Banque Saudi Fransi (1050) Earnings Call Transcript & Summary

Thank you for joining the BSF Second Quarter 2024 Earnings Call. I will now hand you over to Naresh Bilandani from JPMorgan.

Thank you. Good day, everyone. I would like to welcome you all to the second quarter 2024 results call of BSF, which JPMorgan is very pleased to host. I'm Naresh Bilandani, your MENA bank's analyst at JPMorgan. And from BSF, we have Mr. Bader Alsalloom, the CEO; Mr. Ramzy Darwish, Chief Strategy and Finance Officer; Mr. Zuhair Mardam, Chief Treasury and Investment Officer; Ms. Yasminah Abbas, Head of Investor Relations. I will pass the floor now to the BSF team to commence their presentation. Thank you.

Thank you, Naresh. Good afternoon, everyone. Thank you for joining us today on the Q2 2024 earnings call. I will hand over the mic to our CEO, Bader Alsalloom, who will update you on the performance and the strategy of the bank and as well as talk about the BSF debut in the market, and then he will be followed by our CFO, Ramzy Darwish, for a more in-depth look at the numbers, and then we will open it up for Q&A. I'll hand over to you, Bader.

Thank you, Yasminah. Good afternoon, and welcome to our call. We thank you all for joining us today as we review our performance. I'm pleased to share our results for the first half of 2024, which highlights our robust performance and continued strategic execution. We've seen solid balance sheet growth and improvements in net income in our asset quality. Today, I'll briefly outline the key financial highlights and our strategic advances. For a more detailed discussion on our business and strategic developments, we are excited to announce that we will be hosting a Capital Markets Day in London on the 18th of September. We currently invite everyone interested to join either online or in person. Let me now take you through the financial highlights for the first half of the year. Our loan book recorded strong growth, increasing by 16% year-on-year, driven by both corporate and consumer lending. Customer deposits saw significant growth of 22% year-on-year. This growth was primarily fueled by an increase in interest-bearing deposits as expected in the current rate environment. For the first half of 2024, we achieved a net income of SAR 2.279 billion, marking a 6% increase compared to last year, mainly due to the improvements in risk cost. We saw NIM contraction of 52 basis points year-over-year as the shift in the deposit mix impacted funding costs. Nevertheless, the 15% growth in earning assets and 6% rise in noninterest income helped our operating income stable from last year. Asset quality remains solid, not with the improvements compared to last year. Our NPL ratio improved to 0.94% and NPL coverage increased to 162%, showcasing our robust [indiscernible]. Our capital position remains strong with a Tier 1 ratio of 17.4%. Our liquidity metrics are also very comfortable levels with LCR at 187% and NSFR at 118%, comfortably within regulatory limits. Next, let's take a brief look at our strategy update. Our strategy execution has once again progressed well this quarter. Our overall completion rate now reached 72%, up from 62% in the previous quarter. Now starting with wholesale banking. We've reached a notable 83% completion rate. Key advancements include enhancing our government lending portfolio and expanding our financial institution rates globally. As we've mentioned before, we've successfully introduced 3 new supply chain finance products and strengthened our liquidity and cash management operating model. In Personal Banking, our progress stands at 62%, a substantial increase from last quarter's 46%. We've made notable improvements in strengthening relationships between our customers and our relationship managers. We've also highlighted our new Elite plus package and continued to drive efficiency in our partnership with Wholesale Banking. Furthermore, we're witnessing strong momentum in the Lombard lending products. Turning to Private Banking. I'm proud to share that we've almost reached full completion, now standing at impressive 97%. This includes launching key offerings in collaboration with BSF Capital and introducing tailored family products that cater to our clients' unique needs. We've also been working with JB to enhance our product offering. Additionally, we've rolled out an advisory program specifically designed for our relationship managers. Moving on to the next slide. JB has continued to excel with an 88% completion rate in this quarter. We've launched a comprehensive JB transformation plan for 2024, optimized mobile app services, defined a new credit card proposition and began modernizing its core banking systems. Enhancing digital customer journeys is a top priority, and we're taking significant leaps in this area. Last, but definitely not least, at BSF Capital, we have achieved a progress rate of 45%. We are analyzing the commercial campaign framework and repositioning our real estate advisory and solutions. The pipeline for real estate funds is robust, offering promising opportunities. Now let's dive into the key enablers on the next slide. Our technology infrastructure upgrade continues to progress well. On the integrated corporate portal, Phase 1 back-end integration testing is completed and Phase 2 front-end design and development is finalized. The delivery of the remaining components is dependent on the core banking system and is currently under plan. On our omni platform for our personal banking and private banking clients, its first release was successfully launched with more than 2,500 staff migrated and released to the remaining features expected to go live in the fourth quarter of 2024. Our core banking system is another cornerstone of our strategy. We successfully launched the largest and most complex release 2.2B in the first quarter. Now we are working on the next release, which is Release 3, which focuses on corporate lending and term deposits and is estimated to be launched at the end of this year or latest by the beginning of next year. Our rebranding efforts have significantly boosted our market position and customer engagement. Since launching the new BSF identity, we've seen a remarkable surge in account opening and a significant increase in the website visitors. Looking ahead, we plan to refresh all BSF branches to match the new brand identity. This will provide a consistent and modern customer experience across all touch points, driving greater engagement and satisfaction. Additionally, new cards with the updated brand identity will be introduced by the end of this year. These steps will further strengthen our brand's presence. In conclusion, we are making excellent progress toward our strategic goals and continue to focus on the profitability, market presence and superior customer experience. With that, I'll hand it over to our CFO, Ramzy Darwish, to provide more details on our financial performance. Over to you Ramzy.

Thank you, Bader, and good afternoon, everyone. We appreciate you all joining us today. We are pleased to report a solid financial performance for the first half of 2024, with strong balance sheet growth momentum and an overall 6% increase in net income. Despite a moderate decline in net interest income, we maintained stable operating income bolstered by solid balance sheet growth and robust fee income generation. Let's dive into the details, starting with an overview of the balance sheet on Slide 9. Assets were up 14% since the beginning of the year. This was driven mainly by higher lending across both commercial and consumer loans. This was further aided by growth in investments and interbank balances, which increased due to excess liquidity deployment at the end of the quarter. The investment portfolio itself grew by 15%, helping us to manage interest rate risk and continue to capture higher yields. The portfolio remains of high quality with government securities representing about 73% of the total portfolio. Liabilities, on the other hand, grew 16% with customer deposits rising by 14% and this was mainly from interest-bearing deposits. However, we are also continuing to diversify our funding sources through debt capital markets, such as by initiating our Sukuk and EMTN programs and the most recent Tier 1 program. The last item on the balance sheet, we had equity increasing by 2% year-to-date, driven by retained earnings, which was partly offset by the dividend payment. On the next slide, we provide more context on the lending portfolio on Page 10. Loans and advances increased by 10% year-to-date or 6% on a sequential basis. This was driven by strong demand across both the commercial and consumer portfolios. Starting with the commercial lending, we had 10% growth year-to-date or 7% on a sequential basis. This growth was accompanied with strong activity in the commerce and manufacturing sectors across both large and mid-corporate segments. From a demand perspective, we continue to see healthy demand for origination and our focus on being selective with a keen interest on profitability remains a key pillar for the second half of the year, balancing between sustained origination volumes and settlements. Consumer lending grew 8% year-to-date or 3% on a sequential basis. This year-to-date growth was driven by equal contribution from mortgages, which increased by 6%. Personal loans, up 8% and auto loans, up 17%. The latter 2 are well supported by the rapid development of JB and its digital platform and our effective auto leads campaign in the first quarter. We continue to see opportunities to grow in the consumer lending segment across both the bank and JB, taking advantage of the rebrand and infrastructure investments across both entities. On Slide 11, on the next page, we provide more color on the deposit base, which serves as the main liability channel in funding this balance sheet expansion. Overall, as highlighted on the top right chart, the deposit base expanded by 14% year-to-date, primarily due to a 23% increase in interest-bearing deposits to fund our balance sheet growth. The majority of this expansion occurred during the second quarter, given the balance sheet requirements as total customer deposits increased by 12% between the first and second quarters. At the same time, we had an inflow of noninterest-bearing deposits that rose by 4% for the year, with about 1% growth on a sequential basis. Even though we did see the CASA deposit growth, the combination of majority funding coming from interest-bearing deposits resulted in our share of noninterest-bearing deposits declining to 42.8% of the total deposits. We expect benefits of the various projects in progress, which the CEO has highlighted, to come from our initiatives in trade finance, cash management, BSF Global on the wholesale side and omnichannel rollout on the retail side. Next, we move on to the results so far year to date on Slide 12. Overall, net income for the first half of 2024 increased by 6%, this was mainly due to a lower and more normalized impairment charge, which was partially offset by growing expenses. Total operating income was stable year-on-year whereas noninterest income, which we will delve into on the later slide, increased by 6%, which offset a slight 1% decline in net interest income. Return on equity improved slightly by 6 basis points to reach close to 11%, ending at 10.95%. On the next few slides, we unpack the main elements of the net income lines, starting with net interest income on Slide 13. Net interest income decreased 1% year-on-year as margin contraction offset the growth in average earning assets. The breakout in the charts show the main drivers with higher lending and investment income countered by the growth in cost of funding, predominantly driven by customer deposit costs, which increased due to both higher rates and greater volume. On Slide 14, we highlight the overall impact on NIMs as net interest income was relatively bad but on a larger base of assets. The year-to-date net interest margin fell by 52 basis points year-on-year to 3.1% due to the higher funding costs. The constituents are highlighted on the bottom left chart, where lending yields improved by 20 to 25 basis points in the first half of the year. However, the shift in the deposit mix from last year towards interest-bearing deposits led to an increase in the cost of funds, which had an impact of 83 basis points on net. On a sequential basis, the quarterly interest margin declined to 302 basis points from 319 basis points in the first quarter of this year from the mentioned shift in the deposit mix. Our cash flow hedge positions had a minimal negative effect on the margin, reducing it by 6 basis points year-on-year. Now let's delve into the details of our new sensitivity on Slide 15. As discussed during previous quarters, our sensitivity to interest rate changes is now very limited. According to our last full year reporting, it was plus or minus 3 basis points for every 100 basis points change in rates. We use fixed rate assets, including a recent increase in our investment portfolio to actively manage our interest rate risk and we've almost come close to neutrality to interest rate changes. Nevertheless, as highlighted on the previous slide, the overall level of net interest margin is also dependent on the balance sheet mix and in particular, on the CASA ratio, which in itself is predicated on the asset growth and the resulting requirements in terms of funding. We do expect to continue to focus on noninterest-bearing deposit generation, but it had not kept pace with the asset growth in the first half. With selective growth and profitability, a prime focus in the second half, we do expect a more balanced pace in the second half of the year. Next up, we detail the main highlights with reference to noninterest income on Slide 16. Noninterest income grew 6% year-on-year, reaching SAR 815 million, from SAR 766 million in the previous year. This was driven by higher net fee and commission income, partly offset by lower exchange income. Trading and investment-related income also improved, increasing by 9%, reflecting favorable market conditions and client activities. Net fee and commissions grew 15% due to an increase in brokerage and asset management income, partially attributed to a one-off during the quarter. Fees and commissions were also supported by growing trade finance fees, reflective of our strategic focus on revamping trade finance. The growth of fees was partially offset by lower card fees due to the competitive acquisition campaign that occurred in the first half of last year. On Slide 17, we take a look at the operating expense environment, where operating expenses increased by 10% year-on-year. This was mainly due to higher employee costs, reflecting increased headcount and profitability, linked pay as can be seen with a 12% increase reflected in the chart on the bottom right. In the same chart, administrative expenses were up by 7% year-on-year, mainly due to our rebranding project and other transformation initiatives. The cost-to-income ratio rose to 33.9%, but we expect efficiency gains from recent investments and cost optimization initiatives to benefit our cost-to-income ratio in the latter part of the second half of the year with greater realization expected in subsequent years. The cost to average interest-earning assets ratio fell to 126 basis points as a result of interest-earning assets expanding at a faster rate than expenses. On the next slide, we provide more color on the credit costs and the normalization thereof, with impairment charges decreasing by 34% year-on-year, demonstrating effective risk management, more dynamic actions taken and an overall healthy portfolio. Much lower commercial impairments were partly offset by higher consumer impairments. The cost of risk was stable sequentially at 60 basis points with a notable improvement compared to 107 basis points in the same quarter of last year. In the same light, on the next slide, the credit quality of the portfolio remained strong with an NPL ratio of 94 basis points over the last 2 quarters. The NPL coverage ratio further improved to 161.9%, highlighting our prudent provisioning approach. Similarly, in the breakdown of the coverage, stage-wise provision coverage remained broadly stable across Stage 1, 2 and 3 lending. On Slide 21, we highlight that our liquidity continues to remain comfortable with an LCR of 187% and an NSFR of 118%, both well above regulatory thresholds and still providing room for expansion. Similarly, the regulatory loan-to-deposit ratio decreased to 81%, leaving further room for growth. On the next slide, our capital ratios remain solid despite a slight decline from higher risk-weighted asset growth given the balance sheet expansion and the dividend payment in the first half of the year. The Tier 1 ratio at 17.4% and the capital adequacy ratio at 18.1%, again provide room for continued growth. Nevertheless, we continue to strengthen this position with active capital management via debt and Sukuk issuances to manage the buffers necessary and diversify the profile by [indiscernible], currencies and the like. This is especially in light of the strong balance sheet growth and resulting RWA expansion. Lastly, on the final slide, Slide 22, we provide an update on the guidance where based on the rapid growth of the loan portfolio during the first half of the year, we are raising our expectations for full year loan growth from low double digits to mid-teens. We have already achieved nearly 10% growth year-to-date and anticipate a more selective approach in the second half of the year, along with some planned repayments. At the same time, we are also revising down the net interest margin to a range of 300 to 315 basis points due to the higher-than-expected growth of interest-bearing deposits in the ongoing high interest rate environment. For cost of risk, we are revising the guidance as we approach year-end. We anticipate the cost of risk to stabilize around 55 to 65 basis points, down 5 basis points from our previous guidance. On cost to income, we aim to bring the cost-to-income ratio to below 33% by year-end, which is higher than our previous guidance. The margin has moderated more than expected, and we have also incurred rebranding costs. Together, these factors have resulted in a higher than projected cost-to-income ratio. Having said that, we are working on multiple cost-saving initiatives for both G&A as well as staff expenses, though we project that it will take time for these initiatives to be fully reflected in the ratios. For the return on equity guidance, we remain unchanged. And lastly, for the core equity Tier 1 ratio, we are revising down our guidance, which we now expect to be around 16% by year-end, driven by the rapid loan growth in the first half of 2024. However, the ratios remain at comfortable levels and well above the regulatory minimums. With that, we come to the end of the presentation, and I'll hand it over to the operator for Q&A.

[Operator Instructions] And we have the first question coming from Shabbir Malik.

Hi, can you hear me?

Yes, we can hear you.

A couple of questions from my side. Just wanted to hear your thoughts about how you're balancing between growth and margins because we've seen your margins coming under pressure, it seems in part because you've mobilized a lot of time deposits, and that is to kind of fund your stronger loan growth. So -- is that your -- is that going to be your strategy that you're going to focus on growth and maybe compromise a bit on the margins? Or -- and secondly, maybe what would also help is what is the quality of this new lending? Is it the expected risk of this portfolio or the new lending? Is it going to be lower and can potentially help you in the medium term with lower cost of risk? So I just wanted to -- your thoughts on how you're balancing between growth in the balance sheet and margins. That's my first question. My second question is there was some -- there's some news around Saudi Binladen a couple of weeks ago. BSF is in terms of exposure to the building and construction sector. Exposure to this segment is relatively high compared to the sector? How do you see that news? And do you see any positive impact on your provisioning going forward? And finally, maybe on JB, you've talked about it being a very important part of your business going forward. What is the size of its financing portfolio? And what are its fee products?

Thank you, Shabbir. Maybe we'll split up these questions between the group. But just to start with the first question in terms of profitability and margin in terms of what we're [ really ] focused on for the second half of the year. I think we did have expectations to be somewhere around the low double digits in terms of lending growth for the full year. We have outpaced that in the first half. I think we're happy to see that type of origination. But at the same time, it does drive higher costs. We cannot maintain the CASA ratio in terms of keeping pace with that level of growth. So for the second half of the year, I think we will be more selective. And I think this is reflective in the lending guidance we provided, being somewhere close to the mid-teens. So it is a slight decline in terms of growth aspiration compared to the first half of the year. But at the same time, giving us the opportunity to be a bit more selective and focused on the margin as well. It doesn't mean that margin will drive the entire set of decision-making, but we will bring it more in balance compared to the first half of the year. Maybe on the second question in terms of new lending, I think we have been prudent over the last few years, especially the last 2 years in terms of cleanup and in terms of the risk that we see being taken on with the new lending. It is as high quality as we have had in the last couple of years. So I don't suspect that it's going to make a significant change in the cost of risk. We believe now that it's more normalized. We may see a slight decline as evidenced again by the guidance being slightly lower, but there's really no significant change on the type of credit risk that's being taken. For the third question in terms of Saudi Binladen news, again, we wouldn't want to speak about any individual names. But from our perspective, we think it's a positive for the sector overall to get some closure there for the bank itself, it will have very limited impact on BSF. And then, sorry, the last question on JB. In terms of the size of the portfolio, it can range close to SAR 5 billion, but we do have an arrangement where the bank typically will buy out the -- that are provided for by JB. So you won't see significant growth on the balance sheet as a stand-alone basis. But if you were to include the offloading that's done with the bank, it is going to be probably double that. And in terms of products that the JB is offering, it has started off initially as you recall, with auto lease only. But since then, last year with the rebrand, we expanded into personal finance products, but it's also looking at credit card business in addition to other personal finance across the board.

So does it have to abide by more relaxed DBR versus BSF? And is this -- the target customer for this is maybe nonsalary side retail?

Yes. So as a separate independent financing company, they do operate under separate regulations from the Central Bank. And the [ DAR, ] there would be a difference there. And in terms of the type of client base that's being looked at, it would be mostly nonsalary backed.

Next question comes from Aybek Islamov.

Yes. Thank you for the conference call. And I pretty much have one question following your results, there was another announcement that you intending to raise SAR 8 billion in Tier 1 funding. Can you comment a bit about the pricing of this AT1, what kind of coupon do you expect to pay, if possible? But also I think I'm curious about why such a big volume, right? There's quite a significant increase in the -- in your AT1. And I think the other follow-up question will be on your ROE guidance that we did not change. I presume this is before payment of any interest expense on AT1 debt, right? Is that correct?

Aybek, I'll take that one. So with regards to our Tier 1 issuance, the current announcement is based on significant growth we've seen in our loan book, in addition to replacing or, let's say, partially replaced next year's call date of SAR 5 billion. In terms of pricing, we'll be raising it at around mid-swap plus [indiscernible] or 6% to be specific on a fixed rate basis. And as for your last comment on the ROE, yes, it would exclude net interest payments.

Maybe just to clarify that, Aybek. So the question on ROE, this is within -- for the guidance that we have given. It does not exclude the Tier 1 coupon dates, but different than some banks that we've seen, it does include all capital. So it's common equity Tier 1 and Tier 2.

Understood, yes. So you're raising SAR 8 billion to partially refinance the SAR 5 billion, which is where you have a call date next year, right, o clarify?

Yes. Partially replacing in addition to much faster than anticipated growth in the loan book. Just to comment also on the -- the number is SAR 8 billion. However, we will not be targeting the 8 billion in the current issuance.

Understood. Very clear.

So maybe just to give some thought logic there, Aybek, with the call that we have next year, it's roughly SAR 5 billion. I think we do want to try to stagger out the potential call dates going forward. So I think it's safe to say for this issuance, it will be far less than SAR 5 billion.

There are no raised hands at this time.

Okay. Operator, maybe I'll just step in with a question or 2 while we give a chance to participants to raise hands. It's Naresh Bilandani from JPMorgan. So just a few questions, please. One, just -- I mean, maybe this is too early, but would be useful from a modeling purpose, just keen to understand, any initial thoughts on how should we see the NIM evolve into the next year, I mean, given the shape of the yield curve currently? I mean, is it fair to think that the NIM contraction that you are guiding for this year much higher than your peers? Is it likely to be worse of the cycle and the NIM decline next year as rates come off, could be a lot more measured given the hedges and benefits coming from the lower funding costs? I know it's hard to be precise at this point in the year, but any broad thoughts that you can provide would, I think, be useful to the analyst community to be able to model the stock better. If it helps, also, is there any indication that you can provide on -- I know we have seen a sharp decline in the NIM, but any indication you can provide on how should we think of the NII growth in context of the NIM guidance that you have provided? So I think that's the second question. And my third and the final question would be, I mean, you've had a very good trend on the cost of risk compared to what we've seen in the previous quarters. Just keen to understand what key strategic initiatives have led to this improvement in asset quality metrics and how sustainable should we think of the current cost of risk trends going into the year-end? I know you have improved the cost of risk guidance, but mainly just keen to understand if you're seeing any risks emerge into the year-end, given the volatility that we can always see. So any color there would be super helpful.

Thank you, Naresh. Maybe I'll begin with the first question on net interest margin. So I think the way we've been looking at it is the sensitivity really to rates and basically the market risk we have there. As I highlighted, I think, in the previous quarter, this quarter as well, the risk sensitivity is now more at a neutral level. So we really don't expect the variability in market rates to impact net interest margin significantly. I think the biggest driver we've seen so far this year has been on the mix deposit mix and the impact it's had on cost of funding. And really, it's driven by what we're able to keep up the same level, roughly 50-50 as we had had in the past of CASA versus other interest-bearing deposits. I think if we are able to maintain that level, then we should continue to see our net interest margins stabilize. But without that growth in the noninterest-bearing profits, it will become more challenged as a rate, but more impactful in terms of the bottom line. And I'd say that's the same response really is for the second part in terms of net interest income growth. I think for the continuation for this year, we should still see it be relatively stable. I think the majority of the impact we'll see it kick in next year, but it will not be a significant, again, given the deposit mix that we have so far. So we're really trying to focus on the other line items that we have in terms of noninterest income, costs and the cost of risk to drive the growth there. I'll pass on maybe to the CEO for the risk question.

Now regarding the cost of risk strategy going forward, of course, now after the cleanup that we had last year and normalizing the cost of risk now to sort of 1%, our strategy is, of course, to maintain it at a lower level. We will continue to diversify our loan portfolio and at the same time, focusing on higher quality loans and higher quality assets. And that is, of course, what has pressured the margins for the first half of the year. We did a significant figure in the first half of the year, but at the same time, our focus was on growth and quality, hence, the tighter margins. And as the CFO mentioned, for the second half of the year, we're going to be focusing more on margins while at the same time maintaining the high quality of our assets.

All right. Thank you, Bader. Thanks, Ramzy. Albert, back to you.

Okay. So we do have a couple of questions. The first one comes from Murad Ansari.

Yes. Just a couple of quick questions on -- so you just from your comments, I just wanted to get a sense if this is the way I'm looking at it is right? Is that you've mentioned that you're looking at more -- you had strong growth in this quarter and you're looking second half to be much more balanced in terms of loan and balance sheet deposit growth. So fair to assume that we'll see some slowdown in loan growth during the second half versus what we've seen in the first half. And linked to that, I mean, this so we've had a very strong quarter on growth and other corporate focused banks have also seen bits of that coming through in the second quarter. So it seems like it's -- the corporate focused banks have benefited from strong volumes in this quarter. Is this largely project-driven drawdowns that we've seen in the second quarter come through? Or is this -- are we seeing some pickup in [indiscernible] corporate loan growth linked to these projects as well? And lastly, on retail growth, very decent volumes considering market and interest rate environment. There is a general consensus on rates going down. How do you see retail loan growth evolving over the second half of the current year? And last question on expenses. So there's -- you mentioned there's a bit of rebranding costs that have come through in this quarter as well. Is that all done now? Or are we -- there's a bit of it left that will come through in the second half of the year as well?

Maybe we'll start by -- in reverse. I'll start with the cost element. So yes, there were rebranding expenses slightly higher than originally expected. I would say, going forward for the second half of the year, we would still see probably a little bit more in the third quarter, especially since we're still doing investments on other initiatives in addition to the brand and the marketing that has come along with it. But we are investing to eventually become more efficient in terms of the cost side. So we do expect by the fourth quarter to have more meaningful traction. But I would say when we're looking at it, we're really trying to analyze it on an annual basis. And there's been quite a lot of work done already, but it will take time for it to feed through in terms of the cost side. And again, this is on both the G&A expenses and also the staff expenses as well. For the lending...

I'll take that one, which is the first question, which you asked about the slowdown in growth for the second half. And of course, given the aggressive growth in the first half of 10%, and of course, our revision of the guidance to mid-teens revised from low double digit it does indicate that in the second half of the year. And as we mentioned, we will be trying to balance growth and margins, and of course, always maintaining quality. So that does allow us for the second half of the year to be more selective from a pricing perspective and, of course, maintaining the high quality of the loans book. That's when it comes to the second half of the year when it comes to loan growth. There was also a question on retail growth. Now with the high interest rate environment, we are seeing a pickup in more traction when it comes to retail or consumer loan growth after the high interest rate, of course, is dampening the loan growth. On the personal loans, we did see a 13% year-on-year growth. Home loans, we actually did see a pickup when it comes to new home loans, 6% year-on-year, bringing our home loan portfolio, mortgage portfolio to 16.4%. The second quarter, we did see the highest level of home loans growth mortgages in the last 8 quarters, indicating a pickup when it comes to more business and recovery in the market overall. We also saw that [ consecutive quarters ] with 5.3% quarter-on-quarter growth when it comes to credit cards. So to answer your question, yes, we are seeing a pickup when it comes to retail loan growth or consumer loan growth and we expect it to continue that pick up as we start to see rates come down.

Just one question I had on the corporate side that is this largely a drawdown on the projects that have been committed to that we've seen in this quarter is a large part of lending on the corporate side coming from there?

Well, when it comes to the corporate loan growth for the first half of the year, of course, we continue to see traction when it comes to Vision 2030 initiatives and mega projects, that traction continues to increase and our diversified participation when it comes to those projects continues to be there. When it comes to project finance -- we also continue to see a pickup when it comes to the project finance. So more specific focus when it comes to project finance or our participation was in the utilities area. For Q2 to be specific when it comes to the sectors that we did see a pickup, it was in manufacturing and comps for Q2.

Next question comes from [ Ryan Ayash ]. Okay, there are no raised hands at this time.

Let's give it a minute to see if -- given the fact that we have some time to see if we have anybody else wanting to ask a question. I have that has been e-mailed to me by a client in the interim. Could you please clarify if the small decline of the notional of the IRS for hedging over the quarter is something to read into or not necessarily? I think the client is asking specifically with regards to the notion of the IRS, which has declined slightly in this quarter. And if there's been any change in the strategy or is this something to read into at this stage, if you could please just offer some clarity on that?

Yes, sure. So with regards to the hedging activities, it's a function of interest rate risk management. So we have guided the market that we'll be increasing the size throughout the year. However, we have seen quite significant repricing in the Saudi government bond issuances since January of this year. So we have decided to, let's say, increase the size of the investment book when compared to the hedging. Again, maybe to reiterate the interest rate risk management day we work within the bank is that we're agnostic to what kind of product we work with, whether it's retail consumer lending, which is naturally fixed, cash flow hedges or fixed rate investments. Maybe to add as well, we have increased our interest rate risk duration from about around 4.1% on our investment -- sorry 4.1 year in our investment book. So that's a significant increase to where we have started the year.

Maybe I'll just add to that, Naresh. In terms of the interest rate risk, we're looking at really both sides of the balance sheet. Treasurer had mentioned a lot on the asset side, especially with the growth on the investment book, which is typically a fixed rate. But at the same time, when we look at the liability side of the balance sheet, we highlighted already that the interest-bearing deposits, which are floating variable interest rate, also have increased. So the sensitivity to interest rate risk has changed as a result of both the fixed asset growth and the floating liability growth, therefore, requiring less hedging to manage the interest rate risk.

Understood. Sorry, I just -- the number that you mentioned on 4 to 4.5 years as an average duration, could you please just repeat that? What was that for?

So coming into 2024, we had a relatively short duration in our investment book. So as the NDMC has been issuing Sukuk's, we have replaced significant maturities and -- significant maturities of our government Sukuk's as well as newly bought HQLAs that are naturally longer duration, which has increased the average investment book duration.

Understood. That's very clear. Operator, back to you.

Okay? So we have Ryan again.

Apologies for earlier. I wanted to ask because it feels a little bit inconsistent to me to hear on the one hand, that the biggest threat to the [ outlook ] is margin and lower CASA ratio. So while on the other hand, you [ grow ] in your time deposits by this amount. It also doesn't entirely gel with what we heard I think last year, which was that there would be more of an emphasis on profitability versus [ units. ] And so [Technical Difficulty] liability towards on asset driven [Technical Difficulty] the question why at this junction in interest rate tackle. That's the first broad set. The second point is I've received an invitation for a Capital Markets Day or Strategy Day, as I assume everyone else in the audience has. So well done to taking the plunge and [Technical Difficulty] shift to topics that I expect you'll be addressing then extensively. So it would be good to have a sense of the other path medium-to [Technical Difficulty] already structured lower margin than many, many peers because of your asset mix, you carry quite a lot of capital, and so your ROEs generally don't rank very well compared to your peers. So what can we expect on a kind of long-term basis from management as a level that we can [Technical Difficulty]

Thank you, Ryan. It broke up a few times there. So we'll try to respond based on what we heard. So maybe just to respond to what we -- maybe just to respond to what we heard...

Operator, can you just mute Ryan's line, please? I reckon that everyone [Technical Difficulty]. Yes, I think it should be better now.

So again, it was a bit choppy. So we'll try to respond based on what we understood. So in terms of the margin compression, again, I think it's a factor of many things. Part of it is going to be driven by the interest-bearing deposits growth, which was led by the asset growth that we've had in the bank. And some of these are requirements, for example, the investments which grow typically for liquidity ratio and interest rate risk management, whereas on the lending side, it's really more for profitability and ROE generation. In addition to that, it's not purely on the funded side of the business that we're focusing on, but also on the nonfunded or the noninterest income, but we have had good traction. Our intention is to bring this up closer to peers, but also in line with the growth that we've seen on the balance sheet. I think the growth that we had seen so far really outpaced against the growth that we could generate on the noninterest-bearing deposits. And this has led to the conclusion that we do need to be a bit more selective and balance between growth and the margin. But again, not side heavily either on one side or the other. In terms of ROE, I think this is an area that where we've had improvement over the last year. It continues to be a focus, but it will be more of a medium- to longer-term play and it's going to be focused on not just the undecided business again. We're looking at all the levers that are available, whether it's on noninterest income, costs, cost of risk. And together, each of these has initiatives that we've identified to try to execute to improve on the ROE ratio. And maybe just one final comment from my side. It sounds like you were -- you've received an invitation for the Capital Markets Day or the Investor Day. So we look forward to receiving you then. Thank you.

Next question comes from Murad Ansari.

Yes. Just a couple of questions on one of the comments you made. You said that at the start of the year, you bought government bonds to increase the duration of the investment book. Is it possible to get a sense of what the average duration of the investment book would be currently? And secondly, on the deposit side, typical repricing maturity cycle for a time deposit in your portfolio, if you could give a sense of that as well.

Maybe I'll start with the last question. Typically, the time deposits or, let's say, the bulk of the time deposits are on a short-term basis. And as for the -- on the duration of the investment book, just to be clear, it's 4.1 years average duration.

Just on the time deposit, you said short term would be 3 months and below. Would it be fair to see?

I would say -- fair to say between 1 to 3 months.

This is going to be for the majority, but it doesn't preclude time deposits that would go beyond all the way up to 5 years, but they would not constitute the majority. I think the best would be in that 3-month bucket range.

There are no raised hands at this time.

Okay. It looks like we've reached the end of the presentation. If we have no further questions, then I'd like to thank all the participants for joining the call today, and thanks a lot to the BSF management for the valuable time and insights over the call today. Have a good day, everyone. Thank you.