Alinma Bank (1150) Earnings Call Transcript & Summary

Good day everyone. On behalf of EFG Hermes, I welcome you to Alinma Bank's third quarter results call. My name is Shabbir Malik. Management will first go over the presentation, and then we will open the call for question and answers. I will now hand the call over to Arwa Alshehri, the Head of Investor Relations. Arwa, please go ahead.

Thank you Shabbir. Good day, everyone. Welcome, and thank you for joining us for Alinma's earnings call for the third quarter of 2025. Before I take you through the call's agenda, I'm glad and excited to announce that Alinma's management will be conducting a stand-alone call to launch the bank upcoming 5-year strategy. We will be distributing save the date e-mails for Alinma 2030 strategy early next week. Back to the call's agenda, our MD and CEO, Mr. Abdullah Al Khalifa will begin by providing an overview of Alinma performance and financial highlights, followed by the current strategy recap and the update on the strategy financial KPI. Followed by our CFO, Mr. Adel Abalkhail who will be presenting a detailed financial performance up to September this year, ending with the guidance for the rest of year. We'll make sure [indiscernible] have time to conclude with the Q&A session, where we will be addressing your questions along with our Deputy CEO, Mr. Saleh Alzumaie covering retail, private, and digital and Chief Corporate Officer, Mr. Jameel Hamdan. With that, I will hand this over to you, Abdullah.

Hello, and welcome, everyone, for our earnings call. I'll start my presentation on page -- Slide 6, where our financing has grew in line with our guidance, year-to-date, 12% as well as 11% growth in customer deposits, more balanced growth, I would say. And total assets grew by 11%, year-to-date. And our CASA, which is more important than just the growth of customer deposits increased by 14% year-to-date. Our revenue is up 7% year-on-year, and our net income increased by 9%. CASA represents now 53% of total customer deposits. The cost to income stands at 31.6%. As far as the credit quality and capital, our NPL ratio was 1.20%, our coverage ratio was 158%, our NIM is 3.46%, 24 basis points compared to the full year last year, and our ROE stands at 18.4%. On Slide 8, I'll give a quick reminder of the strategy. This is the last time I'm going to talk about 2025 strategy. As Arwa mentioned earlier, we're going to present before the earning call of Q4, we're going to present to the investment -- the investors and the analysts, our 2030 strategy. So our current strategy today as of today, which ends this year is basically the headline is to be the fastest and most convenient bank. To be #1 in terms of Net Promoter Score as a sign of quality of service that we provide to our customers, and the #1 employer of choice in more details on the next slide, happen to be not #9. Next slide shows more details. So in terms of business, the 3 pillars for retail was focus on growing affluent and private business. Focus on attracting the youth segments and offer the best customer experience and operational excellence. In corporate, we have 3 main pillars there, we want to be a core bank for all segments and our customers, not just mid and large -- not just -- sorry, large and project, but also mid-corporates. That's an area that we focus to grow. And you've seen later on in the detailed presentation how much we grow in mid-corporates, develop high-quality SME business as well as focus on growing our trade and cash business. Treasury basically want to be the core partner for our customers, fulfilling all their hedging and investment needs and grow out FI business as well as maintain our proper ALM -- high-quality ALM function. That, obviously, for the bank to achieve these targets, we needed to build digital factory to scale customer experience. We want to foster a culture of advanced analytics and decision-making based on data and that we sit on. And of course, culture transformation to be able to attract and retain the best talent in the country. On Slide 10, we'll give you some flavor of things that was achieved during Q3. So we introduced travel and medical malpractice insurance policies online. We will also launch cash flow management for our customers, tools for our customers. We've also introduced payment deferral products for certain retail customers as part of the CSR initiatives that we have. On retail, we've opened 3 more branches. We've launched a special package for expat affluence and we continue adaptation of our youth app and increasing the attractiveness of new customers quarter-to-quarter growth in customer base is 47% in that application. In corporate, we launched as business, soft launch now. We finally got it. This is basically a solution or a product that we developed a digital attacker for Micron, very smaller SMEs, all digital transactions, including the credit engine. And that is now soft launch and we'll expand into it in the next few months. We've also done straight-through processing for LG in our new [indiscernible] system. We had overall growth in corporate assets of 15%. The one that I mentioned about mid-corporates, we continue to have this very strong growth, 31% year-on-year growth. Now on SMEs, also we had very good growth. The reason it shows 6% is we've done some reclassification. There are some businesses that under SME that was managed by the mid-corporates and the SME, as the department itself, or as a sector itself were merging certain portfolio of their customers. And the -- I think we -- obviously, the one that we report here versus the one that in our annual report following requirements of Central Bank are different. So we merged the 2. That's why it shows only 6%, but it's actually higher than that we reported before. In Treasury, we launched $500 million sustainable AT1 sukuk, as well as $500 million of senior sukuk. And also, we established a new program for CD and up to the end of Q3, we had issued $550 million. On the next page, Page 11, I just show you some of the strategy impact on a year-on-year basis. So on revolving credit card, we had a 33% increase. In auto loans, we had 43% increase and accounts opened digitally onboarded from 88% last year to 95% this year. In corporates, project finance had a growth of 9% year-on-year. I think we mentioned this in the first half earnings call that most of the projects that we've approved are coming toward the second half more than the first half, and that's why up to end of Q3, it's only 9%. SME, as I mentioned, the reason for the 6% without this reclassification, that would have been 18% year-on-year growth. In mid-corporates, we had 31% growth, as I mentioned before, and the average yield on investments increased by 4 basis points as well as cost of funding decreased by 47 basis points and exchange income, we had 2% growth -- we had solid strong one-off FX deals last year. If you normalize that, it comes to high single digits. With that, I give the floor to our CFO, Adel, to take you through detailed presentation. Thank you.

Thank you. Hello, everyone, and welcome again to our earnings call for the third quarter of this year. I will be starting with the -- giving an overall a bit of more details on the financial performance, as Arwa said, that will be followed by the guidance, and then I will leave the last thing for the Q&A as usual. Starting with Slide #13 on the balance sheet trend. We have seen a growth in total assets of 11% YTD, that was mainly driven by as you can see in the graph here, 12% growth in financing. And also we have seen 7% growth on the investments. On the overall liabilities, we have seen the growth in total 10% to YTD. That was mainly driven by 11% increase in customer deposits. And as mentioned by the CEO earlier, 12% of financing versus 11% in deposits. It's a balanced growth between the financing and the deposits. Moving on the next slide, Slide #14, on the P&L trend. So the net income for the 9 months for 2025 has grown 9% year-on-year, reaching SAR 4.673 million (sic) [ SAR 4.673 billion ] from 7% growth in the operating income. And also the 9 months funded income, we've seen an increase year-on-year 8% and also, we have seen a 4% growth on the non-funded income. Environments year-on-year were lower by 4% and the overall net income, as mentioned earlier, is 9%. You can see in the bottom right graph, the composition of the operating income with the funded income remains the major there, which is obvious, almost 80%. Moving to the next slide, just shedding some light on the financing. So we've seen retail finance increasing 10% to YTD from December that was driven primarily by the robust growth in the auto financing. We've seen also the growth continued to be in the mortgage as well. And also, we have seen the continuous growth on the other retail financing. Now corporate financing also has grown 12% YTD from December, and this was also driven by 32% growth in mid-corporate along with a 5% growth in SMEs and also I'm referring to the note given by the [indiscernible] SMEs, given the classification, but the actual growth is much higher than that. So the overall gross financing compromised of 76% corporate financing as of end of September, this year were 24% relates to retail lending. If you can see in the top right graph, the composition of the financing as end of the quarter, 65% would be for large corporate and project financing, I would say Project Financing and large corporate is also half of that, 6% in the mid-corporate financing as part of the overall portfolio and 5% SMEs and 24% of the overall retail split, 12% each between the mortgage financing and the other retail consumer financing. Moving to the next slide on the deposits, Slide #16. We have seen deposits rose by 11% during the 9 months. That was mainly driven by the growth in CASA and time deposits. CASA growth was 14% during the 9 months. We have seen also 9% growth in time deposits. CASA deposits represents 52.8% of the overall total deposits. That's an increase of 147 basis points from where we were in the same period. Total deposits compromise of 67% that is managed by retail, and the remaining 33% is managed under the corporate business. Moving into the net income from financing, the funded income on Slide #17. So gross funded income in the 9 months has increased 8%, as you can see year-on-year, reaching SAR 12.8 billion. This is coming from 22% increase in investment income, and we've seen a 6% increase on the financing income. So you can see in the bottom left graph, the net profit margin or the NIM movement from same period last year comparing the 9 months versus the 9 months of last year. We stand at 3.46% that was coming from slight improvement investment yield, but also we have seen 57 basis points drop in financing yield. However, the drop in cost of funding was much lower at 27%. Hence, we have seen the YTD and NIMs. As YTD is growing from what it was in the first half at 3.52%, standing at 3.46%. We move to the next slide, Slide #18 on the other income or the non-funded income. The non-funded income for the 9 months has increased 4%, reaching end of December SAR 1.8 billion. That was contributed by the improvement on the fees from banking services. And also, we have seen an improvement in the other income by SAR 27 million. So the composition, as you can see in the bottom left graph, the composition of the fees from banking services, which is totaling SAR 1.25 billion in the first 9 months, 37% is relating to the fund management with 22%, that is in the other income. So we have seen also the brokerage fees is becoming an 8% as a composition of the overall fees from banking services. Moving to the OpEx. The next slide, which is Slide #19, and the operating expenses. Operating expenses growth is 9% year-on-year, reaching SAR 2.7 billion for the first 9 months of this year. So personnel costs compromise the majority of the operating expenses along with the G&As. If you can see in the center of the graph, even though, we've seen on a sequential basis, a 2% growth in the OpEx versus the previous quarter. Cost-to-income ratio standing at 31.6% versus where we were same period, 31% in September of the previous year. If we move to the next slide, which is the slide on the impairment, on Slide #20. We have seen the impairment charge for the 9 months for financing has decreased by 6% year-on-year. The total charge for the first 9 months on a net basis is SAR 747 million. Cost of risk for the 9 months has improved by 10 basis points year-on-year, standing at 46 basis points, the same period of last year, we were at 56 basis points cost of risk. The bottom left graph just shows the composition of the impairment allowance totaling SAR 4.3 billion, 88% of that goes to the corporate, 12% of the overall environment as a balance is for the retail financing. Moving to the NPL and NPL coverage ratio on Slide #21. NPL ratio has increased by 42 basis points year-on-year, standing at 1.2% in the third quarter of this year and NPL coverage ratio decreased by 87 points per thousand year-on-year standing at 158.2%. We have seen a slight drop in the Stage 3 coverage standing at 66.4% versus 70.4%. There was in the previous quarter. And also, we have seen a slight drop in the Stage 2 coverage given certain write-offs that was happening to one of the accounts. On this slide, on the capitalization, Slide #22. This remained healthy -- capitalization stands at 19.2% with CEOs referred to the issuance of the capital instruments that were issued during Q3 at $1 billion. The ROE also is standing at 18.4% and also ROA is at 2.1%. The bottom of the slide is in the prudential ratios that remains very healthy, very strong, 125% LCR is all about the regulatory minimum LDR is also at 80.1%. And thus, as you can see as well below the regulatory maximum there. NSFR also has improved given the longer funding that we have mobilized during the first 9 months, standing at 113.1% well above the regulatory minimum. I'll move now to the next section on the outlook and the guidance for the remaining of this year. We did not change any of the guidances that we have provided in the previous quarter, so the financing growth, 12% YTD, we are keeping the guidance at mid-teens for the full year. The guidance for net profit margin remains unchanged. We revised that back in Q2, standing at 3.46. That's 27 basis points year-on-year, but we're keeping the guidance as minus 10 to minus 20 basis points for the full year. Cost-to-income ratio remained below as the guidance for the full year remains below 31%. Return on Equity remains above 18.5% for the full year. And also, we are keeping the cost of risk guidance unchanged between 50 to 40 basis points and also the overall capitalization we have seen an improvement from Q2, given the capital instruments that were issued standing at Tier 1 and Tier 2 CAR for Pillar 1 risk at 19.2% and we are keeping also the guidance unchanged to be 19% to 18%. With that, I'll hand it over back to operator for the questions. Thank you very much.

[Operator Instructions] As we wait for the questions to be logged in, maybe I'll start off with first question. In terms of your margin, at least in the presentation, it suggests that there was a NIM compression quarter-on-quarter. Whereas if I look at your NII growth Q-on-Q, it was pretty decent. So just want to check that what has been driving -- what is driving that NIM compression, quarter-on-quarter? And secondly, a question on non-funded income. That to my eyes, at least looks a bit weak relative to the sector. So maybe if you can give us some thoughts on your non-funded income trends as well.

Yes. Thank you. As far as the NIM contraction, I mean, I've seen some analysts reports about suggesting that we either flat or actually up about 3 basis points, driven mainly by higher cost of funding in Q3 versus Q2. The way we calculate it just to be for clarity. We take interest expense and divided by average earning assets as we do for interest income divided by average earning assets and the difference is the NIMs. So for us, obviously, we have daily averages. So we have very much more accurate averages than the outsider may see. But for us, it's driven mainly by higher cost of funding. As you recall, there have been obviously more intense competition on deposits and that have dropped -- driven the cost higher despite SIBOR or the benchmark itself actually reduced quarter-on-quarter. We've also managed to improve our gross income by about 4 basis points. So the difference is between 7 and 4 is about 3 basis points reduction in our NIMs. But -- and that is equivalent to 24 basis points below the full year last year. We kept the guidance at 10 to 20. We believe this is in Q4 that may -- that 24 basis points will be lower and closer to that range. The other question was about the -- Adel, I don't have the detail in front of me directly, but...

Yes, I can take that, if you look at the non-funded income for Q3, specifically, it's trending in total, as you mentioned, may be lower than what you've seen in previous quarters. But if you look at the fees from banking services as a net, and this is the cost of the fees from pricing services. As we mentioned in Q2, there was small one-offs there in the fees from banking services. That was part of our ongoing improvement on our operating model with the main card scheme. So this actually did not happen this quarter. But if you look at quarter-on-quarter in total, then an yield, we're looking into the fair valuation from investments. And this has actually dropped during Q3. That's the nature of the business. We've seen the volatility before on this item. And also, the FX income, we have seen a drop post during Q3 that would be mainly explained by the lower volumes that we have seen during Q3 versus the previous quarter. So hopefully, that will help.

Also, when I look at the 9-month trend, I think you're trending at about high single digit. I think some of the banks are seeing double-digit noninterest income growth. So anything specific that you want to highlight on that front?

The 9 months versus 9 months, there's a drop, of course, we take it to the YTD. We have seen also improvements, especially in the FX income, if you look at it in the certain quarters of last year, but also we've seen drop in the cards business as well versus -- we have seen that in Q3 specifically and also Q2 of last year. Yes, it remains maybe below the averages. I think, this is something we'll continue to focus on strategically and I think the part of that, as I mentioned, will always be impacted of the big investments and the valuations that we do from quarter to quarter and the big investments that we have.

We now open the floor for the audience. The first question comes from the line of Olga. Okay. Let me try someone else. Next question is from the line of John. Okay. Let me try Olga, one more time. Olga, can you hear us?

Several questions from my side. One is on capital and on dividend. Why do you keep paying the same dividend despite higher capital requirements and one of the lower CET1 ratios in the banking sector. And also maybe as a part of this question, how far are you from your minimum Pillar 1, Pillar 2 requirements -- that's number one. Number 2 is on asset quality. I see that your Stage 2 coverage went down quarter-over-quarter, Stage 3 coverage down. What makes you comfortable to do so in the current environment? That's question number two. And question number three, we did notice there was some expansion of asset yields quarter-over-quarter, what helped you to do so? And do I understand correctly that your full year margin guidance suggests that you believe margin will go up in the fourth quarter?

Thank you, Olga. Now as far as the dividends, I think we did announce, obviously the 3 quarter dividends. Payout ratio, I think, was in the range of 47%, roughly. And the question is why are we paying dividends despite the fact that our CET1 is one of the lowest in the Saudi among Saudi banks. And I'm not confirming or giving you a heads up. But we've done similar patterns, I think back 2 years ago when we paid around that range. And in Q4, we actually did not pay dividends. So it could happen. We would not say it well, but it could happen. That's another way. At Stage 3, I think the change in Stage 2 or Stage 3, there was some movement from Stage 2 to Stage 3. And also, I think mainly the write-off that took place from Stage 3. And of course, when you write off something, it's usually 100% coverage. So if that disappears obviously, overall rate would be lower, but it's in line with the industry average and want to continue to have this approach to be in a prudent and conservative in terms of taking the cost of risk. And that's why, yes, we're declining cost of risk year-on-year over the last years, but we've always been conservative and we're higher than the market average as far as the cost of risk. On the expansion on the assets, this is the thing that should have been done, I guess, from maybe second quarter -- second half of last year when we saw cost to funding creeping up, banks should have normally at that time, increased their pricing or pass on that incremental cost to their clients. We will push it as hard as we can, but obviously, some good clients that we have very good ancillary business where we could not push the price higher, but we continued our efforts and that's helped. At the same time, also with rates going down, and we're having cash flow hedge that also helps. We also managed to get good investments. That's why you see investment yields improve year-on-year. So I think all these combinations of repricing, higher pricing on all segments as much as possible as much as we can. We're not alone in the market, so we have to compete. But I think probably I could say that in Q3, we see less aggressive pricing on the corporate side, that could help us improve on our margin.

And fourth quarter margin, does your guidance suggest you expect to pickup by the end of the year?

Yes, true. I mean, obviously, if we are saying that compared to the full year last year, we're 24 basis points below, and we kept the guidance of 10 to 20. That is clearly an indication that our NIMs will improve in Q4.

[indiscernible].

No, I think it will be more of the funding cost, but asset yield will continue to push higher. We managed to get, as I said, 4 basis point improvement. But in terms of the cost of funding, then certainly, that would be -- especially with the expected rate cuts this year. And hopefully, we saw a bit of a smoother growth now on the assets in the industry versus aggressive growth, so that can help in terms of the competition on deposits.

We will take the next question. This is from the line of John. John, can you hear us? Okay. Maybe I'll come back to John later. Let's try the next one. This is from the line of Aybek.

And a couple of questions from me, right? The first one is -- can you discuss your exposure to REIT, Real estate investment trusts? So I believe you have some through Alinma Capital. And related to that, what are your thoughts around the real estate price outlook, how it may impact the commercial real estate sector and your overall kind of exposure to commercial real estate, if you can cover that direct and indirect through things like REIT products. That's the first question. Secondly, can you elaborate on how you think about your growth outlook and appetite for specific risk assets, in particular, project finance in view of this countercyclical buffer coming in from next year, right? So project finance obviously, is very capital-intensive segment, very high risk weighting there. Do you think you will deprioritize project finance in view of this, countercyclical buffer coming in? That's the second question. And thirdly, so in the third quarter, you launched your USD 2 billion Sukuk program, right? And I can see that the cost of your first Sukuk that you issued is about 4.9%, right? How does it compare to the marginal cost of funds, let's say, in salary and term deposits. Is that giving you a lower funding costs? And you have quite a lot of headroom to lean on the Sukuk program. So yes, that's the third question.

Thank you, Aybek. I'll leave the second point on the capital charge and project finance to Adel, and you have to excuse us because Adel in different time zone. So on the real estate exposure, I think you're referring to the recent regulation changes on white land taxes and so on. Honestly, I see this or we see this in a positive way because obviously, the supply was limited, affordability was impacted for mortgage business and which has been -- had significant growth over the last 5 years, but it slowdown because of lack of affordability impact because of the prices going up for real estate, but as well as the higher interest rate. So a combination of these 2 factors has impacted affordability. Now with this white land tax real, this is applicable to real, by the way, mainly the changes that happened recently. That should increase supply. That should incentify, owner of these white land to develop them with higher supply would mean better affordability, more projects to be developed as well as coupled with the lower interest rates going forward, it should help affordability. In terms of our exposure, typically we take real estate as not the main source of repayment. We look at the source of prepayment first, real estate taken additional collaterals. And we don't believe that it's a significant threat to us in terms of significant lower cost of value. I think there will be some reduction in value, but I don't think it's going to be material enough to really impact us. The second point about -- Adel, maybe second point, you take the second point, please.

Yes, sure. So Aybek on the second question on the risk-weighted assets. If you look at the project financing, we've been always mentioned that project financing would remain a driver on the growth. Of course, the risk-weighted assets optimization is an ongoing exercise. If you recall, in Q1, we have seen our risk density has went down as we started to recognize certain eligible equity collaterals there, which reduces the risk-weighted assets from credit perspective. But also, we have to add to that, that the growth is not only specifically in the project financing. Of course, the volume is there. It's just the growth that we will be -- we have seen in the mortgage, for example, which triggered based on the LTVs, as you know, lower credit risk weighting charge, but also the growth in SMEs that also much lower than you would otherwise see on the project financing. But also project financing itself, as you know, it's split within [indiscernible] into the type of projects and to the level of quality and the level of whether being operational or not operational. So we'll continue to be selective in that as we have been always doing so. Now if you look at the overall capital requirements, and as you mentioned, the [indiscernible] we're looking at the total CAR. And specifically, if you look at this quarter, for example, the market risk has went down from Q2 that was specifically for the offload that we did for part of our equity portfolio. As you know, this triggers more than 160% charges there. So it has reduced sequentially this quarter. So we are -- so just in a nutshell, the risk-weighted asset optimization overall is being -- is an ongoing exercise that we review. So there are many other factors, not specifically one business line, but you could see other improvements on other business lines, not specifically also in credit, but could be also on the market risk side. So -- and the other point on the SAR 2 billion program, so yes, it's around SAR 4.9 billion that was the senior unsecured. It did not as a pricing went off the market. I mean these are will be more spread that we pay over 5 years U.S. treasuries. But you look at specifically this percentage, if you compare it to the Saudi real time deposits or the deposits you take usually to fund the gap, it is lower. It is lower. It is fixed for 5 years, but it's lower if you compare it, as you mentioned, to the Saudi Riyal normal time deposits.

Also, if I may add, Aybek also this Sukuk will carry higher weight for LDR because the 5-year, it gives us stability, better asset liability mismatch and it reduces the level of need for us to continue in the short term because, obviously, time upon the short-term continue every quarter, every month, you have actually maturity and you have to replace. So that is not the pressure on that.

We'll now move to the next question. The next question is from the line of Mohammed. Mohammed can you unmute your line? Go ahead with your question?

I have just 2, please. One, I appreciate you're still working on the new strategy. So this question may be a bit unfair or a bit too early, but you know how impatient we are. So I was just wondering if there's any early flavor in terms of the focus areas of the new strategy that you can share with us? Any specific areas that you may want to address considering where you stand today? And my second question was actually a follow-up on the RWA density. It's been actually quite remarkable. The decrease in the density so far year-to-date. And I've noticed another, I think, 2 points or so of a decrease this quarter. So I was just wondering if there were any specific actions you took this quarter, similar to what you did in the first quarter? And how we should think about it into the fourth quarter and maybe the next few quarters, and also particularly because you mentioned we should see a little bit of a pickup in project finance growth coming into the year-end.

Thank you. I think I'll take the first point, and Adel will handle the second one on [indiscernible]. For us, on the 2030, as I mentioned, we will have a detailed presentation to the investors early on in January, sometimes January before the earnings call for Q4, but in terms of maybe sort of some flavor or at least a figure in that strategy is basically AI customer centricity and also adjacency businesses. So that's all I can say now, and we'll give details in the presentation, as I mentioned, Adel?

Sure, Mohammed, on the risk-weighted assets and the risk density. As you said, we've been -- and we mentioned that actually following Q4 results of last year, that the optimize risk-weighted assets optimization overall is an ongoing exercise, and we have seen the results on the 3 quarters of this year -- so far, this year so far. I have to just maybe because the second point to the project financing because you look at the project financing it is actually the way we're lending because there is always a minimum requirements of the rate RAROC that also takes the required capital charges for the exposure and lending that we do, which is part of the considerations, both in the prices, pricing and the profitability of the account to the overall. So this is ongoing. It's going to continue. It did not start only because of the CIB. It's something that we always want to optimize and be efficient in how we see our risk-weighted assets look like. Of course, the requirements are there. We -- as I mentioned, there are other lines of businesses that would trigger much less taking into, for example, yes, of course, new growth in mortgages, but you would have an existing portfolio that would trigger a lower capital charge because it exists of the lower LTVs that moves forward, I know the amount might not be that significant. But all I can say, it's an ongoing exercise. We've been doing that, and we've seen the results. I'm also looking not only purely in the credit side, it's the main one. It just maybe also looking at the other below one risk soon in being operation of the market risks, same as I mentioned [indiscernible] previous question.

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

A couple of quick questions. One is on the financing side. The retail loan growth sort of slowed in the third quarter at around 2.5-odd percent, slower than previous quarters. So anything that you would like to through light on to what's led to the slower loan growth in retail? That's number one. And number two, you mentioned that there was a write-off in this quarter. What's the nature of write-offs? Is it any specific account, any specific industry it pertains to. These would be my 2 questions.

Sorry, can you repeat the second point, sorry I missed it.

Yes. The second one is on write-offs. You mentioned that there were some write-offs in this quarter. So could you shed some light as to which industry it pertains to? Is it an account-specific or any specific industries where you start seeing some kind of stress?

Okay. I'll handle the first and the second part -- my colleague will talk about the first one about the retail loan growth. Write-off is a mix of multiple segments. I mean there have been some contractors. They also been in SMEs, more write-off in SME, more write-off in retail. So it's a mix, it's not specific industry that have the all write-off there. And that's what happened. And that's a normal business that we do. We follow certain strategy as far as write-off in terms of days past dues and so on. And so that's nothing not one-off. That's a normal process that we do, and just the volume may go up or go down based on how many of those accounts -- past due accounts have passed certain threshold in terms of number of past days, Saleh?

Yes. And the overall retail portfolio, we've seen an increase, seasonality is there and people are expecting some regulation will be issued regarding the mortgage. The majority of our sales in mortgage. Again, our strategy since beginning that we didn't go into a price competition, so we need to maintain certain yields in our portfolio. But we do believe after people know exactly going on after this white land tax things will pick up in the right direction. And we are sure that we'll be achieving our KPIs for this year and the right yield that will make us having a very healthy portfolio.

Got it. Sorry, just a couple of quick follow-ups. When you mentioned on the last point on people are expecting some kind of regulatory change, which slowed growth. Are you referring to the white land-related regulatory change or the capping of rentals in Riyadh? Is that what you're referring to?

Yes.

Okay, clear. And sorry, if I can just add 1 more question here. On the asset quality front, coverage has been a decline, although it is still healthy, probably higher than average. But how do you see coverage going forward? Is -- are these comfortable levels? Would you want to bring that back up to historical averages?

As I mentioned multiple times, I think, during -- because of my many communications with investors and analysts, we feel comfortable at 150 or above. This is something that may increase to 170, 180. Sometimes it's timing differences because the write-off was coming in, write-off comes in, certainly drag it down. But we're comfortable at 150 and above, and that's the level that we aspire to. If it goes higher, it's not that significant for us as a ratio, but it goes significantly below 150, we're not comfortable with that. So we -- the floor for us as a management and as a Board for the bank, it's 150.

We will move to the next question. [Operator Instructions]. The next question is from the line of Nauman Khan.

This is Nauman Khan from SNB Capital. I would -- I think I have just 2 short questions. One is about the dividend policy and the other is about the capital given the land fees that was imposed -- implication of the capital. One is given that there is a countercyclical buffer that will be increased by 100 basis points, and this was referred to the last call as well. And then there's a 75 basis point impact of IRB. The first one is on the CET1. So is there any change in the dividend policy that the bank is looking for just to pop up the capital? Or will you just do it through other capital or risk-weighted amortization or optimization. This is one question. The other is given that the recent decline or, for example, the land reforms that have happened, I think you've talked about it as well. It is definitely positive for the overall mortgage and overall development of the land market, but as well as it has somewhat of a dilution impact on the prices as well. The prices have corrected slightly in the -- especially in the real reason. So given that you have improved your risk-weighted average including the collateral values of the price as well. So can we expect that this move may have a negative impact on the risk-weighted assets going forward as well and you may -- and that may impact the capital requirements going forward. Capital ratios going forward, two things.

Yes. On capital and dividends, I think I already addressed that point. We -- Our dividend policy, we wanted to maintain at least 50% of our annual income every year. Naturally, if we see the need for lower payout ratio, and I've been very clear that we can go for a lower payout. I know some investors and some analysts mentioned that we have not actually lowered the payout ratio over the last 3 quarters, first quarter up to third quarter. But I remind others, I mean, there is still one more quarter to go. So the possibility is lower, and I expect it to be highly possible to be lower payout ratio. How much lower. It depends, obviously, on the discussion with the Board and regulator then. But that's an option. We still have an option to do that. And I think for next year, then certainly with additional countercyclical requirements. It's not necessarily has to be CET1. This could be also the tool that we are issuing -- we've been issuing capital instruments, whether it's Tier 1 or the intention to issue maybe other capital instruments in the future that allow us to continue to grow with the level of capital required. But it's a tool that we can adjust for. Adel on the other part, please?

Sorry, can you repeat the question?

Okay. In simple terms, these land reforms announcements that have been announced over the last 1 month or 2 months, that has a negative impact on the land prices in Riyadh. So given you have a high exposure to real estate and the collateral that has been placed according to it, do you think that could have anything implication for ECL or for that matter, it could have an implication for the capital risk weighted assets as well, that may adversely affect them as well.

Clear. Okay. So the -- if you look at this part, what happens as far as the business demand and how this could be positive and having more capacity now for people to demand more mortgages as the business side. But as far as collaterals as you know, the mortgage -- the mortgage portfolio is not really being revalued as far as the commercial side and also the real estate held in the funds. It has always been always revalued at a minimum every 2 years could be 1 year, it could be 6 months based on the annual reviews. And we haven't seen any significant drop on the valuations there that could trigger more ECL because of the lower coverages there. You need to think about also the -- most of the real estate held. It's not really all of them in the Riyadh -- in the Riyadh region. They are distributed across the country and these are commercial, commercial lands in very prime locations. So we didn't really expect a significant deterioration in the value all of a sudden for many lands in one point in time. But we have been doing the revaluation, and we have been -- we haven't seen anything significant so far.

And that will not have any implications or major implications for capital as well, right?

Well, as you know, I mean, for capital, because risk-weighted assets for real estate, the -- for risk-weighted assets real estate are not eligible collateral that you deduct from the exposure for the purpose of calculating the risk-weighted assets. So it's regardless of the valuation to collateral as far as capital because it's not in part of the calculation in the first place. So if you have a land, you're calculating the exposure you are not betting that you would have certain eligible equities, but you wouldn't include real estate so the revaluation as far as capital doesn't really matter?

We'll take a question from the [indiscernible].

Just a couple of questions around your guidance. So on loan growth, I mean you've delivered very steady growth throughout the 3 -- first 3 quarters. It's been up around SAR 7 billion expansion like clockwork every quarter over the past 3. But a number of your peers, I mean, have been talking about, and I think you also mentioned about the risks of corporate repayments that come through in the fourth quarter. So I just wanted to get your thoughts on the guidance. Your mid-teen guidance would suggest another SAR 7 billion, SAR 7.5 billion expansion in the loan book in the fourth quarter. Is there -- could there be risks from corporate repayments to this mid-teens growth? So that's one. The other one is on NIM. So historically, we've seen and I think you've been talking about this since last, I think, third quarter, fourth quarter last year as well that funding costs tend to rise towards the end of the year. There's obviously a lot of competition that kind of comes in. So how does that impact your view or expectations on NIM improvement in the fourth quarter? And finally, I just wanted to pick on your comments that you highlighted that there's no more smoother growth, which kind of suggests that the competition level, at least on the pricing side as has kind of subsided, and you also talked about improvement in asset yields as you've continued to push and you've been talking about this since last year. Is it fair to assume that with rising capital requirements, adding on to the already existing liquidity pressures is now. This is basically the straw that breaks the camel back, which is that banks now become a lot more disciplined in pricing loans going into 2026.

Yes, as for the growth in the assets for the remaining of the year as well, it's going to be impacted with the repayment, there is a normal trend of the repayment that is always covered with the volume of pipeline of business that was established early during the year. So we don't expect any major repayment for the remaining of the year. The second part -- the second question we had about NIMs and how we improve it. So our guidance suggests it's basically -- I think I touched on that earlier on. We got to be further reduction in cost of funding because on one hand, the loan growth in the industry is a bit slower, softer, I would say, expected to be softer in Q4, which reduces the level of competition on deposits, not eliminated, but a bit reduction on that plus rate cuts are expected to come. I mean, I think today and something and one more rate cuts in December as well as repricing that we've talked about the ability to reprice some of the exposure that we have when the new loans or on annual review for certain loans, we've actually managed to increase pricing on that. So a combination of those would help, competition level, I think also I touched on this one. I think aggressive pricing is not actually eliminated, but it's much lower compared to since the first half, I would say, in Q3, our experience has been lower level of in terms of aggressive pricing, especially on large corporate compared to the first half this year.

We expect these rising capital requirements now also to be a big factor in terms of how banks price loans going into next year? Do you think that brings in a little bit more discipline? Or it's still too early to say?

I think it plays a part for sure, in terms of being more disciplined, in terms of pricing. I think that's been -- that's one of the important factors, I'm sure.

Thank you, [indiscernible]. Unfortunately, the time has come to an end. I'll now hand the call back to Arwa for any concluding remarks.

Thank you, Shabbir. Thank you, everyone, for your time. Please reach out if you have any form of questions, and you will receive the save the date email for our upcoming strategic call early next week. Thank you so much.

Thank you, everyone. Have a nice evening.