Dubai Islamic Bank P.J.S.C. (DIB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Dubai Islamic Bank Second Quarter 2026 Financial Results Earnings call. [Operator Instructions] I will now hand over to your host, Janany Vamadeva from Arqaam Capital. Ms. Janany, please go ahead.

Thank you, Drew. Good morning, and good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva and on behalf of Arqaam Capital, I'm pleased to welcome you to DIB's Q2 2026 Earnings Conference Call. I have with me here today from DIB management, Dr. Adnan Chilwan, the Group Chief Executive Officer; John Macedo, the Chief Financial Officer; and Kashif Moosa, the Chief Sustainability Officer and Investor Relations. Without any further delay, I'll now turn the call over to Kashif. Kashif, over to you.

Thank you, Janany, and good afternoon, everyone, and welcome to DIB's Second Quarter Results Webcast. This webcast will be led by Dr. Adnan Chilwan, Group CEO, along with John Macedo, CFO and myself. Before we start the presentation, I request you to please send your questions to the e-mail address webcast at dib.ae. and we shall address as many as possible in the Q&A session post the presentation. So with that, let's kick off today's presentation. On Slide 4, let me start by briefly touching on the global economic environment. The global backdrop remains resilient and more balanced Growth is normalizing with GDP expected to moderate to around 3.1% in 2026 before improving slightly in 2027, but emerging markets continue to grow ahead of the global average. Inflation has eased from the earlier peaks, but it has inched up in 2026 due to the impact of geopolitical tensions on oil and gas prices. On rates, we are now in a more stable environment compared to the prior tightening cycle. And increasingly, the rate cut expectations this year looks highly and nightly. Oil price also remain in an important -- remain an important external variable, especially for the GCC. The movement in oil prices during the first half of 2026 highlights the continued influence of geopolitical developments on the markets and the sentiment. Now moving to Slide 5. UAE economy, as you can see, continues to demonstrate strong resilience supported by robust sub ratings, and these credit ratings reflect UAE's strong fiscal position and effective policy coordination. From the banking sector perspective, the UAE remains stable and well capitalized. In March 2026, the Central Bank of the UAE introduced a comprehensive financial system resident package enabling banks to retain the strength and flexibility to continue supporting the economic activity. This was further complemented by targeted support from the Dubai Government, which launched a financial relief package of AED 82.5 million to support these sectors such as tourism, trade, et cetera. From an infrastructure perspective, the UAE continues to maintain a strong pipeline of mega products, both focusing on transit, sustainable energy and urban expansion. This reinforces the long-term economic view and outlook for the country. Moving to Slide 6 and looking at the UAE economy, Growth remained, reseated in 2025 with the GDP expanding by 6.1% to AED 1.9 billion, supported by primarily the robust momentum across the non-oil sectors. In 2026, GDP growth is expected to suffer to 3.1%, reflecting the impact of regional tensions on global growth and rate growth. Inflation rate in the U.S. is expected to remain below the global average of 3.2% supported by healthy domestic demand and a resilient business environment. The financial markets in the country rebounded during the second quarter, reflecting the reinstated confidence in the UAE growth story. Now with that quick to intro, I will now hand you over to Dr. Adnan, who will take you through the DIB's financial performance and business performance in detail. Dr. Adnan?

Thank you, Kashif. Good afternoon, everyone. As always, I will follow a page turn format for this presentation, highlighting key points on each slide. and then open the call for questions followed by the last 5 minutes to wrap up with some key messages. On Slide 8, let me walk you briefly through the summary of our financial performance for the first half of the year. From a growth perspective, we continue to expand our market presence with total assets increasing by 2% year-to-date to reach AED 423 billion, while net financing assets grew by 7% year-to-date to reach AED 281 billion. supported by growth across our core businesses. Importantly, our operating performance also remained strong. Gross revenues increased by 10% year-on-year to reach 12.4 billion, while operating profit grew by 6% year-on-year to reach AED 84.8 billion, supported by healthy revenue momentum and disciplined cost management. Asset quality continued to improve, reflecting disciplined underwriting and active portfolio management. The nonperforming financing ratio has declined to 2.4%, improving by 25 basis points year-to-date, while the cost of risk also reduced significantly during the period. These are some of the items that we would see in slides that follow. Capital and liquidity remained strong throughout the first half. The CET1 ratio increased to 13% and the capital adequacy ratio rose to 16.1%, both improving by around 30 basis points. On the liquidity side, customer deposits increased to AED 827 billion, supported by a stable CASA base. So overall, the first half of the year reflects disciplined growth, resilient profitability and continued balance sheet strength. Importantly, this performance was delivered while further improving asset quality, strengthening capital buffers and maintaining a solid liquidity position. On Slide 9, turning to the income statement. DIB delivered a resilient first half performance, which I've already mentioned. And here, the gross revenues, as you can see, have grown by 10% year-on-year to reach AED 12.4 billion. Now this was supported by growth across both gross funded income and nonfunded income, which increased by 10% and 7% year-on-year, respectively. When you go down further, you can see operating expenses have increased by 9%, reflecting continued investing in the franchise but disciplined cost management allowed operating profit to grow by 6% year-on-year to end at 4.8. Impairment charges were higher in the first half, mainly due to management ECL overlays taken in quarter 1. However, we've seen a significant reduction in quarter 2 impairment charges which has been supported by sequential improvement in profitability. Net profit before tax stood at AED 4.3 billion, while net profit after tax remained stable at AED 3.7 billion. Quarter 2 profitability has improved quarter-on-quarter with pretax profit up by 4% and after-tax profit up by 8%. Returns remained strong with pretax return on tangible equity at 20% and pretax return on assets at 2.1% for the first half of 2026. Now this demonstrates continued resilience and capital generating capacity of the bank. When we turn the page to Slide 10. Revenue generation has remained resilient during the first half of the year, supported by both balance sheet growth and diversified income streams. Net funded income, as you can see, has grown by 6% year-on-year to reach AED 4.6 billion reflecting continued growth in financing assets and the strength of customer activity across core segments. Importantly, margin performance, and here, I refer to net interest margins has largely stable -- has remained stable despite sector-wide increase in cost of funding. Non-funded income continued to provide meaningful diversification, and this is supported by fees and commission, foreign exchange activity and recurring contributions from properties and associates. As a result, DIB continues to benefit from a balanced and resilient revenue mix, positioning the bank well to navigate changes in the operating environment while continuing to deliver sustainable earnings growth. If you turn the page to Slide 11. Cost discipline has remained a key strength during the first half of the year. Operating expenses declined sequentially and to reach AED 969 million in quarter 2, reflecting continued focus on efficiency and productivity improvements. Our cost-to-income ratio for the first half has remained well controlled at 29% and supported by benefits from ongoing investments in digital infrastructure, automation and process optimization. As a result, the bank continued to deliver strong operating profitability, while operating profit increasing by 6% year-on-year to AED 4.8 billion, demonstrates the resilience of our business model and earnings profile. On Slide 12, balance sheet growth has remained healthy during the first half, driven primarily by expansion in our financing book. Net financing assets grew by 7% year-to-date to AED 281 billion. And we will actually look at details of where this financing is coming from and which core segments are contributing to that. But this has been supported by more than AED 43 billion of new financing across consumer as well as corporate businesses. This highlights the strength of customer activity and our ability to capture quality growth opportunities across target segments. During the period, we also continued to rebalance the asset mix, something that we have alluded to at the beginning of the year. And this was by reducing our Sukuk investments to stand at AED 85 billion and redeploying that liquidity towards customer financing, where we continue to see attractive risk-adjusted growth opportunities. Total assets has increased to AED 423 billion, and that's the balance sheet footing while customer deposits grew to AED 327 billion, demonstrating the strength of both our lending and funding franchises. Slide 13 highlights the diversified nature of our balance sheet and financing portfolio. Net financing assets have increased by 4%. And in this, we are including also our Sukuk investments and year-to-date, they stand at AED 366 billion, supported by continued growth across our core businesses. Our financing portfolio, like you can see in the slide, remains well diversified across consumer and wholesale segments with exposures distributed across a broad range of sectors. So the pie you can witness is on page -- on Slide 13, is quite colorful and very well diversified. So overall, we continue to grow the balance sheet in a balanced and disciplined manner, supported by a diversified asset mix and prudent risk management practices. On Slide 14, we look at asset quality. Asset quality continued to strengthen during the first half of the year with all key metrics moving in the right direction. The nonperforming financing ratio improved to 2.4% and that is down by 25 basis points year-to-date, reflecting disciplined underwriting and continued portfolio quality improvement. The cumulative cost of risk fell to 28 basis points in Q2 '26, highlighting the underlying quality of the financing portfolio despite the current operating environment that we witnessed in the first and the second quarter of the year. Provisioning levels remained strong with cash coverage of 122% and a total coverage of 158% and providing substantial buffers. Slide 15 continues to look at asset quality. The portfolio quality has continued to improve during the first half of the year with further positive migration across risk stages. Stage 1 exposures increased to 94.2% of the portfolio while combined Stage 2 and Stage 3 exposures reduced to 5.7% compared to 7.5% a year earlier, reflecting continued improvement in overall risk profile of the financing book. And of course, ECL coverage remains stable and prudent. Slide 16, a look at liquidity. Our position remains strong and well supported by a stable and diversified funding base. Customer deposits increased to AED 327 billion, out of which CASA balances have remained stable at 34%, reflecting healthy customer engagement and continued confidence in the franchise. Liquidity ratios also remain comfortable above the minimum requirements as well as regulatory requirements with the LCR ratio at 10% and NSFR at 105%, demonstrating the strength of our funding profile and prudent liquidity management framework. Slide 17 looks at our capital levels, which are quite robust. The bank's capital position remains strong and continues to provide significant capacity to support future business growth. During the first half of the year, regulatory capital strengthened further supported by strong internal capital generation and disciplined balance sheet management. As a result, CET1 ratio improved to 70 basis points improved by 70 basis points, and the CAR ratio improved by 60 basis points, reaching to 13% and 16.1%, respectively. These levels remain comfortably above regulatory requirements and provide substantial buffers to support continued growth across our businesses and maintaining balance sheet resilience. Slide 19, we start looking at our businesses in detail. We first turn to Consumer Banking. This franchise has continued to perform strongly, supported by healthy financing growth and resilient margins as well as ongoing customer acquisition. Net financing assets grew by 12% year-to-date to reach AED 86 billion, driven by approximately AED 20 billion of gross new financing during the first half and broad-based growth across key products like personal finance, home finance, auto finance and cards. Revenue has remained strong at AED 985 million in quarter 2 of 2026, supported by stable yields and continued momentum in funded income. On the funding side in Consumer Bank, deposits have increased to AED 91 billion, with CASA balances remaining strong at 44% of the deposit base, reinforcing the franchise, high-quality funding profile. Customer acquisition continued to be at a healthy pace with approximately 111,000 new customers added during the first half, taking our total customer base to 1.82 million customers. Slide 20 looks at our Corporate Banking business. The performance remains strong, supported by the breadth and diversification of our client franchise. Net financing assets grew by 5% year-to-date to reach AED 186 billion, supported by over AED 23 billion of gross new financing in the first half of 2026. Growth remained well distributed across key strategic sectors, reinforcing the resilience of the portfolio. And that, again, you can see on Slide 20, when you look at the pie chart, you can see that there is no skew towards any particular sector and it's as colorful as it gets. Revenue has increased by 12% year-to-date -- sorry, year-on-year to reach AED 844 million in the second quarter of benefiting from growth across both funded and nonfunded businesses while maintaining stable yields. Corporate deposits have reached AED 210 billion, with stable CASA balances of about AED 52 billion, underpinning a high-quality and stable funding profile. Slide 21 looks at our new business, a newly created commercial banking business. This business was formally established in the last quarter of 2025 as a part of our strategic effort to strengthen our focus on the SME and mid-corporate customer segments. These customers were previously served across both the consumer bank as well as the corporate bank and have now been brought together under a dedicated commercial banking platform. The creation of this segment allows us to deliver a more focused customer proposition, enhance relationship management and better capture growth opportunities within these attractive market segments. Commercial Banking is a high-quality, high-margin business, and this is reflected in its strong and consistent financial performance over recent quarters. In the second quarter of 2026, revenues grew by 10% year-on-year to reach AED 280 million, supported by continued business momentum and deeper customer engagement. When you look at net financing assets within the commercial bank, these have increased by 12% year-to-date and they are at AED 9 billion, reflecting healthy demand across both the SME and MIC corporate portfolio. Beyond its strong profitability, the segment also contributes a value -- valuable and stable funding franchise. Total deposits increased by 5% year-to-date to reach AED 23 billion. while CASA balances reached AED 17 billion, representing an exceptionally strong 74% of the overall deposit book. Now overall, the Commercial Banking segment as a part of our strategy, is well positioned to support sustainable growth while contributing attractive margins and a resilient low-cost funding profile to the group. So you will only see this segment being focused on and growing from here on as we go towards the second half of 2026. Slide 22 looks at our treasury business. This business has delivered a stable performance during the quarter while continuing to support the bank's broader balance sheet and liquidity objectives. We have consciously reduced our Sukuk investments to AED 85 billion. as we continue to optimize the asset mix and redeploy that liquidity into customer financing, where we are seeing attractive risk-adjusted growth opportunities. This reflects our disciplined approach to capital allocation and focuses on enhancing our overall balance sheet returns. Now despite the conscious reduction in portfolio size, the investment book remains conservatively positioned with majority of the holdings invested in high-quality sovereign [indiscernible] sovereign and financial institution issuances. This continues to provide strong liquidity, capital preservation and earnings resilience. On the revenue side in treasury, it has generated AED 567 million of revenue in Q2. Portfolio yields remained healthy at approximately 4.7%, supporting a stable earnings contribution and reinforcing the resilience of the bank's overall revenue profile. Slide 23 quickly looks at our digital aspirations and business. We continue to see strong customer adoption and engagement across our digital channels. Digital registered users have increased by 15% year-on-year to approximately AED 1.8 million, while 98% of the customers are now actively using digital channels, with more than 95% of transactions processed digitally. The digital capabilities are also becoming an increasingly important driver of customer acquisition and 83% of our new customers onboarded digitally during the first half of the year. At the same time, we continue to enhance customer experience through automation and platform expansion. Today, 55% of all our banking transactions are completed through the alternative mobile application channels, which now offers more than 135 services. Overall, our digital investments continue to strengthen our customer engagement, improve operational efficiency as well as support scalable growth across the franchise. Slide 24. Turning to sustainability. We continued to make good progress during the first half of the year, originating more than $5 billion in sustainable and sustainability-linked finance across a broad range of sectors. We also continue to strengthen our sustainable finance platform through our finance framework with new categories reflecting evolving decarbonization and resilience priorities across GCC. We are particularly excited about the launch of Green Concierge, an integrated sustainability offering, which brings together TIP's advisory capabilities, strategic partnerships financing solutions and structuring expertise to help clients navigate their transition journeys. Additionally, we also published our 2025 sustainable finance report, which demonstrates the tangible environmental and social impacts delivered through our financing activities. Overall, these achievements reinforce DIB's commitment to supporting the UAE sustainability and stations while creating long-term value for our customers, communities and shareholders. Slide 26 looks at where our results are vis-a-vis the guidance that we gave at the beginning of the year. And you can see across the 7 metrics that have been included on the slide, we continue to make progress in the right direction, be it net financing and growth, so when you look at where we are at the end of the first half, we are at 4% on track to reach to the 10% guidance by the end of the year. Net profit margins, we are slightly better than our annual guidance. We stand at 2.4%. Our cost-to-income ratio is roughly in line with where we want to be at this half of the year and we should be making progress towards the 28% mark by year-end. ROE and ROA are in line with our overall guidance. So far, we've reached 20% and 2.1%, respectively, and we are very confident that we will achieve the guidance that we have given at the end of the year. When you look at nonperforming financing, that's just gaining momentum and growing from strength to strength, we are at 2.4% versus the full year guidance of 2.5%. We only see this improving from here as the numerator reduces and the denominator increases. Our total coverage is very much in line with the full year guidance and we stand at 18%. That brings me to the end of my page turn. I'm going to take a pause here. We are going to sniff through questions and come back to you in a minute once we have seeing which questions are going to be answered in the next 20-odd minutes or so.

Ladies and gentlemen, please send your questions through the e-mail address that has been provided, [indiscernible] And we can give it a few moments as we sift through them and come back to you with the relevant responses. Thank you.

[Operator Instructions]

Okay. So sorry for the delay, but now we're starting with the questions from the first set of questions from Janany that has come through. The first question is referring to the deferred program. Has it been extended by the Central Bank? And what percentage of the book is in deferred?

Thank you, Janany, for your questions. As always, yes, the deferral program has been extended by the Central Bank until the end of Q3 until the end of September 2026. And what percentage of our book is in deferral? A very, very small percentage. If you want an accurate number, it is close to about 0.6% of our overall book is deferral. So that's a very, very insignificant portion. And does it have an impact on any NPL formation or cost of risk, none whatsoever. There is no impact of that. on our projected cost of risk or our NPL formation. You also Janany asked about any color on lending pipeline. For obvious reasons. And on the last call, I did mention that lending would be selective in the second quarter of 2026, which is what we've done. We use the opportunity to also reset our balance sheet mix. You've seen that we have reduced a bit of the Sukuk book, and we are using that across that liquidity across our consumer franchise and across our corporate banking book against selective Q3 and Q4, we now have started to see strong pipeline. And again, we are going back to where we want to be across key sectors like -- which will be within the sovereign space and the quasi sovereign space, both within the UAE as well as cross-border. We will be looking at sectors like energy sectors like automobile sectors like aviation, a bit on utilities, manufacturing. So there is a very strong pipeline that we've seen starting in Q3. And what we did over Q2 in terms of growth versus Q1, we used the opportunity of the muted environment to try and reset our ambitions relook at our capital formation as well as risk-weighted density. So overall, in Q3, you will see us crystallizing the strong pipeline that we have across many sectors. When you look at the margin, which has been broadly stable, yes, you highlighted that it has been broadly stable when compared to Q1. Deposit pricing in Q2 was higher than what we have seen in Q1, and that was understandable because of the liquidity premium was being charged on deposits. Clearly, we were in a geopolitical situation, which is now behind us, fortunately. And we have seen deposit pricing across certain sectors starting to ease. We are holding our guidance for net interest margin at 2.3%. But clearly, this will also change depending on where the interest rate forecast is for the remaining part of the year. But deposit pricing has -- we saw some premiums towards the second quarter, but we will only see them easing as the market has started to rebound.

Okay. A couple of questions from Rahul from Citi. The first one is on the general banking sector trend, including DIB that has been offering higher term deposit rates over the recent months to accumulate deposit. Is this -- is there a liquidity or funding constraint in the market driving this? And how are DIB's cost of funds during quarter 2 versus quarter 1? And the last question is on the impact of slowdown in Dubai real estate market on the real estate driven revenue lines of the U.S.?

Thank you, Rahul, for your question. Basically, yes, even we have witnessed high time deposit rates in the second quarter, and that was expected, right, because everybody wanted to ensure, given the uncertainty of how the situation would pan out, everybody wanted to make sure that they are sitting with healthy ratios, whether it is LCR or NSFR or just generally liquidity general. So we did see some cost of deposits rising within the market. Going forward in Q3, I anticipate that this would ease out a little because the situation is now under control. We are also seeing that reflected on asset yields as well as on general yields within the bond market. So yields have obviously come off. So that also on the cost of funding side, would help should there be issuances. So overall, whilst we have seen the cost of deposits going up, we've tried to maintain our net interest margins and have been successful in doing so. So I think that is something that is positive for the impact of ongoing slowdown in Dubai real estate market on real estate-driven revenue line. So we've not seen a slowdown in the residential mortgages on the consumer side, right? So we continue to underwrite very strong residential mortgages, and that appears in our consumer book. The second quarter real estate market that you're talking about a slowdown, that has reflected on the other income where we've not seen any activity of sales of the bank's own portfolio that we have positively sold across many quarters in the last year. So we did not see any of that activity but we will probably see that activity come back to some levels in Q3 as well as going into Q4. So overall, I think we are not really in a desperate situation to make sure that, that line continues to contribute to the P&L. Our core engine real estate core engine continues to fire, and we've seen very good activity across our mortgage business on the consumer side. But this will clearly start to reflect more accurately as the market starts to revive activity across Q3. Remember, it's also a summer period. So generally, year-on-year, during this time, real estate activities generally muted, but we are confident that we will see that coming back to its normal levels.

[Operator Instructions]

So we've got a whole set of questions from Rakesh from Franklin Templeton. The first is on the liquidity. If there's any kind of regulatory pressure and if there's any -- if the thoughts around that NB plans to raise liquidity through capital market issuances, et cetera. The second is around the existing AT1 and the plans on that. The third is on any DIB exposure to Saudi [indiscernible] project, which are in -- could be in suspension, et cetera. And then finally, what percentage of loan book currently is deferred or restructure vis-a-vis the conflict at the end of February 2026? And has the bank recorded any additional ECL-related order?