Banque Saudi Fransi ($1050)

Good afternoon, everyone. My name is Elena Sanchez from EFG Hermes, and I would like to welcome you all to Banque Saudi Fransi Q1 2026 earnings call. I would like to hand over the call now to Ms. Yasminah Abbas, Head of Group Commercial Delivery and Investor Relations. Yasminah, please go ahead. Bader Alsalloom, who will go over the earnings summary for the quarter, as well as a refresh to SF's 2030 strategy. He is then followed by CFO Ramzy Darwish for a more detailed walk-through of our financial performance. With us today is also CTI [indiscernible], who will participate in the Q&A session. Without further ado, I'll hand over the mic to you Bader.

Thank you, Yasminah. Good afternoon, everyone. Welcome to BSF's first quarter 2026 Finacial call. Now before turning to our results that we briefly addressed the regional backdrop. We continue to monitor the developments closely. We are entering this environment or position of strength, stable markets, strong capital, no force partner in [indiscernible] gives us flexibility [indiscernible]. At this stage, our operations remain on a [indiscernible] stable and our business remains [indiscernible] global ones. We have reviewed the portfolio of carefully and believe we are well positioned to have a medium environment. while remaining mindful that the situation is still involved, [indiscernible], the resilience of the [indiscernible] to support the backdrop in which we operate. Looking now with that said, I'm pleased report that first quarter 2026 was a solid quarter for BSF. Starting with the balance sheet. Overall grew 6% year-on-year driven [indiscernible]. On the consumer side -- on the commercial side. We continue to prioritize value and return to over volume. We saw good opportunity during the quarter solidly. Consumer growth was led by mortgages with the auto loans also contributed. Our investment book expanded 16% year-over-year as we continue to see its highly [indiscernible]. On the [indiscernible], customer deposits rose 5% year-on-year, interest therein deposits on lesser than noninterest-bearing. However, on an [indiscernible] basis now, [indiscernible] improved [indiscernible] the first one. Turning to the income statement, the quarterly total resilience across the key lines. Our margin were up well at 3.03%, declined [indiscernible] year-on-year at extent recovered despite the [indiscernible]. Income grew 3% year-on-year supported by outliers. Now moving on to asset quality, portfolio remains in good shape. Our NPL ratio posted 1.01%, which we view as a normalization within [ harvest ] advertisement and [indiscernible] with portfolio. [indiscernible] comfortable levels and cost of risk improved to 48 basis points, supported by overall portfolio. On capital and equity, we remain well positioned across all metrics and have adequate headroom to absorb [indiscernible] something to affect this [indiscernible]. Now moving on to [indiscernible]. Let me now give you a brief [indiscernible], which we opened last [indiscernible] our ambition is to become a better, stronger investor. Concrete terms that we've grown our market share of net income to 8% to 10%. This will be achieved by delivering an ROE above 15% Operation, we intend to receive more than 75% 3 new products at [indiscernible]. This is being driven by private risk, our transformation initiative in [indiscernible] more than 100 [indiscernible]. With [ 30 ] processes already at the delivery presents expected to reduce the number of [indiscernible], bringing up capacity and laying the groundwork for a scalable, efficient group. Now there are two underlying themes driving our segment. First, it's trainer we already have a second building what we will meet. It's a fundamental enabler to achieve [indiscernible] we are making our existing businesses [indiscernible], this means expanding global transaction solutions enticing and broader region for institutional products. Personal Banking we are expanding our product range and stepping up client coverage. We are differentiating our retail [indiscernible] proposition by revamping our channels to meet [indiscernible]. We also have launched of the branches while optimizing processes and upgrading the technology infrastructure as part of our [indiscernible]. And [indiscernible], we are driving more active balance sheet management and [indiscernible]. Here in BSF Capital, we are accelerating our wealth management proposition out creating our grower plan. Across the group, we are embedding a cross-sell that is more systematic and [indiscernible]. Compare under the future is about the business is in capability growth. Business banking, we are establishing with that dedicated business line within we once on liability led and our [indiscernible] performance digital first with an embedded [indiscernible], which had already started contributing to the consumer [indiscernible]. Now looking at our 2026 priorities. For 2026, we have really identified four primary [indiscernible]. First, [indiscernible] fee income price segments [indiscernible]. Second, establishing business [indiscernible] our liability led, projects first model, building the [indiscernible] expanding to [indiscernible]. Third, strengthen [indiscernible] institutional coverage by expanding its government and financial and non planning financial solution environment. And fourth, [indiscernible] driving deposit [indiscernible] acquisition of preserving [indiscernible]. Now each of these directly connects to 2030 conference. Each had a clear [indiscernible]. Now last but not least on EMEA. We have started moving from exploration to [indiscernible]. We have established our AI infrastructure and built a strong AI team launching our new AI [indiscernible], use cases [indiscernible] live across [indiscernible] and credit card model. In the pipeline, we have many new season that will provide over the coming weeks in addition, much more we will find [indiscernible] this demonstrates our progress in executing a broader AI transformation in them. We have also initiated several major regional transformation program in key areas of the bank, including [indiscernible] really help them back to further [indiscernible] technology and operating pipelines. And as part of our 2026 digital agenda, we're going to also plan to launch the rules pan platform. Further enhance our core banking [indiscernible] and continuing in our base mobile banking. Ramzy will now take you through the detailed financial performance for the [indiscernible].

Thank you,. Good day, everyone. I really appreciate you joining us today. As we wrapped up the first quarter of 2026, the economic situation remains fluid as we continue to navigate shifting economic conditions. Nevertheless, we are staying disciplined on execution and pushing forward with the strategy delivery, with a concentration on step-by-step impact and value realization. We kicked off on many aspects of this strategy with many initiatives in progress and to specifically already creating marginal value which we endeavor to expand on as others have longer lead times. In terms of overall expectations, we are more or less on target for the quarter with only fees behind expectations. Partly driven by seasonality, regulation changes and to some extent, the most recent contract. However, we have offset this through other noninterest income in the mid term, capturing increased volatility opportunities, while at the same time, putting in place the necessary platform to reignite fee and commission income for the long term. With that being said, let me now take you through the financial results in more detail and provide an update on the progress we've made starting off with our balance sheet on Slide 8. Total assets reached 325 billion, up 5% year-to-date, mainly from 3% higher lending volumes, interbank placements and an expanded investment book. We have been deliberately growing our fixed rate investment portfolio to continue hedging the group's overall interest rate risk position while locking in higher yields as the interest rate environment moderates. Total liabilities grew by 6% year-to-date from interbank funding and customer deposits. The increase in interbank balances reflects active cash flow management and to maintain ongoing relationships with counterparty banks. Debt securities and term loans declined slightly year-to-date. We had some maturities during the quarter with no major issuances. Looking ahead, we continue to plan to at least issue on senior debt this year, subject to market conditions and timing. Total equity was up 2% year-to-date, supported entirely by retainers, partially offset by a negative movement in other reserves. We will be going through the details for both loans and deposits in the upcoming slides for more context. Starting with loans, where loan volumes were up 3% year-to-date, and 6% year-over-year. For the quarter, this was led by the commercial portfolio with a modest uptick in consumer lending. Commercial lending posted a strong growth of 4% for the quarter as competitive intensity eased and we saw a good pickup in March. I would note that some of these loans are short-term working capital facilities. So excluding that element, underlying growth rates would have been somewhat lower. Nevertheless, momentum remains broad-based. From a sectoral perspective, Commerce led the way with 9% growth for the quarter followed by services and further aided by growth in manufacturing and agriculture, while utilities saw a 6% decline. On the broader question of geopolitical impact as Better outlined, our direct exposure to conflict-affected dynamics remain limited. We do expect some softness in tourism-related lending in the near term, but we are not seeing a material shift in borrower behavior or credit quality across the book. Fundamentally, our objectives and risk appetite haven't changed, and we remain constructive on the Kingdom's long-term growth story. On the consumer side, we had a strong growth year-on-year at 15% with some slower momentum in the quarter, but still delivering 2% growth year-to-date. Mortgages specifically continued to drive volume growth, up 3% year-to-date, while continuing to offer attractive profitability. Auto loans also saw healthy demand growing at 3% as delivered by our subsidiary, JD. Personal loans saw a modest growth of SAR 100 million as growth was off to a great extent by normal principal amortization as well as refinance. Lastly, for cards, specifically, we had SAR 100 million less in balances were 6% lower, while noting the significant growth of 30% year-on-year. This was driven by seasonality and some slower spending due to the recent geopolitical events. Next, on the other side of the balance sheet, we have customer deposits which grew 2% year-to-date, driven entirely by noninterest-bearing balances, of which some were transitory in nature. This brought our NIBD ratio to 43.9% or 1.4 percentage points improvement versus the previous quarter. This is a direct result of targeted efforts across all segments to acquire the right kinds of deposits and preserve our funding rates. On a year-on-year basis, customer deposits grew by 5%, with interest-bearing deposits growth at 6% and noninterest-bearing deposits at 3%. We're committed to maintaining relative stability in the NIBD ratio going forward. The launch of Business Banking has opened new deposit gathering opportunities while the focus on new-to-bank customers across all the businesses is expected to drive deposit growth going forward. When it comes to system liquidity overall, this has continued to ease during the quarter, especially in light of more moderate loan growth, which supports the broader funding environment. Moving on to the balance sheet. We next want to highlight the profitability on the next slide. starting with the high-level picture for profitability. Net income rose 3% year-over-year, supported by 5% higher net interest income and lower impairments. On a sequential basis, we grew 10% quarter-over-quarter, benefiting from both 3% higher operating income and 4% lower operating expenses. We will unpack the detail of the major line items over the next few slides, but I just wanted to highlight that although operating expense growth of 6% outpaced operating income growth of 3%, this is within our expectations for the first quarter. And the target for the following quarters on expenses is more moderate, whereas we expect growth on operating income to pick up, they generate positive jobs and drive overall cost to income within guidance. We will reiterate this on the guidance slide as we continue to maintain a below 33% direction. At the same time, we also want to continue to remain dynamic in nature, adjusting OpEx as needed to both maintain balance and connect to a greater degree with the outcomes in the operating income. Furthermore, although return on equity moderated by 33 basis points year-on-year to 12.02%. This was due to higher average equity balances. This is 163 basis points quarter-on-quarter and 15 basis points up on the 2025 full year return on equity, which is supported by improved underlying profitability. We remain steadfast on our long-term ambition and target to improve overall return on equity, while noting the target for this year remains for a range between 12% and 13%. Now we will go through the detailed line items, starting on the next slide with net interest income, which rose by 5% year-over-year, driven by 7% growth in average interest-earning assets while margins declined about 7 basis points. The components of this growth is shown in the waterfall chart on the top right, where higher net interest income from loans, investments due to banks and customer deposits, were partially offset by higher funding costs on debt securities from increased volumes as we look to diversify funding avenues. On the bottom 2 charts, you will note, interest income grew 6% year-over-year to SAR 4.4 billion, while funding costs increased 7% and albeit on a smaller balance to reach TRY 2.2 billion, resulting in that 5% net interest income growth. On a quarterly basis, Net interest income was stable as a 2% decline in interest income was offset by a 4% decline in funding costs. On the next slide, we look at net interest margin which came in at 302 basis points for the quarter. That's down 7 basis points from a year ago, but it's also up 5 basis points from last quarter, even with Saudi rates declining by 18 basis points. Looking at the year-over-year decline. The main driver was higher funding costs on our debt securities and term loans. Again, as we work on diversifying liquidity sources. But quarter-over-quarter, we're seeing decent traction. The 5 basis points improvement came from 2 factors. First, our funding costs declined faster than asset yields, partly due to reflexing timing in addition to the traction on spreads. And secondly, there was a positive impact from the cash flow hedge, which limited some of the impact from market rate movements. Net-net, we are actively managing our margin position and remain comfortable with our full year NIM guidance of around 3%. Next, on rate sensitivity. As stated last quarter, though we are targeting a neutral interest rate position, we continue to carry small negative rate sensitivity, meaning we benefit as rates fall. 100 basis points downward shift rate ship would impact net interest margin positively by approximately 3 basis points or roughly SAR 100 million in interest income. Having said that, our rate cut projections are now more moderate than previously anticipated. But given the limited interest rate risk profile, we do not foresee any significant change in impact. Looking at the repricing profile in the top right chart, liabilities repricing within 1 year stand at 161 billion. Adding our 21.9 billion cash flow hedge Notional brings us to SAR 183 billion, which is slightly above the SAR 177.2 billion in repricing assets. This is what drives our small negative sensitivity profile. Also, you will note the decline in cash flow hedges by SAR 3.1 billion year-to-date or TRY 8.5 billion from last year. This is not changing our prudent approach to interest rate risk management. as the investment book, which has fixed -- which has fixed rate exposure, provides similarities in terms of hedging, grew by SAR 3 billion during the quarter or EUR 9 billion since last year, effectively replacing the cash flow hedges. We continue to actively manage interest rate risks using capital hedges and fixed rate investments, whichever makes more economic sense given the current market conditions and our asset liability structure. On the next slide, noninterest income declined by 5% year-over-year, driven mainly by lower fee and commission income which fell 17%, partly offset by higher investment income. The decline in fees can be attributed to two main factors: First, Brokerage and asset management fees were down 22%, reflecting reduced investor activity given the subdued nature of the domestic equity markets into 2026; second, card fees were lower due to ongoing campaign costs where there was no such costs during Q1 2025. Exchange income also declined modestly year-on-year, while trading income was broadly stable given market conditions. In non-funded exposure, we also saw a 3% decline Q-on-Q as some corporate clients shifted from letters of credit to open account arrangements for faster delivery, given supply chain pressures amid the geopolitical situation. Investment-related income saw strong growth where we took advantage of market volatility to capture gains and also improve overall yield. On a sequential basis, noninterest income rose 21%, driven by stronger investment-related income, including capital gains from the investment book also supported by higher banking fees. Next, we discuss operating expenses. Operating expenses were up 6% year-on-year. Most of the underlying quarter-on-quarter cost growth was in staff cost, which was increased SAR 28 million on a sequential basis. This is in addition to depreciation increase. The increased employee expenses reflected annual salary adjustments performance-linked compensation had a modest increase in headcount. Depreciation rose at several major transformation projects went live. The quarter did include some smaller nonrecurring write-offs. So the underlying depreciation cost is somewhat lower. Having said that, technology investment remains a key priority to [indiscernible] bank. So depreciation may stay elevated in the near to medium term as projects go live. But this will support long-term efficiency and business growth of the bank. As a result, cost to income came in at 34.1%, up 1.2 percentage points from last year. We are currently above our sub-33% target, but we expect to trend back towards that range as operating leverage builds throughout the year. On a sequential basis, expenses declined 4% and normalizing after year-end exceptional items in Q4 of 2025. Lastly, cost to average interest-earning assets improved 1 basis point to 1.24% and demonstrating that our earning asset growth is outpacing expense growth. Moving next to impairments and provisions on Slide 17. The total impairment charge was down 12% year-over-year to SAR 246 million, mainly from lower commercial impairments and reversals and investments and other impairments. This was partly offset by higher consumer impairments, mainly driven by JV portfolio growth. On a quarterly basis, impairments were up slightly due to lower reversals in the investments and others but the underlying trend remains healthy. At the same time, we've also been building up provisions on a single lane that has been on our watch list from last year with clear expectations expected over the next few quarters in terms of migration. As mentioned, we have proactively built sufficient coverage. So any potential impact is expected to be managed. For now, we have not seen any downgrades or stage transitions or increase in default rates that are caused due to the geopolitical situation. Therefore, we are not changing our cost save guidance for the year. Overall, cost of risk improved to 48 basis points from 51 basis points a year ago, supported by the decline in impairments and overall portfolio growth. On the next slide, the NPL ratio ticked up by 4 basis points year-to-date to 101 basis points. This was driven by higher NPL balances for both consumer and commercial portfolios. However, this increase is business as usual and within expectations. The NPL coverage is down 2.6 percentage points year-to-date, mainly reflecting a slight reduction in Stage 3 coverage, but remains comfortable overall at 175.8%. Moving on to liquidity. Our liquidity profile remains strong with all metrics comfortably above regulatory requirements. The net stable funding ratio stands at 124% and the liquidity coverage ratio at 186%, both well above the minimum. The regulatory loan-to-deposit ratio came in at 76.6% for the quarter, which continues to provide room to grow the loan book and the headline loan-to-deposit ratio still at 11%. What I'd add here is that we are managing liquidity dynamically. The system liquidity environment has improved compared to last year, and we're well positioned to support our expected lending growth. Our diversified funding base, including the retail deposits, our wholesale relationships, alongside the debt capital markets give us flexibility as we scale. On the next slide, with reference to capital. Capital ratios remained healthy across the board. Our CET1 ratio is at 15.9% and Tier 1 at 18.8% and total car at 21%, again, all comfortably above regulatory minimums. The change year-to-date has been driven by loan growth and therefore RWA growth outpacing the equity growth, which was mainly driven from retained earnings, but still provides plenty of headroom or balance sheet growth throughout the year. We are well positioned for the countercyclical buffer effective from next month, starting in May. We continue to expect to maintain our CET1 ratio above 15% through organic capital generation, while supporting our lending growth and strategic initiatives. Moving now to guidance, where I've covered many of these throughout the update so far. We are reaffirming all full year 2026 guidance. First quarter results position us well to deliver on these commitments across the metrics. On loans, although annualized growth may show a higher figure, part of this was working capital loans. We do expect that over the course of the full year, this will fall within the high single digit. On net interest margin, we continue to grow the balance sheet in line with keeping the net interest margin in mind. -- utilizing the noninterest-bearing deposits against the spread changes on the loan book. For cost of risk, we do expect to continue to maintain within the 45 to 55 basis point range. mainly driven by normalization in commercial loans, but also growth mainly coming from the JV post audio. Our cost to income, as highlighted previously, the first quarter for the year, we did expect to be around these levels. And then going forward, with higher operating revenue, greater than operating expenses. We do expect the cost-to-income ratio to come back under the 33% guidance. For return on equity and CET1, both are currently in our ranges and no changes in expectations there. To wrap up, BSF delivered a solid first quarter. Net income grew 3% year-over-year. We maintained a resilient margin of just over 3%. We saw good traction on noninterest-bearing deposits, Commercial lending picked up meaningfully and credit quality remains note. The momentum from Q1 positions us well for the rest of the year. The commercial pipeline is active, retail and JV are scaling our deposit initiatives are working and operating leverage is set to come through. On track to deliver our 2026 guidance across all metrics and starting to make progress towards our strategy 2030 objectives. The platform investments, deposit initiatives and the upcoming business banking launch are all building towards sustained performance. With that, we can now get started with the Q&A.

Thank you very much for the presentation. [Operator Instructions] We'll take the first question from the line of Shabir Malik.

Can you hear me? So just one question, please, around your expectations for loan growth of high single digit. Do you expect any potential slowdown in demand or credit appetite as a result of the geopolitical uncertainty either from the corporate sector or from the retail sector. And maybe, I think, more of a medium-term question. We are 5 years away from the potential conclusion of Vision 2030. What sectors do you think are likely to be prioritized? And what does it mean for your corporate loan growth? Or which sectors do you think is going to drive the corporate loan growth for the bank over the next few years.

Thank you very much very much. I'll take one questions there. Now, regarding your first question, longer growth, and we anticipate any impact [indiscernible] situation, we do not. We stay and we've [indiscernible] overall guidance for now and we still have not seen any major impact or any major changes in customer active. There are obviously some reported constructions across some of the sectors. And we do hear or we do expect that there may be some supply chain disruptions without the road if this continues. However, for the time being, we still have a healthy pipeline. We do not see any changes to customer activities and so we have sub to our loan growth guidance. Now regarding to your second question, when it comes to more specifically within wholesale, and one of the sectors that we will continue to focus on. Obviously, our large centers or media [indiscernible] have a diversified portfolio However, there are specific set 1 point that we will continue to focus on such as manufacturing, utilities, health service and its commerce and services. So this will continue to be the [indiscernible]. Now given the geographical situation, we do expect more focus or more traction on logistics and infrastructure. And those are 2 sectors that are within our focus sectors, but we don't anticipate a further focus on it or government [indiscernible]. So to answer your question, no major changes or no change to our loan growth, and we do have a healthy pipeline that has still not been affected. Hopefully, it will not be affected by the situation.

Maybe if I can ask one more question. I may have missed it. But in terms of provisioning, have you taken any provisioning overlays or you felt comfortable with the quality of the book and basically any provisions or business as usual?

We have not yet taken any over days. I think we did make an assessment across the sector. But as of yet, given the leap that we see, and the fact that the ECL model is driven by several variables, which in an ironic way, actually provide less ECL given the current situation with oil prices. We piloted that this is something that we are looking at, but it's not something that we've taken any in Q1 so far.

We'll take the next question from Murad Ansari.

Congratulations on a solid set of results. So two questions on -- firstly, on the loan repricing. I talk about on pushing better margins on loans to customers. So just wanted to get your thoughts on how that is progressing? And if you could just give us some initial thoughts on how you see the liquidity environment so far during the first quarter? And has it changed in any way from the contract? And secondly, on fees, you mentioned that clients have shifted from LCs to open in Canada, and that has had an impact on your fee income growth. Has -- has that reverted back to normal? Do you see that continuing for some time? And how does that impact your fee income growth outlook for the course of the year. Thank you.

I'll take the first one, which is regarding our loan repricing. As mentioned before, this is [indiscernible] initiated revenues in the second half of 2024. So it was well before about any of our competitors [indiscernible] we continue with this initiative. We continue to revise our wins by looking at the overall comprehensive relationship return. And this pressure has actually eased as more and more events more of the competition given the spike in cost of funding. They have also started their own revising [indiscernible]. So this has definitely held us and need some of the pushback or the pressure that motion. [indiscernible] answer your question. We are continuing our loan repricing initiative, and we see that the opportunity to concerns.

I'll take the second question with regards to liquidity. So far, the impact on liquidity and the problems within the [indiscernible] has been limited. We're monitoring the situation closed and we take strong capital and liquidity that our offers. And we also have a vested contingency funding plan that would enable the bank exit in case of any stress. Having said that, we continue to see levo deposit behavior with no signs whatsoever of outdoor money markets remain functioning normally. With access to the short-term liquidity, the repos and otherwise quite efficiently with no repricing. System liquidity remained comfortable as evident in the weekly reports of reverse or level from the Central Bank. It's important to highlight that the deposit base within the Kingdom is predominantly resident, which provides the structural stability. In fact, the system deposits have continued to grow, and we have not seen any outflows on that front when compared to other points of the region. The impact locally has been more contained than many of our GCC peers obtentions process, we could see second order effect mainly through higher cost funding costs some deposit pricing pressure, but that would be really not the case as of today. At this stage, the story remains stability, prudence and really for stress.

And I'll take the third question on [indiscernible]. So you're right. We did highlight the nonfunded exposure. But the reason is we wanted to look at it more from a balance perspective. So there is a small 3% quarter-on-quarter nonfunded exposure decline there. But in terms of fee income, it has more of a negligible impact, to be honest. And as of right now, we still don't see a shift back towards letters of credit. The main impact on fee income in Q1 were the two that was highlighted the first on the capital arm in terms of brokerage and asset management. This was driven by market activity and the market overall in terms of the [indiscernible], in terms of trade point. And on credit cards, just a comparison to last year, we did not have a campaign on cards at that time, whereas this year in Q1, we did. The campaigns initially started last year during the second quarter. So eventually, you'll start to see the year-on-year become more comparable and in line with our expectations.

Thank you. We'll take the next question from Ahmed Al Katari. Apologies, I think we lost the line of the previous attendee of Ahmed Al Katari. We will wait for him to come back in the queue again. In the meantime, we'll take the next question from Olga Veselova.

My questions are again about liquidity and funding. One, I look at your deposit inflows year-to-date, and they seem to be a bit lower than sector average. Is this because you see higher pricing competition from bigger banks? Or this is because deposits have been very much driven by government-related entities year-to-date, and you are not really receiving this GE fund. So that's question number one. And question number two is on liquidity. You did mention during your presentation that the liquidity pressures are easing given that loan growth is slowing down in the banking sector. But we do not really see a narrowing of cyber [indiscernible], why do you think is this maybe because of smaller roll of banks and interbank markets in March? Or are there any other reasons for that? And my third question related to liquidity, do you think higher oil prices may help monetary base to grow better later in the year? Or there is not necessarily a good connection there? Thank you.

Thank you very much. So I'll take the first question with regards to the leasing measure on where the system has been is a pressure. We have not -- we're actually seeing further deposit demand in the system, and this is evidenced by the reverse repo increase that we witnessed from [indiscernible], as mentioned by the CFO. So from that front, we're actually seeing more deposit requests for pricing on day-to-day. Side spread, I would say this is purely a structural supply and demand based on something to brand activities. So we did see actually a slight convergence in terms of spread maybe not to the extent that we have seen us the book because it's been structured, we made that credit demand continues to outpace what is available in terms of deposits. So I wouldn't expect that to go back to levels whereby we've been having a higher profit than growing across the system. So demand for liability would continue whether it's through this conflict or otherwise driven mainly by the credit demand that is in the market. The third item, oil price. So I would say typically, you would see or benefits we factored into the vending sector between 6 months to 9 months, however, driven by the complexity that the economy where are we given the fact that the matter has shifted as well, that could not be directly witnessed immediately. But I would not really rely on the volatility in oil prices impacting the liquidity in the short term. This would be -- this would take into impact over the course of, let's say, period.

Thank you. We'll take the next question from Ahmed Al Katari

Would like to understand the foreign currency swap position in terms of currency exposure. And in a similar with that foreign currencies are more volatile can disposition results and losses, especially that we have seen net hedging losses from position around SAR 74 million in 2025. I just would like to understand the risk of this position.

Sorry, could you just clarify foreign currency-related losses?

Yes. So basically, in under held as cash flow hedges, not [indiscernible] yearly financials, you have commission rate swaps and you have foreign currency swap or the foreign currency swap natural amount is about SAR 29 billion. So in note you clarified that you had losses or currency swap amounting of SAR 74 million? So I just would like to understand the scenario where there is more in foreign currencies and what are the potential of having such losses in the future.

Okay. Maybe I'll sum up with this and the treasurer wants to add. So from an accounting perspective, we're typically not taking FX exposures directly, whether that's in the spot market. or the swap market. These will be controlled within the value risk. But when we look at it within the context of the cash flow hedges typically we'll be using this for funding purposes and the additional premium or the difference in terms of rate would be amortized over the life of that transaction until it matured. These would typically be within 1 year but it is used for funding and that premium difference between the Saudi real funding cost on the dollar would be amortized over the life. So it's not a transaction specific that is being impacted by market moves. It is purely that premium.

We'll take the next question from Naresh Bilandani.

It's Naresh Bilandani from Jefferies. I would like to go back to your guidance again, please, again. Could you please just -- I'm looking for some qualitative insight here. You know what I was -- I came into this presentation. I was rather hoping that you would say that it is possibly a little bit too early to reassess the guidance and you may revisit that in the second quarter. Is that the message you're trying to offer by keeping the guidance unchanged? Or you feel that despite the conflict in the region. It's pretty much business as usual on most key value drivers and you sense that the list risks are relatively low going into the second quarter? I'm just trying to understand when you say you've kept the guidance unchanged, does it -- is it because you have high confidence that we are unlikely to see any meaningful economic risks develop? Or you feel that it is still too early to make a reassessment and Q2 will probably offer you a better visibility on setting your annual targets? That's the first question. My second question is, as we as we have heard on reprioritization of projects within Vision 2030, and certain sectors being prioritized over the others, I mean, a new renewed strategy from the key agencies in the Kingdom. I'm keen to understand, are there any asset quality risks that you feel that could potentially come through into the second half of the year? Any exposures that you had to certain Giga projects or other areas of project finance that could lead to an elevation in the cost of risk pressure? Because again, specifically pointing out to this point that you've kept your cost of risk guidance unchanged. So I'm just keen to see what sort of like is your thought process on the risk evolution in those areas as we go into the second half?

I'll take the first question in terms of the guidance. So it's more the former. So on our side, it really is more or less business as usual. Obviously, the geopolitical conflict has required some different assessments. But as of yet, we have not seen any impact, if at all. We do expect, like the CEO mentioned that maybe there will be some supply chain issues even if the situation is resolved that would take some time to filter out. Nevertheless, we would not expect it to have a meaningful impact on any of the specific business guidance that we provided. And in terms of expectations, barring the fee income, which is not really a guidance measure, but it's included in the overall return on equity. Everything else has been more or less in line with our budget, our expectations and targets. So for that reason, we've not adjusted anything on the guidance.

I'll take the second question, which is more related to the real prioritization and mainly the [indiscernible] continuing to be selective in the origination. When it comes to legal projects, our net exposure to [indiscernible] continues to be very limited. And but even the export that we do have a tenfold is a high-quality investment grade and to a large extent, [indiscernible]. However, when it comes to our endemic exposure may be impacted by a transition. That's mainly the contract, et cetera. But again, we follow a very disciplined diversification strategy even within our contracting sector, and we continue to have a well-diversified portfolio and we'll never excited even when it comes not just to go when it comes to a number of contract in also when it comes to the projects or the private volumes. So even with the rebitization, our clients -- some of our clients, many of the contractors may be slightly impacted. However, given our very diversified contract mix. We do not foresee any major impact on the quality of [indiscernible].

That's very clear. Ramzy, just a very, very quick follow-up. While we still wait for the full financials to come out, I think based on your presentation, it looks like the fee income is only up only slightly compared to the fourth quarter. And given the fact that the second quarter will be the first full quarter of the impact potentially from the regulations. Do you reckon Q2, we are likely to see this line still continue to remain subdued? And will this be -- is Q1 reflective of the new reality from which we should model on the fee income for the rest of the year.

Sure. So on fee income, the main impact, at least compared to last year, was on the campaign. But if we compare Q4 to Q1, it would be very similar, if not actually slightly less on the cards in terms of expenses. And like you mentioned, the full impact, I think at the full year level, we're estimating somewhere around SAR 20 million. So, it shouldn't be meaningful, let's say, quarter-on-quarter. And when we look at the overall strategy implementation, we would start to see some, not all, impact from the other line items that we're looking at. This would include business banking, would include insurance and similarly on the cards and trade as well. So I wouldn't say it's a baseline that we would be using. And in terms of our aspirations. As highlighted in the strategy, there is a significant pickup that we would expect over the course of the next 5 years. but it would be, again, a step-by-step change in terms of development.

Thank you. We'll take the last question from the line of Nauman Khan. Please go ahead.

Thank you. Just -- thank you for the opportunity for asking me -- [indiscernible] questions. Just a couple of questions back to liquidity as well. If again, if you can elaborate a little more on the liquidity element of the -- that we've experienced in Q1. Because I think that is drastically different to what we experienced in Q4, where the banks were facing a lot of triliquidity and the cost of funds were going up? So all of a sudden has been a major change in Q1 about the liquidity dynamics across the board. I do understand that you have shown a subdued growth in deposits as compared to peers. But again, across the board, there has been a very strong growth in deposit base. Can you elaborate what kind of deposits they have come in? And are the transitionary nature, if you can talk about that? And why is improved liquidity not translating into lower CIBOR as well? So if you can elaborate on this, it's difficult to wrap our heads around it, if you can talk about it.

Look, I'll start with the -- based on the liquidity front, when you compare Q1 typically the end of the year, we continue to see a much faster credit growth than the budgets and the laws is end-of-year impact coming on balance sheets and so on. That banks would always tend to compete for the deposit base. Q1 witnessed slower. We've seen in the first couple of months. If you look at the sort that we have in a normalization and credit growth compared to deposits. So basically, we saw the opposite of what we used to see posit outpacing credit and liquidity situation has improved. On the cyber front, I would attribute that to, again, overall credit, the credit is higher than deposits across the system that would have the natural impact of premium across the idea. However, so is this to the pet fund expectations, of which do facing more cuts this than now. So the market has shifted significantly comprising in three cuts in 2026. We barely want cuts across this year. We do not anticipate much of any cuts for the year.

Just one last question on your -- because you're assuming a relatively lower loan growth as compared to previous years. So is there any change for your AT1 issuances this year or going forward? Should we assess or should we estimate that, I think the AT1 issuance that you did last year, or start of the year to now a more normalized or reduced pace going forward? Is that would be an exemption to do as well?

So with regards to our capital base, we have prefunded all our capital requirements prior to 2026. With the recent issue when the local [indiscernible] Tier 1, replacing the 5 billion in call in November of last year. We do not have any capital requirements in 2026, we had quite optimized in terms of a business that we are at 21% in terms of total capital, and we have ample room to grow. There's no need for this year. And we have many other munition when it comes to really managing that ratio. So I think for 2026, I would say confidently that we have limited capital requirements. Beyond that, we will see based on our credit growth and other requirements.

Thank you very much. We have ended now the Q&A session. If you have any remaining questions, you can send them to the BSF Investor Relations team. I would like to hand over the call now back to management for any closing remarks.

Thank you. I would like to thank you all for taking the time today for joining us on for your continued engagement. Have a good even. Thank you very much.