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

Ladies and gentlemen, hello, and welcome to the Dubai Islamic Bank Full Year 2021 Financial Results Earnings Call. Please note to all those who are listening to us via the webcast link to kindly refresh their bios in case of experiencing any intermittent audio issues. [Operator Instructions] I will now hand you over to your host, Janany Vamadeva from Arqaam Capital. Janany, please go ahead when you are ready.

Thank you, Martine. 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 Dubai Islamic Bank's Full Year 2021 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 Mr. Kashif Moosa, the Head of Investor Relations and Strategic Communications. 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 Full Year 2021 Results Webcast of Dubai Islamic Bank. This session is led by our group CEO, Dr. Adnan Chilwan; accompanied by John Macedo, the Chief Financial Officer; and myself. [Operator Instructions] 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. As you can see, the global as well as the regional economies have been showing signs of improvement compared to 2020 and particularly supported by the widespread access to vaccinations, increasing global oil prices and medical and health care improvements on containing the pandemic. And as a result of generally improving sentiment and enhanced macroeconomic environment, the GCC stock market's performance has generally seen an uptick as well with a 20% year-on-year rise in terms of values traded in 2021. Meanwhile, the GCC banking sector is still sustaining strength with 6% year-on-year increase in total sector assets up until the third quarter of 2021. And with the expected rise in rates by sometime in quarter 1 this year, GCC banks are poised to benefit through the margin gains, which will be positive for the overall sector profitability. We move on to Slide 5. UAE has continued to make its mark on the global map across several fronts, such as safety, regulatory reforms and general economic recovery. And the year 2021 has been exceptional for the country, whereby several initiatives have been -- have materialized, which are further reinforcing UAE's position as a global hub. And just to name a few, there were more than 40 laws that have been amended as part of what is considered the largest ever regulatory overhaul in UAE's history, covering areas such as labor law, federal law as well as resident fee statutes. The year also saw the launch of Expo, Expo 2020. The flagship vendor has attracted more than 10 million visitors to date already. In line with the Golden Jubilee Year, the projects of 50 were launched by the UAE government, and they've paved the way for the upcoming era for the country's overall strategic agenda. And consequently, keeping all these things in mind, the Central Bank of UAE is forecasting a 4.2% growth in real GDP this year. With that a quick preamble, I will hand over to Dr. Adnan Chilwan, the Group Chief Executive Officer, to take you through the full year results for the 2021. Dr. Adnan, please.

Thank you, Kashif. Good afternoon, everyone. I'll take your attention on Slide 7, titled as key highlights. DIB has remained resilient throughout 2021. This is obviously supported by the bank's performance, which has been remarkable with a robust year-on-year growth in net profitability of around 39%, clearly quite exceptional for the economic backdrop that we have witnessed in 2021. On the OpEx side, we've managed OpEx quite well with a sector-leading cost-to-income ratio that has supported our growth as well in terms of profitability. We've been able to contain our impairment losses with a significant reduction of around 46% year-on-year when compared to 2020. I will touch upon that in greater details in subsequent slides. Despite a difficult year, the bank has had impressive new underwriting. And I say difficult year because the credit environment was muted in 2021. Despite that, across all our businesses, we've underwritten around AED 36 billion, which, however, was countered by early presettlements as well as normal repayments, which constituted to around AED 45 billion. Lastly, margins have been maintained despite a global low-rate environment. Moving on, on Slide 8. You can witness that our total assets have marginally declined. However, the bank has countered this with efficiently the liability side of the balance sheet as well, resulting in a more efficient balance and thus, a stronger profitability. As I mentioned on the preceding slide, the financing book has grown by circa AED 35 billion on account of pure organic business growth. Now our ability to book such a sizable amount during a moderate economic year in terms of credit -- muted credit growth still shows you that we've been doing business at pre-pandemic levels. That actually demonstrates to you the robustness of our strategy. Growth, however, was offset, as I mentioned before, and that was largely dwarfed by some large repayments that we've seen -- extraordinary repayments, which totaled to around AED 45 billion in 2021. In terms of our fixed income book, you can see that we've witnessed a strong growth, 18% year-on-year. We now have reached close to around AED 42 billion. And that focus continues to remain on deploying our excess liquidity in this profitable portfolio. So even going forward, you will see this would be an inherent part of our strategy. On the funding side, around 44% of CASA, our current and savings account, is one of the reasons why our cost of funds has reduced. And obviously, with -- when a company with a lower interest rate environment and our consciousness on cost management, we have made sure that our cost of funds remains at historic low levels. In terms of P&L, there clearly is an incredible story. And that is on account of not just what I've mentioned so far, but clearly, the 2 standout points for us have been cost management and lower impairments, thus leading to a net profit of around 39% more when compared to 2020. So we've ended the year with a net profit of around AED 4.4 billion. Our key ratios very quickly. If you throw -- if you see the key ratios, and I'm referring to ratios like our ROEs, ROAs, net profit margins. All of those remain strong and healthy. Our capitalization levels, our liquidity as well as our efficiency ratios all remain intact as well as strong when compared to 2020. In terms of asset quality, I'd go on to say that, that has stabilized with just a marginal 10 basis points quarter-on-quarter growth. We've ended the year at around 6.8%, a significant drop compared to the onset of the pandemic when the ratio was averaging around 50 bps quarter-on-quarter. So I think what we've done well in the last couple of quarters and more so in the last quarter is that we've arrested the kind of trajectory of our asset quality deterioration, and we've only seen a marginal 10 basis points increase in the last quarter. On Slide 9, a look at the operating performance. Mentioned before, but I'll repeat, that despite the low rate environment, our margins have been stable at around 2.6%, which is on the higher end of the full year 2021 guidance that we had given at the beginning of the year. In terms of efficiency ratios, they continue to be a key strength of the bank. Our OpEx has been declining 7% year-on-year, and that has resulted in the cost-to-income ratio improving by around 260 basis points when compared to where we started the year. So we ended the year at around 26.8%, just short of 27%. And fair to say that we would be amongst the strongest in terms of the cost-to-income ratio when compared to market. The other efficiency ratios that I've already mentioned on the preceding slide are also put here. Our returns, ROA and ROE both stand at around 1.53% and 11.8%, respectively, both on a healthy increasing trend as a result of strong improving profitability. This has been supported, obviously, by the enhanced bank-wide efficiencies as well as lower impairments that we've alluded to. On Slide 10, a look at deployment of funds. Our Sukuk investments have grown strongly during the year, and that depicts an 18% year-on-year growth as we continue to focus on strong rated sovereign instruments. Of course, this is also a function of the issuances within the primary market as well as the prices within the secondary market. This portfolio, as you know, has an average return of close to around 4%, and that to us is significant given the low interest environment that we have spoken about. As I mentioned in the opening slide, the large early settlements and routine repayments have actually dwarfed the underwriting that we did in year 2021 given the very muted credit backdrop that all our peers had seen. Therefore, the portfolio has been marginally offset, and that is reflected in our in our balance sheet, which stands roughly at around AED 279 billion. Still in a robust position moving forward. So with the new bookings of around AED 36 billion that we have mentioned, and again, this is coming out of both our wholesale business as well as our consumer business. That indicates the strong momentum that we saw within the economic turnaround of UAE. Even though the credit environment was muted and that was witnessed by most players, including our peers in the market, we've had a very good year in terms of credit underwriting, typical to our strategy that we have seen over the last 6 or 7 years. Our credit underwriting has been strong, and 2021 was no exception. The commercial real estate exposure that you see here has seen a slight uptick as a percentage, not because of increased underwriting in this segment, but more because of the net overall financing number being low. As you would appreciate, the denominator of financing has reduced given the prepayments and the early settlements that I have alluded to. And that has resulted in the real estate exposure as a percentage slightly up than where we started the year. On Slide 11, we look at some of our businesses, we start with Consumer Banking. The portfolio has remained stable at around AED 51 billion despite the regular maturities and amortizations that I have mentioned. This shows that in spite of the environment, we have continued to book new financing. Now in terms of putting a number to it, we've done close to around AED 14 billion of new financing on the consumer side. And that, again, it's cut across the various products that we have been anchoring in the consumer bank for a decade or so. Following a strong recovery of the real estate market, home financing and mortgage portfolio has also seen gross new bookings of more than AED 4 billion during the year. And we anticipate that in 2022 also, real estate lending, consumer lending, including home finance, will continue to be strong. There is clearly a healthy pipeline of many consumer business initiatives for the new year, which will obviously aim to strengthen and grow this business further. Many of these are built around things that I have mentioned in the past, digital capabilities, including our artificial intelligence initiatives that is based on consumer behavior, strengthening consumer protection as well as simplifying the consumer interaction as well as experiences. So we've got a lot of initiatives within the pipeline that would just help to strengthen this business and grow it from where it is. On Slide 12, we look at corporate banking business. The portfolio stands at around AED 145 billion, and that remains very well diversified. Now whilst we've done new financing, I mentioned about AED 36 billion, which was a bank-wide financing, but then AED 14 billion in the consumer bank that I alluded to on the corporate banking side, we've done close to around AED 22 billion. That has helped mitigate the early large settlements that we have witnessed more so throughout the year, but a very large repayment in the last quarter of 2021. Revenue trends in the Corporate Bank continued to be marginally impacted by the low rate environment globally, but overall still remains healthy and intact. On Slide 13, I have already briefly touched upon our fixed income book, our treasury business. We've seen impressive growth within our Sukuk portfolio, again, a reflection of our primary issuances that we participated in, not many in 2021, I must say. But also our secondary market investment has been good. That portfolio has seen an uptick of around 18% in 2021. In terms of revenue, positive growth in revenue within treasury by nearly around 8% more to reach close to around AED 2 billion. Yields within treasury, as I have mentioned, of specifically within the fixed income book remains strong at around 4%. On Slide 14, a look at asset quality, and we will spend around 3 slides understanding where we stand in terms of asset quality. Slide 14, we refer to these as positive developments on the overall nonperforming financing. Because the ratio has stabilized, we had seen an uptick in the ratio in the first 3 quarters of 2021, onset of the pandemic, and that was coming trailing from the year 2020. So in 2021, in the first 3 quarters, we saw an average of around 50 basis points increase quarter-on-quarter. But that has been arrested. And quarter 4 just merely saw a 10 basis point increase in the nonperforming loans. Overall, coverage remains above 100 in terms of absolute amount. The NPS has actually declined minus -- a minor decline in the NPLs, but the first decline that we've witnessed since the pandemic. And we will continue to keep a keen focus on managing our asset quality. The cost of risk is just below 1%, something that we had forecasted at the beginning of the year given where we saw the economic backdrop as well as where the asset quality was. That is now arrested. So we feel that to end the year with a cost of risk of around 99 basis points, remember that has declined significantly by around 38 basis points from the beginning of the year because in 2020, we had a cost of risk of around 137 basis points. Having said that, that was not a normal cost of risk, we had taken some extraordinary provisions on some of our accounts and charged them through our P&L. So therefore, our cost of risk of around is 99% is -- 99 bps is, in our opinion, an achievement for the year. On Slide 15, you can see the upper-right chart, in fact, the pie graph shows you that DIB's nonperforming loans stands at around 5.5%. Now that is the 10 basis points that we were referring to, the quarter-on-quarter increase. And that is on account -- in the first 9 months, it stood 5.4%. And in the last quarter, we've seen it ending at around 5.5%. Good progress on recoveries in terms of some of the accounts that we mentioned in the past as well as the Noor - POCI, both the Noor - POCI as well as recoveries on NMC continue to reduce the overall exposure. On Slide 16, asset quality in terms of stages. Adequate ECL coverage across all the 3 stages. Our objective is always to make sure that we are adequately provided, in line with the modeling as well as IFRS 9 standards. And we can give you comfort that on every account that requires the minimum level of provisioning, we have adequately provided each of those accounts. In terms of Stage 3, there is growth in Stage 3, and that growth continues to be stabilized at AED 13.7 billion with strong coverage of around 57%, which is 30% higher -- 30 bps higher than the previous quarter. The level of Stage 3 coverage for the bank is in the mid-range of the sector for Stage 3 coverages. And there is a lot of analysis on that by some of the brokerage houses. Slide 17 throws light on the TESS. As at December 31, all payment deferrals have expired, and the bank has no, zero cost facility payable. Now this is in line with the regulatory expiry of the deferral program under the TESS. During the whole life of the TESS, nearly around AED 10 billion installments were deferred to more than around 55,000 customers. On Slide 18, a look at the funding sources and liquidity. Liquidity of the bank continues to remain healthy and strong. Both wholesale and consumer banking continue to contribute the strong liquidity of the bank. And as I have mentioned before, the CASA book grew by around 4% year-on-year to reach at AED 90 billion, accounts for around 44% of our overall deposit base, also rightly so contributes to bringing our cost of funding down. On Slide 19, our capitalization overview. Our capitalization position remains healthy and robust. Both CET1 and overall CAR remains well above the regulatory requirements. The proposed dividend of 25% is subject to a general assembly approval, and that continues to reflect our commitment to our shareholders as well. So we've made sure that we have balanced the organic generation of capital as well as a dividend payout ratio. And that is obviously subject to the general assembly, which is scheduled for some time during the month of March, subject to regulatory approvals. On Slide 20, our digital drive to support the new DIB continues. The digital momentum that we have seen this far continues to gain strength year-on-year as -- and this is on the back of enhanced digital engagement as COVID and post-COVID transaction trends show customers relying more on digital channels than traditional ones. On the digital front, our focus has been mainly to enhance customer experiences, reduce costs and, of course, enhance revenue. As an example, today, over 75% of our statements are sent via digital channels. That's just an example that shows you that we're going into a paperless environment and also trying to move traffic from our physical channels to our digital channels. As we continue to enhance our digital capabilities, our goal is to make banking simple and more efficient for our clients. On Page 21, our commitment to sustainability and alignment to SDG is reflected. Now sustainability, as I had mentioned at the beginning of the year, would start to become an inherent part of our core strategy, embedded within our values as well as our corporate purpose. Our commitment towards this continued economic growth and prosperity of the UAE is evidenced by our alignment and contributions to several of the global sustainable development goals. I'm very delighted to state that as of today, DIB is already aligned with nearly half of the global sustainable development goals across key areas such as good health, well-being, quality education, decent work and economic growth as well as climate action. So we are very enthusiastic of this journey ahead, which will transition the bank towards providing financial solutions that helps mitigate environmental risks and create positive economic and social impact. On Slide 22, a quick look on our latest lifestyle banking digital proposition that we launched recently, which is called as RABBIT. Our ambition to become a digitally intelligent bank continued its strong momentum with the launch of this fun-filled financial app. Along with being fun and user-friendly, the app assures in a new era of transparency. And obviously, simplicity is the key. We've removed financial jargons and prioritized experience, journey and rewards. RABBIT, as you know, I've mentioned this before, is for the connected generation. It's not only for the millennials, but also for the millennial mindset. So that accounts for roughly around 80% of the population within the UAE. Our ambition towards RABBIT is not just limited to UAE. We're also ensuring that we are working on RABBIT and taking it into other geographies that we are working in. We will also see in 2022, RABBIT will be, if all things go well, launched within some of the other geographies, starting with our operations in Pakistan. On Slide 23, it just gives you a highlight a summary highlight of 2021. I've touched upon a lot of this in greater detail. But in summary, before we look at the target metrics, DIB had demonstrated resilience with strong recovery in profitability when compared to 2020. We now have a more lean and efficient financial institution, and that can be validated with our cost-to-income ratio. So not just profitability metric, but also our cost-to-income ratio, which contributes to that profitability metric is very, very efficient. Our asset quality has stabilized with only marginal growth of around 10 basis points quarter-on-quarter, and that's a good sign going into 2022. We stand at around 6.8%. Robust growth in our Sukuk book. And majority of that portfolio, close to around 70%, has been invested in strong rated sovereign instruments. 2021 by no means was a slow year for us. We've seen gross new financing close to around AED 36 billion. And I mentioned that in terms of AED 22 billion in corporate financing and around AED 14 billion in retail financing. So that clearly has been no slowdown for a year and that clearly highlights the bank's robust strategy amidst ongoing challenging macro environment. And it in essence, talks about the continuation of our strategy that we have seen for the last decade or so -- or 7 or 8 years that we've been growing. That clearly has been dwarfed by some extraordinary repayments, which we don't foresee happening in 2022 again. The proposed dividend of 25% reinforces the bank's commitment to provide long-term value and sustainable returns to shareholders, at the same time, making sure that there is organic capital generation and enhanced CET1 ratio as well as the total CAR ratios. A more positive outlook for the new year with improving economic environment, high vaccination rates and recovering global oil prices would mean that 2022 would be, once again, a turnaround year for us. But before we go to our strategy for 2022, how have we fared in 2021 with key target metrics? Now our growth seems to be negative in terms of 1.5%. Clearly, again, better than some of our peers that would be announcing their results. So hopefully, we are on the better end of that metric. But again, I think it does not really reflect the picture that I have mentioned in terms of the new financings that we have underwritten as well as the early repayments that we have seen. In terms of nonperforming financing versus key metrics, our metrics was at 5.5%. And we've ended the year at 6.8%, partly not because our asset quality is deteriorated, but also we have seen the denominator effect because the base has reduced, so clearly the numerator has remained where it was, at least in the first 3 quarters. And that has resulted in our nonperforming loan ratio to be at 6.8%, again, below the industry standards. Our real estate concentration seems to have gone up, but I've already mentioned to you that's the denominator effect. In terms of efficiency ratios, ROA and ROE are better than the guidance that we had given. Our cost-to-income ratio is better than the guidance that we had given, stands at 26.8% versus the 28% that we were we were forecasting. Total coverage stands at 102%, slightly below where we should be. And our net profit margin is on the higher end of the guidance at 2.6% where we had suggested that we would be somewhere around 2.5% to 2.6% mark. On Slide 25, so we are moving into a new phase of our strategy, and that is the next 5 years. It's a strategy that revolves around obviously, aligning ourselves to the ambition and the expansionary agenda of the UAE, to start with. But clearly, it's a reflection of what we've been doing in the last 7 or 8 years, a decade to be precise. The bank has grown significantly. And the next 5 years, the bank is continuing to grow, putting its best foot forward. So the 5-year strategy is going to revolve around 2 fundamental pillars. I refer to them as strengthen the group and grow the group. Now strengthen the growth focuses on 3 subpillars, that is to make sure that we reinforce, energize as well as adapt the group. And by that, I clearly mean focus on strengthening the capital base, continue to enhance operational efficiencies, also ensure that the bank is safeguarded against any market volatilities. And we do that through robust compliance, risk management and control. So that fundamentally strengthened the group. And there will be a lot of initiatives that we would be embarking upon from now over the next 5 years or so that would ensure that we are strengthening the group. The second fundamental pillar of our 5-year strategy is grow the group. And by that, I mean, diversify where possible, innovate and continue to expand. So this is something that all of you have been witnessing over the last decade or so. So we continue to do that, put our best foot forward. And by that, I necessarily mean deliver balance sheet growth, deeper penetration of our existing customer base as well as target new customers by enhancing and expanding not just locally but also our global operation. Now that is, in a nutshell, the 5-year strategy that focuses on 2 fundamental pillars, strengthen the group and grow the group. And as we move forward, year-on-year, quarter-on-quarter, every webcast, I will be focusing on these 2 fundamental pillars and the various initiatives that we would be taking in these 2 pillars, strengthen the group and grow the group. Now what does that translate to? Now as we have put our aspirations forward, I see the 5-year strategy of strengthen the group and grow the group, the strategic thing that is going to be allowing us to achieve those objectives is termed as DRIVE. That's the acronym that we've come up with. So over the next 5 years, in order to achieve this 5-year strategic plan, we would be driving the organization forward. That's the strategic theme. And DRIVE necessarily means digital transformation for our D, robust foundation for R, increase value for I, versatile operation for V, and engaging experience for E. Now that's the acronym. I am not going to bore you with details as to the various initiatives we would be doing in each of these letters D-R-I-V-E. But in a nutshell, that's the strategic theme that is going to take the organization forward, that is going to drive the organization forward in the next 5 years, thereby ensuring that the organization achieves its overall 5-year strategic plan, which is focusing on strengthen the group and grow the group. Now how does that translate in 2022 in terms of some key metrics? Same time each year, at the beginning of the year, I see this call, this webcast, I always mentioned the guidance that we would be focusing on for each year. And for 2022, the guidance for the 8 key metrics that we always measure ourselves against going forward: growth, we anticipate close to 5% Now one would say 2021 we have had a 1.5% negative growth. Again, I'm not going to spend a lot of time explaining that. I've already mentioned that. If you did not witness the extraordinary repayment, our growth would have been definitely in line with the guidance we gave for 2021. And therefore, keeping all the last year's that we have seen and the growth that we have witnessed in the last so many years, we are putting our best foot forward. In 2022, we feel that we are going to grow by around 5%. Our nonperforming financing would be at around 6.5%. Now this would mean that there is a denominator effect as the denominator grows. We don't anticipate asset quality deteriorating from here on. Real estate constitution, we want to be at 20%. Again, I'm very focused in this area. We don't want to grow that significantly. Denominator effect will make sure that the real estate concentration should be at around 20%. ROAs and ROEs, we are going one step forward. We want to close the year 2022 with an ROE of close to around 1.7% and an ROE better than 2021, which was at 11.8%. We want to be close to around 13%. Cost-to-income ratio, now while we have closed the year close to around 27%, the 5-year growth agenda and strengthen the group agenda would have certain investments that we would have to make in terms of people, processes, technology and our network. And there, we see a slight uptick in our cost-to-income ratio. Again, even managing a 20 -- having a cost income ratio of 28% is going to be well in line with -- below the industry standards. Our total coverage, it has been our aspiration. We improved that. We would set ourselves a target of around 110%. Our net profit margin would be at around 2.7%, again, a reflection of the forecasted interest rate cycle trajectory. That brings me to the end of my presentation. I tried to be as detailed as I can in the allotted 35 minutes. I will now open the floor to take questions, if any, in the next 25 minutes or so and then use the last 5 minutes to kind of sum up everything that I have said and also a forward-looking view in 2022.

Thank you, Dr. [Operator Instructions]

[Operator Instructions]

Okay. So first set of question that's come in is from Rahul from Citi. The first question is around the ECL coverage for Phase 2 and Phase 3 and the current trend and also the reason for the lower provision in the fourth quarter of 2021.

Sure. Thank you, Rahul, for your question. I had mentioned the ECL coverage in details not only on this call but also on many calls, but I don't mind repeating myself. So when you are looking at the Stage 2 and Stage 3 provisions and you feel that the coverage is reducing, I think one should take into account the numerator and the denominator effect. And by that, I mean, the numerator in the NPL, let's -- for an example, comes in at 100. And according to classification based on IFRS 9 or where the asset quality classifications are, you may need to make a provision of, let's say, 50%. So there will always be an addition in the numerator of 100 and the required provision would be 50%. So it would always seem that the coverage ratio is low. But I can assure you that specific to accounts, we have made adequate provision on all the accounts, and we have adequate coverage on all the accounts that required based on the IFRS 9 classification as well as the modeling. So whilst the coverage seems to be declining, that's clearly because the numerator in the NPL becomes larger, and the required level of provision is not adequate to that -- to what is coming in. Your second question on UAE loan growth, can there be turnaround in 2022? Of course, 2022 is being forecasted as a turnaround year for the UAE, and that is reflected in the GDP forecast that the UAE has already put up close to around 4.2%. But let me take your attention towards DIB. 2021 has been a turnaround year for DIB. Let's not start talking about 2022 as a turnaround year. Because 2021 for DIB in terms of loan growth and in terms of underwriting has been a turnaround year when compared to 2020. So we have turned around in terms of credit underwriting in 2021. That clearly has not reflected in the financing book because of the early repayments that we've spoken about. But for us, 2021 has in a turnaround year. And we anticipate 2022 to also be similar to 2021 in terms of credit underwriting. You are talking about growth in the real estate exposure as intentional. I've already mentioned that. Probably you sent in your question before my explanation. But I'll repeat that the growth in the real estate exposure is not intentional. It's only a denominator effect because the denominator of the financing book has reduced, it seems that the real estate exposure has intentionally increased. But no, if you can look at in terms of absolute amounts, there's no significant uptick in the real estate exposure if the denominator is coming down.

[Operator Instructions]

So a few questions from Shabbir from EFG. One is what has helped with the provisions tapering off during the quarter? And is it related to the net economic improvement in the denominator, et cetera, et cetera? And the second question is around repayments paid in 2022. What is expected for loan growth in 2022? The third is about the sensitivity of NIMs. And the fourth is on the expected date of AGM.

Thank you, Shabbir, for your question. On provisioning, very quickly, I think it's just a reflection of the improving macroeconomic backdrop. You have alluded to higher oil prices, Expo 2020, real estate sector. We have not had any specific provision releases as such. So I can confirm that it's just improving macroeconomic backdrop. In terms of repayment, extraordinary repayments, we are -- or early settlements, we are not anticipating anything in 2022. Expectations for loan growth in 2022 is similar to 2021. And I think similar because if you strip out the extraordinary repayments, we've actually witnessed a loan growth in terms of credit underwriting in 2021. And the loan growth for 2022 is -- we are expecting close to around 5%. I've already mentioned that. Sensitivity in terms of net interest margins, we've mentioned that in our financial statement. And I think that's Note 47. It talks about a 50 basis points change would result in 175-odd basis point -- AED 175-odd million of profitability upside. So that is in Note 47. In terms of AGM, we are targeting -- subject to obviously regulatory approvals, we are targeting somewhere in mid-March. But we will announce that once we have our regulatory approvals are in place.

[Operator Instructions]

A few questions from Janany from Arqaam. The first is around the NIM guidance. And what is the number of rate hikes that we've sort of anticipated for this kind of guidance? Second is on the cost of risk improvement, which was a sharp improvement and what is driving that? And finally, what kind of ROEs are you again for the -- in 5 years plan, on the 5-year plan?

So Janany, thank you for your questions. In terms of NIM guidance, again, there is a lot of noise around rate hikes, how many and when is the big question. So in our NIM guidance, we have not factored any rate hikes. And so as we would have better understanding and color on how many rate hikes and when those NIM guidances would be adjusted. So as of now, we are at current rate levels and that would then extrapolate an upside for you when you are factoring that within your model. The cost of risk has improved sharply in Q4. And this is on account of what I had mentioned on the previous question, improving macroeconomic conditions, better oil prices, stable real estate environment. And in 2022, we are anticipating that our cost of risk at the back of a bigger balance sheet would be at similar or lower levels to what we have seen in 2021. So we are not expecting a cost of risk increase in 2022. Anything, it would be at the same levels or -- because the balance sheet is going to be growing. I've also mentioned a 5% growth in our loan guidance. So if anything, at the same levels or better from 2021 levels. So what sort of ROEs are we targeting for the final year of our 5-year plan? Again, I don't want to get ahead of our test year. We will take 1 year at a time. But I can tell you that there's a northbound trajectory as far as ROEs are concerned year-on-year. We have already modeled that, but it would not be right for me to divest that information as of now. You definitely have your own models built. So I think you will see that we are going closer to pre-pandemic levels in terms of ROEs as we start moving closer towards our 5-year plan.

So yes, a few questions from Alok from Ghobash. I think the first 2 questions Alok, have already been answered regarding rate hikes and cost of risk. So we will take his third one, which is on the management decision to offer and recommend a lower dividend payout ratio.

So the first 2 questions on rate hikes and cost of risk has already been answered. The recommendation for a lower dividend payout, I think it's a recommendation of the Board to the general assembly and not a recommendation by management as you would appreciate from a governance perspective. But we want to make sure that we manage shareholder expectations as well as ensure that there is adequate capital generation, organic capital generation in order to support our growth ambitions. 2022, again, is a year where we will continue to grow just like we've done in 2021, in 2020, in '19, '18, and the so many years that we've been growing. And I think since the last couple of years, we also want to make sure that there is no undue pressure put on shareholders for enhancement of capital or capital increase in order to support our growth ambitions. So it is important that shareholders recognize, and they have rightly done so in the past that we got to be balanced in terms of our dividend payout as well as organic generation of capital. So what that translates to in terms of percentage is relevant, we feel that the banks have done well in generating the profit. And the bank is also ensuring that around 25% dividend per share is paid to the shareholders. But again, the dividend payout ratio that you are calculating is before the payment of the Tier 1 perpetual or the mandatory, the card payments that the bank does. So on -- if you take those into account, we are at around 50% of dividend payout ratio. So I think your numbers just need to be validated at your end. But I don't think so it is lower than where it was significantly when compared to last year.

[Operator Instructions]

So a few questions here from Chiro from SICO Bank. The first one is on the percentage of loan repayment. The prepayment is AED 45 billion how much of it is one-off and what will be the course of business? The second is on the NPA coverage, which here you're stating at 60%, excluding NMC. That appears low. And the third is on the sector. Which areas would be our focused sectors for 2022 in terms of growth?

Thank you, Chiro. Your first question on loan repayments, the extraordinary repayment out of the AED 45 billion, our AED 45 billion is a gross amount that includes extraordinary presettlement as well as the normal repayments. The extraordinary presettlement out of the AED 45 billion are close to around AED 22.5 billion. So that's around 50% of the AED 45 billion extraordinary. We do not anticipate that happening in 2022. Which sectors were they coming from? They were predominantly from the public sector. And will these continue if crude prices remain high? They had nothing to do with the crude prices or where the oil prices were. Clearly, those repayments were linked to some of the assets or an asset disposal plan that some of these sovereigns had. And when those materialized, they were flushed with liquidity, and they then ensure that the corresponding liability on their books is settled. So we do not link it to any of the macroeconomic factors or any of the -- or where the oil price was or where it would be. So we also do not anticipate 2022 to be such high on extraordinary repayments. If you're referring an NPL coverage of 60%, excluding NMC that you're referring to, no, if you exclude NMC, Chiro, our NPL coverage is at around 78% if you to exclude NMC. I mentioned on many calls before that inclusion of NMC just distorts the numbers. And that's why we started to show you a pie graph where we've stripped out NMC. And on a stand-alone basis, the NPL at BID is at 5.5%, and the coverage against that is at around 78%. So if you strip that out, I think we are in a very comfortable position. In terms of NMC specifically, we are very comfortable. We have brought that exposure down significantly over the last 18 months or so. And today, just based on classifications, we require 50% coverage on NMC. But we are at around 62% coverage on NMC, if you take just NMC specifically. So overall, it gets skewed when you bring NMC in the picture. But on a stand-alone basis, we are very comfortable. Of course, on an overall collateral basis, we are much more comfortable. And these are at discounted real estate prices. And as you know, things are improving from here on. The 2021 has witnessed real estate prices going up and the values of collateral. So we are very comfortable. And this is not an overnight position that we are focusing on. We've been seeing this over the last 5 years or so. Your last question of focus areas on 2022, again, I have repeated this many times. Our strategy in the last few years that we've been growing, 8 years now to be precise. We've not changed the way we've been growing. Our underwriting continues to remain very robust. We have in 2021 and 2020 focused on low-risk segments, sovereign, quasi-sovereign. So on the corporate banking side, that would continue to be our focus area. On the consumer banking side, we will continue to focus on the key anchor products that we've been focusing on in terms of personal finance, auto finance, small and medium enterprises as well as home finance. So that would be our key focus area for 2022. I have reached to -- I know there are so many more questions, and please feel free to reach out to Investor Relations. Some of these questions I repeat. But like always, I want to use the last part of my hour, 5 minutes, to kind of sum up 2021 and also reflect very quickly on 2021 and tell you in summary what you're going to do in 2022, just basically a brief version of what I have been saying so far. So last 5 minutes, if you don't mind, is that 2021, we've seen some record turnaround for the bank. Remarkable achievement in terms of net profit, which is 39%. But more importantly, we've come up with an operation which is very agile, very lean, very efficient that allows us to maintain a cost-to-income ratio, which is second to none when compared to our industry peers, understand that around 26.8%. Also, our very proactive management of our cost of funding, needless to say, in a low interest rate environment, but even in a high interest rate environment, we've always been managing our cost of funding very well. We've been one of the most efficient players when it comes to cost of funding. That has also helped contribute to the profitability. And with the recovering economic backdrop and asset quality position improving, macroeconomically, we've made sure that our impairments and provisions are adequate, albeit lower than our levels in 2020. All these key parameters put together have allowed us to achieve a 39% year-on-year growth in net profit. But I also want to throw light on the actual growth that we have witnessed. Of course, the market has not seen the kind of credit underwriting that we have. But 2021 does not reflect our final financing book position, does not reflect that. We have seen around AED 36 billion in credit underwriting, which, in a very good given year, should that early settlements not have happened, would have shown better growth in terms of our overall balance sheet and of course, in terms of our P&L also. Because remember, the AED 22.5 billion that has been early repay has also impacted our P&L in terms of reducing the overall income contribution. So overall, 2021 has been a good year in terms of net profit, in terms of provisioning, in terms of cost management, OpEx as well as cost of funding and in terms of asset quality. As a result, our overall ratio in terms of efficiencies happen to go in the right direction or from trajectory better than 2020 results. And having managed a robust bank, a robust balance sheet, a more lean, agile and efficient operations, I think it puts us in the right form to start and embark on our next 5-year journey, which is the strategic plan for -- from 2022 to 2026, the next 5 years, that fundamentally are going to revolve around 2 key pillars: strengthen the group and grow the group. And in order to do that, our strategic theme of DRIVE is going to be driving the organization forward. We have given you key guidance for 2022. You can extrapolate your models and figure out where the bank would be, how big the bank would be. Should it manage to keep up pace with what it has been doing in the next 5 years, so that's for you to analyze. But one thing we can say is that we are going to be positive in 2022, just like we were in 2021. And we will continue to measure ourselves with the guidance that we've given you quarter-on-quarter. And until the next time we speak, please feel free to reach out to the Investor Relations team should you have any questions and be safe. Thank you.

Thank you, Dr., and thanks, everyone, for joining us on this call. As Dr. mentioned, you can -- I know there are a few questions that still remain unanswered as they have just come in as well. So please reach out to us, and we will get back to you on those particular responses. Thanks again, and have a good day today.

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