Alinma Bank (1150) Earnings Call Transcript & Summary

Good afternoon, everyone. This is Shabbir Malik. And on behalf of EFG Hermes, I would like to welcome you to Alinma Bank's First Quarter 2025 Results Call. With us to discuss the results today and answer your questions is the senior management of the bank. I will now hand over the call to Ms. Arwa Alshehri, the Head of Investor Relations. Arwa, over to you, please.

Thank you, Shabbir. Welcome, everyone, and thank you for joining us today for Alinma's earnings call for the first quarter of 2025. Our CEO, Mr. Abdullah Al Khalifa, will begin by providing an overview of Alinma's performance and financial updates, followed by a recap and an update on the bank's current strategy. After that, our CFO, Mr. Adel Abalkhail, will present the financial performance of the bank of the first quarter and share an update on the guidance for the rest of the year. We will conclude the call with a Q&A session, where our CEO, Deputy CEO, Mr. Saleh Alzumaie, CFO; and Chief Corporate Banking Officer, Mr. Jameel AlHamdan, will address your questions. With that, I will hand it over to your professor.

Thank you, Arwa. Welcome, everyone. Fully appreciate the time to log in from different time zone for our earnings call in Q1, 2025. I'll start with, as Arwa mentioned, high-level overview of our financial performance. Our financing increased 4% year-to-date to reach SAR 209 billion. Total assets increased with a similar rate at 4% year-to-date to reach SAR 287 billion. Customer deposits increased 4% year-to-date to reach SAR 219 billion. More importantly, the growth in CASA is 8%, double that growth overall deposits, 8% growth of CASA to reach almost SAR 118 billion. On the income side, we -- our operating income increased 10% year-on-year to reach SAR 2.8 billion. Net income increased 15% to SAR 1.5 billion. CASA as a percentage of customer deposits with the strong growth that we've seen in the first quarter reached almost 54% of total customer deposits. Cost to income improved to 32.2%. In terms of credit quality, our NPL ratio reached 127%, while our coverage ratio exceeded 156%. Net profit margin, we lost about 6 basis points compared to the same period last year to reach 363% and our ROE is 18%, a 49 basis point improvement. On the Page 8 on the just a quick reminder of our current 5-year strategy, which, as you know, this is the last year of this strategy. We've always have ambition to be #1 in terms of being the fastest and most convenient bank in the country, want to be #1 in terms of Net Promoter Score and #1 as the employer of choice. And if we flip to the next slide, we'll give you more detail by the business side. Obviously, to be the most convenient and the fastest, we needed to invest in digital. So we set up a digital factory. And for obviously, decisions, we want to improve our analytics skills to improve our decision-making and of course, the cultural transformation to have the ability to attract and retain the best talent in the country. Now if we look at business by business, retail is based on 3 main pillars. The first one is focus on growing affluent and private business. The second pillar is to focus on attracting the youth segments and the third pillar is to provide the best service quality that we can offer our customers. In corporate, we want to be the main -- the core bank, not only for large and project finance, but also for mid-corporates covering all segments in all the sectors in the economy. Second pillar is to develop the SME business. And third pillar is to focus on cross-selling cash and trade products. So in treasury, we want to be obviously the core partner for our corporate clients' needs in terms of hedging or investments. We want to grow our FI business and maintain an ALM -- high-quality ALM function. Now on the next page, page 10, we basically give you a flavor of things that we've achieved during Q1, 2025. We launched a digital trade finance system. We migrated our customers to new corporate platform. In retail, we've introduced or implemented modern secured card system. We've also updated the digital platforms to have a full digital journey and real estate or mortgage. We've introduced persona and behavior-based segmentation, corporates, the automation of supply chain finance. We had also witnessed a 14% growth in corporate year-on-year, of which 32% growth in mid-corporate and 28% growth in SME and treasury, we continue to enhance our cross-sell by increasing our exchange income by 19% year-on-year. We added 6 more banks to our FI network and our cash flow hedge reached about SAR 5 billion by end of the quarter. On the next page, Page 11, we're just giving you some insight of things that we're working on. So for example, we're working on leveraging the GenAI, whether on the customer service, whether it's an efficiency, whether it's in better risk predictions and forecasting and so on. We're invested in GPUs from NVIDIA. We've also hired 10 new graduate stacking through a full 6 months training specifically on GenAI. On retail, we want to accelerate and work on accelerating the sale of insurance products. We also want to automate and complete the automation of customer value management and introduce salary advance digitally. Corporate, obviously, want to continue to diversify products that we can allow us to attract more customer deposits, especially on the CASA side. And we want to continue to enrich in terms of features of the digital trade finance. I do apologize as Bill is actually enhancing the -- or adding more features of the already existing digital trade finance. And obviously, wanted to add more and more of the value-added services to our customers. On treasury, we want to obviously continue to focus on driving more long-term funding and the continuous focus on cross-selling with the businesses. On Page 12, it gives you some of the KPIs on where our strategy is helping to drive these numbers. For example, revolving credit card portfolio, we had 28% growth year-on-year. Auto lease, we had a very strong 75% growth on auto lease business. And accounts opening used to be 84% of accounts opened online. Now it's 93%. On corporate, we -- project finance went through a 10% growth year-on-year, while, as I mentioned before, SME and mid-corporate had a stronger growth. On Treasury with the average yield on investments improved by 17 basis points. Cost of funding improved by 37 basis points. The exchange rate of what I mentioned increased by 19%. With that, I give the floor to our CFO, Adel Abalkhail for detailed presentation on the financial performance.

Thank you. Very good afternoon, and welcome again for our earnings call for the first quarter of this year. As usual, we run you through the financial performance that will be followed by our guidance for the remaining of the year. We try to go through that quickly, so that will allow more time for the Q&A session. Starting from Slide #14 on the balance sheet trend. We have seen a 4% YTD growth in total assets that was mainly driven by the growth in the financing, SAR 7.1 billion growth to YTD. And also, we have 2% growth in the investment. Also, we have almost SAR 2 billion growth in our cash interbank and balances with this service interbank. On the liability side, also, we have seen a 4% growth YTD and the total liabilities obviously driven by a 4% customer deposits growth, and this was offset by 10% lower due to settlement also in the interbank. On the next slide, Slide #15, on the P&L trends. Net income for the quarter was year-on-year 15%. This was mainly driven by a 13% growth on the funded income. This was offset partially by a 4% lower non-funded income, mainly from the fees from banking services, which we will come through in detail later on. Operating expenses also was -- has grown 5% on a sequential basis. We'll have a separate slide on the OpEx later on. The next slide, we have Slide #16. This is on the financing. So year-on-year gross financing has grown 16%, which is also a 4% on a sequential basis from Q4 reaching SAR 213.7 billion by end of Q1. This growth in the financing YTD was a 3% growth on the retail portfolio, which is up SAR 1.7 billion and also around SAR 6 billion growth on the corporate financing that translates into 4% YTD growth in the corporate portfolio. As you can see in the top right graph, the composition of the financing portfolio by end of Q1 was 55% relates to corporate project financing and also the portfolio management. We have 6% relates to the mid-corporate of the commercial segment, 5% was for SMEs and 12% each for mortgage and also the other retail products. In the next slide, Slide #17. That's mainly on the deposits. As mentioned earlier, 4% growth in the total customer deposits, YTD, mainly from strong growth that we have seen during the quarter from December 8% growth in CASA, that's SAR 9.2 billion. And obviously, this was offset by a slight reduction in the time deposits during the quarter by less than SAR 1 billion, which is 1%. This actually bring the CASA as a percentage of the deposits to be almost 54% by end of Q1. This is up from where it was, if you recall in Q1 last year, was standing at 50.7%. On the next slide, Slide #18. The income from financing and investment, we have seen -- the gross funded income continues to have a healthy growth driven by 23% growth on the investment income and 6% was the growth on the financing income. We have seen a 2% drop on a sequential basis. This was mainly on the drop on the gross yield. And this is -- would be more clear, if we look at the bottom left graph, which is the net profit margin movement year-on-year. 49 basis points was the drop on the overall financing, and this was offset by higher 6 basis points on the investment yield and also an improvement in the cost of funding rate by 56 basis points year-on-year, which brought the NIMs to be minus 6 basis points, if you compare this to the same quarter of last year. So our YTD NIMs stands at 3.63%. This is 7 basis points, it's around 6 basis points drop from the full year of last year. On the next slide, Slide #19, on the non-yield income, fees and other income, you have seen the overall year-on-year is minus 4%. This is because of SAR 50 million lower fees from banking services. And this is actually as an increase from expenses rather than the income itself as the income has grown even if we compare it year-on-year. So the drop was mainly on the fees from banking services, if you compare to the overall non-yield was SAR 28 million. The overall feed composition is 58% as the fund management card related surpluses related fees 15%, 14% on the trade. We have 11% in the brokerage and the remaining 22% for other fees. On Slide #20 on the operating expenses. Year-on-year overall OpEx are 9% up on a sequential basis from Q4. Overall OpEx are up by 5%. As you can see, mainly driven by SAR 21 million increase on the personal-related costs. And this is usual in the first quarter as it relates to the normal increases and the impacts on other personnel costs, part of it would be the end of services and others. Also increase in depreciation and amortization, 15% year-on-year and also other G&As are 8%. So the growth of 9% operating expenses have actually lowered the cost-to-income to be 52.2%. We compared it to where we closed the year last year of 50.9%. However, if we compare to the same quarter last year, it's actually lower, when we were at 52.5%. In the next slide, Slide 21, this is the environment. So the environment with -- the total charge for the quarter and need to be recoveries, of course, is [ 226% ]. This is a 15% lower from what we have charged for the same quarter of last year. This has also brought the cost of risk down from 59 basis points back last in Q1, 2024 to be 43 basis points by end of the Q1. If you recall we close the year with the cost of risk of 55 bps. So that's a 7 basis point drop -- more than 7 basis point drop in the cost of risk from Q1. On Slide 22, on the NPLs and the NPL coverage ratio. NPLs have increased by SAR 0.5 billion from Q4, that's 25%. That system migrations some of the accounts, which actually led to an increase, if you look at the top right of the graph, an increase in the NPL ratio at 81.27% by end of Q1. This also has an impact on the NPL coverage ratio. If we see the trend because the last year December was 172.3% were at 156.4%. So stage-wide coverage to take movements from the last 2 quarters, 54.8% of Stage 3 coverage. We have 14.4% Stage 2 coverage and also 40 bps Stage 1 coverage by end of the Q1. Slide 23 on the capitalization and liquidity, Tier 1 and Tier 2 CAR below 1 is standing at end of the quarter at 18.3%. Also, as mentioned earlier by the CEO, ROE, we're standing at 18% by end of the quarter and also return on assets is at 2.1% by end of the quarter. And the second section of the same slide in the presential ratios or remains healthy. LCR is at 130%, which is well above the regulatory minimum also LDR at 83.2%, which is well below the 90% regulatory maximum. And it's a part is at 108%, which is also all on above the regulatory minimum. On the next section on the guidance, this is Slide 25. So on the guidance for the financing growth, we have seen almost 15% year-on-year growth. So the guidance for the remaining of the year remains unchanged as mid-teens and the net profit margin, we closed the quarter, as I mentioned, 3.63% with anticipation for a little bit of elevated cost of funding. The guidance is revised from previously plus 5 basis points to minus 5 basis points. Now the guidance for the year is 0% to minus 10 basis points. And also, this is related to the revision we are making on the cost-to-income ratio. Previously, the guidance for the year on the cost-to-income ratio is below 30%. The guidance we've given for the revised guidance for the remainder of the year will be 30.5%. Return on equity, we closed at 18%. The guidance remains unchanged at above 19%. And also we are revising down the cost of risk from previously 55% to 45%. The new guidance for the cost of risk will be 50 to 40 basis points. Capital 1, Tier 1 and Tier 2 stands at 18.3% and no change to the guidance, which is actually 18% to 19%. There is one slide at the end of the presentation and the update for the ESG for your good read. And then now with that, I will hand it back to the operator for the Q&As. Thank you.

Thank you very much for the presentation. We'll now open the line for Q&A. [Operator Instructions]. Our first question comes from the line of Mohammed Al-Rasheed.

Am I audible?

Yes, I can hear you.

Congrats on the results. A couple of questions from my side. My first question is regarding your slide NIM revision downward. So I would like to understand whether it's mainly driven by higher anticipated cost to fund due to liquidity? Or would it be because of lowest than expected, which can be due to differences in expectation in terms of the mix of the growth or because of higher competition? That's my first question. My second question is regarding your cost of risk. So we noticed that in the first quarter, we have booked around SAR 355 million reversal related to off-balance sheet commitment. While in the fourth quarter, I think we booked around SAR 170 million to SAR 180 million provision on off-balance sheet. So can you please help me understand what's driving this volatility in the off-balance sheet reversal? And is there a reversal in this quarter related to the provision booked during the first quarter or not? And my final question is regarding your RWA intensity. We witnessed a drop of around 200 something basis points on a quarter-over-quarter basis. So your credit risk increased by around SAR 2 billion year-to-date, while your corporate book alone grew by SAR 5.8 billion. So this tells me that most of your corporate book was toward exposure with lower than 100 risk weight sign, which means that maybe project finance growth wasn't as strong as other segments of the corporate portfolio. So color on that would be very helpful.

Thank you, Mohammed. And I'll take the 3 questions. So the first question on the NIM revision. This is actually relates to what we are anticipating and this is what we have seen also during the quarter for elevated cost of funding for the remaining of the year. So that would be the main driver for the revision that we are seeing. Previously, we have 0, the flattish NIMs still 0 to minus 5 basis points more on the lower range of the guidance. But I would refer this back to mostly the anticipation on what we would see for the remaining 9 months of the year on the cost of funding side. On the cost of risk, right, there was during the quarter, it's just -- most of the word related to 2 accounts, specifically on the non-funded exposure. That was a non-funded and it's obviously once we come Stage 3 and NPL get migrated to on-balance sheet, and that's why you'll see the provision on balance sheet provision will be higher as compared to the non-funded provision. And the risk-weighted assets density for Q1, yes, it's lower in Q1, if you look at where we were in Q4 or the full year last year. And this was primarily for search and equity eligible collaterals that were taken into account in calculating the risk-weighted assets as part of the process, the bank does on trying to optimize the risk density, given the level where it's are. So I hope this answers, Mohammed.

Okay. Would it be possible to share what's the benefit in terms of basis points from -- and this equity as a collateral?

That would be around [indiscernible] basis points or slightly lower than that.

Very clear. And just to confirm my understanding. So basically, the provisions on the off-balance sheet was removed to Stage 3 on balance sheet. And hence, you reverse the provision you took in the fourth quarter on off-balance sheet. So it was basically a reclassification between. Very clear.

We'll now move to the next question. This is from the line of Naresh Bilandani.

Naresh Bilandani from Jefferies. A few questions, please. 1 is it's a bit more of a qualitative question. I'm just keen to understand in the context of your NIM guidance change. Could you just provide some even if approximate levels of pricing in the high-grade corporate lending in the country? Do you believe [Technical Difficulty] banks -- I mean, are banks able to pass on the liquidity premium a lot more effectively into the book than they were in the previous quarter. So any thoughts there would be very helpful. That's the first question. My second question is on asset quality. Just keen to hear your insights into the steady buildup that we've seen in the corporate NPLs. I think the bottom was in Q2. And since then, we've consistently seen the NPLs on the corporate book increase. So any thoughts there on what's driving this would be helpful. And my third question is actually on the fee income. I'm just keen to understand the mix of card fees, if I was comparing this to your previous quarters, it's dropped to roughly about 15% in Q1. And I think the historical levels, this ratio always was above 20%. So just keen to understand what's caused this drop in the cards fee income, please.

Thank you, Naresh, I'll take the first part. Actually, in addition to what the CFO previously mentioned about anticipated higher cost of funding due to the strong growth in the industry and -- even if you look at SAMA numbers, you would see that the growth in total customer deposits in the market, which includes not just this 10 listed banks, but also all the banks in the country including foreign banks. The deposits, the growth of customer deposits was about 8%, while the demand in private sector was up by 15%. So it tells you that the growth in loans is more than the growth of deposits, and that's one part. And I would also add the -- typically in these periods, where we see higher cost of funding, typically, banks increase their spreads to their customers. And that sort of almost everybody in that line, which makes sense. It's rational cost of funding, you try to pass out of that cost to your client. But not during this period. I think this period is unlike the old periods, where rational decisions amongst banks has made clearly higher cost of funding, let's pass some of that through higher spreads to the customer. We don't see that and that's the reason why -- I mean, the combination of both or the reason why we reduced our NIM guidance by 5 basis points, I would say. The other question?

Yes, Naresh. So on the NPLs that you rightly referred is on the corporate side, so we have been at the level of SAR 1.1 billion back in Q2 last year. This was elevated in the last 2 quarters, specifically in Q1, but this is 2 parts. One is the -- the increase that we are seeing recently. I mean for the quarter was just a normal migration in certain accounts as per the model. But just to take into account also due to whether it was -- maybe it was -- went to the lower level 1s also for which we disclosed at that time that there was also sizable write-offs happened during that quarter, which is Q2 last year. So compared to Q2 were some write-offs -- sizable write-offs that has happened to also certain migrations into Stage 3 that has happened for corporate book during Q1. Maybe on the fee -- the fee income in the cards business or the cards income, you're right, the composition is dropping. We -- as I mentioned in the main drop of 4% year-on-year on the fees from banking services. This was mostly on the card services and yet that's why we're seeing the composition changing from what we used to see in the card related income. I can say that also this drop in card services was slightly on the income side, but also we have seen the increase in the expenses related to the fee income of the card businesses itself.

Okay. But there's no other factor that you would attribute. So higher expenses on the card fees, is that mainly -- is it led by any regulatory change? Or is this driven by higher incentives or cost related to the cards promotion? Could you -- is there any attributable reason for this drop?

A slight change in the margin. It just like it's not something that we would maybe expect to continue, but it just was the Q1 also, if you recall the more utilizations mean more expenses that the bank would pay given the seasonalities of also the -- the seasonality from the first quarter of this year.

We'll now move to the next question. This is from the line of Olga Veselova.

1 is on loan growth. We saw 3 consequent quarters of slowdown in loan growth to around 3%, 3.5% per quarter versus a much higher quarterly run rate in the previous 2 years. My question is why you have been arguing that demand is ample LDR is among the best in the sector. So why would you prefer to slow down? This is one. Second question is on project finance, actually a very welcome you disclosed separately on Slide 12. SAR 70 billion project finance is about, what, 1/3 of total loans, and it was growing by 10% year-over-year, which means that the share of project finance in total financing was going down in the past 12 months. What would be your outlook on project finance? And am I right that you were earlier guiding that project finance would be around 50% of new credit issuance. And my last question is on asset quality again. I appreciate your explanation that there was a migration from off-balance sheet to on-balance sheet and there was a Stage 3 pickup. But Stage 2 ratio went up as well. So what makes you comfortable to improve full year cost of risk guidance, if there were increases in NPL Stage 2 to Stage 3? And also in which segments were those migrations?

Thank you, Olga. I'll possibly cover the loan growth with our guidance. The growth that we've seen in the first quarter, pretty much in line with our guidance of mid-teens. We did not intentionally slow down. But I think in the comment on the NIMs, what I saw -- what I mentioned that the -- some of the pricing that we've seen in the market may not be very attractive to us. And we could have grown more if we actually reduce our margins, which we don't because we know there is higher cost of funding. Naturally, we should increase spreads, not actually reduce spreads. So I think it is in line with our forecast of the growth. In terms of the project finance as a percentage of our total portfolio is 33%, 1/3 of the total portfolio is actually project finance. Jameel, if you want to comment on the project finance outlook for the year?

Yes, there is continuous growth, but this is a nature with the business and this type of project, but the -- our large corporate also grown with a faster pace, which is the one of the largest segment we have. There is diversification within the entire portfolio of the corporate as well.

Yes, yes, I'll go on the last question on the changes and the reflection of the provisions from being off-balance sheet to on-balance sheet and also the reference to the Stage 2 coverage. So as you know, automatically accounts that are already in Stage 2, move to Stage 3. Ideally, they wouldn't take the exact coverage being in Stage 3 versus the level of coverage that you would usually hold for the Stage 2 accounts. So with the growth of respect in the financing and also the outlook even though we have this one movement, I wouldn't say it's specific to a sector, but it's a normal movement as per the model. So it's not something that we would see consistent to certain sectors, just one account, it was moved. But again, just to maybe moving an account from Stage 2 to 3 would immediately expect the overall stage 2 coverage. And of course, would be also maybe impacting the Stage 3 coverage lower mathematically because of the 13 minimum coverages for every state.

I see. Can I just double check on your second answer. So [ 53% ] of total loans will be project financed. Do you think this share will be going up or down in the next several quarters?

Look, I think the demand of project finance as the pipeline for PPP type of project is going to be still strong in the next years to come. However, as I mentioned before, we actually growing also much faster in terms of growth rates compared in the mid-corporates and the SME, I think it used to be below 10% now, the 11% of the portfolio. This is a portfolio that we're really focused on growing. We're not reducing our appetite in terms of project finance. But as I mentioned, we will not take any project regardless of pricing. That's the reason.

We'll now move to the next question. This is from the line of Jon Peace.

So my first question, please, is on the nonfunded income growth. And just wondered if you could give us any thoughts on how fast it might grow this year even if, for example, should it grow at the same pace as funded income growth. Just some thoughts given the decline in the first quarter. And the second question is, please, on the change in guidance on cost income. Was that entirely related to slightly slower revenue growth with the lower margin or was it related to the rate of absolute growth in costs. And I just wondered if you might be able to comment on what you think the absolute growth rate of costs might be this year.

By the way, on the non-funded income, I think it's not mentioned or maybe comments before. We had a full month of Ramadan during Q1 this year. Typically, Ramadan for some of it in Q1, some of it in Q2. This time the full month of March was Ramadan. So that obviously in certain transactions or certain customer transactions that generate fees obviously been impacted. And also, I think we have the eid that's also part of it, add anything else. Okay. On the cost-to-income ratio, our revision is not significant revision. We said below 30% now we say below 30.5%. It's 2 things to reflect, for example, the anticipated cost of funding and lack of our ability to pass all that or at least a major part of that anticipated higher cost of funding to our customers through higher spreads. So obviously, impacting our growth in the top line. But as I mentioned, I think in the strategy of data, I mentioned that we are investing in different technologies and I mentioned the example of GenAI. I mentioned the example of purchasing GPUs and hiring experts in that area in addition to the 10 new graduates that we're taking them through a dedicated program. So all these investments obviously have some impact on the growth of our operating expense. A combination of both is why we have amended our adjusted our guidance on cost to income.

Yes. Just maybe one point on the previous question on the non-funded as well, maybe I didn't mention when I was going through the financial performance, which is besides the 4% that we have seen as a drop year-on-year in the fee from banking services, it's also actually higher impact of SAR 16 million year-on-year was lower investment gains and dividends, which is this is, as you know, a cyclical by nature. This relates to the investments so that the fair value through the income statement, which is the nature of the business. I mean this is a volatile by nature, so that's also impacting the drop in the overall number.

Now we'll move to the next question. This is from the line of Chiro Ghosh.

Can you hear me?

Yes. Can you go ahead?

Yes, in -- so this is Chiro Ghosh from SICO Bahrain. So my question is related to your Core Tier 1 capital position. So that still appears to be lower than your peers. So at this kind of loan growth, would it have any kind of pressure on your -- would there be a requirement to eventually raise fresh capital? So that would be my question.

Yes. I believe you're referring to the CET1 level. As it's been one of the lowest in the market, of course. As far as this will still, by the way, well above an embedded requirements. I would say the requirements is different when it comes to how we look at it. Of course, we have the internal limits. It's just we more look into the overall capital Tier 1 and Tier 2 with relation to overall below 1 and below 2 risks. This is the way I look at it. As I always mentioned, that we're always trying as far as the capital to strike the balance between the growth in assets that we expect, but also to be able to also continue paying the dividends.

And just one more question related to -- you have a big building and construction sector exposure. So with this wide tax coming in, would you be better off? Or would it have an impact on the collateral and other things? I mean, how are you seeing it?

The sector is the building construction, as you know, the whole country now is a big workshop. If you drive around the country, you just can't -- you can't look anywhere without seeing so many cranes. So this business is booming. There's a lot of projects, either happening or things that expected to come soon. So that sector, I mean, typically in a lower economic activities, carry a bit higher risk. But I think the outlook for economic activities in the country that's relating to building so many things in the country is very, really positive for the next at least 5 years, I would say. So yes, obviously, we have limits internal limits in terms of appetite and board limits and so on. We are growing other sectors, things like green projects, for example, we'll focus on. We're not aggressively growing there, but until that business is very booming in the country now.

We'll now move to the next question. This is from the line of Murad Ansari.

Just sticking to loan growth, I mean what you've seen over the last 2, 3 quarters is an acceleration in your consumer loan growth momentum. It's -- I think for first quarter, on a year-on-year basis, you're up about 20% versus last year. And in the -- at the start of the presentation in the first few slides, you also highlight and give a breakdown of your retail portfolio where I think the auto portfolio has grown considerably. Still small in the overall context of things, but I just wanted to get a sense of the key drivers around here on loan growth, if the rate environment, the key driver here? Or is there more focus from the bank in terms of some of these products, particularly when we see the kind of growth that we've seen in the auto portfolio. Secondly, on provisions and NPL coverage, you've revised down your guidance on -- or improved the guidance on cost of risk slightly. Does this suggest that -- I mean, your NPL coverage on an absolute level is very healthy. But I mean, I'm just trying to get a sense is that are you looking to improve coverage on these various stages of Stage 2 and Stage 3? Stage 2, in particular, is well below where it used to be closer to 20% before and now it's mid-teens. Is that something that we should expect to improve? And how does that tie in, in terms of your lower cost -- slight reduction in cost of risk guidance?

I'll take the second part and leave the first part for our Deputy CEO is looking at the retail as part of this portfolio. Now in terms of cost of risk, certainly I think I've been mentioning this for a while now. We want to continue to improve the coverage on Stage 2 and Stage -- specifically Stage 3, 1 to be in line with the industry average. If Sometimes the movement from Stage 2 to Stage 3, reduce the coverage, especially with the ones with overlays may reduce the overall coverage in Stage 2. But that is something that we continue to improve. And certainly, it's taken into consideration to our current guidance of 40 to 50 basis points. So I'll take the comment on the retail growth.

I think, the reason for this high growth is not one reason, different reasons. As mentioned by, now we are the largest in terms of customers -- retail customers. So the continuous acquisition of customers definitely will help us in selling more loans. As you know, the whole country nonemployment percentage is declining. So that means more bankable customers that we could extend our loans too, plus the normal thing that we are doing in every customer journey that we focus on customer journeys, turnaround time for all our products. Digitalization of the products through our alternative channels. The training of the people and rises in incentives in place to enhance the productivity of our agent either the branches or the outsourced agents. This is for the auto lease and maybe also the mortgage partnerships. So we go and do all those agreements partnerships, and we focus on the whole journey of the client with our partners.

If I could add a follow-up on just on loan growth and Mr. Khalifa. Just going back to what you had highlighted at some of these challenges in fourth quarter, particularly, one was you had mentioned that in fourth quarter funding costs had just gone exorbitantly higher with banks competing for deposits, getting the impression from some of the other banks that, that kind of competition has kind of eased off or that extra bit that was there specifically in fourth quarter. Would you have the same view that, that kind of extra impact on funding cost that has eased away? And secondly, you've mentioned that there is pricing competition, there's competition for loans, and you have -- you are deliberately shying away from lending on lower margins. One of the -- this was something that was prevalent in the fourth quarter as well, which you talked about. And in fourth quarter, 1 of the impact of that was that you had some prepayments come in as banks -- or some of the customers refinance with other banks were offering much more competitive rates. Would you still see that as a risk persisting in 2024 with some of the portfolio shifting away, if pricing becomes too competitive?

Thank you. I think in terms of the cost of funding that we've seen in Q4, certainly eased off. But I wouldn't say it's back to the level that we've seen in the first half of '24 still a bit elevated, much lower than what we saw in Q4. But I think the competition on deposits is there, and that's what we anticipate going forward. And I mentioned some of the statistics that the Central Bank published in terms of growth in customer deposits, 8% versus a loan growth of 15%. So naturally -- and the demand is very strong going forward on loans. So that will continue to drive higher cost of funding, not necessarily to the level that we really surprised us in Q4. I think made to do also with the year-end sort of phenomena, but certainly eased off, but not significantly eased off. In terms of price and competition, I mean, obviously, yes, we had prepayments in Q4, some of it at least a lower pricing offer to our customers by some of the competition, which we didn't want to meet or much because it was -- we felt it was very low. Some of it was a higher liquidity and certain customers due to payments, government projects and so on. But yes, those part of it was the lower pricing on some of the loans of our customers. Do I anticipate this lower or aggressive pricing to continue? The common sense is no, if you're expecting higher cost of funding, why would you be up or doing the opposite by lowering your margin rather than increasing the margin, if not at least stable keeping the margin as is. But we know that in the market, there could be some competition on certain projects or certain NIMs, whatever. But I think the pie is also getting much bigger. And that -- and theoretically should ease off the aggressive pricing. So higher anticipated cost of funding as well as much bigger pie, much bigger than demand on credit. But it remains to be seen. We will obviously comment on this in every quarter on our earnings call.

We'll move to the next question. This is from the line of Varuna.

I have 2 questions. The first one is on the staging as one of the previous attendees asked this question. If you aggregate corporate Stage 2 and Stage 3, there is, I mean, notable jump in this quarter. It's about, I think, about SAR 3 billion, if you would adopt it to -- about SAR 2.6 billion in Stage 2 increase. So I just want to know whether there is any -- I mean, any systemic trend that you're seeing? Or is it like a one-off blip for this increase in Stage 2 incorporate in this particular quarter? That's my first question. And secondly, in terms of -- in the first quarter in terms of funding, you've been -- I mean, it's very impressive that you managed to gather the CASA, but despite that you are not very positive on the cost of funding going forward, I'm just thinking whether -- are you anticipating any transition of these deposits into time deposits going forward? That's it.

Okay. I'll take the second part. The anticipation on the higher than at least when we did the Q4 earnings call, we anticipate now a bit higher cost of funding is because of the outlook of the loan growth. As I mentioned, certainly, there's a big demand. There's a large economic activities, which large projects in the pipeline, all this requiring financing. So I would expect due to much higher growth in loans compared to the growth in customer deposits. That means competition will be more aggressive in getting the deposits. Yes, we're very really focused on growing our CASA. And I think we have -- over the last few years, we've shown strong record on growing that. We're going to continue to focus on that. But in terms of migrations and so on to the contrary, I think if you look at the our first sort of the average for SIBOR -- 3-month SIBOR in Q1 last year versus Q1 this year. It actually went down by almost 81 basis points. So it's not an occasion that would create more migration to more migration to time deposits. But as I mentioned, the anticipated growth in loans will be higher than the growth of deposits, which means it should translate to higher competition on deposits. On the staging, Adel?

Yes. On the staging, as maybe mentioned earlier, as we always -- as mentioned also by our CEO, always to improve the coverage for this Stage 2 and Stage 3 just what we are seeing is the overall migrations as part of the model that we have in isolated cases, it's not really a trend for certain sectors or group of customers within 1 sector moving together into different stages. We have to be really mindful that also the coverage -- stage coverage is also that impact is not only by the additions, but also you would have reforming customers that would have to serve some current period before schedule goes back to the -- both the stage being Stage 1 or 2. So that's basically the fact behind what we are seeing. Of course, we may be looking to the sector Stage 2 might be bit lower. This was, as I mentioned, the movement that has also lowered this Stage 3 coverage, but that's something we're looking. We're always looking into it. And also, we'll always -- as a business is usual, you will see some also improving customers that will move backwards and to better stages. It just -- they have to serve some current period as per the model.

Okay. So that doesn't necessarily -- I mean, in terms of coverage of Stage 2 although it has dropped over a period. But doesn't -- I mean, from what you're saying, I gather that it doesn't mean that you will increase the coverage of Stage 2 because you expect some of these to move to Stage 1 after the [ Q1 ] period, right?

But in between, as mentioned before, there is a cost of risk guidance and you revised on slightly lower by 5 bps is also taking into account the improvement in the last -- the Stage 2 and 3 coverages.

We'll move to the next question.

A question on the -- how can I -- if you help me understand how the lending mix will shift in the next 6 to 12 months. If I understand correctly, you will see less percentage as a percentage of the total loan portfolio, less project finance and more midsized large corporate credit exposure. And if that is true, I would assume that the project finance lending usually take more than 120% or above 100% RWA. So we compare probably to 100% or below for some of the corporates and SMEs. So I will expect some capital savings here. Is that is true? First question.

Thank you, Aman. Obviously, as I mentioned, the project finance is almost the whole -- is 1/3 of the whole portfolio. So naturally, the growth rates, it's very difficult to meet what's the growth rate that we've seen in the mid-corporate or SME because we started a smaller base. We're really focused on growing all segments. We're among the leaders in project finance. We're going to continue to be a leader in project finance. We're not anticipating a slowdown in project finance or our appetite has shifted to the contrary, when that's a competitive advantage that we have on to maintain it. We're investing in capabilities and continue to improve our capacity to take more projects. The projects, though, obviously, the timing is not like -- it's like very frequent every week or every month sometimes we have 2-week months working a project before it comes into the official awarding stage, so it takes time. But the number of projects you anticipate whether it's in the renewables and infrastructure, significant amounts of projects in the pipeline. And the project size is typically the financing is large. So all of a sudden, you would have significant growth here, maybe a little bit of stability in a few months, and then we have growth -- faster growth, so it will take time. And the mix of risk-weighted.

Yes. On the second point, we wouldn't really look at the business segment, just purely from the angle, how much capital saving we would have just, as you know, the normal business is taken by case by case, where we have the risk-adjusted return on capital that takes into account everything, the pricing business, other businesses, but also the capital charge, which is important given the nature of the business that we -- the lending that we're providing in that certain segment. So we didn't say that we're moving more towards having more mix in the mid- and SMEs just because of the capital savings, it's just we are looking for every segment in totality.

So if I understand correctly, you assume projects finance to remain 1/3 for the next 12 months.

Well, actually, you can because depending on the projects that we finance, it can even get higher than the 1/3.

Okay. Perfect. The second question is on your cost of risk. Are you baking in any overlay or drop in prices in the guidance or not?

As you know, the IFRS 9 model that calculates the whereby the ECL numbers are an output of this model takes into account the macroeconomic factors as part of the model. So certainly, the oil prices are part of the macroeconomic factors, but it's not as much of a way that you would consider for other positive macroeconomic factors taking unemployment levels and also the level of government spending as well. Okay.

Thank you very much. I think we -- unfortunately, we've run out of time. I think that I see a couple of text questions. Please reach out to the Investor Relations team. I'll now hand it back to the management for any concluding remarks before we close the call.

Thank you, Shabbir. Thank you, everyone. For any follow-up questions, please contact us through our e-mail IR at alinma.com or my personal e-mail, what you have in my signature. Thank you so much.

Thank you very much, Arwa, and thanks, everyone, for joining. Have a nice day.