-to-income ratio improved to 32.5%. And first quarter net profit margin or NIMs reached 3.69%. We've obviously lost some bps compared to previous year, and I will come to that. First quarter ROE reached 17.5%. On Page 8, just a quick reminder of our strategy. The 3 main headlines remain: want to be recognized as the fastest and most convenient bank in the country; we want to be #1 in Net Promoter Score, NPS, and #1 as employer of choice. The next page, Page 9, gives you more detail on our segment level. So retail, the 3 main pillars is to focus on growing our affluent and high net worth business. We want to focus on attracting more youth segments as well as providing the best customer service. That's the NPS part of it. In corporate, you want to be the core bank, not only for large and project but also for mid-corporates. We want to develop our high-quality SME business as well as focus on growing and cross-selling our cash and trade finance. Treasury, we want to be the core partner for corporate, not only for deposits but also for hedging and investments as well as growing our FI business and maintaining a high-quality ALM function. On Page 10 are some of the progress that we've done in the first quarter 2024. We already delivered 62 -- completed 62 initiatives out of 77. If you look at bank-wide, we launched our new graduate program, 45 ladies joined that program. We conducted 3 leadership program for executive roles. Our Saudization reached 96%, 23% of that is women, and we conducted 5 town halls around the country. In retail, we launched mortgage refinance product. We also, in our efforts towards paperless, we've launched Phase 2 of OTP to basically replace paper signatures and paper forms. We installed another 54 TCR machines, bringing the total to 162. And we have merged 9 more female branches into male branches. The total merged branches now reached 69 out of 85. In corporate, we had a very good growth in all segments. Total corporate increased by 21%. But if you look at the non-funded, it's increased by 129%. There is a typo -- sorry, on the box about the assets under mid-corporates. The 33% is actually year-to-date. Year-on-year, it's 115% growth in mid-corporates. So we apologize for that. It's not year-on-year, it's actually year-to-date. Year-on-year is a 115% and we had strong growth also on program-based lending in SME. And treasury, we -- as you might -- I'm sure you've heard, we launched a $1 billion first time, tapping international markets was quite successful for -- because it's our first time we tapped the international market, and the pricing was also attractive because of the high demand that we received. We've managed to increase our IRS (sic) [ PRS ] or profit rate swaps by SAR 5 billion. And we added 3 more of correspondent banks. On Page 11, the things that we're going to be working on, we have still 15 more initiatives that we're working on, including building -- finalizing the retail credit scoring. We want to digitize our mortgage journey and enhance the family account ecosystem. And complete all branches merger, female mergers. So by the end of the year, we have no single stand-alone female branches, it will all be merged by the end of this year. As well as completing our TCR installation for all branches. In corporate, we're going to launch, hopefully, this quarter, very soon, the new portal for corporate segments -- for all corporate segments. We already done 1 part, which was the SME, now we're going to complete it this quarter -- sorry, the portal will be going this year -- this quarter, but the -- I was referring -- sorry, to loan origination system. We launched Phase 1 to cover SME and soon we're going to launch Phase 2 to cover all segments. And we're going to continue to drive cross-selling all derivatives and treasury. And with that, I give the floor to our CFO to take us through detailed presentation on the first quarter.

Thank you. Very good afternoon to you all, and welcome again to our conference call for the Q1 2024 results. I'll be walking you through the financial performance for the quarter, and that will be followed by the outlook and the guidance for the remainder of the year. Starting on Slide #13 on the balance sheet trend, we have seen YTD growth 3% on the total assets that was driven by 4% growth in the financing and 5% growth in the investment portfolio, that was offset by 5% lower cash and interbank. On the liability side, the liability has grown 2%. As mentioned, this is driven by the customer deposits, 1% YTD and also the 16% increase in the -- due to SAMA and interbank. On the next slide, Slide #14. On the overall P&L trend, we have seen a solid 36% growth year-on-year. This is, as you can see on the top right hand, this was driven by 16% growth in the funded income year-on-year. Non-funded income also picked up 24%. And also, we have seen on the other hand, the 10% growth year-on-year on the operating expenses. Provision impairment charge is 23% lower than same quarter last year. So net income standing at -- by end of the quarter at SAR 1.315 billion. And the operating income composition, 79% is the funded income, 15% on the fees from banking services and then 3% on the investment income, another 3% of the overall operating income is from exchange -- foreign exchange income. On the next slide, Slide #15, zooming in on the financing. YTD growth of 4% on a sequential basis, but year-on-year, it's 18%. As you can see in the top right graph, the composition of the financing portfolio by end of Q1 is basically 67% on the large corporate and project finance. Mid-corporate represent 5%. And also, we have seen a pickup in the SMEs, used to be 3%, now 4% composition as part of the overall financing. 12% in the home financing and also same 12% from the personal financing and other retail projects. So the overall financing growth that we have seen 4% was coming 5% on the corporate and 1% was from retail business. Next slide, Slide #16 on the deposits. Overall customer deposits has moved by 1% from December. But as mentioned by the CEO, more importantly was the CASA growth that has increased by 6%. Time deposits has dropped by the end of the quarter by 4% in light of the latest Sukuk that was -- were issued during the quarter late in February. So as you can see from the graph in the center of the slide, cash as a percentage of total deposits has slightly improved. We were 49.9% in Q4 last year, it's now standing at 50.7%. In the next slide, Slide #17, zooming on the NIM. As you can see in the top right graph as well, we have seen the gross commission income and financing has increased by 37% from year-on-year and also 54% increase in the gross yield for investment year-on-year. As you can see on the graph at the bottom left and the net profit margin and the NIM movement were 9 basis points increase in the investment yield income, 78 basis points also was in the financial yield. Unfortunately, the cost of funding has increased year-on-year 98 basis points. So looking at the NIM, as mentioned earlier by the CEO, there was a contraction of 11 basis points from December where it was basically on the cost of funding that has increased from Q4 to Q1 by 14 basis points. And this was mainly on the cost of funding that has increased for some deposits that were taken in Q4 and spill over into the -- early in Q1. Next slide, Slide #18 on the fee and fee income, on non-yield income. We have seen a growth 24% year-on-year. This was driven by 28% growth in the fees from banking services. We have seen a drop, 10% in the exchange income if we compare that year-on-year. But also, we have seen 61%, around 60%, both in the investment and dividend income and also the other income. The fees composition, 33% as of March on the fund management, 21% in the card services, 13% in the trade financing business, 12% on the brokerage and the remaining for other fees. On the next slide, Slide #19 and the operating expenses. It's up 10% year-on-year. We have seen on a sequential basis, 8% growth in operating expenses. This is -- the majority of the same came from personnel costs. As you can see, personnel cost has grown 13%. We have seen 20% growth in depreciation and amortization year-on-year and then other G&A is only 5% growth year-on-year. And based on that, if you can see in the graph in the center of the slide, cost-to-income ratio slightly increased from where we were in December, but of course, an improvement year-on-year. We were in the December 31.7%, we are standing at 32.5% cost-to-income ratio at the end of March. On the next slide, which is on the impairments. The impairment chart, as you can see in the top right graph, 21% lower impairment charge have been taken during Q1 versus what was taken as impairment charge in Q1 last year. Even on a sequential basis, the impairment for financing has dropped 14%. This is in light of the settlement that we have talked about for projects executed during Q1 this year. This actually resulted in lower cost of risk. Cost of risk at end of March is standing at 59 basis points. The cost of risk was 88 basis points in the same quarter last year. We talked about the impairment allowance composition. At end of March, we see corporate taking 77% of the overall SAR 4.3 billion overall impairment allowance and 23% which relates to the retail business. On the next slide, Slide 21. This is on the NPL and NPL coverage. So we have seen also a drop in the NPL standing. NPL were in December SAR 2.9 billion. We have seen 17% drop in NPL, nonperforming loans on a sequential basis, 17% standing at SAR 2.4 billion. And this is, again, in light of the settlement that I mentioned earlier. This brought down the NPL ratio. As you can see in the top right graph on the slide, standing at 1.28% by end of Q1, where we were in Q4 at 1.61%. Also, this has further improved our coverage ratio moving from almost 150% in December last year, being at 181.1% as coverage ratio by end of March. Stage 1 coverage slightly declined year-on-year due to the acquisition of higher quality credits. If we look at Stage 2 coverage year-on-year fell from 19.4% to 17.7% as some of the accounts were moved from Stage 1 to Stage 2 that was carrying lower provision and lower coverage. In the next slide, Slide #22, on the capitalization of liquidity. At end of Q1, the capital is standing at 19.1%. This is increasing from where we were in December, typically from the Sukuk that were issued late February, $1 billion in Tier 1 Sukuk. Looking into the ROE, we have moved the ROE. If you recall, ROE, December, we were at 17.21% ROE at end of March is standing at 17.5%. Also ROA stands at 2.2% for end of March. If we look at the regulatory and liquidity ratios at the bottom of the slide, Slide 22. LCR stands at 133%, which is well above the regulatory minimum of 100%. And also LDR stands at 81.2% by end of March, which is well below the regulatory maximum. And also for NSFR almost flat with December at 108.5%, which is, again, well above the regulatory minimum of 100%. On the next section, I'll be going through the guidance for the remaining of the year. We have achieved 18% growth year-on-year on financing. We kept the guidance as mid-teens unchanged for the financing growth. Net profit margin year-on-year, we have a contraction of 11 basis points. And as far as we see the forecast, as we look at them at March, we're still keeping the guidance to be flattish for the year between plus 5 basis points to minus 5 basis points for the remaining of the year. Cost to income stands at 32.5%. We are still keeping the guidance at around 30% for cost to income for the remaining of the year. Return on equity has improved, as we mentioned, from December, standing at 17.5%. We are not -- also we are keeping the guidance unchanged for -- at above 18%. Cost of risk, much lower than the range, but being broadened and also to be always sure we are above 150%, when it comes to coverage we are keeping the guidance unchanged, which is 75 to 65 basis points as cost of risk. Capital CAR Pillar 1 stands at 19.1% and we are keeping also the guidance unchanged, which is 19% to 28% for the remaining of the year. Just a reminder, on the 2025 communicated ROA before, above 18%, and that's also remain unchanged. With that, I will hand over back to the operator for the Q&A. Thank you.

[Operator Instructions] So our first question today comes from Nida Iqbal Siddiqi from Morgan Stanley.

I have a few questions. Firstly, on the margin side of things. NIM contracted both sequentially and year-on-year. And we calculate that both -- that asset yields were down sequentially and the cost of funding was higher. So just wanted to understand a bit better on the asset yield dynamics and what's causing the compression here? Is it competition? Or were there any one-offs involved? And then on the cost of funding side, it does feel like liquidity conditions in the sector have improved. We've seen Alinma shed some term deposits as well and demand deposits have increased. How do you see cost of funding evolving from here, particularly in a higher for longer rate environment? So that's one on margins. And secondly, my question was on loans. Just wanted to get a better sense on the loan growth outlook on the retail side. We've seen some of your peers this quarter talk about a pickup in auto financing, credit cards, et cetera. So what's Alinma's view here? Do you see a pickup in retail in coming quarters as well?

I'll address the NIMs. I think in our presentation, we may be not fully explained it, but we had, if you recall, Q4 was the peak of cyber. Cyber was in the range of 630, 631 in October, November and December. There is significant amount of deposits either taken, new taken or refinanced, repriced during that quarter and spilled over to Q1, even though Q1, when you look at average, cyber has gone down by 9 to 8 basis points easily but because of the deposit taken in Q4 with obviously, maturity beyond the year-end, it has had a negative impact on our cost of funding. And that's the main reason. I think the chart that Adel mentioned on the NIMs explained that how much increase on the cost of funding. The other question you had about the going forward, how is the cost of funding look like? I think liquidity has improved in the market. But what we noticed that year-on-year, we start seeing more and more banks having the double-digit growth in loans. The number of banks doing double-digit growth in loans was lower last year. So I presume that will drive more competition on deposits. But nonetheless, we've already managed to issue $1 billion. That also help us on liquidity. Loan to deposit ratio, as I said, it's weighted. So $1 billion is equivalent to $1.7 billion, and that can ease off the pressure on liquidity. And for the loan growth in retail, Saleh?

Yes. Hi, everyone. We believe we are growing our customer base now as has already been mentioned in this presentation, we are the third largest bank in customer base in terms of retail. So we have a lot of opportunity there. Also the CEO mentioned that we've already introduced some more treasury financing products this year, and this will give us some space to grow our mortgage business again. With -- one of our strategies that we focus on the affluent and private customers, we have a full suit financial program for this backed by assets or by shares, and there is a huge opportunity to grow here. Credit card, yes, we're still seeing a double-digit growth in our credit card business, and this is a very productive business, as you know, and we have a very ambitious target for this year. We have a lot of value propositions in credit cards and we will maintain this double-digit growth this year, [Foreign Language].

Can I just follow up on the first part of my question, which was also about asset yields declining sequentially. This is something that we've seen for a few banks this quarter. So just trying to understand if this is competitive pressures.

Obviously, I think I mentioned this maybe a few times before. When rates goes higher level -- we've seen this historically. When rate goes to the 5%, 5-plus percent typically, the spreads that you charge of cohorts is lower than when interest rate is very low. This is a market practice, this is -- you have to compete in the market. And yes, there have been swings but however, the repricing of the asset, I think in the slide on NIMs shows an increase on the gross income on assets.

The next question is from Shabbir Malik from EFG Hermes.

I have a couple of questions. So we saw strong growth in CASA deposits for you and for the sector generally. What is your sense in terms of the stickiness of these deposits? Do you think these are transitory? Or do you think this can potentially continue growing in the coming quarters? Secondly, in terms of dividend, in the fourth quarter, if I remember correctly, I think you decided not to go for a cash dividend. I think you went for a bonus dividend. You've moved again to an interim dividend in the first quarter. Is this because you feel more comfortable about capitalization given that you've done your AT1 issuance? And just maybe if you can comment generally on the practice now going forward in terms of your dividends? And thirdly, in terms of your cost of risk guidance, considering that first quarter cost of risk is below your -- the range that you've indicated, NPL coverage is also, I think, pretty robust now. What's the reason for keeping the cost of risk guidance intact at 65 to 75 basis points?

Thank you. Now back to CASA. As I mentioned multiple times, we're really focused on customer acquisition, whether it's in private, whether it's in affluents, mid corporates, SMEs, large corporates, project finance, and the more customer you acquired, and you heard Saleh mention it, obviously, we've been -- we became the third largest bank in terms of retail customers. This acquisition by default do attract CASA. We're also focusing on cross-selling cash and trade. Trade also generates margins and so on, that's CASA. And obviously, the more payroll services that we do, the more point of sale that we do with our clients, the more e-commerce and so on, all this generate more in terms of CASA. And we're going to continue our drive there. On the dividends, yes, on Q4, the Board decided to issue bonus shares. And we felt there was no need for Q4 dividends at that time considering that we're giving a bonus share. In Q1, that was our intention, to continue our quarterly dividends payout. I think the amount that we announced was a 47% payout. Will we keep that? It depends on the going forward, how the outlook. There is a potential upside risk on the guidance of loans. We could see higher growth, and that would mean we may have to reduce a little bit the payout ratio, but we're going to continue to pay dividends on a quarterly basis. Cost of risk, your question about cost of risk, as you recall, in Q4 earnings that we were expecting settlements that take place in Q4, unfortunately, was signed the last day of the quarter, which means that had to be accounted for in Q1 because of some additional requirements. And that's the reason the cost of risk has gone down below our guidance. But going forward, we expect it to be within the guidance that we gave. The coverage ratio, we try not to go below 150. But honestly, we don't lose sleep if it goes higher than that.

The next question is from Aybek Islamov from HSBC.

I think what I wanted to check with you is the asset yields, just to follow up on the previous discussion that you had there. How sustainable are the asset yields? And how easy is it right now to improve your asset yields and lending spreads in particular? How intense is the competition in your view? And what do you think are the factors which will lead to better pricing discipline, in particular in the corporate segment?

Thanks, Aybek. If I maybe redirect you to Page 17 where we said that financing yield has improved by 78 basis points compared to the same period last year. But the growth on -- because obviously, we had to finance this with more time deposits, but as the price has been increasing and peaked in Q4, that has a negative impact on the cost of funding. But the asset is growing. Obviously, the competition is, again, different, in terms of projects, in terms of customers that we deal with. You've seen our strong -- very strong growth in mid-corporate, strong growth in SME. That tends to be a much better yield or spread than large corporates. Project finance is also attractive spread because, obviously, the number of competitors are lower. But other corporates, yes, I think we are facing competition, but we don't go very aggressive on pricing. Yet we obviously do a good job with relationship and turnaround time. So the quality of service that our customers get allow us to see new growth without being very aggressive. We have to compete, but we're not very aggressive on pricing.

And just a follow-up. You mentioned during the call with regards to your Stage 1 coverage, which has reduced a little bit. And you said that, that's because of the underlying quality of the loan book has improved. So you cut your Stage 1 coverage a bit. Does that affect your loan yield in any way? Is this lending to better quality customers, which is also affecting your blended yields on the corporate book?

Yes, Aybek, I want to say, this may be referring to Slide 21, we talk about the Stage 1, the commentary I mentioned about the slight decline, I was comparing year-on-year. So it just have been a 10 basis point drop in the coverage for Stage 1. As we grow the new business, both the retail and corporate and obviously, as per the IFRS 9 model is usually the initial good quality financing that you do finance usually trigger lower BDs, and of course, this will be based on the overall rate model -- rating on the -- from the model for each corporate client. So this is just a slight drop in the coverage. I'm talking year-on-year, but if you see, it did not change from the previous quarter, which is the Q4. So basically, it's a slight drop because of the good quality of the newly dispersed financing during the quarter.

The next question is from Olga Veselova from Bank of America Merrill Lynch.

I have 3 questions. One is again on NPL coverage. I hear you that you don't necessarily target 150%. But given it's now well above 150%, do you see signs of risks and you want to leave it there for now? Or would you be willing to bring it back a little bit closer to sector average? So anything that makes you believe that it should be that much higher than sector average? The second question is on Tier 1 issuance, AT1 issuance. How shall we think about potential room to keep issuing AT1 to replenish capital? So in other words, can we know your maximum capacity for AT1 maybe as a percentage of risk-weighted assets for the next several years? And my third question is actually on the regulation. What do you hear from SAMA or if you hear from SAMA about any new regulatory initiatives? Any new measures expected in consumer production segment, which you possibly know?

Thank you. And obviously, on the coverage ratio, we need to be prudent. We need to build. We're growing very fast. And the proper approach from our point of view is to have enough caution. We continue to build caution. We're growing very fast. You never know, bad cases of some of these loans, for whatever reasons, it could happen. That's the nature of the banking business. So I wouldn't really worried about the coverage ratio going 180% or more. We're not saying is going to go crazy coverage, but I think 180% is quite reasonable. On Tier 1, I think the challenge was on first-time tapping the markets, international markets. I think now we've gone physically and met quite a number of investors. We generated over $4.5 billion of demand, and this is our first time in the market. I think theoretically, at least, that makes it easier next time to do that. In terms of capacity, we go on -- we're not really worried about capacity. We're actually looking ahead and planning to be proactive in terms of allowing us to continue to grow without getting excess of capital, the $1 billion, for example, we could have done $1.5 billion. But we didn't feel it's our need in the next easily 12 to 18 months. So yes, we can go back. We may go back. I'm not saying we will not. I'm not saying also confirming that we are. But theoretically, it makes it easier when you go the next time. In terms of regulations, we haven't heard any specific draft new regulations on consumer or retail business. There are obviously the draft on the loan provisioning, which has been going on for a while. I don't think it's yet finalized in terms of actual implementation, but that was just additional reserve, if you have lower provision there, Central Bank calculation versus your IFRS calculation, if you have lower provision, then you create additional reserve within equity. It's not a P&L impact, has no impact on profitability, it's just that set aside additional provision.

Can I clarify answer to the second question?

The next question is from Mohammed Al-Rasheed from Ashmore Capital.

I have just one question from my side. So regarding the recent amendment to regulation concerning the suspension of government services for individuals in cases such as the defaulted retail borrower. So my understanding is that this amendment came in force starting post Ramadan, last Ramadan. My question is whether you have observed any material change to defaulted consumer behavior since then. And how do you see that impacting your recoveries in the retail segment and cost risk overall going forward?

The recent release of this regulation, it does not impact the consumer loans granted by banks. This is only for a commercial dispute with other entities. It's not related to the banks, no. So there is no impact.

Okay. So the suspension on the government service, when it comes to the investment guarantee, nothing has changed overall.

Yes.

The next question is from Jon Peace from UBS.

So my first question is just to clarify something you said a little earlier where you mentioned there could be some potential upside in lending and I just wondered, is that coming from retail accelerating as rates start to decline? Or could it be even stronger corporate lending? And then my second question is just on costs. Was there anything lumpy in the first quarter, maybe some lumpy investment spending? Just thinking about how the cost-income ratio comes back in line with the target. Is it maybe lower absolute costs as a run rate? Or just higher revenues through the rest of the year?

The point that I had mentioned that there could be a potential upside risk on the guidance on loan growth is because of the early discussion we have, we have start -- been engaged with some of the clients, some of the projects that potentially can materialize this year. It's too early for us to look at this early discussion and say that we need to amend our guidance. But as time goes by, as we finishes Q2, we may have a better clarity on these potential deals.

Yes. On the other part of the question, on the expenses. So as I mentioned earlier, we have seen this 80% growth on a sequential basis in the OpEx. But if you look at the Slide #19, where we really see the growth versus the Q4 on a sequential basis was coming from the personnel cost. And as you know, the Q1 usually would reflect all the adjustments that happens to the personnel when it comes to the adjustments in the personnel cost and also what relates to that when it comes to the increase on the end-of-service benefits that is backdated and backed when promotions and increments takes place. And also if you see year-on-year, it's a small amount, but as we were always mentioning that the depreciation and amortization is not really expected to decrease even though it's a small amount, but this would reflect the earlier investment the bank did in the early days of the strategy execution. But on the other side also, we are controlling the G&A, we're also not seeing or expecting the same movements that you used to see on the high double digits or high teens growth in the OpEx in the first 2 years, in '21 and '22 as most of the investments. We will continue to invest, of course, as mentioned by the CEO earlier, there are still some initiatives and the strategy wasn't completed yet, and that would trigger some strategic investments. But we are comfortable with the guidance that we kept unchanged for the remainder of the year on the cost to income for now at 30%.

The next question is from Adnan Farooq from Jadwa Investment.

I have 2 questions. One is a follow-up on the operating expenses. You mentioned that first quarter included some personnel charges, which were adjustments to the salary as well as increase in end-of-service benefits. I would assume the end-of-service benefits part would not repeat. Can you highlight how much is that? And what would be a fair run rate on OpEx going forward? And the second question is on the investment book. If you could share what is -- if you can share what is the yield on the investment book? And would it be fair to assume that the marginal growth in the investment book is gross yield dilutive?

Sorry, Adnan, on the second part of the question, the investment?

The investment book, I wanted to understand if the marginal increase in the investment book during the quarter, the new investments that you are making, they would be overall asset yield dilutive, right?

Well, let's put it this way, Adnan. The previous investments, which, as you know, mainly Saudi government Sukuk, that was purchased a year ago, 2 years ago, 3 years ago and so on, they used to have a lower rate than the current rate in the market. The new issuance that we purchased during second half of 2023 or the first quarter actually better yield than the average portfolio yield that we had before. So it's supportive. Naturally, it's not going to give you the same yields as corporate loans for sure. So if that's what you mean. The other part?

On the other part, Adnan. On the expenses side and what was mentioned about sequential growth in the personal finance, on the personnel cost, was, of course, yes, as you rightly said, it would be mostly a one-off. There will still be a cost on the expansion and also the hiring to continue on the initiatives of the strategy that would continue. But I can put it this way that we kept the cost-to-income guidance unchanged of around 30%. And that will involve both, of course, the expected growth in income, but also our expectation on how the OpEx will move toward the year end.

[Operator Instructions] So we do have -- sorry, go ahead.

Sorry, Chach. It's Naresh here from JPMorgan. While we have more questions being registered, Mr. Abdullah, if I can just please post two. One is, if I take a look at your disclosure on the derivatives book, you started engaging in profit rate swaps from -- for hedging purposes from this quarter. Can you please explain if the intention to hedge is -- this program is going to be a lot more active in the future? And is there any percentage level of cover that you're targeting to hedge the rate risk at -- given that we are close to peak rate levels in the current environment? That's one. And second is, if I take a look at your Note 4.5, which discloses some of the associates and the JVs. There's a new JV with regards to international water distribution company, Tawzea, which has been commenced from the first quarter of 2024. Could you please add some more color on this, where did this originate from?

Thank you, Naresh. On the cash flow hedge, yes, we started this quarter. We have it at almost...

SAR 1.2 billion.

SAR 1.2 billion, and done a little bit more during Q2. It's one of the tools, Naresh, that we are trying to hedge ourselves in terms of rate reduction. We're not going very aggressive. We look at the market, the pricing, we continuously assess this. We've been actually doing this assessment sort of maybe from the second half of last year, we've been doing this on a regular basis. And we felt in Q1, there was a good opportunity to do it. We've done some part of it, SAR 1.2 billion. And we're going to continue to assess. Don't forget, previously, we had no access to such a tool, now we do. In terms of Tawzea, it's actually public information. The settlement that we've done, the one that we said signed literally on the last day of December that could not be accounted for in Q4, it was involving tech and assets from the clients, and that asset is actually ownership in this small company. The idea is not to have this continuously. The idea is we take care of the asset and we're looking for potential buyers. This is not our core business.

So we do have a question from Nauman Khan from SNB Capital.

Just a couple of things. One thing that I wanted to ask is, you may have alluded to it earlier but I may have missed out on the growth of deposits in Q1, the nature of the growth, do you see and do you think this will continue over the year. Second thing I wanted to ask was about cost of risk, it was 0.59% for Q1 but you're still guiding to 65 to 75 basis points for the year. Given that your overall coverage ratio and particularly Stage 2 coverage is about 70%, close to 70%, what do you think is the rationale for a higher cost of risk in the coming years? Lastly, coming back to -- this is my last question about net profit margins. You are increasing 5 to 5 plus basis points from last year. What are the levers that you're looking for that could potentially increase the margins going forward from 3.69% currently? These are my 3 questions.

Thank you, Nauman, just to cover, I think on the first question on the CASA and the deposit performance, especially CASA, 6% growth YTD, as mentioned earlier by CEO, this is a result of many initiatives as part of the bank's strategy, how we are focusing on the customer acquisition, I think the CEO has also mentioned the level the bank has reached when it comes to a number of retail customers. So this is embarked as adding to the CASA growth. But also on the other side, also what was mentioned earlier on the cash management and how this also further enhance the deposit growth, especially CASA. So this is on the first part. On the second part, I think the question was -- on the second part was on the...

Cost of risk.

That was the first part. But I think there was the second part question after the deposits growth.

Also, I asked a few questions how sticky -- yes. So your coverage ratios have also kept in line.

Right. So we are guiding to 75 bps to 65 bps. And as we mentioned also that what happened in Q1 as a result of the settlement that has taken place which we've been talking about since Q4, that reduced the cost of risk for the quarter and also improved the coverage ratio. We are being broadened and also we did want for the remainder of the year at least to be at 150% coverage ratio, as CEO mentioned, we never lose our sleep if this goes above that. That's why we are keeping that guidance unchanged, even though it's standing at 59 basis points by end of the quarter. And the third question, I believe, was on the NIMs. And I think we have also touched upon this before. which is basically what's the impact on the cost of funding for the deposits that were taken during Q4 where the average 3-month LIBOR was higher than what we have seen as an average 3-month labor during Q1. And of course, the portion of these deposits will logically spill over the Q1. But on the guidance unchanged, we have seen an improvement. I think the -- we've seen involvement in March itself, but I think we have seen March as a month is better than the whole quarter. So that also is part of why we're keeping the guidance even though we have a contraction of 11 bps.

We do have a follow-up question from Olga Veselova from Bank of America Merrill Lynch.

Remind us, please, the sensitivity to rate cuts.

So Olga, on the sensitivity, on the commission sensitivity, again, maybe mentioned this before, and this remain radically, you see how the NIMs moved during Q1, for example, versus what our sensitivity commission position as of December. But all that I can say is this is really theoretical. And I think if you go back to our published financials, you'll see the sensitivity commission then, which haven't moved really much, which is 2 to 3 basis points for every 25 basis points movement. And this, again, subject to many things as we usually qualify this for a full year impact and also the CASA growth behavior that we could see for the remaining of the year. But that's the current sensitivity.

We do have a written question from Jura Investments. There's 2 questions. First question, you have talked about keeping LDR closure to 85%. Are you comfortable with the current LDR? And the second question is decline in NPL ratio. Can you throw some light on the reasons for the continuous and sizable decline?

Thank you. Obviously, we've been trying to be very efficient in liquidity. And previously, we tried to manage the LDR to be between 85% to 86% to be much more efficient. However, if you recall, following Q3 where we saw slight dip on our NSFR, we went lower in terms of LDR in order to maintain the proper level of NSFR ratio. And that hasn't changed. That other questions was about -- do you remember?

NPL ratio.

NPL ratio. Yes. Obviously, we already talked about the settlement that we had recorded in Q4 -- I'm sorry, in Q1. That settlement means obviously lower NPLs, because of the write-off, and we've done, I think, some other additional write-off. And of course, our loan -- overall loan will increase, which means that it dilutes also the NPL even if the level is still same, it's diluted. So it's a combination. We had settlement, some additional write-offs as well as growth on our loan portfolio.

The next question is a tax question, and there's 2 questions as well. What is the settlement you mentioned that caused a drop in nonperforming loans in Q1 versus Q4? Can you please elaborate more on this? Question two. Your target or flattish NIM in coming quarters, will it be coming from improvement of cost of funding or much higher increase in yield on assets or mix of both?

Yes, obviously, the difference or reduction in NPL was already covered in the previous question, just to repeat for reference. So we had a settlement. We had some additional write-offs as well as growth in gross loans and that has diluted the NPL ratio. The other question is about why are we confident that this guidance on NIMs, plus/minus 5 basis points, i.e., flattish, as Adel mentioned, we had higher cost of funding as a result of significant amount of time deposits being taken in Q4 when the rate was higher. And we've seen the rate now, is, 9 to 10 -- almost 8 to 10 basis points lower than what we see in Q4. And that is why in addition to issuing $1 billion Sukuk, which has a weighting of SAR 4.7 billion, we've seen the NIMs for the month alone of March better than what we saw as an average. We also run our re-forecast based on the latest forward yield curve that we take on market and we run our exercise, and that's why we kept the NIMs as is.

Thank you. So this is all the questions we have time for today. So I'd like to hand back to Naresh.

Okay. It looks like we have reached the end of the scheduled time for the call. So thanks again to the entire Alinma management team for taking time out to speak with us today. And thanks to all the participants for dialing in, and have a good day ahead, everyone. Thanks a lot.

Thank you all. Appreciate it.

This does conclude today's call. Thank you for joining. You may now disconnect your lines.