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

Ladies and gentlemen, welcome to the Dubai Islamic Bank First Half 2022 Financial Results Earnings Call. [Operator Instructions] I will now hand you over to your host, Janany Vamadeva from Arqaam Capital. Miss, please go ahead.

Thank you, Lauren. Good morning, 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 H1 2022 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 Communication. Without any further delay, I will now turn the call over to the Head of Investor Relations, Kashif Moosa. Kashif, over to you.

Thank you, Janany, and welcome everyone to the first half 2022 results webcast of Dubai Islamic Bank. The session is led by our group Chief Executive Officer, Dr. Adnan Chilwan, accompanied by John Macedo, the Chief Financial Officer and myself. Request everyone to keep your questions coming through the email provided [email protected], and they will be addressed by Dr. Adnan at the end of the presentation. So with that let's start. We move on to Slide 4, and as you can see, the GCC economies continue to remain strong and robust as oil prices continue to hover around the USD 100 a barrel range. These high oil prices have supported the acceleration of the recovery of GCC economies on the days of lockdown and restrictions during the peak of the pandemic. The high oil prices also boosted reserving spending in GCC region and have ignited GCC investments across the MENA region as well. The ongoing global conflict in Europe had so far had limited impact on the GCC countries, given their minimal exposure on Russian and Ukrainian economy, as well as the trade levels compared to the trade volume to the rest of the world. And despite rising global inflation levels, the GCC remains -- regions remain robust in amongst the lowest inflation levels in the world. And given that GCC economies effect to the U.S. dollar, which has been appreciating, the inflation impact has been moderate compared to most of the economies in the world. Moving on to Slide 5, Dubai's economy continues its recovery with the latest GDP growth numbers showing strong growth year-on-year and the growth has been driven primarily by hospitality and transportation sector as the economy was quick to get back on track and manage the pandemic effect through the economic stimulus programs, economic reforms and other initiatives such as the highly successful vaccination rollout. Key sectors such as travel and tourism have returned back to its pre-pandemic level and the real estate has also seen some very strong volume growth for the year. Visa the residency reforms as well as Dubai being an attractive place to live and work has continued to attract global talents in the city. And finally, the UAE continues to address the global inflation challenges through initiatives that are restructuring its social program and increasing its budget to help support its [ business ] and residents. So with that now I will hand over to Dr. Adnan Chilwan, Group Chief Executive to take you through the first half of 2022 financial results. Dr. Adnan, please.

Thank you, Kashif. Good afternoon, everyone. As always, I will quickly do a page turn of the presentation and then take as many questions that I can and finally use the last 5 minutes of the part to summarize the performance of the bank in the first half of 2022. I take your attention to Slide 7, where we are looking at the key highlights of the first half of 2022. Overall, very exceptional first half set of results across the bank in terms of business growth, as well as profitability metrics. The bank continues to demonstrate strong resilience amidst the ongoing current operating environment. The recalibration of our focus during the pandemic and the new strategy that we have unveiled in the beginning of the year all are supporting towards the positive results that you're now seeing. Before we deep dive into these results, let me first give you a brief of how the UAE is doing despite all the global headwinds existing today. The ongoing international conflict that we have witnessed around us has had limited impact on the UAE and the region so far given the negligible exposure that the UAE has on both the nations involved in the crisis. In addition, trade between UAE and the 2 countries is relatively low compared to trade with the rest of the world. Despite rising inflation levels globally, UAE and the GCC region remains at possibly the lowest inflation levels in the world at circa 3% to 4%. Governments within the GCC has introduced various measures to control rising consumer prices. Lastly, the latest economic figures from the Central Bank showed strong overall growth with UAE GDP estimated to have increased 8.2% year-on-year during the first quarter of 2022 and is projected to grow at around 5% in the full year of 2022. Now in line with Dubai and the region's recovery, bank was able to capitalize on the sail with the strong growth in our financing book. Our core assets as you can see have grown by nearly 6% year-to-date. The bank has clearly positioned itself to align to the recovery of Dubai as restrictions have been relaxed and the resumption of business activities across key main sectors is in full swing. As a consequence, our net profits has jumped to around AED 2.7 billion for the first half, which is a remarkable 45% year-on-year rise. On the other hand, cost-to-income ratio now has further improved by 140 bps quarter-on-quarter to 26.9%, which is amongst the strongest in the market. These are interesting numbers you are seeing and we will expand on these details in further coming slides. On Slide 8, when we look at the financial performance of the bank at a glance, again in this slide, you will see a very positive picture overall, both from a balance sheet perspective, as well as from a P&L. The strong growth in our net financing and Sukuk investments means that we have already surpassed our year-end guidance for this metric. We've seen a slight decline in deposits. Now this can be attributed to the highly competitive environment that we are seeing given the rising rates globally. And as I have mentioned in my previous calls, we manage our liquidity closely and keep a strong balance between required liquidity and the impact of that on margins. It's also worth noting that our CASA book has remained solid despite the rising interest rate trend. On the P&L slide -- on the P&L side, you can see a quite impressive and remarkable growth story. The relentless efforts to focus on improving our financial performance has kept the bank strong and profitable. Impairments continue to scale lower and we expect this to further improve as economic conditions return back to normal. Also as mentioned in the previous quarter, the increase in our OpEx is part of the bank's growth strategy. We are now looking to grow and strengthen the group over the next few years, predominantly within the support function. In this regard, the bank has also been investing and strengthening the key functions within the bank, such as compliance, risk as well as audit, whereby we aim to ensure that the bank be safeguarded from various market risks such as financial crisis and data breaches that a lot of financial institutions are facing today. Like I mentioned, profitability has risen with an impressive 45% year-on-year growth. Our core ratios remain robust with most key metrics surpassing already our year-end guidance and this year-end guidance is something that we will dwell on in the coming slides. Moving on to Slide 9, looks at the operating performance of the bank. As you can see, net profit margin continues to be on an upward trajectory and this is expected to further rise given the global market dynamics today. I've already mentioned about OpEx. OpEx is on the right and this is a part of a deliberate strategy, which we have embarked on to ensure that our key support functions are strengthened and are robust than ever before. However, the cost-to-income ratio remains well within the guidance. The efficiency ratios in terms of return on assets and return on tangible equity already has surpassed our year-end guidance. And with this, we have revised our full year-end guidance for these metrics, which you will see on -- within the closing summary of this presentation. On Slide 10, we look at deployment of funds. Healthy growth in our core assets, which stands now at around AED 282 billion and this comes from both financing as well as our Sukuk book, the latter continues to yield a healthy 4%. While the portfolio has witnessed a strong net growth of 6%, a deep dive into the number truly shows how incredibly robust the bank's growth engine is despite market volatility. And by that, I predominantly mean the way we've under written our business across our key business groups. At a gross level in the first 6 months, we've made financing at Sukuk investments to the tune of AED 33 billion. If we take out our regular repayments and maturities from this, which stands at around AED 13 billion, the difference is a remarkable AED 20 billion which has been the highest ever in the first 6 months of 2022. Further, from this number if we even strip out extraordinary settlements that have -- that we have seen in the first 6 months and that is close to around AED 7 billion. We are left with a net number of AED 13 billion and this is a remarkable achievement. And this AED 13 billion translates to the 6% growth from the year-end number that I have already alluded to. On the pie chart, you will see that we continue to manage our real estate concentration in our loan book and that stands at around 21%, down from 23% at the beginning of the year. Slide 7 looks at our consumer business. Gross consumer financing in the first 6 months has touched AED 9 billion and that indicates strong growth. This growth is in line with our pre-pandemic level growth in our consumer bank. Despite the AED 7 billion of regular maturities, this portfolio in total stands at around AED 52 billion, which is 3% up year-to-date. Revenues and yields in the consumer book continue to rise as well. On Page 12, a look at our corporate banking business. Our gross corporate new financing for the first 6 months has been approximately AED 17 billion and this is an indicator of growing business volumes. So it's hardly to see on the previous page that the consumer bank has started to grow, something that was not being witnessed in the last couple of years given the pandemic. Our corporate bank has always been on the forefront of growth, but now we can see that all our businesses are kicking in and contributing. So a look at our corporate business, clearly, we are continuing our momentum in the corporate business as well, new financing like I've mentioned stands at around AED 17 billion. Now despite revenue maturities and repayments of around AED 4.5 billion, as well as some extraordinary early settlements that we have seen in the first half of 2022, this portfolio grew by around 3% year-to-date to end at AED 149 billion, starting from AED 145 billion at the beginning of the year and needless to say, the pie chart shows you that the portfolio remains very, very diversified. The revenue trends within the corporate bank continue to be on an upward trajectory, reaching more than AED 1.6 billion in revenues in the first half and clearly this is a sign of our repriced portfolio given that interest rates are on the rise. Within the corporate book, the government sector continues to contribute strongly, now representing circa 18% of the corporate book and that would be at around 12% at the end of 2021. And if you recall, this has been our deliberate strategy at the beginning of the year to grow in low risk asset base and a very well diversified buy. On Slide 13, when we look at our treasury business, I've mentioned this many quarters before, treasury continues to be a key business of the bank and this stands now at nearly AED 50 billion, up from AED 44 billion at the end of 2021. Now in terms of new bookings, we've seen roughly around AED 7 billion of new bookings in the Sukuk book and with the settlements and maturities of around AED 2 billion, we've seen circa AED 5 billion growth in this and that stands very close to around AED 50 billion that I've mentioned. Now within the Sukuk book, 80% of that constitutes government as well as financial institutions. And like you can also see that the yield has remained stable throughout the first half of 2022. Slide 14 shows you the asset quality of the bank. The nonperforming finance percentage or the NPL percentage is on a continuous downward trend. You can see that we've started the year at 6.8% and we in the first 6 months have reached to around 6.5%. Now it's a combination of the numerator being arrested, slightly low, as well as the denominator increasing, something that we alluded to at the beginning of the year. Cost of risk is down significantly by 23 basis points to reach 76 basis points. As you recall, we were at 99 basis points in 2021. Now this is clearly a reflection of the improving market condition, but also our proactive management of our consumer collections book. So we've made sure that we've strengthened that side of our business and in terms of soft costs and hard costs, we are making sure that there are clear qualities and processes in place in order to make sure that we do not see the kind of NPL formation in the retail book that we had seen in the years gone by. No new significant NPL formation and the absolute number stands at around AED 13.6 billion, down from around AED 13.8 billion. So while we made progress in the numerator by bringing it down, the denominator has added significantly to the percentage coming down by around 30 bps. On Slide 15, again we are looking at the asset quality in greater detail, and we always shed some light on New Medical Center, which is on one of the 5 if you can see from left to right, the first pie shows you New Medical Center, NMC exposure. And you can see when you compare quarter-on-quarter, you can see that the pie continues -- the New Medical Center exposure to the bank continues to decline, given our very strong position in terms of recoveries from the insurance assignments that are being ring-fenced to the bank. The exposure, peak exposure a couple of years ago used to be at around AED 2.1 billion, that stands at around AED 1.4 billion today, roughly around AED 700 million of principal has been recovered. In terms of coverage, the total NPL coverage that we have in terms of cash coverage, we stand at around 74% and it's up by around 2%. We ended the year 2021 at 72%. In terms of total collateral coverage, as I mentioned to you before, we are sitting at a healthy 100% and above. On Slide 16, I won't dwell down into details here, it's in front of you and that's the asset quality by various stages. The one point that I would like to highlight is that increasing coverages, particularly on our Stage 2 and Stage 3 highlights the focus of creating cushions within the balance sheet, as well as a prudent provision approach that we've always adopted for years gone by. Slide 17 takes a look at our funding sources and our liquidity. Liquidity of the bank continues to remain healthy and strong. That is despite the kind of gross financing that we've underwritten, I've mentioned the AED 33 billion number to you. I've also mentioned repayments across our businesses, normal repayment of around AED 13 billion and extraordinary repayment of around AED 7 billion. When I met all those numbers, we've experienced a portfolio growth of close to around AED 13 billion, which is 6% year-to-date. Now that by any [ stretch ] of imagination is faster than one the market growth, as well as our own underwriting that we've done in so many years of our growth strategy that we've been witnessing. Despite that, our liquidity has remained strong and you can see that our advance to deposit ratio is at -- stands at around 96%. And that is deliberately in line with the strategy that we had. I had always mentioned to you during my year-end guidance or at the beginning of the year guidance that we aspire to be operating at ADR ratio of around 95%. And you can see that we have reached to around 96%, very close to where we want it to be. What is healthy to see in the liquidity ratios of the bank is that CASA now stands at around 44% of the overall deposits. Now to us, this is quite a milestone. In a rising interest rate scenario when you manage to enhance your CASA mix, I think that's a great achievement. That also not only brings down the cost of funding, but it also shows you the strength of the franchise, in time to grow the operating accounts of the various entities that we've been mentioning in the past. You can also see that both LCR and NSFR ratios are above the minimum regulatory requirement and I'm not talking about the relaxed requirement under the test program, I'm talking about the requirements which are fully loaded and we still stand at LCR of 117% and an NSFR of around 104%. On Slide 18, we look at capitalization levels and very robust levels, the total CAR stands at around 17.9% and that's around 80 basis points higher than where we ended the year. But what is heartening to see is the CET 1 ratio of the bank. The common equity Tier 1 ratio of the bank stands at around 13.2%. And we -- as you recollect, we ended the year at around 12.4%. So making progress both on the CAR and the CET 1 by close to around 80 basis points above the minimum regulatory requirement in both cases is very heartening to see. That shows you that despite the kind of growth that we have witnessed, capital consumption that has happened, the organic capital generation with a forecasted dividend payout in our minds still has allowed us to generate strong CET 1 organic generation. And CAR like I've mentioned stands at around 17.9%, way above the minimum requirement. Slide 19 takes a look at our digital strategy, highly spluttered slide, so I won't go into getter detail. But what we are looking at is sustained digital momentum across all our e-metrics, as our customers continue to benefit from the ease and effectiveness of our digital capabilities. Now this is attributed to a number of running offers and campaign such as migration of our IVR customers, promoting new clients on our mobile app, digital marketing services and promotions that we run on social media, these are just to name a few. All of these are in line with our digital strategy. So the second quarter has witnessed the launch of DIB on WhatsApp and we continue to enhance our digital capabilities through investments in this technology. This new feature will allow our customers to enjoy convenience for all their banking needs and much more and that would be available to them 24/7 through the very common chat channel that the world uses. I come to my last slide and that is Slide 21, which looks at the summary of the first half of 2022. I've already mentioned this, so I would say this summary towards the end of the hour where I use the last 5 minute to kind of recap on everything. But before I open the floor to question, you can look at the last box at the end of the slide, which takes a look at our target metrics. You can see that we have revised our target metrics across our growth. Now if you recollect, our growth target guidance was at 5% for the full year. In the first 6 months, we've already ended the year first 6 months at 6%. So we are revising our guidance upwards to around 7.5%. In terms of our NPL, we are at 6.5% in line with our guidance for the year. Now we don't want to get ahead of ourselves. We have remaining 6 months to go, so while macroeconomic indicators are all positive, we are holding on to this guidance. Clearly, it is also going to be impacted by the denominator which can go down, then it is -- should there be any repayments and go up a little when we do our gross underwriting and our net financing growth. So we want to hold this NPF guidance to around 6.5%. Real estate concentration, you can see that we are at 21% to our guidance of -- to be at around 20% at the end of the year is good. Our return on assets, we had full year guidance of 1.7%. We've revised this guidance upwards to around 1.9%. Now you can see that in the first 6 months, we are at 2% already. Now that doesn't mean that we are under bowling our self, clearly, at the end of the year, the denominator will change. It will be enhanced and that would have an effect on the percentage. So we are increasing our guidance from 1.7% that we had given at the beginning of the year to 1.9%. Similarly, on return on equity, if you remember, our guidance for the full year was 13%. We are already at 17% and we are increasing that guidance to around 16%. Now this again is in line with our denominator increasing because as we progress our tangible equity by the end of the year with increased, with forecasted retention of the profit that will not be distributed and that would increase the denominator and then that increases -- we would look at the ratios changing. So while we are at 17%, we are revising the guidance upward from 13% to around 16%. In terms of cost-to-income ratio, we are at around 26.9%, one of the lowest within the industry. Our full year guidance has been at 28% and we want to hold on to that guidance as of now, given that we continue to make investments in our core function, support function, which are imperative to make sure that the balance sheet and the bank continues to be robust. So we want to hold that guidance at 28%. Total coverage of around 103%, we are making progress towards the year-end guidance of 110% and we are confident that we would end up with that. Net profit margin, as you recollect, our guidance at end of the year was 2.6% -- 2.7% at the end of the year. We started the year at 2.6% or 2.5% rather as we made profit. So today, we are already at 2.8% and we are increasing that guidance to around 2.9%. Again, a reflection of the interest rate in the market, but more importantly, the way we manage our liquidity and our cost of funding. So you would appreciate that we have ensured that the deposits do not grow significantly. And by that, I mean term deposits and fixed deposit, so that has allowed the bank to kind of manage the cost of funding element. And together with the increase in the ease on the FX side, the net interest margin has grown by around 30 bps in the first 6 months and we clearly are revising that target to end 2022 -- 2022 at around 2.9%. Now with that, it brings me to the end of my page turn presentation. Happy to take question given the moment to kind of skim through the questions and collate them and then we try to take as many as we can in the next 25 minutes or so. And I would use the last 5 minutes of the hour to recap and shed some light on the first 6 months of the bank, something that I've already done, but it's very important that it remains top of mind.

Thank you, Dr. Adnan. Ladies and gentlemen, we are now going to review the questions that are coming through and we will start answering them as they come in, so just stay with us for a moment. Thank you.

[Operator Instructions]

Okay. So we can start with questions from Rahul from Citi. The first question is, to what extent are the rate hikes priced into the second quarter NIM and are second quarter NIMs new basis for third quarter?

Thank you, Rahul. I'll take your question in the order that you've asked us. The rate hikes that you see are already priced in. The net interest margin that we have already reached at, which is close -- which is around 1.8% -- sorry 2.8% is including the rate hikes that we have witnessed so far. In terms of -- is this a new base? I've already mentioned that we have revised our guidance. This clearly is a new base now and we revised our guidance upwards to around 2.9%. I must say that it is going to be a combination of working on asset yields, as well as making sure that the cost of funding on the deposit side remains with because as you would appreciate that we've done well in the first 6 months on the deposit side, cost of funding where it has not gone significantly higher, given that our CASA mix is at 44% and we have not mobilized high-cost deposit. But as we go forward in the next 6 months, growth on -- in the asset side is also going to be maxed by growth in the liabilities and we would have to be very careful that we do not shore up high cost deposits, which is something that we've been doing in the first 6 months. So the new guidance like I've mentioned for the net profit margin is at 2.9%. Your second question is around other income used to be much higher on a quarterly basis in 2022 -- 2021, this has declined. Clearly, that's a reflection, the other income constitutes major portion on our fixed income book, right? When we reduce concentration within the fixed income book, when the interest rates were low, the bond prices were high and we could make some gains. But as you would appreciate, as the interest rates have risen, the bond prices are low and we don't intend to sell any of the bonds that we hold at the current prices and hence, the other income is affected. Having said that, we have offset that with increase in our gross income in terms of our funded income, right? So our asset yields on our financing book and our Sukuk book are more than making up for that offset and that's how we've managed to enhance our P&L. The jump in income tax expenses in quarter 2, that's on account of our subsidiary in Pakistan, as the Pakistan government has levied a super tax that has reflected, we do a line-by-line consolidation of that balance sheet and hence that is reflected in our income tax expenses. Decent loan growth, your question 4 is on decent loan growth in the second quarter, where is this growth coming from? I've mentioned that in the first quarter and I'm repeating that in the second quarter. Throughout our growth story, we've continued to make sure that we diversify our asset buildup. So on the corporate banking side, we don't focus on any particular sector. We look at -- and that is witnessed to within the pie. But at the beginning of the year, we said that in the wholesale banking, we are going to focus on low-risk segments and typically government lending and GRE lending based on ring-fenced cash flows, which is exactly what we've done. But more importantly, we've also grown our consumer book to kind of diversify this risk asset formation. So our growth has come across all our businesses consumer, corporate as well as fixed income book. And across these businesses, there is no one sector or no one business segment that has grown substantially. We've made sure that we've diversified our pie across. And that is something that you've seen on page, I think, 11, 12 and 13 within the presentation.

[Operator Instructions]

So a question from [ Varuna ] from [ SICO ]. Could you explain if there has been any one-off element in the higher net financial margin in second quarter 2022 reversal of interest or in spend?

No, there have not been any one-off elements like reversal of interest in the spend. Predominantly like I've mentioned, our margins have enhanced because of 2 reasons. One is, obviously, we have managed to reprice our assets, 65, close to around 65% of our book is variable in nature. So with the rising interest rates, we have the ability to reprice them. So that's the first element of that net interest margin ratio. And the second part is that we've managed our liquidity very well. So if you look at the growth that we have witnessed in our financing book has not been matched by growth in deposits. And also, we have changed the composition of our liability book by making sure that our CASA book is at 44% and that enhances our net interest margin. It brings our cost of funding down and that's why there is a 30 basis point increase in net interest margin from the beginning of the year. And that's the very reason that we have changed the guidance of the net interest margin from 2.5% year-end or the guidance of 2.7% at the end of 2022 to 2.9% at the end of 2022 now.

[Operator Instructions]

So questions from [ Junaid ] from [ Farm ]. First question is on the rate hikes. How many of them have been baked into the result and guidance? Second is on what is driving the ROE for 2022 upwards. And third is, are there any one-offs in the associate income [ growth ].

So in terms of rate hikes, before I come to the revised NIM guidance, the current NIM that we are sitting at today, which is at around 2.8%, this has already factored in the current IBOR. So as the interest rates have moved in the past in the first 6 months, you would appreciate that IBOR has adjusted. Now with future rate hikes in mind, that IBOR to a certain extent already reflects the future rate hikes. So if you just take the current IBOR which has already baked in at least one of the next rate hike, we are at 2.8% already. So if there has to be at least one more rate hike or at least 2 rate hikes, that would eventually reflect in the IBOR going forward. So at this point in time, it is fair to say that our future guidance of 2.9% days at least 2 rate hikes into account because clearly the next 2 rate hikes are already baked into the current IBOR and our portfolio is being repriced at the current IBOR. So as the rate hikes would happen, if they happen more than 2, then the correct IBOR is going to move substantially. If only one rate hike happened in the next 6 months or so, the current IBOR is already reflective of that. So what we have done is the best way to do this is that we are managing both sides of our balance sheet, assets and liabilities in the way in the manner that we've done before and anticipate that there might be a 10 basis points movement in our NIMs and that's what we are factoring. If there are more rate hikes than 2 in the next 6 month, that would have an impact on IBOR and probably in the third quarter, we will look at whether we hold on to this guidance or not. So that's the best way of answering this question, given that we are very uncertain of how many rate hikes might happen. There is a meeting as early as today, evening UAE time, so we will see where that is. But should the rate hike happen in today's meeting, that is not going to significantly move the needle because the IBOR is already factoring that anticipated rate hike. Now in terms of ROE 2022 target, 16% to 17%. Now this is a reflection of the net profit that we forecast and also the reflection of the dividends that we have in mind. And the impact of the dividend payout on the base of the tangible equity. So when we factor all of that, we feel that the guidance should be revised -- revised upwards from 16% to around 17%, which is what we've done. Are there any one-offs in associate income? No, there are no one-offs in the associate income in Q2.

[Operator Instructions]

Okay. So got a few questions from [ Edmond ] from Bloomberg, so I will just quickly summarize what he is asking and Dr. Adnan to provide an answer. The first one is on the upward revaluation related towards the year-end and you have covered. The second one is on the asset quality is stable, but are there any write-offs in that area. The third one is on the strong credit growth and keeping also funding and what is the focus of setting up? And this fourth one is an expectation on slowdown in terms of mortgages in second half and [indiscernible].

Okay. Thank you, Edmond. I'll try and answer your question in the order that you've raised. Upward evaluation of collateral towards the year-end, yes, we anticipate that the collateral will be revalued and there would be an upward revaluation. But the total coverage would improve also because we continue to make cash provisions on the accounts that we require to make. So I think the total collateral -- the total coverage would benefit from not only the revised upward valuation, but also the cash coverage or the cash provision that we continue to make, which we have seen in the first 6 months of 2022 as well. The underlying asset quality you say is stable, but we are taking some write-offs to trim down the NPL. No, there are no significant write-downs write-off to trim down the NPL. First of all, write-offs on the corporate side are unheard of, right? Because we continue to hold that, you would appreciate that for us to write-off a corporate loan, we would have to make 100% provision on that. And if you look at our corporate loans, we are in line with what the standard requires and in line with what Central Bank requires, in most cases, 50% coverage because we also have the benefit of a collateral. So we do not write-off corporate loans. So I can't recollect in my memory written on corporate loans. The write-off actually happens on the retail side, which is in line with what the Central Bank regulates. So if a loan is 100% provided for, which would be 180 days plus, we provide 100%, we would write that off our balance sheet, but those are not significant to really bring down the NPL ratio. The NPL ratio is coming down like I mentioned. Clearly, because the denominator is growing and also there are some recoveries in the numerator. Your third question is on strong growth in credit. Yes and we've managed to keep the cost of funding down in order to widen margin, correctly pointed out by you, we have made sure that we do not enhance significantly our deposits in a writing interest rate scenario, fixed deposits would be very expensive for the bank. So we have made sure that we've not significantly increase that side, but at the same time, we have enhanced our CASA mix, that has brought our cost of deposits down and the cost of funding down on the liability side. And overall, the repricing of asset side has allowed us to improve our margin, ending the first half at around 2.8% and thereby increasing the margin from 2.7% to 2.9%. And finally, your question on slowdown in mortgage, do we expect a slowdown in mortgages in the second half? No, we do not expect a slowdown in mortgages. We are already in the third quarter, towards the end of July and we have not seen any significant slowdown in the mortgages. And we feel that continuing the remaining part of 2022, so we don't feel that mortgages will be slowing down.

[Operator Instructions]

Again, a few questions now from Alok from Ghobash. The first question is on the year-on-year decline in second quarter 2020, 2022 non-interest income, what's the reason for that? And what's the management view on cost of this for the remainder of the year?

Alok, thank you for your question. Your first question on noninterest income and why it has been low in 2022? I've already mentioned that, I just repeat it for your benefit. 2021 when you compare it to the base year of 2021, in that year because interest rates were low and bond prices were high. Whenever we exited a few positions in our fixed income book, we did that at a gain. That obviously is unavailable today because the interest rates are high and the bond prices are low. And we are in no need to kind of sell any of our fixed income book at these values. And hence, the noninterest income is lower than the base year of 2021. In terms of our cost of risk and our view on the remaining -- remainder of the year, we anticipate that our cost of risk will remain at this level throughout 2022, the remaining part of 2022. We obviously do not -- we don't want to get ahead of ourselves and say that the cost of risk will be lower. Clearly, I think we want the cost of risk to be at this level because we want to continue making provisions and build coverage like I've mentioned to Edmond in the previous question that we want to make sure that our coverage ratio improves, our cash coverage improves and our total coverage improves. And in order to do that, we have to make sure that the cost of risk is at a manageable level and the risk, the cost of risk in the first 6 month is where we anticipate the year-end 2022 cost of risk will be.

So a couple of questions from [ Shevan ] from [ Alram ]. What proportion of Stage 3 loans are moved to Stage 2? And the second is how often is the loan books repriced in deposits too?

Thank you, Shevan, for your question, but the first question, proportion of Stage 3 loans moved to Stage 2, not significant, I can say that. So very insignificant portion of our Stage 3 have moved to Stage 2. Our stage 3 loans continue to be in Stage 3 and we continue to make provisions against those loans to enhance the ECL coverage. In terms of loan book, how often is it repriced? 85% of our loan book is between repriced between 3 to 6 months. And on the deposit side, it's fair to say around 65% of our deposits are repriced between 6 to 12 months.

So a couple of questions from Vijay from Al Tayer. The first one obviously is the fact there is an improved capitalization in asset quality metrics, what are the expectations vis-a-vis dividends going forward. And the second is on, any expectations in terms of challenges to growth in terms of reduced appetite for corporate loans among -- amount within the interest rate.

I think as I've mentioned in the past as well, we do not have a standard dividend policy. And there's no -- I don't think so market should expect that in the first 6 months given that we've improved our capitalization and asset quality metrics, we would be guiding on dividend. Dividend is, as you would appreciate, a shareholder matter. And we always balance it to make sure that the bank has adequate capital in order to support its growth, as well as meet shareholder expectations in terms of dividend payout. So based on the kind of net profits that we will see at the end of the year, one should expect that the bank would have a very balanced view towards dividend and dividend payout ratio. So I think we just have to wait for another 6 months. In terms of do we expect any challenges to growth? Well, there have been challenges in the first 6 months also, but the bank has done very well in terms of underwriting the way it has underwritten. So despite the challenges that we have seen in the last so many years, we have continued to have a very meticulously crafted strategy that we unveil at the beginning of the year and then we go about our business. You can see that the first 6 months of 2022, we've done very well for our self. So we will continue to do that kind of underwriting in the next 6 months also. We have a very strong pipeline across all our businesses and we anticipate that we will not be seeing anything different than what we've seen in the first 6 months. This brings me to the last 5 minutes and I would now use these last 5 minutes to kind of summarize and if I've not had the opportunity to answer any of your questions and I can see that there are so many more questions, we'll try and reach out to you or you can reach out to our Investor Relations team. But let me just use the last 5 minutes to kind of just recap the first 6 months of the bank. In terms of net profit, obviously, we've seen a 45% year on growth and that is very significant. Closing the first 6 months at AED 2.7 billion shows you that we are clearly in line with achieving the desired results that we have embarked upon for the full year of 2022. But what is heartening to see that, this net profit growth is coming on the back of a few key drivers. When you look at the gross income, the gross income continues to rise very close to double digit. We have made sure that our net interest margins had increased from where they were at the beginning of the year. Our asset quality looks robust and hence the need to make less provisions and impairments, we've managed our cost of funding very well by making sure our CASA mix contributes very well to our liability book. That has allowed us to bring our cost of funding down and both the asset repricing as well as cost of funding management has allowed us to enhance our net interest margin. So while our net profit might be the -- might look optically wonderful at 45%, I think we should also look at the core engine of the bank growing, the total income of the bank growing, the gross revenue is growing. And the core engine in terms of financing growing by around AED 33 billion, gross financing growing by AED 33 billion is I think a remarkable achievement in itself. And that is coming from not one pocket or one segment or one sector, but across our businesses, consumer bank, our corporate bank, as well as our fixed income book. Now despite normal repayments, which are a part of our business and an extraordinary repayment in the first 6 months, we have ended up with a 6% increase in our net financing and Sukuk growth, which stands at around AED 13 billion in total. So all in all, I think we've had a first wonderful first 6 months and that has reflected very well on our return on assets and our return on equity, both these guidance's have gone up and are also reflected on our cost-to-income ratio, which stands at around 26.9%. So we've done very well in the first quarter of 2022 and exceptionally well in the first quarter -- in the second quarter of 2022, thereby ending the first half of 2022 on a record level. And we will keep up, aspire to keep up this momentum in the second half of 2022. And once again, we will meet you in once the third quarter results are out and then also give you some color on where the guidance is and if that needs to be revised upwards. With that, it brings me to the end of my presentation and thank you for joining in. Please feel free to reach out to our Investor Relations team should you have any questions or if your questions have been unanswered. Thank you very much.

Thank you, Dr. Adnan. Thank you, John, and thanks everybody for joining us on this webcast and we look forward to seeing you again our third quarter results. Thank you.

This concludes today's conference call. Thank you for your participation.