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

Ladies and gentlemen, welcome to the Dubai Islamic Bank H1 2021 Earnings Call. [Operator Instructions] For all those who are listening to us the via webcast, kindly refresh your browser in case of experiencing any Internet-related issues. [Operator Instructions] I will now hand over to your host, Janany Vamadeva from Arqaam Capital. Ma'am, please go ahead.

Thank you, Dianne. Good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva. On behalf of Arqaam Capital, I'm pleased to welcome you to Dubai Islamic Bank's H1 2021 Earnings Conference Call. I have with me here today from DIB management, Dr. Adnan Chilwan, the Group Chief Executive Officer; Mr. Salman Liaqat, the Chief of Strategy and Investor Relations; Mr. Kashif Moosa, the Head of Investor Relations and Strategic Communication. Without any further delay, I'll now turn the call over to the Head of Investor Relations, Mr. Kashif Moosa. Kashif, over to you.

Thanks, Janany, and welcome, everyone, to the First Half 2021 Results Webcast for the Dubai Islamic Bank. As always, the session is led by our group CEO, Dr. Adnan Chilwan, accompanied by Salman Liaqat, the Chief of Strategy and IR; and myself. We request everyone to keep their questions coming through the e-mail provided, and they will be then addressed by Dr. Adnan at the end of the presentation. So with that, let's start. We move on to Slide 4. And you can see that UAE still continues to achieve new highs in terms of health, safety and security measures and actually ranked the second safest country in the world by Global Finance Magazine amongst more than 130 countries that was assessed. So clearly, this has been reinforced by the strong vaccination, right? The UAE is now leading the world in terms of doses administered per capita and is the third highest country in terms of the share of the population that has been fully vaccinated. Moving on to Slide 5. So as a result of these enhanced health and safety measures implemented by the government and with the further opening of the economy, some of the primary sectors have been exhibiting clear signs of improvement as well. And this was particularly true for the financial and the real estate sectors, which continue to remain relatively solid despite the underlying impact of the pandemic on the domestic business activity in the earlier days of the lockdown. And also then looking back to when Central Bank actually launched the test in early 2020 with the aim to support the local economy amidst disruptions from the COVID-19, the AED 56 billion packages has so far extended benefits to more than 320,000 banking clients, of which around 310,000 were [ individual ] customers, 10,000 SMEs and up to 2,000 private sector corporates in 2020 alone. And this has allowed the banking sector to remain resilient during these difficult times as evidenced by enhanced liquidity and strong capitalizations. Additionally, the real estate market of Dubai has seen activity, and prices have also been gaining momentum recently with the volumes as well as the value of the monthly transaction recorded in June reaching an 8-year high. So dissecting this further, we see the existing properties have continued to gain popularity with mortgage activity for larger homes such as villas and townhouses still increase on the back of possible trend of working from home. Going forward, the non-hydrocarbon activity is expected to gather pace as well as with the Central Bank of UAE estimating now a growth of 3.8% in 2021 in the non oil GDP, clearly, a sign of recovery in the sectors that drive the economy of Dubai in particular and UAE as a whole. So with that, I will now request the group CEO, Dr. Adnan to present the financial results as well as the directional stance for the bank going forward. Dr. Adnan, please?

Thank you, Kashif. Good afternoon, everyone. As always, I'm going to follow the same format in running this presentation. We have about 1 hour. So I'll read through a page turn, and thus, it should give you adequate time to ask me as many questions as you can within the hour. I take your attention to Slide 7, which talks about our overall financial performance for the period ending 30th June. As you can see, whilst the operating landscape continues to remain dynamic, our alignment to the challenging environment has led to another solid set of results. And I say that because our net operating profit before impairment has reached around AED 3.4 billion, which when compared to year-on-year are up by 4%. But more importantly, sequentially, quarter-on-quarter, they are up by around 10%. Now this has clearly been supported by the total income, which has increased by 5% quarter-on-quarter to reach around AED 5.8 billion despite the challenging economic environment. So that actually tells you that the trajectory of our operating income as well as our net operating profit quarter-on-quarter basis is on the right track. Clearly, in terms of balance sheet, we've maintained our growth momentum. Our balance sheet has grown by around 2% year-to-date, nearly reaching around AED 294 billion in absolute terms. We've also seen a robust growth in customer deposits around 6% to reach around AED 218 billion. This largely supported by our current and savings account base, which today stands at AED 90 billion, representing around 41% of the deposits. And this is equally important for us because it allows us to bring our cost of funding down, which you will see in subsequent slides from now. In terms of capitalization levels, we've always remained strong and are about the minimum regulatory requirements, fully loaded, where our CET1 stands at 12.3% and our capital adequacy stands at 17%, both signifying that there is an ample opportunity for us to grow diligently. One of the key highlights of our financial performance during this period has been a marked improvement in operating expenses of around 15%. So if you recollect what I have been saying to you on 3 or 4 webcasts, we've always -- since the acquisition of Noor Bank, we suggested that we would be using synergies to come out of our initiatives. And we now see those synergies have kicked in. Our operating expenses, which I said, have improved, down by 15%, has resulted in a 250 basis points decline in the cost-to-income ratio from where we were at the beginning of this integration exercise. Cost-to-income ratio obviously stands at 26.9%. And clearly, that is a market-leading level. This continues to be supported by obviously a disciplined approach to cost management. Impairment and charges, and we have a subsequent slide in the presentation later on. These have dropped by around 29% compared to the same period last year. Now so on year-on-year, it obviously denotes improving credit quality and reflects the bank's continued prudent approach in underwriting risks given the current market conditions. As a result, the net profit has been strong. Sequentially, 18% growth on a quarter-on-quarter basis despite the subdued operating environment. And when I say subdued operating environment, it is the ability to underwrite credit as well as the low interest rate dynamics that we've been seeing over the last 12 to 18 months. Our net profit stands at around AED 1.9 billion. And this is, in fact, a significant improvement over the same period last year. If we were to adjust for the AED 1 billion gain on bargain purchase that we had reported at the time of acquisition of Noor Bank, which was included in our H1 results. So if we strip that out, you can see that there's a substantial improvement in our net profit same period when compared to H1 2020. On Slide 8, in terms of operating performance, we have an in-depth look at how we panned out there. Our profitability has remained quite resilient during the period. Net profit is on the improving trend, like I've already mentioned, with an 18% sequential jump, and it stands at around AED 1.9 billion for the first half. This is primarily driven by a strong and effective cost management approach in addition to continued core income growth. Needless to say, we maintain some similar level of provisions when compared to quarter-on-quarter, suggesting that our prudent approach continues. In terms of earning assets, this has remained stable while net profit margin only marginally down at around 2.54%, but that's just the reflection of where the interest rate environment is. This is quite normal given the bank's deliberate strategic shift towards lower lending to sovereigns and related businesses, something that I alluded to at the beginning of the year. In terms of OpEx, I've already mentioned to you the downward trajectory of this. We've witnessed a 15% year-on-year decline arising from obviously a focused cost management strategy that the bank has been undertaking for some time now. We've also seen a healthy quarter-on-quarter improvement in terms of ROA and ROE. And both of these metrics are on track for our annual guidance. In terms of deposits, I've already mentioned that we stand at around 41% in terms of CASA. And our cost of funding, that has declined to a historically low level of around 80 basis points. In terms of businesses on Slide 10 -- or before I go to individual businesses, I'll talk to you about our overall business landscape on Slide 9. You can see on Slide 9, we have continued to maintain our portfolios on the corporate and the consumer side. But clearly, these bars do not do justice to the kind of underwriting that we've done in the first 2 quarters of this year. In terms of both the consumer as well as corporate, we've significantly underwritten new business. But we have been witnessing early presettlements, which were done in quarter 1 and quarter 2 purely on the wholesale banking side. That has made sure that our portfolios have remained at least [indiscernible] for the leaders. In terms breakdown of our portfolio, clearly, corporate and real estate continue to -- when added together, continue to hold around 75% of our book and our consumer banking is around 25%. But importantly, let's look at these businesses in a greater detail. On Slide 10, it's a segmental overview of our consumer business. Now the consumer financing portfolio has reached around AED 51 billion. And on the previous slide, while it does not suggest that because the portfolio pretty much looks and remains stagnant, it's important to note that the gross financing during this first 6 months has been to the tune of around AED 6.6 billion. Now this translates to a 9% increase in gross new financing over the same period last year. So clearly, consumer business is going in the right direction. The consumer business is -- has rised very, very quickly given the short tenures that one witnesses and, hence, the portfolio looks like it has stagnated. It is worth noting that we have seen an increase around 22% year-on-year in new home financing cases, which is just a reflection of the domestic real estate market activities, and that has continued to gain traction over the last 6 months or so. And we expect improvement from hereon in both volumes as well as values of home finance business. Our average yield across the consumer bank have remained healthy at around close to 6% despite the low rate environment. Our consumer book, as you would appreciate, is predominantly fixed rate in nature. And though this book has rised quickly, the new bookings will obviously be done at a lower rate and hence, the yields are at close to around 6%. On Slide 11, again, a segmental overview of our corporate business. Our corporate group continues to be the primary contributor to the overall financing of the bank. And like I've mentioned on the earlier slide, corporate as well as real estate put together constitute around 75% of our total portfolio. Now despite a significant amount of prepayment, and let me tell you in quantifying these prepayments, they've been to the tune of around AED 8.3 billion during the first half of the year, the corporate book has remained stable. So that actually goes to show you that we've underwritten much more than what seems obvious when you look at the pie chart. But unfortunately, prepayment on account of improving economy actually suggests that our corporate portfolio stands at around AED 150 billion. At that AED 150 billion continues to be very well diversified across primary sectors of the economy. On Slide 12, a segmental overview of Treasury. Our Treasury portfolio, just like over the years, we continue to focus on our fixed income book, and this has expanded 9% year-to-date to reach around AED 42 billion. Now this clearly takes into account the current landscape and the kind of issuances that we've seen in the first 6 months of the year. And we anticipate more issuance in the latter half of the year, which then suggests that we will continue to be focusing on growing our fixed income book, which is what we have done in the large part of our growth strategy in the last 7 or 8 years. Meanwhile, we've seen a large improvement in our net operating revenue of around 29% year-on-year to almost close to about AED 1 billion. And this was reinforced by both net funded income as well as fees and commissions within our Treasury revenue trends. Yields have remained pretty stable because you would appreciate that the Treasury, the fixed income book of the bank, is predominantly fixed rate in nature. And that would mean that as long as those old sukuks or bonds, if they are on our book and have not matured, continue to contribute well towards the yields of this book. Obviously, the new issuances will be booked at slightly lower prices, which factors the interest rate environment. But all in all, our Treasury revenue continues to be strong. Superior credit quality and contributes well to the net interest income of the bank. Slide 13 to 15 are quite important because they throw light on asset quality. Now in terms of asset quality, I'm very happy to say that we have managed to arrest our NPL, so not a significant change from where we were in the first quarter of around 6.2% in the first quarter. And that gives you about a 10 basis point increase in the second quarter. And that is primarily the result of this asset growth remaining flat during this period. Now had we not witnessed those repayments that I just spoke about on the preceding slide, we would have obviously seen this percentage of NPLs come down to be in line with the way we were guiding the market for the overall NPL ratio at the end of the year. Nevertheless, I think even standing at 6.3%, it's important to acknowledge that we are below the industry norms when it comes to nonperforming assets. If we are to exclude obviously the impact of the specific corporate names as well as the Noor POCI purchased or originated credit-impaired assets, which is something that I also alluded to my first quarter webcast. The core NPF of the bank stands at just around 4.9% That is clearly lower than the lowest end in the market. Furthermore, the cost of risk has sustained its declining trend. And it now stands at around 103 basis points whilst the overall coverage ratio, including collateral, remains at around 100%. On Slide 16 -- or Slide 14 rather, I'm just jumping a couple of slides here. But on Slide 14, detailed insights of the asset quality. So we are showing you the same nominal amount in the form of some pie charts. And if you go from left to right on top of the chart, you can see the point that I was just making on the previous slide. If we literally strip off 2 components from the total NPF, which stands at around AED 13.1 billion, if we strip out the 2 components, large components, one is a particular credit as well as then the Noor POCI which we have inherited, the NPF in nominal amount stands at AED 10.2 billion, which is nothing but 4.9% versus the 6.3%. I've already covered a major portion of Slide 15, but this just gives you a reflection of ECL stage-by-stage And again, you can see that there's not much difference in staging versus -- obviously, there has been some movement from Stage 1 to Stage 2. And when those accounts have moved, there are more requirements for provisioning on Stage 2 than what we were guiding you when that account was on Stage 1. And hence, you can see that probably the Stage 2 ECL coverage looks a little down from 6.6% to 6%, slightly lower than our 2020 levels. Marginal decline in our Stage 3 coverage, but that still remains strong despite our underlying conditions. Page 16 is a new slide, and it's a slide that analyzes economic stability program from DIB's perspective. Since the inception of TESS last year, the predeferral levels that we have seen have reached around AED 9.5 billion. So that is on the bottom half of the page broken down between corporate and consumer. Now with improving market conditions and the economy opening up, we have witnessed a steady decline in the outstanding; level. So you can then see that, that AED 9.5 billion has reached to current levels. And outstanding just stands at around AED 2.741 billion, lower than where we were at the beginning of the year. So clearly, the trajectory is downwards. Important to also note that majority of that exposure, and I'm now asking your focus on the first part of the slide, majority of that exposure stands within the group 1. So bottom half of the page talks about the different amounts. But then if you quantify them in terms of the total exposure for those customers, we can see that substantial portion of that 2/3 sits in group 1. Furthermore, it's important to also highlight that there is sufficient collateral in place, which provides strong comfort to the market as well as investors. On Slide 17, a look at our funding sources and liquidity. Like all the quarters gone by, funding and liquidity continues to remain robust. Customer deposits have continued to be the primary source of funding for us. Almost, they account for 75% of the total asset base. And we've actually seen an uptick of around 6% year-to-date. I mentioned that on the first slide that we stand at around AED 218 billion in terms of deposits. Now the wholesale business has been the key contributor for our deposit base, 57% wholesale deposits versus 43% consumer deposits. But more importantly, the point that I've mentioned in the past is also the kind of mix of our liability book. 41% of our liabilities have -- stand around current and savings account, which allows us to bring our cost of funding down to historic low levels of around 0.8% or 80 basis points. Our liquidity position, I'd say that remains strong because you can actually see through the demonstrated numbers here, our LCR ratio stands at around 152% and our NSFR stands at around 107%. Clearly, you can see that has increased by around 23% or 230 basis points. Slide 18 talks about capitalization. Again, nothing much to say than what I have already mentioned, strong capital levels both in terms of CET1 as well as in terms of CAR. Even though there is a release in both CET1 as well as CAR from a tax perspective, we continue to monitor it on the fully loaded levels because we want to make sure that we are well above the regulatory requirements should the test program end. Slide 19 is another new slide because we also want to show to the investor community that we are aligning our ambitions towards UAE sustainable ESG goals. We fully remain committed to that ambition, and that is obviously to protect the environment for future generations. Sustainable practices have already been implemented by the country, whether it is from energy-saving fixtures to water consumption or waste management or to environmental-friendly and renewable material, all being used both in the country as well as within DIB's own premises. So I think it is a key ambition for us. We are trying to align ourselves with global players as well as UAE's own ambitions to be sustainable in nature. And we've always been a part of responsible financing. It's very clear that we've been focusing on that for a very long time and we've been a leading player in the sukuk market. Last but not least, people are at the forefront of the bank. And when it comes to ESG, we also have to make sure that gender diversity is -- becomes a part of it. And that last bar there just shows you that how women in our workforce constitute around 35%, up from 26% half a decade ago. That brings me to the end of my presentation. I've used around 25 minutes with the presentation. I'll take questions for another 30 minutes or so and then would request the last 5 minutes as a key summary for me to put together everything that we've done in the first half and thereby ending this call. So we'll pause for a minute, start browsing through questions. I can see that there are a lot of questions that have come through, and we'll take them one by one. Please allow us some time. We are going to try and take a few of those questions and maybe merge them together and then come back to you.

Thank you, Dr. As mentioned by Dr. Adnan, just keep sending your questions through and we will return with the answers in a few moments.

[Operator Instructions]

Yes. So we have the first question coming through, we'll we start with Rahul from Citi. The first question is what drove the jump in associated income and can this continue? And the next one is around the collateral mentioned and when do you value the collaterals that are mentioned under the TESS. The third is are there any plans to appeal the provision coverage in Stage 2 and Stage 3. And the final is any update on the deferral change.

Rahul, thank you for your questions. I'll take them one by one in the order that you asked. What drove a jump in the associated income? Clearly, our business in our associates, which is the Bank of Khartoum, continues to be doing well. But also, we have taken advantage of the foreign exchange position that Sudanese pounds has with the dollar. And we anticipate this to continue till the remaining part 2021 if everything that we are witnessing now remains the same. In terms of collaterals, we value them regularly. The last collateral valuation that we have done was in December 2020. And we would also be valuing collaterals probably any time now. So clearly, the value of collateral that we have used is subdued and muted since the market has gone up. So we anticipate that, that would obviously be positive for us should we value the collaterals today. But in terms of dates when we value it, it is towards the end of last year, beginning of 2021. Is there a plan to get Stage 2 and Stage 3 provision coverages? Clearly, if you actually look beyond what you see obviously, we've been making provisions quarter-on-quarter. And I mentioned that even at the beginning of my presentation, that while you've seen that the level of provisions that we've made are lower than first half of 2020, if you strip out the extraordinary provisions that we have made in 2020 on a normalized level, we've made much more provision than what we did in 2020 first half. As well as quarter-on-quarter for 2021, we've made the same amount of provisions. Now what am I alluding to? What I might -- what I'm alluding to is the fact that we continue to be prudent, use the strength of our P&L in making those required provisions. But it's not optically visible because, obviously, when we are staging accounts, the accounts -- for example, the one specific account within -- which we have already mentioned, even though we are very comfortable with the level of provision, which stands at around 50% for that account, it is not 100%. So the account is big in terms of volume and the level of provision that we carry is 50%. Now do we need to make 100% provision for that account? The answer is no. So I think we will always be playing catch-up this -- the ECL coverage that we have on Stage 2 and Stage 3. But to answer your question, we will continue to make provisions as we progress. And over time, you would see that those coverage ratios will improve either by the accounts going out. So for example, if one of the accounts regularizes out of Stage 2, you clearly will see a hike in the level of coverage. So I think sometimes the headline numbers do not give you -- or do not do justice to the strategy that we've been following over the last year, 1.5 years. Deferral change, I think at the top of every webcast, I can assure you that it's not on our back burner. You will hear from us sooner than later. We understand the next deadline for a deferral change is coming soon towards the end of quarter 3. And all I can tell is that we are looking at it very, very favorably. And whenever we are in a position to make those announcements, I think the investor community will be the first to know.

[Operator Instructions]

Yes. So we have some questions on the outlook that have already been answered. So we will start with the ones we haven't. Does this [ beginning ] imply that businesses are still taking a wait and see approach and how does it affect your growth outlook for second half? Then there's a question around cost of risk, whether it will remain elevated -- which has remained elevated in quarter 2 '21. While Stage 2 loans have been weak, could you throw some more color on the NPLs and the cost of risk outlook for the rest of the year? And currently again, there was a number which have already been answered.

Thank you, Janany. In terms of prepayments, obviously, those are the result of some of the businesses. I don't think they're playing a wait-and-see approach. But some of those businesses implemented an asset sales lag, which materialize. And obviously, because it was linked to the financing that we have given, we were prepaid before time. So we -- needless to say, that while the market continues to improve from where we were towards the end of last year, we ourselves have underwritten close to around AED 13.5 billion of new financing in the first half. So from that perspective, I don't think so there is a wait-and-see approach. We are just a function of where the market is. And maybe when compared to our peers, no one has seen the kind of gross financing growth that we have seen in the first 6 months of this year, which is again in line with everything that we've done over the last half a decade or so. So we ourselves have increased our gross financing by close to around AED 13.5 billion, which put together with our fixed income book, if you add the 2 together, we are looking at roughly around 4% of growth -- gross growth in new financing in the first half. Now unfortunately, some early settlements have happened, which shows that we are negligibly grown in the first 6 months. So if you really ask me, I'm not changing my guidance for the latter part, which is exactly what I do every year. I don't want the guidance to be changed every now and then quarter-on-quarter. Our pipeline for the latter half of the year also remains healthy, just like what we've done in the first half. And this is in line with what we had anticipated when we embarked on our 2021 strategy. So I won't comment that businesses are taking a wait-and-see approach. There is an opportunity for good credit, which is what we've done in the first half, and I see no reason why we will not do it in the second half as well. In terms of cost of risk, remains elevated. We have been through that, Janany. Like I've mentioned, in both Q1 and Q2, we have made similar levels of provisions. But in the next half of 2021, we anticipate lower level of provisions quarter-on-quarter. So that should clearly have an impact on our P&L, which would then suggest that our cost of risk would remain in line with our normalized guidance. And I've always mentioned to you in the past as well, we are looking at 80 to 90 basis points. We are at 103 today. But like I said, the first half, we've been extremely prudent and hence 103 basis points cost of risk. But on a normalized basis, we are still looking at 80 to 90 basis points. And that goes on to validate what I've just said that the latter half of 2021, we are looking at lower level of provisions quarter-on-quarter when compared to the first half of 2021. As for implementation, I've already mentioned to you, I'm sure that you share the same views that there is a demand for our [ script ]. You should hear from us sooner than later. We know when the next deadline is for a change, and we are working towards that.

[Operator Instructions]

A couple of questions from Chiro from SICO Bank. How is the overall comfort in retained volume demand in the UAE market? And how are you placed after the recent development with NMC? DIB's provisioning is higher than the peers. Can we expect to see some reversal?

I'll not comment on demand in the UAE market per se because every bank, and you will analyze it better than I do that every bank is following a different strategy or maybe not underwriting the way we have underwritten. Now again, to Janany as well as our previous colleague, we did mention that maybe the headline financing growth number does not suggest that because it looks like we've shown some new debt financing. But when you actually add in terms of gross financing, underwriting both on consumer as well as on corporate side, consumer side, we've underwritten around AED 6.6 billion in the first half. On the corporate side, we've underwritten around 3 -- AED 13.5 billion -- on the wholesale side rather. So that actually shows you that on a gross basis, we have underwritten close to around AED 20 billion of financing. That's around 5% growth. But clearly, that does not reflect in the portfolio numbers given the overall presettlement that we have witnessed, early settlements that we have witnessed on the corporate side and the normal attrition that we obviously witnessed on the retail side. So clearly, from where I sit, growth for DIB looks good. And by that, I am not getting ahead of myself. This is a very focused growth, very prudent growth. We are not compromising asset quality, which we've never done in the past. And I think that's the reason why our asset quality has stood the test of time, barring a couple of [ wins ] which are pretty obvious to everybody and the reasons why those appear in our nonperforming financing. In terms of our recent development in NMC, our recent developments with NMC are very, very positive. It's in the perfect domain, so I'm not going to repeat myself. Yes, we are at higher levels of provisioning as our peers. And we are comfortable at that -- with those. We are not going to get ahead of ourselves and start talking about reversals at this point in time. I think it is just positive development, one step at the right time. It's a win in a very large battle, I must say. So we are comfortably sitting at around 57% provision for NMC, which is clearly higher than where others are. But that, again, just validates what I have been telling you, right? We've been prudent despite showing you net operating profit growth of around 10% quarter-on-quarter. We still are making the required levels of provision. So that just shows me the strength of our P&L.

[Operator Instructions]

Question from [indiscernible]. He's asking for the reason for the increase in Tier 1 perpetual sukuk payments.

I think what [indiscernible] is referring to is the recent payment that we have made. The coupons that we have made on our Tier 1 perpetual. And everybody would acknowledge that in the second quarter of 2021, we actually had 2 sukuk perpetuals that were outstanding. And it was timing. Since then, one has already been repaid. So I think that's where you just see an increase in the sukuk coupon increased payments. But over the subsequent quarters, that is going to now normalize. That's why. So I think it is something which was very, very temporary because we had gone and picked up an additional sukuk from the market before retiring the sukuk that we did on account of, if you remember, both newly coming banks or Noor Bank as well as DIB.

[Operator Instructions]

A couple of questions from Edmond from Bloomberg. One is on CASA, which has been up in the second quarter gross growth. So he just wants to sort of understand what would we need going forward, what would be the focus in the second half for CASA in cost of funding?

So yes, like you rightly picked up, Edmond, the CASA for DIB has gone up in the second quarter. And that predominantly is not because of the lower spending among the nation or less spending from corporate. What we managed to do is -- you know the strategy that I have been mentioning in the past that we focus on operating accounts of our corporate customers? We managed to bring in new bank accounts from our peer banks. And I think that's how we have increased our CASA balances over the last quarter also. So I think it supports our strategy of continuing to focus on key clients and then give them a politic transactional banking solution and based on that, bring the operating account. So I think in Q2, what we've done is we managed to bring some new to bank corporate customers, and that has allowed us to enhance our cost analysis. And again, this is in line with the strategy that we've been following over half a decade or so. Your next question is around commercial real estate market and higher valuations will bring through collateral devaluation. One of your colleagues did ask us this question, and I've answered it. We've used valuation specifically for test as well as our overall portfolio. We use valuation as outdated as the end of last year, beginning of this year. So clearly, we've not taken into account the positive valuation that we are witnessing as we speak. So clearly, I think when we revalue our collaterals, we will see that they will be higher valuation that would fit us through. And it will definitely allow us to look at our portfolio more positively, and it would also have a positive impact on the cost of risk, definitely. And for that very reason I mention to you that our cost of risk in the latter part of this year is going to be lower than what we've done in the first half of 2021. So I think everything that I've been saying is linked to what you've been mentioning in terms of not just commercial real estate valuation, but also in terms of the changing macroeconomic in the UAE, which is positive from where we sit, so that answers the question on commercial real estate. In terms of the CET1 from the UAE Central Bank, we have -- obviously the deadline for that was 30th of June. So we have had an impact of around 30-odd basis points on our portfolio. So nothing significant. As you know, the [ JCC ] sovereign exposure has been now included within the credit risk-related assets. And for us, it was not a significant portfolio. So that just translates to around -- close to around 30 basis points. Maybe if I remember it totally correct, 26 to 27 basis points, to be precise.

[Operator Instructions]

A few questions from Alok from Ghobash. What's the management's view on cost of risk evolution in second half? What would the conclusion for revenues by end of 2021 for the average cost of risk? Where do you expect DIB's core NPL coverage, that's excluding Noor POCI NPL to reach by year-end? It's 82% at the current level. And how far along is DIB in its synergies expansion post Noor Bank acquisition?

I think I answered these questions. But for Alok's case -- for Alok's sake, I will try and summarize this very briefly. What our cost of risk evolution for the latter part of 2021 is positive, which means that quarter-on-quarter, we expect lower level of provisions than what we have done in the first half. And clearly, in the first half of 2021, while the economy was starting to get on the north bound for positive trajectory, we want it to be true then. Now we see that from where we sit, the economy is much more better than where it was at the beginning of the year. Again, in the previous question that I answered for Edmond, cost, the commercial real estate or the real estate valuations are looking upwards. That would also have an impact. So we anticipate that the cost of risk for the latter half of 2021 is going to be much better than what we have seen in the first half of 2021. I.e., whilst we're being prudent, we will continue to be prudent, but not at the same level in terms of nominal absolute amounts. If you exclude Noor POCI as well as NMC, we stand at around 4.9% NPLs. Clearly, I think it is also important to acknowledge that we've not seen a denominator grow in the first half despite the gross financing that we have done. So if those gross financings that we did on the corporate side and if those early repayments would not have happened, we would clearly be looking at our financing portfolio grow by close to around 4%, 4.5%. Now if you then apply that on our nonperforming financing, that stand-alone nonperforming financing should be somewhere around 4.5%. So if we actually manage to grow our net financing portfolios by the end of the year by around 3% to 4%, that would have an impact on our stand-alone NPLs. Even if absolute NPLs are not regularized, the percentage would become close to around 4.5%. And should that happen and the kind of provisioning that we continue to make in the latter half of 2021, we should be looking at roughly around the coverage ratio on that particular portfolio to be close to around maybe 88% or thereabouts. And your last question in terms of synergies for Noor Bank acquisition, I think synergies will continue, albeit not at the same levels. Clearly, to maintain a cost-to-income ratio of 26.9 which is a market-leading cost-to-income ratio, I think that is a great achievement. This ratio can obviously be at the same level, our cost remaining where they are. We at the same level should -- revenues improve. And we have seen our other revenues improve quarter-on-quarter sequentially by 8%. As well as if you look at our total income, that has improved 5% quarter-on-quarter. So I think from where we sit, I think we are in a market-leading position when it comes to costs and cost-to-income ratio. And I see no reason why we can't maintain this in the environment that is only going to get better from here.

[Operator Instructions]

We have another 10 minutes to go. So 5 minutes, we will give for the question. And then we'll give Dr. Adnan to give a wind up on the session. So a couple of questions from [ Vidal ] just to sort of cover the fact that we've seen them, but they've already been answered, I think around the deferral change and further improvement on the cost side. A question from [ Aisha ] from [ New Capital ]. A couple of questions actually. What's the outlook on the UAE property market? And why are you conservative in your loan book growth?

So the outlook on the UAE property market, as you are already picking up from the headlines, not just from DIB but generally from financial institutions as well and the country at large, property market is looking positive. Valuations are going up. From where we sit, even though we have used our old valuations for collateral management purposes and we will revalue our properties and our collaterals and thereby take advantage of that positively, from where we have seen, we have seen more traction in our property mortgage business and our home finance business, to be precise. In fact, we've seen a 22% year-on-year increase in our home finance volumes. So that shows you that the property market is heading in the right direction. More and more transactions are being witnessed. And just the general pricing index is going up. And clearly, we would also see that this will be positively impacted towards the last part of the year when the Expo 2020 is going to start. So UAE property market is again doing well and I think there's a stable movement upwards. Why are we conservative in our loan book growth? No, we are not conservative at all. In fact, our loan guidance for the year was 5%. And again, I've already mentioned this in terms of underwriting, gross financing underwriting, and I say gross for the first time because we have witnessed some early repayments on our corporate book. And hence, I say gross. But if you look at our gross financing, our gross financing has actually gone up by close to around 4% in the first half. So that would mean that should those early settlements not have happened, we would have ended the year with probably better than our guidance in terms of loan book. So no, not all, we are not conservative. But at the same time, we are not aggressive also in our loan growth. I think we are very, very cautious in looking at underwriting. It's our delivery strategy, which we embarked on in 2020 where we steered our underwriting towards lower corporate financing and sovereign financing as well as diversified retail lending, which is what we've been doing even in the first half of 2021. You obviously can't see that translate into portfolio numbers given the early repayments that have happened in the first half of 2021.

[Operator Instructions]

Okay. So I think we'll take this as the last question so that Dr. Adnan has time to wind up and give the summary of the call. This is a question from [ Rakesh ] from [indiscernible] Capital. He's asking about AED 13.5 billion gross financing in first half, which is driven by government [ and DIB lending ]. How much of it is driven by that? Does it remain a key part of the growth strategy?

No. Of course, the entire AED 13.5 billion is a key part of our growth strategy. We would not have done this underwriting had it not been a part of our growth strategy. And what is this loan strategy I'm alluding to? This, we embarked upon in the latter part of 2020 and have then since then followed even in 2021 where we started to focus on sovereign names, quasi-sovereign names, backed by cash flows, ring-fenced cash flows as well as some key large corporates that were good for the credit. So obviously, everything that we have done thus far during the year has been a part of our growth strategy. And we are going to follow the same strategy even in the later part of 2021. So this AED 13.5 billion that we are talking about is a combination of our corporate loans as well as our fixed income book, which happens to be in the sectors that we wanted to focus on. So clearly, low-risk sectors which obviously pressurizes net yields. But then again, if we focus on our retail book, that allows us to compensate the lower yields on the wholesale side. So thank you for all your questions. I am going to use the last 5 minutes of the hour to kind of summarize and give you some color. Something that I have already mentioned to you at the beginning of this call, and I think it's important that we don't take away credit where credit is due. The bank has done exceptionally well in the first 6 months. And I say that because if you look at our profitability, we've seen improving trends because our total income has gone up by around 5% year-on-year. And when it comes to our net profit, sequentially, it has gone up around 18% quarter-on-quarter. So both our total income as well as our net profit, which stands at AED 5.8 billion and AED 1.9 billion, respectively, have gone up quarter-on-quarter sequentially. Now most importantly, within our P&L, one should not forget the core engine of the bank. And that can be witnessed through the net operating profit before impairments, and that has reached around AED 3.4 billion, up 4% year-on-year and 10% quarter-on-quarter. So that shows you the kind of trajectory we have witnessed over the last 6 months. Financing growth and cautious, prudent financing growth has always been center stage of our strategy. And if you actually look at the gross financing, we have done better than our peers because all those results have already been announced. And when we compare assets with everyone, we can see that on a gross basis, in the first half of 2021, we have grown close to around 3.5%, 4%. Clearly, our portfolios don't show that because of where the repayments and the early settlements have taken us. Our deposits, which are key to our -- supporting our growth, has been very strong at 6% year-to-date growth. But more importantly, our P&L is enhanced by our OpEx and a declining trend in our OpEx, which is 15% year-on-year decline, thus leading to a cost-to-income ratio of 26.9%. So overall, I think first half of 2021 has been extremely good and positive for the bank. And from where we sit, the second half of 2021 with all things being equal and with macroeconomic indicators improving from here on, we are anticipating a better first half in 2021. And should that happen, we would be announcing quarter-on-quarter results most favorably. Finally, and I'm only bringing this within my concluding comments is because people have been asking us about FOL for the last 1 year or so. FOL is on our radar. And we are cognizant of the upcoming MSCI decision, which happens in a month's time. So all I can tell you people without divulging too much is that we are looking at FOL very, very favorably. And you will hear from us sooner than later should we make progress in the right direction. With that, I thank you for listening in for about an hour. Please, I'm sure that you have more questions. Feel free to reach us out or our Investor Relations team, and we'll be happy to take them off-line. Thank you very much.

Thank you, everyone, for joining us on this call, and see you again next quarter.

Ladies and gentlemen, This concludes today's call. You may now disconnect your lines. Thank you for joining us.