Alinma Bank (1150) Earnings Call Transcript & Summary

Hello everyone and welcome to today's Alinma Bank 2024 Earnings Call. My name is [Seb] and I'll be the operator for your call today. [Operator Instructions]. I will now hand the floor over to Naresh Bilandani of JPMorgan to begin the call. Please go ahead.

Thanks, Seb. Good day, everyone. It's Naresh Bilandani from JPMorgan and I'd like to welcome you all to the Third Quarter 2024 Results Call for Alinma Bank that JPMorgan is very pleased to host. We have with us today, Mr. Abdullah Al Khalifa, the CEO; Mr. Adel Abalkhail, the CFO; Mr. Saleh Abdullah Alzumaie, Deputy CEO and Head of Retail and Digital; Mr. Jameel Alhamdan, Chief Corporate Banking Officer; and Ms. Arwa Alshehri, the Head of Investment Relations. I'll pass the call to the Alinma Bank team to commence the presentation now. Thank you.

Hi, everyone. Thank you again for taking the time to dial in for our earning call. I'll take you, as usual, with Adel, the CFO, through a quick presentation so we can allow more time for Q&A. So I start my presentation on page six on high-level financial performance. Our -- we continue our strong growth in loans. Year-to-date growth is 13%. Total assets followed similar growth rate, 13%. Our operating income increased 14% year-on-year and as a result, our net income increased by 22% compared to the same period last year. Our NPA ratio is stable since Q2 at 78 basis points. Our coverage ratio is 245%. Customer deposits increased by 11% year-to-date. However, more importantly is the growth on CASA. If you recall, in the first half, we had the experience of 15% growth -- year-to-date growth. Now, that increased to 19% growth year-to-date. And as a result, CASA, the percentage of total customer deposits, increased to 51.4%. Our cost-to-income ratio, 31%. And net profit margin, compared to the same period last year, we lost 9 basis points. It stands at 372 as of 1 -- as of September. And the nine-month ROE improved year-to-date by 163 basis points to reach 18.6%. And on page eight, a quick reminder of our strategy. As most of you recall, we basically aspire to be the fastest and most convenient bank in the country. We want to be #1 in the promoter score and #1 employer of choice. And to focus segment-wise, we want to be known as the most digitally advanced and fastest and most convenient retail bank in the country. We want to be the corporate bank with the best customer experience as well as quickest turnaround time and the most innovative Sharia-compliant treasure. On next page, page nine, to zoom in more into the segment, we have mainly three pillars in retail. We want to focus on building and developing our affluent and high-net-worth customer franchise. We want to focus on attracting youth segments and offer the best customer experience. For corporate, we want to be the core bank, not only to large corporates and budget finance, but also mid-corporates. We want to develop high-quality SME franchise and as well as grow our cash and trade business. Treasury wants to be the core partner for our client needs in terms of hedging or investment, want to grow our FI business and maintain a high-quality element. To do that, we obviously, on the bank-wide, we have to build a digital factory and continue to expand it and foster a data-driven decision-making through advanced analytics and cultural transformation to not only attract but also retain the best talent in the country. On the next page, some of the initiatives that we completed and some of the activities we completed in Q3, we continue to offer more products like, for example, Deen Zakat's paying assets linked to the saving accounts, expanded e-signatures on auto loans. We continue our journey of installing TCRs and closing or merging branches. We merged eight branches in Q3. We still have two more to go and that will be fully completed before the year ends. In corporate, we've gone through a strong growth in assets, in total corporate assets, 16% year-on-year, 14% growth in non-funded and 90% year-on-year growth in mid-corporate as well as 27% growth in Kafalah SME loans. In treasury, we completed another three-year bilateral loan for $100 million. We've increased our profit rate to absorb the Sharia compliant version of the IRS by 5.4 billion as well as growing for the 6 billion. On the next page, basically, as of Q3 -- before we move to the next page, as of Q3, we finished 69 initiatives by end of Q3 and even finished one more before this earning call. So, we have 70 out of the 86 already closed. Some of the initiatives we continue to work on, on the next page, page 11, we still have, technically speaking, we say 17, but we still have 16 to go because we just finished one. But we continue our journey of digitizing the customer mortgage journey. We want to continue to enhance family account ecosystem. I want to continue to offer more products to promote liabilities within corporate and deliver hopefully soon on the e-Trade new platform that we're building. And then continue our efforts to develop long-term financing or funding. And obviously, we continue our journey of cross-selling products from -- to treasury to corporate, retail to corporate, corporate to retail. That cross-sell culture is significantly helping us in terms of acquiring and growing our cash balance. With that, I give the floor to Adel to take you through detailed presentation of financials.

Thank you. A very good afternoon to you all and welcome again to our earnings call for Q3 results of 2024. As usual, I'll be running you through the financial performance that will be followed by our guidance and outlook for the remaining of the year. And also, we'll open up at the end for the Q&A. Starting with the slide number 13, on the overall balance sheet trend, we have seen a YTD growth 13% in the total assets. This was mainly driven by 13% growth in financing, and we'll have details later on. And also, 9% growth in the investment portfolio combined with 22% growth in the interbank. Looking into the total liabilities, 12% year-on-year growth in the total liabilities have been mainly driven by customer, the overall customer-deposit growth of 11% combined by 14% growth YTD on the interbank. We move to slide number 14, on the overall P&L, as mentioned before, net income for the nine months has grown year-on-year 22%. And this was basically 14% growth in the funded income, 12% of the non-funded income. And also, this was offset by 11% growth in the operating expenses. Embedded charges is year-on-year 18%, lower than what we have charged in period last year. And the overall composition of operating income at the end of September, 79%. That's the funded income, obviously, 15% was mainly in the fees from banking services, and investment and exchange income is 3% each. Moving to slide number 15, a bit of details on the financing. So, on a sequential basis, we have seen overall financing portfolio growth of 3%. And also, the YTD growth, the gross financing for 12%, we have seen 15% growth in corporate portfolio. And also, we have seen 11% growth in retail. In the top right-hand graph, you can see the composition of the overall 200 billion financing portfolio Alinma have. As of September, 66% is related to large corporate and project financing. We have 5% each for SME and also mid-corporate. And also, 12% each for home financing and personal financing and other retail projects. We move to slide number 16, next slide, on the deposits. As mentioned by the CEO, we have seen a very strong growth of YTD in CASA. The growth was in the first half, if you recall, 15%. Now, we stand at 19% growth in CASA. That's an absolute amount, that's 17 billion. And also, we have seen moderate growth on time deposits, 4% YTD. And this has driven the CASA as a percentage of total deposits, as you can see in the graph in the center of the slide, reaching 51.4% from where we were in June, 50.6%. So, slight improvement in the CASA as a percentage of time deposits, of the total deposits. Next slide is number 17, on the overall NIMs and the income from financing and investments. We continue to see the growth in amount, 6% on a sequential basis, which brought the total funded income and the gross movement, even here, at 26%. 26% as a percentage from financing, 24% growth in the income, funded income from investment portfolio. On the net profit margin, as mentioned by the CEO before, we lost 9 basis points, as you can see in the bottom left graph. We have seen an improvement, 5 pips on the investment, as investment yield, and also financing yield, causing 8 basis points. And this was offset by 61 basis points, increasing the cost of funding in the nine months. So, the YTD net profit margin stands at the end of September at 3.72, which is basically 9 basis points from when we were in the same period. And also, if we compare it with the full NIMs for 2023, which was the same amount, the same number, 3.81. Moving into the next slide, slide number 18, on the non-yield income, net interest income, non-interest income -- fee and other income, we have seen flat growth on this, on the non-yield income from Q2, versus what we have seen, the jump on 8%, 8% during, between Q1 and Q2. So, the overall, the spring, the year-on-year growth of the non-yield income is standing at 12% growth, as you can see in the graph in the top right hand on the slide, 9% of the fee from banking services, and we have also 8% growth in exchange income, 44% growth in investment gains and dividends. At the bottom left graph, this is the composition of the fee from banking services, fund management remains the highest, 36%, 20% cash business representative, the overall 1.2 billion fees from banking services, 13% relates to the state financing services, and brokerage is 11%, 20% is from other services. The next slide, slide number 19, on the operating expenses, we have seen an 18 million increase in total operating expenses on a sequential basis from Q2, which represents a 2%, which brings the year-on-year increase on operating expenses by 11%. This was mainly driven, as you can see, from personal cost that has increased by 14%, and depreciation and amortization at 10%, and 8% as a single digit growth in the other G&A. This brings the 4.2 points per thousand positive [cost] that we have seen during the period, resulted in 1.2 points per thousand reduction in the cost of income, so if you recall, cost of income ratio is standing at 31.4% in June, we are exactly at 31% cost of income as end of September. And the next slide, slide number 20, on the impairment, lower impairment charge, you can see in the top right-hand, 17%, where the impairment charge was 798 million for the nine months this year, versus 964 million in the same period last year. So, the overall composition of the allowance or impairment allowance as end of September is 83% in corporate, 17% relates to retail portfolio. So, this has brought down the cost of risk, standing at 56 basis points as end of September. Again, if you recall, cost of risk in June was 63 basis points. We move to the next slide, slide number 21, on the NPL and NPL coverage ratio, we have seen the reduction since Q2 on the NPL overall, NPLs overall, we have still had the same NPL ratio, 78 basis points as we were in Q2, and this reflects positively in the NPL coverage ratio, which we have seen very healthy since Q2, where it was 240%, and now it stands at 240%. On the stage-wise coverage in the graph at the center of the slide, again, we have seen also Stage 1 coverage, still remains with the historical trend that we have seen since Q3 last year, where we see Stage 1 as 50 basis points. We have a very slight drop in the Stage 2 coverage, but it is the same that we have seen in Q1 and also Q4 last year and Q3, and as we mentioned in the last evening call for Q2, which we are aiming to improve the coverage for Stage 3, which has improved now from where we have seen the Stage 3 coverage was 48.8, now standing at end of September at 43.2%. Next slide, which is slide number 22, on the capitalization and liquidity. Capital adequacy pillar one, we are at 8.2% at the end of September. In the ROE, we have seen continuous improvement in the ROE. We have seen the ROE at June was 18%, which is standing now at the end of September with 18.6% return on equity. Also return on assets was 2.2% even in June. We have seen that's improving as well by end of September to reach 2.3%. At the bottom of this slide is mainly the liquidity measures and the prudentials. LCR, all of the liquidity measures as well, LCR stands at 132%, which is well above the regulatory minimum of 100%. We have LDR also at regulatory LDR, standing at the end of September at 81.5%, which is well below the regulatory maximum. And also in so far stands at 109.2%, in line with what we have seen in the previous quarter, which is above the -- well above the regulatory minimum. And the next section is in the outlook and the guidance for the remaining of the year. As we mentioned, we have seen YTD growth as of the end of September in the financing 15%. So the guidance is skipped and changed for the remaining of the year as high teens. Net profit margin stands at 3.72%. We are revising the guidance from previously +5 to -5 and as we have seen that trend may be going toward the lower end of the guidance. We're revising the next guidance to be zero basis points to minus 10 basis points by end of this year. Cost-to-income ratio, we are exactly at 31% and the guidance did not change as it stands as below 31% guidance for cost-to-income. Return on equity 18.6%, the guidance remains above 18%. And the cost of risk, as we have seen the cost of risk going down from the beginning, especially between Q2 and Q3, we are revising the cost of risk guidance from previously 70 basis points to 60 basis points to be 60 basis points to 50 basis points by the year end. CAR Pillar 1, 18.2%. Still the guidance remains at 18% to 19% for the year-end. Return on equity targets for 2025 still changed as above 18%. With that, I will hand over back to the operator for the Q&A. Thank you.

[Operator Instructions]. Our first question today comes from Nida Iqbal from Morgan Stanley.

Thank you for the presentation. Just wanted to start off on the margins. So, you have downgraded your guidance for margins. Are you able to comment on what surprised negatively versus your initial expectations? And I ask this because actually the growth in your CASA balances is quite impressive. The CASA ratio mix keeps increasing. And just on that point on margins, the second bit of the question was, firstly, as rate cuts start to come through, do you expect margins to expand from here as deposits reprice faster versus assets? And if so, how many quarters could that last? And then going back to the CASA mix, if you can just talk about the drivers of the increasing CASA ratio, how sustainable do you think this trend is? And if there are any early signs that you're seeing in terms of a shift into CASA given the rate cutting cycle?

Yes, I mean, obviously, as Aden mentioned, we obviously, before the earning call, we do, as usual, we do our forecast. And we saw that, we're staying plus minus 5 basis points, but it was our latest forecast towards the lower end of the guidance. We could have kept it, but we felt it's better that it gives you much more clarity. And that's why we set zero basis points to 10 basis points. So it's much better clarity for you guys in terms of the guidance. In terms of CASA, I mean, obviously, we've been extremely focused on growing our CASA through, as I mentioned before, customer acquisition and the whole retail group, whether it's affluent, private, mass, youth, and so on, but as well as the corporate segments, SME, mid-corporates, large corporates, project finance. So that's one aspect. Customer acquisition is really important. Second leg of that journey was obviously the focus of cash selling, especially cash and trade, that generates good growth in CASA. Things like payroll, when you obviously find with a corporate, you get a better average balance from that corporate. But in addition to that, you get the employees of that corporate open an account with us in order to avoid the cost of remittances or remittance costs for the company itself. So that trend will continue to be focused on. We'll continue to -- and of course, I forgot to mention the government, the [Saudi] government, and that our also team is doing a fantastic job in obtaining a new agreement and new accounts open and you have better average balances with us. Now, in terms of CASA, obviously, our effort is going to continue to focus on growing CASA. I guess we can also get a little bit help when interest rate goes down, because typically, you've seen migration. I wouldn't say it's a strong migration now, but you've seen some migration. Even the growth, I think, in the industry is good growth in demand deposits, for example. But as we expect next year, rates to be cut further, that should improve further the migration back to CASA.

And then just going back to the other part of the question about margin expansion, could we see margins expand as rates come down for a few quarters?

Well, I mean, this is the case for banks that, in Saudi, will have large corporate portfolios linked to -- linked to the variable rates. Typically, liability is a shorter term, and we talk about time deposits. So, time deposits, during that reduction in rates, you would see positive impact on NIM until the rate stabilizes, then no further liability repricing. On the other hand, also, which is not really that clear to us, how much migration back to CASA? How much can we grow CASA from time deposits? Because that will help also in terms of cost of funding. So, during that decline in interest rates, I would think it could be positive until a little bit stabilizes and no further reduction on the cost of liability, but hopefully more migration to CASA that can support it. Obviously, we're finalizing our 2025 business plan soon, so following Q4 will give guidance of how the NIMs outlook for us next year.

Our next question comes from Jon Peace at UBS.

Could I ask a NIMS question, just following on from the previous question and your answer, would you be able to update us, please, on your NIMs sensitivity to 25 basis points lower rates? And is that something that we can use when we're thinking about 2025 NIM guidance and where that might land, or does the timing issue affect that? And then my second question, please, is on the dividend. Paid a bit more than expected. Do you expect to be able to continue to pay a quarterly cash dividend of this magnitude, or to preserve capital, given your very high growth, do you think there's a possibility of another script dividend?

I'll take the second part, and the first part can be addressed by Adel. In terms of dividends, yes, our intention is to continue to pay on a quarterly basis. We did not introduce this last year just to be a one-off. It's something that we intend to continue on. The question is, obviously, with strong growth and the need to support our capital to continue that growth is obviously on the payout ratio. I think for this year-to-date, it's 46 payout ratio. And obviously, as our profit goes up and the need is required for additional capital, we may consider lower payout ratio. But the idea of quarterly payout, that's something that we intend to maintain. And Adel, first part?

Yes, and then, maybe in the sensitivity, if you recall, we've been communicating the sensitivity, which we always calculate, and it sometimes goes up and down. The latest we have for September, taking the September position, will be the 1.5 basis points to 2 basis points for every 25 pips. But again, this is something that we always really qualify that this will be with a 12-month outlook, keeping everything equal. So, back to maybe your point when it comes to how you would look into the NIMs going into 2025, as mentioned by the CEO, we are in the middle of finalizing the business plan. And obviously, we always take the latest yield curve, and we will apply the new -- the latest yield curve on the asset growth, the new assets that will be repriced, and also the new assets that will be dispersed during the year. And of course, with the assumptions of the CASA growth as well, and also assuming there is no big change in the customers' behaviors, we will only honestly be able to provide the guidance on the NIM for 2025 following Q4 results or conference call for Q4, where by that time we'll be able to see our position and how the NIMs will look like by end of 2025. Just one point that you mentioned is that the trend that we are seeing now could be something that we'll continue to see. I would believe that what we have seen, which also, based on which we've revise the guidance, is something that could be similar and might not be really the overall trend for 2025.

Our next question is from Shabbir Malik from EFG Hermes.

I know you probably wait for the end of the year to give guidance for loan growth sector for next year. But just in terms of general thinking, how are you thinking about loan growth next year for both corporate and retail, given that potentially interest rates are going to come down? How do you see that changing loan growth next year versus this year? That's number one. Secondly, if I look at your cost of risk, you've revised it to 50 basis points to 60 basis points from 60 basis points to 70 basis points. It's still relatively high compared to the sector? And looking at your NPL coverage, which is at a historical high, do you see cost of risk for 2025 potentially being at the same level or potentially lower? So, if you can give -- shed some light on that? And finally, on the margins once more. So, if we assume that there are another two rate cuts, so of pending cumulative rate cuts of about 100 basis points, would it be fair to say that your NIMs would land to around 3.6%? Those three questions, please.

As far as now, I'm talking not specifically about the bank, because as I said, we haven't finalized our business plan. But I think it's quite expected that strong growth in corporates next year is expected, not only next year, but at least three years to five years is going to be strong growth in corporate loans because of what's happening in the country 2030 and the amount of projects that come into the pipeline. In retail also, the interest rates is going to certainly help the affordability and mortgage and the appetite for consumers to come for consumer loans and so on. Coupled with the fact that unemployment is declining, so means more bankable customers. So I would still expect good growth, very healthy growth in retail and strong growth in corporate. Cost of risk for the industry again. My expectation is with strong loan growth, fantastic economic activities happening in the country, all sectors, all segments, I wouldn't expect the cost of risk to be higher. I would expect it to be lower for the industry. We'll give obviously our guidance. As margin, as I mentioned, we will definitely give the guidance based on the latest forecast that's following our business plan. This is something we'll do maybe in late February or something, early February.

Maybe on the retail side, have you noticed any changes in retail ex-mortgage appetite? Has there been -- because it's been a bit slow this year. Has there been any change recently in that? And do you see that picking up?

Yes, this is Saleh. Yes, we've seen a pickup in the mortgage, especially with the new government project of plans, which are affordable to the client. Plus the programs that the Minister of Finance and the real estate fund and the SRC, that's the real estate company, are offering different programs for subsidies. So there is a pickup. And we have seen a lot of unique projects going on in the country, especially in Riyadh and Jeddah municipality. And the customer appetite and the booking of some of those projects is almost reach to 100%.

In terms of personal financing, anything of note over there?

We will continue -- the personal finance, we continue growing it in a very conservative way. So we are very selective. And now we are using part of this personal financing as a down payment for the mortgage. So this is growing in a steady and healthy way. But the big increase is on mortgage business.

Our next question is from Chiro Ghosh at SICO.

This is Chiro Ghosh from SICO. I have two very quick questions. The first one is I observed that your loan to deposit ratio is on an upward trend. So if I last year, like 2023, it was in the 76% to 79% zone and it has gone to 82% now. So I just want to get a sense that in how long, how much are you planning to raise it or aim to raise it? I believe that this would be supported by the NIM. So that's my first question. And second one, I want to get a sense about the ground reality of the SME sector. So despite having a reasonable SME exposure, your default rate has been quite low. So if you can give some clarity on the ground reality of the SME sector?

If you can repeat the second part of your question, because the sound quality wasn't clear.

I want to get your view on the SME sector, basically. So are you seeing more defaults happening in those sectors, and especially the mid-corporate level? SMEs are mid-corporate level. Are you seeing pickup in defaults? So I just want to get a sense on those, because that's where I believe the risk lies. I just want to get your sense.

I'll get the LDR question, and then my colleague, Jameel, will be getting the SME question. The LDR, you're right. We've seen an increase. If you see the LDR where we were in the same period last year, we were at 79.8%. We are now at 81.5%. But honestly, this is not really a big jump. We have been always communicating about the efficiency on keeping the LDR at a level that will be around 85%, which will keep a 5% caution below the regular for maximum of 90%. So, yes, it has been increasing, but it's still, I think, in a level that may be lower than what we have been communicating before, that we always wanted to be within an average of 85% LDR, weighted LDR or regulatory LDR. On the SME side, question?

Yes. Its Jameel. See, there is nothing to worry about when it comes to default percentage in SME in general, due to the nature of business and the conservative approach, which is either design the product for tailor-made for a client for their needs, plus the Kafalah guarantee support that we have that even supports our financing for this segment, but still within the norm, nothing to worry about.

Can you share, and what percent of your SME loan was the Kafalah back?

SME loans as a percentage of the overall financing? Is that the question? Yes, that's 4%.

Our next question is from Aybek Islamov at HSBC.

I just wanted to cross-check a few things with you. One is on the -- your net interest margin guidance that you revised lower by a little bit. It still kind of implies that your margin will pick up sequentially in the fourth quarter of this year. So, I would like to really hear your views, what can drive that sequential improvement in your NIM in the fourth quarter? And I think secondly, I think linking up to the margin. When I look at your cost of funds and your CASA deposit ratios, obviously, CASA deposit ratios improved quite a lot, but I personally don't see that flowing into your cost of funds. Your cost of funds kept rising for several quarters now. What are your thoughts on the cost of funds? I know you talked about it's difficult to predict the CASA deposit behavior, the customer behavior in CASA deposits, but would you kind of agree that there's a scenario that your funding costs may be quite sticky going to the next year despite the rate cuts? And that's maybe because the marginal cost of funds is still quite above your average cost of funds in the country. So, that's my question about the margin. And I think otherwise on your capital ratios, I've heard you talk about the dividend payouts. We can see that your risk-weighted assets to asset ratios steadily increasing, and mostly that's because of your risk-weighted assets growing faster than your total assets. So, what's driving that growth in risk-weighted assets? What kind of segments of your asset portfolio are contributing to that increasing risk density of your asset base? And on your payouts, we see your payout ratio today, but looking at your CT1 ratio, which is quickly approaching 13, could be lower. I think I'll repeat this question that was asked during previous quarterly calls. How do you envisage your payout ratios? Are you flexible about managing your payout ratio such that you target your CT1 at a comfortable level?

On the margins, as I said, the latest forecast that we've done, it's toward the lower end of the previous guidance. So, we just need more clarity or better clarity in terms of the investors and others. We are expecting a little bit improvement, some improvement in Q4, but because it's the one quarter of the full year, so it's not going to have a significant impact on the full year margin. The cost of fund, naturally, as you know, we're growing. We're growing fast. We're growing higher than the industry average in terms of loans, and that requires funding. So, yes, we're successfully growing on our CASA balances, but that additional growth is fast growth in corporate and retail, require financing, and that comes typically in the form of time deposits. So, that's the main reason for it. We're working very hard to diversify our funding. As you know, once last year, this year actually, in February, we reached $2 billion. We just mentioned the early call that we called another bilateral loan. We've done maturity to -- report to maturity. We're looking at different ways to finance our growth. Yes, if we slow down, surely our cost of funding will be lower because percentage of CASA will be higher than the current ratio. In terms of the other parts…

Tied back on the risk-weighted assets and the risk intensity of the balance sheet, yes, it has been high, at least if you compare it to the overall sector, but given the fact that if you look at the recent history and the growth, the strong growth that we have seen, budget financing, especially in corporate, of course, that will have maybe a higher risk weighting versus maybe other types of funding. But this is not really to change the views that we have been saying before since the Basel III reforms, banks have started to lament early 2023 because we haven't seen really the big shift. It's just the nature of the financing we do. But it's not to a level that we're worrying about, and I don't think we'll see a significant increase from here, at least from the levels we are seeing now.

And the last question was about your dividend payouts. Would you manage your payout ratio such that you kind of maintain your comfortable CET1 ratio? And if you can talk about your comfortable minimum CET1, again, that would be great?

Yes, Aybek, as you know, we saw the banks are subject to minimum CAR by the central bank, and it's actually based on the total capital divided by Pillar 1 and Pillar 2. We don't disclose, obviously, the actual ratio. So we don't have two limits, one for Tier 1 and then for total capital adequacy. We have a total limit. We managed to support the Tier 1 through the issuance of Stockholm this year, and I believe we could have repeating -- repeated -- could have another repeating issue. And as far as the payout ratio, if you recall, we're proactively forecasting our capital adequacy needs, and based on that, we decided on the payout ratio as well as the issuance of Tier 1 or Tier 2 instruments. If you recall, last year, for example, we issued in the fourth quarter some bonus shares, and we didn't pay dividends, so that reduced the payout ratio. But as our profit continues to grow and we may be targeting lower payout ratio, then we can continue to support our carbon equity Tier 1.

The next question comes from Murad Ansari from GTN Middle East.

A few questions on loan growth and deposits. So firstly, on consumer loan growth, this has been a good quarter. We've seen some pickup in lending. Is that linked to some campaigns or active push by the bank, or are you seeing this trend really picking up and strengthening into next year as the rate cuts continue to come through? And linked to that is a question on mortgages. So the rate on mortgages, SERC is largely driven by long-term rates. Do you see that changing significantly? Just your thoughts on how does that impact mortgage growth into next year? Then on capital deposit growth has been quite impressive for you. So just maybe a high-level view of how much is that driven by retail/new customers, new-to-bank customers, or is there an institutional element that has picked up in this particular quarter? And lastly, your thoughts on the interbank rate. The SIBOR has dropped post-rate cuts, and we've seen a slight increase, about 10 basis points since that low. So just your thoughts on what's driven by it?

I'll probably take the last part. On the SIBOR, SIBOR now, the new methodology has been there for I think two years, almost two years, takes into account the transaction not only with banks, but also with customer deposits. And obviously you've seen the whole industry has grown very faster loans. I think if you look at the year-on-year growth in loans for the whole industry, it's more than 12%. And that obviously leads to maybe the funding needs for those banks, and there could be a little bit of competition. That competition can technically drive SIBOR. The other part on deposits, I'm not sure I fully understand, but deposits, like we mentioned, that our customer acquisition is an important element of that. So that is new to the bank, whether it's individuals or corpus or even government agencies and so on. There are two questions about consumer loans and mortgages, Saleh?

Yes, and the mortgage, we do some tactical campaigns for a very short period of time to be in line with the market. For example, if there is a cityscape, we have to do some promotions for a very limited time and limited number of deals. In terms of pricing, of course, we have to follow the cost of funds and also the interest rates outlook. And we need to be in the competition, but we never go on the market price or pricing war with other banks. We do have our own segment that we focus on. And our portfolio, maybe unlike other banks, so it's not more than 50% for non-RDF or non-subsidy customer. So we do have some segment that we still continue good margins on granting them mortgage loans.

If I may add also, our philosophy in growing our retail loan, both consumer and mortgage, is not to be not only pricing. We don't -- we're not aggressive on pricing. We really focus on quality of service and turnaround time. And that allows us to grow our market share on both projects.

If I could just follow-up one broader sector question. We've seen this year, if you look at the deposit split of the sector, for the last, I think, 22, 23, there was a significant portion of deposit inflow that was coming in from government institutions. This year, we've seen private sector deposit flow increase substantially. Any thoughts around what's changed this year versus last year where we've seen private sector flows improve significantly?

Yes, I think, look, obviously, as more economic activity is happening in the country, you see BIF investing more into the domestic market. You'll find some large corporates going to tabulate the national market, as well as banks, by the way. And that continuously improves liquidity. I think that helps liquidity. But if you look at the growth on claims of private sector versus deposit, or even M3, you find that loan growth is faster, actually, than the growth on liquidity. But at the moment, it's not something stressful. It's just a healthy level of liquidity. Government deposit, HEIs, they were introduced back in Q4 2022. That really helped liquidity. I think, there's also potential for growing that level of deposit. And, by the way, also unemployment is driving for liquidity because more Saudis taking over jobs, which means less remittance going out to leave in the system and more money in the system.

Our next question comes from Adnan Farooq at Jadwa Investment.

I have two questions. One is related to the asset yields. The SIBOR in the first half was relatively flat-ish. It declined in the third quarter. But we saw your asset yields improving in this quarter as against being flat-ish in the year-to-date in the first half. Can you highlight the reason for the improvement in asset yields during this quarter? And we saw that not just for Alinma but for some of the other banks as well. I was wondering what drove these asset yields? And my second question is around the recent announcement by Ministry of Finance related to resolution of loans related to Binladin Group. If you could highlight your opinion on the same? How does that impact, the bank going forward the provisioning as well as the loan growth opportunity that arises from the resolution of problems of this large contractor?

Yes. I mean obviously on the asset yields we continue to focus on growing our SME, our mid-corporates, which generally speaking actually attracts better rates than say large corporate, normal large corporate loans. We're also growing our retail which gives us good yields on this. And also our investment selectively is helping us on the yields. That's all I guess I can say on this one. On the SPG side obviously it's absolutely positive move that the Ministry of Finance have done this to sort of reduce this problem in the banking system. The government is quite keen to have the major contractors helping on this huge development happening in the country. So I think it's a positive move to the economy because you know SPG has been obviously a large contractor and the country is in need for more contractors and large contractors. So that capability is important. I think it's also positive for the banking system. As far as cost of risk I would imagine that the -- that at least going forward now we have sort of release of that provision in the bank industry may lead to lower need for provision. And so next year or Q4.

Just to confirm one thing, there was no major profit in suspense that came back this quarter which helped yield. It was all organic?

No, not for us. There's no one else.

The next question comes from Edmond Christou at Bloomberg Intelligence.

Just a quick follow-up. You say that the increase in the asset yield is mainly coming from business mix which I do understand. But do you expect or have you seen any sign of improvement in pricing especially on the corporates? You will assume next year given where the interest rate cut is happening banks will be forced to improve some of the pricing to offset some of the rate cuts. So I understand if we start to see the sign of improvement in pricing or yet to come? If I understand correctly you are optimistic about margin at least into June next year. What else could improve margin apart from cost of funding? Do you see more opportunity in terms of the product mix improvement into next year? And follow-up on this is what the percentage of your new loan this year that has been written on the corporate side are project finance? And the last one if I may is, I do understand that NIM has been flat sequentially but the cost of funding has increased. And if I look at your cost of interest-bearing deposit has increased. So it seems that the interest-bearing deposit costs you more sequentially than before. So is this a factor of NFSR a change in the maturity of this deposit or it's a factor of dollar or different non-resident account deposits. So I understand and this is related to maturity change that become more expensive to acquire this deposit because your NIM stay the same.

That's a short list of questions. As far as the spread and what can improve but obviously product I mean segment mix can help for sure. The more we grow and mid-corporate and SME and obviously in retail loans, it's better as I mentioned compared to large corporates. The migration -- the migration in terms of from time to current accounts that can also improve the NIMs. The other aspect is historically we've seen throughout rate cycles in the past, where rate is very low typically the spread is higher in corporate generally. And when rate is low typically that's usually lower spread. I mean what it will take to see significant improvement in spreads not to the level that I expected I guess next year but next year can. And the growth in loan is significant which means the need for strong competition on pricing is not going to be there next year in my opinion and that can also help. The other point about right now project finance we haven't had.

Just a question I think the question correct me if I'm wrong is how much of the new sales done during this year was project finance. Is that a question?

Yes, yes.

Yes, so if you look at the overall financing portfolio growth for bank from December until the end of Q3, we have an overall net financing growth of around 22 billion as an absolute amount around 10 billion to 11 billion of that was the net growth in the project financing portfolio itself.

On the cost of interest-bearing deposit. Is it a factor of change in the maturity? Is it longer to support your NFSR, Net Stable Funding Ratios?

Yes, so then the question so of course, the NSFR is very important and if you have seen the trend with the bank wise, we've been always giving a caution about the regulatory minimum there. It's the -- it's the fact that it's part of how we closely monitor the NSFR. It's not all because of these deposits. Sometimes we really get forced to get some longer term deposits just for an enhancement of NSFR even though the loan to deposit ratio may be in a combustible level. So deposit is a mix of how much we need as part of the LDR but also the liquidity ratio including the NSFR.

And from this point of view I mean in the sense that you need to have liability mismatch so you need also long-term funding -- stable funding in order to offset this asset liability mismatch.

Last one I promise is just to understand non-subsidized mortgages the 50% and the pricing is you decide the pricing for this or this is decided by SRC, which they publish as a non-subsidized government program? Just I want to see if you are able to be competitive. You decide. So you actually can price 100, 200 business loan cut quickly into it without permission from SRC or looking at their benchmark, right?

So we have no further questions on the call at this time so I'll hand the floor back to the management to conclude.

All right. Okay. Thank you. And looks like I think that was a very comprehensive set of Q&A. So thanks a lot to the Alinma Bank management for their very helpful insights and their valuable time today. I'd really like to thank all the participants for dialing in. Have a good day. Thanks a lot.

Thank you.

This concludes today's conference call. Thank you very much for joining. You may now disconnect.