Banque Saudi Fransi (1050) Earnings Call Transcript & Summary

Hello, and welcome, Naresh, you may begin.

Thank you. It's Naresh Bilandani from Jefferies. Welcome to the Second Quarter 2026 Results Call of BSF, with Jefferies is very pleased to host today. We have with us today from BSF, the following members Bader AlSalloom, Chief Executive Officer; Ramzy Darwish, Chief Strategy and Finance Officer; Zuhair Mardam, Chief Treasury and Investment Officer; and Yasminah Abbas, Head of Group Commercial Delivery and Investor Relations. I'll pass the call now to Yasminah to commence the presentation. Thank you.

Good afternoon, ladies and gentlemen, and welcome to the BSF's 2026 earnings call. I would like to thank you, Naresh and the Jefferies team for hosting us today. Speaking first is BSF CEO, Bader AlSalloom, who will go over the earnings summary as well as an overview of BSF's 2030 strategy. He is then followed by CFO, Ramzy Darwish for a more detailed walk-through of the financial performance. Also with us today in the room is CTIO, Zuhair Mardam, who will participate in the Q&A session in the second half of the call. Without further ado, I'll hand it over to -- I'll hand over to mic to the CEO.

Thank you, Amine. Good afternoon, everyone, and thank you for joining BSF's First half 2026 Earnings Call. Before I move to the results, let me briefly touch on the current regional environment. We have seen very limited impact on customer behavior and credit quality and trading remains at normalized levels. While we continue to monitor the situation very carefully and remain engaged with all relevant authorities. The message is very much one of [ business as you do ]. Against that backdrop, we delivered another set of healthy financial results. while also moving our Strategy 2030 agenda from launch into execution. Today's call is therefore an opportunity to do two things. First, we discuss another period of profitable growth, supported by solid business momentum and a sound balance sheet. The second is to give our first structured update on how the strategy is being put into action across the franchise. Now let's start with the first half year highlights on Slide 3. The business delivered good momentum across the main lines. Lending growth remained healthy at 7% year-on-year, with both commercial and consumer businesses contributing. Commercial growth remained broad-based, while Consumer continued to be led by mortgages and personal lending. We also continue to grow the investment portfolio, mainly through fixed rate securities, both to capture attractive yields and to manage interest rate position. On the funding side, customer deposits continue to grow with support from both interest-bearing and noninterest-bearing balances. The funding mix remained an area we manage closely, particularly in the current rate environment. But overall, the deposit base continues to support the growth of the franchise. From an earnings standpoint, the first half showed good progress with operating income increasing 5% year-on-year, supported by growth in net interest income. Net income also increased 5% despite continued investment in transformation. NIM stood at 3.04% for the first half down 7 basis points from the prior year but improved 4 basis points to 3.06% in the second quarter. Now turning to asset quality, capital and liquidity. The overall to remain solid. Asset quality continues to be well managed with the NPL ratio broadly stable and the cost of risk still at a healthy level. The downward movement in coverage during the quarter was influenced by the write-off of two fully covered corporate accounts the details of which will be covered by Ramzy later. At the same time, our capital and liquidity position remains supportive. We continue to operate with healthy offers across key regulatory metrics which gives us room to support business growth, absorb market developments and continue investing in strategic execution from a position of strength. More broadly, the bank enters the second half with a sound risk profile, healthy liquidity and a capital base that supports both resilience and growth. Now let me now turn to the strategy update. Since launching Strategy 2030 in February of this year, we have moved from launch into early execution. Our ambition remains to build a better, stronger and faster bank by strengthening the core businesses that drive performance today while building the capabilities that will support future growth. Over the past few months, the work has centered on activating the main programs across the bank. As of today, 21 of our 24 strategic programs are active and seven are already delivering early impacts. Within Wholesale Banking, the focus was on relationship management, broader government and [ NBF ] coverage and better [ GTS ] onboarding, with the next phase centered on bundled transactional solutions. Integra Investments Group, the emphasis has been on client planning and preparing the private credit pipeline with cross-sell now the next priority. At BSF Capital, the strategy has been refreshed around institutional and private banking, with the near-term task focused on stronger brokerage and asset management fee generation. Across the retail businesses, retail, specifically affluent, has launched new propositions and channels. Business banking is now live and moving into platform rollout. Private banking has started to broaden its proposition and JB has strengthened its digital and operating base. Across all of these businesses, the next step is to convert that early progress and to broader client penetration, stronger cross-sell and better commercial output over time. Strategy is no longer only an architecture. It is now active across the franchise with programs underway in the businesses and enabling functions. And the next phase is about disciplined execution over time. Let me close the strategy update on Slide #6, where we introduced a KPI dashboard that shows the full year 2025 baseline, the first half 2026 outcome and the 2030 targets across key metrics. The aim is to track execution in a more structured and consistent way over time. At the group level, the picture is balanced across all three pillars of this strategy, with some metrics already on track while others remain areas of focus as execution progresses. Under Better the metrics are broadly in line with the baseline. Net income market share remains at around 6%. Noninterest income share is stable at 18%, and the CASA ratio is holding at 43%. The opportunity now is to build from that base by growing share, increasing fee contribution and improving the quality of funding as the strategy gains moment. Under Stronger, the early read is positive. Return on equity stands at 12.1%, Keep icons on track toward our target of 15%. CET1 remains healthy at 15.9%, above our long-term threshold. And cost to income has improved to 33.2% from 34% in 2025, showing early progress on efficiency as well as capital and profitability. Under Faster, we are beginning to see progress in the capabilities that support the operating model. Digital penetration of clients has gone from 65% to 70%. And AI use cases have increased to 16% from less than 5% in 2025, both showing good moment. Straight-through processing remains a priority as we continue to improve automation and process efficiency across the group. Overall, we are pleased with the start we have made and it reinforces our that BSF is entering the next phase of growth from a position of strength. I will now hand it over to Ramzy for a detailed financial walkthrough.

Thank you, Bader, and I'd like to thank you all for joining us today. for the second quarter of 2026 in terms of an earnings call. We really appreciate your continued support and interest in the bank. As we wrap up the second quarter of 2026, the economic environment remains fluid and evolving, particularly in light of the ongoing regional geopolitical elephants. That said, we are confident in our positioning and we are continuing to execute our strategy with discipline and focus. Our execution has been steady, and we are seeing positive momentum in several areas of the business. We are pushing forward with our strategic initiatives, and we are very focused on delivering value, not just in the short term, but also in the long term. We've been working on several key initiatives across the business, and a few of them are already starting to show early signs of value creation. These are the ones with the shortest lead times, and we are very encouraged by the progress so far. For the longer-term initiatives, we are laying the groundwork and ensuring that we have the right systems processes and people in place to deliver the full benefits over time. In terms of overall performance, we are largely on track for the quarter, and the business is performing in line with expectations. The only area where we saw a slight deviation was again in fee income, which was behind our initial expectations. This was partly due to seasonal factors, regulatory changes and, to some extent, the impact of the recent geopolitical developments. However, we've been able to offset this through other areas of noninterest income, particularly in investment-related and trading income, where we were able to capture opportunities in a more volatile market environment. At the same time, we are also building the necessary infrastructure and platforms to reignite fee and commission income in the long term. This includes enhancing our digital capabilities, improving our product offerings and deepening our client relationships overall. So while we're aware of the near-term headwinds, we're confident in the resilience and growth potential of our fee income over the long term. With that said, let me now take you through the financial performance of the first half for 2026, starting with the balance sheet on Slide 10. As of 30 June, total assets stood at SAR 328 billion, an increase of 6% year-to-date. This growth was primarily driven by the loan book, which rose by 4%, with additional support from investments, which grew by 8% in addition to interbank placements. This is a testament to our strategic focus on aligning asset growth with long-term value creation. For instance, the almost SAR 10 billion increase in loans reflects demand remaining robust despite near-term volatility and our continued confidence in the Saudi economy's resilience. We've continued to add to our fixed rate investment portfolio with government securities making up the majority of that growth. This has allowed us to lock in attractive yields and better manage our interest rate exposure, a strategic move as we navigate a developing interest rate environment. On the funding side, total liabilities increased by 7% year-to-date, with customer deposits continuing to grow. A larger movement came from higher balances and due to banks, which reflects normalized funding activity from a low year-end basis. Debt securities and term loans were down 8% year-to-date, mainly due to planned maturities during the period. This is part of our ongoing strategy to manage our debt book efficiently and optimize our cost of funding, ensuring we remain agile in a shifting rate environment. Total equity was up 1% from year-end, supported by earnings, although this was partly offset by other comprehensive income movements and dividends. Still, we remain secure in the strength of our capital position and the ability to support future growth as CET1 stood at 15.9% at the end of June. This balance sheet strength positions us to capitalize on opportunities in the second half, whether it's accelerating loan growth or further optimizing our funding mix. Furthermore, our capital adequacy ratios remain robust giving us the flexibility to invest in strategic initiatives while maintaining a buffer against uncertainty. Let me now move to Loans and Advances, which continued to be a key driver of our growth and a core part of our strategy to support the evolving needs of the Saudi economy. The loan book continued to grow across both commercial and consumer segments, with total loans and advances up 7% year-on-year and 4% year-to-date. This performance reflects our disciplined approach to credit growth, our strong client relationships and the continued momentum in the sectors we serve. On the commercial side, balances increased 4% year-to-date, and the growth was broad-based, with the biggest contribution coming from the contracting and services sectors. However, we also saw solid performance across all of our target sectors within the economy, including commerce, agriculture and utilities. That said, Q2 growth was slightly softer compared to Q1, and this was due to the normalization of the short-term working capital uplift we had flagged in the first quarter as well as higher settlements during Q2. But here's the key. The underlying pipeline remains healthy, and we're seeing continued demand for financing across a range of industries. On the consumer side, balances grew 6% year-to-date led by mortgages and personal loans, which increased 6% and 8%, respectively. JB, our subsidiary, continued to support non-mortgage consumer lending contributing 1/3 of the net year-to-date growth, excluding mortgages. Most of the personal loan growth came from the retail banking group, including [ Lombard ] loans, which is a great example of how we're leveraging our platform to drive growth. Credit card balances were broadly stable, and this was in line with our expectations against the backdrop of lower travel activity and softer transaction flows. We are not surprised by the performance thus far. We've seen a seasonal slowdown. And while we expect some near-term softness, we remain positive in the long-term value of our credit card portfolio. Overall, we remain comfortable with the loan growth trends and we continue to target high single-digit growth for the full year. We are not chasing volume at the expense of quality and our underwriting discipline remains strong. We're also well positioned to capitalize on the growth in consumer and SME lending, especially as we continue to expand our digital offerings and deepen our client engagement. Now let's turn to the other side of the balance sheet, customer deposits which remain a key pillar of our funding strategy and a critical enabler of long-term sustainable growth. Customer deposits were up 5% year-to-date reaching SAR 204.6 billion, with growth coming from both sides of the deposit base. Specifically, interest-bearing deposits increased by 4% and noninterest-bearing deposits rose by 6% year-to-date, though this would have included some intermittent deposits throughout. The [ NIBD ] ratio ended the quarter at 43% and an increase of 45 basis points year-to-date. While the ratio did ease slightly from the first quarter, this was due to stronger growth in interest-bearing deposits during the period. Importantly, nominal [ NIBD ] balances continue to increase, which is a positive sign of deposit quality and client stickiness. This performance reflects our targeted approach to deposit acquisition, where we focus not just on volume, but on acquiring the right kind of deposits that support our funding cost discipline and liquidity resilience. We're also seeing the early benefits of our business banking strategy, which is opening up new deposit gathering opportunities, especially in the CASA deposits. At the same time, our focus on acquiring new-to-bank customers across all business lines is helping to drive deposit growth while maintaining a balanced funding mix. Looking at system liquidity. We saw improvement compared to last year, and we remain well above regulatory minimums. However, in this environment, our priority remains on growing the deposit base while preserving the quality of our funding. We're not just managing for today, but building a resilient funding model for the future. This includes leveraging digital channels, deepening client relationships and optimizing our CASA mix, all of which support our long-term funding strategy and cost of fund discipline. Let's now move to the income statement where we continue to see momentum in profitability. Supported by strong net interest income growth, stable noninterest income and a solid credit performance. Net income for the first half of the year came in at SAR 2.868 billion, a historical record for the bank and up 5% year-on-year, driven by 5% growth in operating income with net interest income up 6% and noninterest income broadly stable. This was partly offset by 6% higher operating expenses which were in line with our expectations and primarily driven by annual salary adjustments, modest head count growth and increased G&A expenses. On a quarterly basis, net income reached SAR 1.487 billion, also a record, up 6% year-on-year and 8% from the first quarter. The sequential improvement was driven by better top line performance, although it was partly offset by higher impairments in the second quarter. This reflects our prudent credit risk management as we continue to maintain a strongly underwritten portfolio and satisfactory coverage ratios. Turning to return on equity. Return on average equity for the first half was 12.12% compared with 12.54% a year ago, a decline of 42 basis points. This was primarily driven by higher average equity balances. However, in Q2 alone, return on average equity improved to 12.17%, showing positive momentum during the period and improved underlying profitability. We remain confident in our ability to drive ROE higher over time, and we are comfortable with our full year guidance. This is supported by our disciplined cost management, our continued focus on margin improvement and our strategy to grow higher-margin income streams, particularly in fee income and wealth management. Overall, we are not managing just for the short term, but building a sustainable model for long-term profitability. This includes optimizing our cost structure, leveraging technology and automation alongside the process for [ present ] transformation and deepening our cross-sell and fee income capabilities. all of which are central to our strategy 2030. Now let's move into the detailed line items, starting with net interest income where first half results increased to roughly SAR 4.6 billion, up 6% year-on-year, supported by an 8% growth in average interest-earning assets. This was driven by positive contributions from loans, investments and interbank placements while higher funding costs on debt partially offset this growth. On the bottom chart, interest income rose to SAR 9 billion, up 3% in the quarter, while funding costs increased to SAR 4.45 billion, up 1% in the quarter. resulting in a 6% increase in net interest income. There is some element of repricing timing at play here as liabilities tend to reprice faster and may reflect lower cyber levels earlier than we would see on the lending side. Nevertheless, we continue to actively manage our funding mix and leverage our growing deposit base, and we are focused on our ability to sustain and support a stable and sustainable net interest income. Now let's turn to net interest margin, which is a key indicator of our margin efficiency and pricing discipline. Net interest margin for the first half stood at 304 basis points. This was a 7 basis point decline year-on-year, primarily due to higher funding costs on debt securities and term loans as we continue to diversify our liquidity sources. However, compared to Q1, the quarterly net interest margin improved by 4 basis points to 306 basis points. And this improvement was driven by two key factors: first, funding costs declined by 13 basis points, which more than offset the 6 basis points of pressure on asset yields. This was supported by a 10 basis point decline in the average 3-month [ SIBOR ] during the quarter as well as favorable repricing timing on the liability side. Second, we saw a positive impact from our cash flow hedges, which helped limit the impact of market rate movements and supported margin stability. Additionally, the growth in our [ NIBD ] volumes quarter-on-quarter, driven by our strategic focus on attracting new-to-bank clients across all our businesses, helped reduce the cost of funds and contribute to the NIM improvement. Also, we observed that interbank funding costs declined more sharply than the average [ SIBOR ] during the period, which reflects further supported the NIM expansion. Overall, we are actively managing our margin position. And based on the current rate outlook, where we are not factoring in any further rate cuts this year, we expect margins to remain near current levels. This gives us greater assurance in our full year net interest margin guidance of around 3%. Next, let's turn to the interest rate sensitivity and our overall risk management approach. As we continue to target neutral interest rate position, we currently report a rate sensitivity of 7 basis points as of the end of June, which is slightly higher than the 3 to 4 basis points reported earlier. This increase was mainly driven by rollovers in our syndicated loan book where loans moved from the 2- to 3-month repricing bucket into the 3- to 9-month bucket. Over the coming quarters, we expect a gradual decline in NIM sensitivity, assuming a stable balance sheet, as these loans transition back into shorter repricing buckets. That said, the current sensitivity level of 7 basis points remains low and it is in line with our strategy to maintain a largely hedged balance sheet. Additionally, the notional amounts of cash flow hedges declined by 23% year-to-date, primarily because growth in retail assets and fixed rate investments have reduced the need for additional notional hedges. In fact, the investment book where we hold fixed rate exposure has grown by SAR 2.5 billion during the quarter or SAR 5.5 billion year-to-date, effectively replacing the cash flow. This shift reflects our active and dynamic approach to interest rate risk management, where we use a mix of cash flow hedges and fixed rate assets given current market conditions and our asset liability structure. Overall, we remain assured in our risk profile, and we continue to manage interest rate risk simply and proactively. Now let's move to noninterest income, which remained largely stable year-on-year at SAR 997 million for the first half. This was despite a decline in fee and commission income. This was offset by stronger performance in investment-related and trading income, reflecting our active approach to capitalizing on market opportunities. The year-on-year decline in fee and commission income came in at 14%, driven primarily by higher card-related costs from ongoing marketing campaigns, which were not present in the same period last year. Brokerage and asset management fees were also lower year-on-year, down 17% and as domestic market activity remained subdued in the first half. However, trends particularly in Asset Management improved during the second quarter, providing for a 29% sequential growth. Trade finance fees were also lower than in the first half of 2025 in light of supply chain pressures and the broader geopolitical environment. On the positive side, investment-related income saw strong growth with gains realized in Q1 from market volatility and continued strength in Q2 as we took advantage of favorable opportunities, [indiscernible] income was also robust, supported by increased hedging volume from clients as well as a higher income in proprietary trading, reflecting our active risk taking and market positioning. On a sequential basis, noninterest income rose by 21% during Q2, driven by trading income and improved fee performance, particularly in banking fees, which showed a clear upward trend. Looking ahead, we expect a stronger contribution from noninterest income in the second half, particularly from fee lines as we build on the momentum seen in the second quarter and continue to optimize our fee-generating capabilities across all businesses. Next, let's turn to operating expenses, which increased by 6% year-on-year for the first half, driven by annual salary adjustments, modest head count growth and higher G&A in addition to higher -- and increased depreciation as major transformation projects continue to go live. Q2 expenses were broadly unchanged compared to the first quarter, reflecting a more normalized quarterly run rate as opposed to the elevated costs in the fourth quarter of 2025, which did include exceptional and nonrecurring items. Depreciation costs rose as a result of the ongoing transformation projects, laying the foundation for long-term efficiency and scalability. For the first half, the cost-to-income ratio came in at 33.2% compared to 32.7% a year ago, while operating expenses as a percentage of average interest-earning assets improved to 122 basis points, a 2 basis point reduction year-on-year. On a sequential basis, the Q2 cost-to-income ratio improved to 32.5%, which provides further confidence in our ability to stay within our full year guidance of below 33%. Looking ahead, we expect stronger operating leverage in the second half, supported by continued earning asset growth, technology efficiencies and the scaling of our transformation initiatives. Technology investment remains a key priority. And while depreciation may remain elevated in the near to medium term, it is a strategic investment that will support long-term efficiency and sustainable growth. Next, let's address impairments and provisions, which remain a key focus area for the bank. The total impairment charge for the first half stood at SAR 513 million, broadly in line with the same period last year. This stability was driven by lower commercial impairments which were partly offset by higher consumer and other impairments. On a year-on-year basis, the cost of risk improved by 6 basis points to 44 basis points compared to 50 basis points in the first half of 2025, reflecting stronger portfolio growth and improved credit quality. In the second quarter, the impairment charge increased to SAR 267 million up 9% quarter-on-quarter, primarily due to a charge in investments and other exposures. This was driven by growth in related balances, including off-balance sheet items compared to a reversal in the first quarter. However, credit loss impairments declined over the same period, supported by recoveries from previously written off accounts and continued strong asset quality. Against the backdrop of sustained loan growth, we have not seen a material impact on impairments from the current regional geopolitical situation. While we remain vigilant current trends position us towards the lower end of our full year guidance range. As a result, we are tightening our full year cost of risk guidance to 45 to 50 basis points down from 45 to 55 basis points previously to reflect the credit loss experienced during the first half. We have proactively built sufficient coverage for exposures on our watch list ensuring any potential future migration is well managed. At this stage, we are not seeing broader stress in the portfolio, and our guidance there remains unchanged. Let's now take a closer look at NPL trends and coverage, which remain within our risk appetite and expectations. The NPL ratio improved to 97 basis points in Q2, down from 101 basis points in the first quarter and remained stable compared to the same period last year, reflecting continued strong credit quality and disciplined underwriting. During the quarter, a single name exposure previously on our watch list and highlighted in the first quarter earnings call moved to NPL status. However, this was more than offset by the write-off of two corporate accounts which led to a modest reduction in NPL balances on a Q-on-Q basis. The NPL coverage ratio declined to 159% primarily due to the fact that the two corporate accounts written off were fully covered by provisions, while the new classified nonperforming exposures had lower coverage levels. Overall, coverage remains at a satisfactory level and we are not seeing broader stress across the portfolio at this stage. Now let's turn to liquidity, which remains strong and well above regulatory requirements. At the end of June, the liquidity coverage ratio stood at 169%, the net stable funding ratio at 125% and the [ SAMA ] loan-to-deposit ratio at 77.8%. The while the headline loan-to-deposit ratio was at 109.6%. All of these metrics are well within comfort zones and provide ample flexibility for continued growth. The quarter-on-quarter decline in [ LCR ] to 169% was primarily driven by higher net cash outflows, which were largely a result of the normal timing of loan and deposit maturities around quarter end. High-quality liquid assets remained broadly stable, and we continue to maintain a strong and diversified funding base, including retail, wholesale relationships and access to the debt capital markets, which give us flexibility to support our growth ambitions. We are actively managing liquidity and the system liquidity has improved compared to last year, which positions us well to support our expected lending growth in the second half. While we continue to monitor the headline loan to deposit ratio closely, the [ SAMA ] ratio and other regulatory ratios provide the balance sheet flexibility to scale the business in a sustainable and resilient manner. Now let's move to capital, which remains strong and well above regulatory requirements, providing ample headroom for growth and shareholder returns. At the end of June, the capital adequacy ratio stood at 20.8%, a Tier 1 ratio at 18.8% and the CET1 ratio at 15.9%. These levels are comfortably above the minimums and reflect a robust capital position. Total regulatory capital increased to SAR 57.1 billion during the first half, driven by earnings with an open offset from dividends and other comprehensive income. Risk-weighted assets rose 4% year-to-date, reflecting continued loan growth and expansion in the portfolio. Furthermore, the additional countercyclical capital buffer introduced by the regulator had a limited impact as our starting capital position was already strong. We do not expect any changes to our capital allocation policies as a result. Capital levels continue to support business growth meet regulatory thresholds with additional headroom and allow us to offer attractive dividend returns to shareholders. Let's now turn to the full year 2026 guidance. which we remain confident in and are maintaining across all key metrics with one refinement to our cost of risk range as highlighted earlier. Performance in the first half has been mostly in line with our expectations, and the results position us well to deliver on our full year commitments. On loan growth, we continue to expect high single-digit growth for the year, in line with our guidance. While Q1 growth was supported by working capital facilities, the underlying demand remains strong, and we are maintaining our full year outlook. Net interest margin is expected to remain around current levels, supported by continued balance sheet growth and noninterest-bearing deposits, while funding costs remain stable in the current environment. Cost of risk is now narrowed to a range of 45 to 50 basis points, reflecting the credit loss experienced in the first half. This tightening of guidance is a positive reflection of our asset quality and proactive risk management. Cost-to-income was marginally above our target range in the first half but Q2 already showed an improvement to 32.5%, and we expect the full year ratio to remain below 33% as operating income begins to outpace expenses. Return on equity and CET1 remain within our expected ranges, and we see no reason to revise our full year expectations there. In summary, the first half has reinforced our confidence in the guidance we've set and we remain committed to delivering strong, sustainable performance in the second half. To conclude, BSF delivered a stronger second quarter returned in the first, with improved profitability, solid net interest income growth and a well-performing margin. The loan book continued to grow, even as some temporary Q1 effects were unwound, and costs remain stable, reinforcing operational discipline. Deposit growth remained healthy, and the balance sheet continues to perform well with liquidity and capital metrics well above regulatory minimums and providing strong support for future growth. We're also starting to see early progress towards our Strategy 2030 objectives with platform investments, deposit initiatives and the expansion of business banking laying the foundation for sustainable performance. With that, we conclude and are happy to open the line for questions.

[Operator Instructions] Our first question comes from Shabbir Malik with Morgan Stanley.

My first question is around costs. So if we think about your OpEx trend sequentially over the next 2 quarters, is it fair to assume that it's going to be around a similar level or modest kind of growth relative to 2Q. I think you've highlighted that last year fourth quarter you had a one-off. So is it fair to assume that we should not see a similar kind of increase in the fourth quarter this year? That's my first question on expenses. My next question is on the NIM sensitivity. You pointed out that your NIM sensitivity has increased to roughly about 7 basis points or 100 basis points increase your NIM expectations, of course, is around 3%. But assuming there is a rate hike, is there scope for a positive revision to your NIM guidance for this year? So any comments on that would be pretty useful as well. And finally, in terms of the growth expectations for the remainder of the year, how are you seeing the corporate pipeline, and is the demand that you see on the corporate side specific to you or is more of a sector-wide trend. So thoughts on the corporate loan demand in the second half, that would be pretty helpful as well.

Thank you, Shabbir. I'll maybe take the first question on cost. So Q4 last year, we did have these nonrecurring costs. We do not expect it to reoccur in Q4 of this year. So our expectation is you will see small growth, maybe inflation related, but also this would include within the staff expense line, for example, a higher bonus pool that is connected to net income, but there shouldn't be a significant delta quarter-on-quarter. The quarterly cost for Q1 and Q2 should really be the base to build AFFO for the second half of the year.

And on the NIM question, so first of all, we're guiding the market at around 3% as a range. This is not really a decimal point. We are at 3% or 4% for the first half of the year and then 6% for the quarter. And that really sits comfortable with our 3% range. We expect no change in rates until the end of the year. As for what kind of major variable that would move NIM up or down, I think the single element is really the CASA ratio, or estimate rate is low, plus/minus 7 basis point move per 100 basis point shock for the size of the balance sheet is really minimum in our context. And really the CASA ratio could be a big value to that. So this is not really the path that determines the outcome, not the sensitivity itself. It's really how much noninterest-bearing deposits were able to attract and that is subject of market conditions, client behavior. You can see that sector-wide, [ SAMA ] data up until May. The interest-bearing deposits grew around 13% against a 2% on the increase in noninterest-bearing deposits. We have grown our CASA base faster than the market, but we are conscious that we are operating against that trend. Yes, the other element is that we've managed our cost of funding relatively well, fell 13 basis points compared to only a 6 basis point in asset yields, and that gap is really what we're trying to focus on and improving our margins.

And regarding the third question on growth, we see the second half of the year more in line with the first half and in line with our guidance of higher single digits. And more specifically on the corporate pipeline. As Ramzy mentioned, we do have a healthy pipeline for our corporate book. with no specific concentration on any sector. Of course, we will continue our conservative view on growth to maintain the quality of our book. while at the same time, of course, maintaining the diversification of our book from a sectorial basis.

Our next question comes from Aybek Islamov with HSBC.

I would like to hear your thoughts about the GCC bank lending into Saudi Arabia. Are you see -- are you observing any change in trends? Obviously, there are a number of markets which are reporting tighter funding positions, right, since the beginning of March. And are you seeing any refinancing demand picking up from the corporate customers? And what are your thoughts on this? And if that trend continues, could there be any implications for the asset quality.

Aybek, we just get a clarification. You're asking about lending into KSA overall or lending to KSA banks?

Lending to KSA corporates by the other GCC banks. And I have a second question...

So I don't think -- so maybe I'll take that one. But I think we always viewed this as a positive in the past, given it does introduce additional liquidity. I think given what's happening in terms of the regional disruption, let's say, the GCC banks outside of KSA have maybe faced more concerns on the liquidity front. So changes there, I would say, are expected, but we haven't seen anything in terms of discussion or decisions within our corporate space, at least for now.

And second follow-up question, right? I mean, everyone is referring including yourself to the geopolitical situation, the fact that it's different now. And why not take this as an opportunity to raise provisioning levels be more precautionary, right? Planning for some potential second order impact coming from inter-GCC capital flows slowing down.