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

Hello, everyone. Welcome to the Dubai Islamic Bank First Quarter 2024 Financial Results Earnings Call. Please note for all those who are listening to us via the webcast link kindly refresh your browser in case you're experiencing any intermittent audio issues. [Operator Instructions]. I will now hand over to your host, Janany Vamadeva from Arqaam Capital. Please go ahead when you're ready.

Thank you, Seb. Good morning, 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 Q1 2024 Earnings Conference Call.  I have with me here today from DIB management, Dr. Adnan Chilwan, the Group's 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.

Thank you, Janany, and welcome, everyone, to the first quarter 2024 webcast of Dubai Islamic Bank. The session is led by our Group CEO, Dr. Adnan Chilwan, accompanied by John Macedo, Chief Financial Officer, and myself. [Operator Instructions]. So with that, let's start. Now we move on to Slide 4. As you can see, the Brent oil price has witnessed a healthy bounce back during the period, up 14%, and ending the quarter at USD 87.5 per barrel. At the same time, the U.S. Fed also paused its rate hike twice during the quarter despite an improvement in the labor market and slowing inflation. In its latest world economic outlook report, the IMF is expecting a higher chance of soft lending in the global economy, that's by improved economic outlook relating to resilient economic growth in the U.S. and several other large emerging markets and developing economies.  Inflation continued to surprise favorably for 2025 with the IMF lowering its forecast to 4.4%, while inflation expectation for 2024 was kept unchanged at 5.8% as compared to 6.8% in 2023. In the MENA region, however, the picture is even brighter. The IMF expects an improvement in its activity to 2.9% and 4.2% in 2024 and 2025, respectively, on the back of robust non-oil growth. We now move on to Slide 5.  And closer to home as well, the U.A.E. economy has continued its positive momentum. The country has been removed from the FATF grey list after implementing the recommendations to strengthen anti-money laundering measures and combat financial crime. Turning our attention to Dubai's tourism sector, indicators continued their strong growth, exceeding through the 2019's pre-pandemic levels during the full year 2023 and receiving 17.2 million visitors, up 19% year-on-year.  Western Europe ranked first with a share of overall 18% followed by DCC countries. Similarly, total spending using international cards in the UAE witnessed growth of over 25% in 2023 according to Mastercard. The number of greenfield SDI projects in the UAE surged by 36% year-on-year ranking second globally with 1,280 projects trading only behind the United States. Notably, Dubai accounted for approximately 81% of the total number of projects in the U.A.E. With that, I will now hand over to Dr. Adnan Chilwan, Group Chief Executive to take you through the first quarter financial results. Dr. Adnan, please.

Thank you, Kashif. Good afternoon, everyone. As always, I will do a quick page turn, shedding light on the overall performance and metrics for quarter 1, followed by a Q&A session, and finally, wrapping up the call with a recap summary.  Let's start with Slide 7, certain key highlights for the quarter. We have delivered a steady resilient set of results during the first quarter, and that is around profitability as well as balance sheet metrics. The balance sheet has continued to expand by 4.1% year-to-date basis, and this has been driven by core business, mainly financing and Sukuk Investments, which were up by 3.3% year-to-date.  If we look at our gross new underwriting and Sukuks, during this quarter, these equated to nearly around AED 21 billion, and that is up by 2% when compared to the first quarter of 2023. As you all know, the UAE has implemented a corporate tax regime, and that is effective this quarter. In quarter 1, I'm pleased to announce that we have delivered net profit, and that is pretax net profit. This is the discipline that we're going to follow. We will always be telling the markets and analysts about our pretax net profit so that you can compare apples-to-apples.  Our pretax net profits for the first quarter have been AED 1.85 billion, and these have been up by 22% year-on-year. And accordingly, the return on tangible equity stands at 20.4%, which is up by 290 basis points year-on-year. Another achievement this quarter has been the improvement in our asset quality metrics. Our NPS ratio has registered 4.97%, which is down by 43 basis points on a year-to-date basis. And this is predominantly the result of a settlement reached regarding the legacy new medical center exposure. Overall, a steady set of results with most KPIs meeting our year-end guidance.  Slide 8, financial performance, looking at balance sheet. Digging deeper into the performance, we've delivered balance sheet growth of 4.1% year-to-date, and balance sheet stands at AED 327 billion. The bank continues its strategic growth agenda with the aim to ensure a balanced credit growth. This is obviously making sure that we have optimum net profit margins. Now whilst the bank's financing portfolio, you can see has grown by nearly 1% year-to-date and stands at around AED 201 billion, one would say that this 1% growth is not as we have witnessed in quarters gone by. I would like to respond by saying that this is the start of the year, we've got a very strong pipeline. Having said that, this 1% year-to-date growth has been impacted by early settlements and pre-settlements to the tune of around AED 3 billion. It's worth highlighting that the pipeline, which I just alluded to, remains very strong, and we are well-poised for the rest of the year. On the other hand, Sukuk, you can see have increased by around 11% year-to-date, and they stand at around AED 76 billion. On our funding side, deposits have also increased by 6.2% year-to-date, and mainly this is supported by our corporate accounts, primarily corporate savings accounts. The pretax returns on tangible equity as well as return on assets, these key efficiency ratios, you can see, have outperformed our year-end guidance. And hence, we remain securely positioned as far as our commitment to our shareholders is concerned. Another brighter metric, I've already mentioned is asset quality, and we will dwell deeper into this on subsequent slides. This has improved tremendously. And this, like I've mentioned, will be explained in the latter section of the presentation.  Slide 9 looks at financial performance. Looking at the income statement here. Again, a resilient story with respect to P&L. Our total income, as you can see, has increased by around 27% and stands at around AED 5.6 billion in the first quarter. Net operating revenues are also healthy. They've been up by 6.7% year-on-year and stand at around AED 2.1 billion. That is before impairment and any taxes. Impairments were slightly down by 40% year-on-year, standing at around AED 300 million, and this is on the back of strengthening the macro environment of the UAE as well as certain reversals in there as a result of the new medical center settlement. This then reflects the cost of risk to be at 40 basis points in Q1 versus 80 basis points in Q1 of 2023.  Slide 10 looks at profitability in greater detail as well as a look at the cost structure. In this slide, I would like to highlight the main contributors to our net operating revenue, where net funded income has come in flat. This has been impacted obviously by the pressure on the bank's cost of funding. However, nonfunded income has recorded a healthy increase of around 44% year-on-year. This rise is attributed to higher fees and commissions and other income, which mainly comprises of one-off gains, as well as very strong business momentum that you can witness within our JVs, associates, and key subsidiaries.  OpEx was up by 14% year-on-year, and this is in line with the bank's strategic investment, which we have mentioned over a numerous number of calls. And these investments are in ensuring that we've got customer-centric technology upgrades as well as we are investing in acquiring key talent mainly across the bank, but more importantly, within our support functions. As a result, our cost-to-income ratio accordingly has registered 28.3%. This is up by 140 basis points year-on-year and 60 basis points quarter-on-quarter.  We feel that this cost-to-income ratio at 28.3% is something that would come automatically under control, and you should be guided to the annual year-end guidance that we have given, which would stand between 27% to 28%. All of the above has led to a solid 22% year-on-year rise in net profit, again, pretax net profit stands at AED 1.85 billion. But on the slide, if you can see the bar chart on the left, you can see that we've added another colored bar, the slightly maroon/burgundy color shows you net profit after tax as well. So as we go forward from here on, we will continue to focus on pretax net profit and pretax ratios, but also convey to you what the net profit after tax is as well as the returns after tax.  Slide 11. We look at deployments of funds, and this is purely our financing. We will look at individual businesses on subsequent slides. But here in a nutshell, our assets have grown by around 4% year-to-date, standing at around AED 327 billion. And this is on the back of some strategic medium-term expansion in the Sukuk as well as the financing portfolio. When you look at real estate as a concentration of our total loan book, it stands at 18%, which is well within our guidance of 20%. And details about all the relevant businesses are going to follow in the next slides.  Having said that, let's look at Slide 12, which is a look at our Consumer Banking business. You can see that the portfolio continues to see traction and it has been growing over the last couple of years. The portfolio is up by 2% year-to-date stands at around AED 57 billion and constitutes 28% of the total financing of the bank. This higher pickup is on account of our auto financing business, which is, again, on the back of a rising population as well as high demand for cars as well as some targeted electric vehicle campaigns that we are running.  But across all products, you can see that we booked new gross business on the consumer side, which stands at around AED 6.2 billion in quarter 1. And when compared to quarter 1 of 2023, it used to be at AED 5.2 billion. So you can see that even gross underwriting on the consumer banking business front has seen a good increase. And despite routine repayments of close to around AED 4.8 billion in the consumer portfolio, the portfolio has exhibited positive growth for the year, and it has grown by about AED 1.4 billion, which is close to around 2% year-to-date. Yields have also expanded on the consumer banking side, and they have expanded precisely by 46 basis points, they stand at around 7%. On a year-to-date basis, you can also see that our consumer deposits have increased by 2%, and they stand at around AED 90 billion, while CASA deposits on the consumer side have remained sticky, again, seemingly agnostic to the rate environment.  Similar to the Consumer Banking business, we will also look at the corporate banking business on Slide 13. Our Corporate Banking business portfolio has remained flat on a year-to-date basis. And we've closed the quarter at about AED 144 billion. Having said that, it's a very well-diversified portfolio. And the pie chart in the middle of the slide will show you various colors and that just shows you how diversified that portfolio is. Whilst the portfolio has remained flat, we can also confirm to you that our gross new corporate underwriting has -- for the first quarter has been about AED 7 billion, and it has been compared to the same period last year, roughly around similar levels.  With strong liquidity and capital position, the bank obviously will strongly capitalize on this business for the remaining part of the year. We've got a very strong pipeline on the corporate banking side. So whilst the portfolio seems not to have inched up, the reason for that has been predominantly early settlements and pre-settlements that we have witnessed, which stand to the tune of close to around AED 3 - 3.2 billion, which I have alluded to on the previous slides.  Revenue trends in the corporate banking are witnessing an upward trajectory. They are up by 7% year-on-year. The yields have expanded by 66 basis points and stand at around 6.7%, very close to where our consumer banking yields are also at. We've seen some healthy growth in the corporate liabilities. Overall, they have been up by 9% year-to-date. And our corporate CASA balance growth has seen a very strong 23% growth on a year-to-date basis as the bank continues to attract strategic corporate clients and operating accounts within our corporate banking business.  Slide 14 looks at a very important -- another important business of ours, which is our treasury. Treasury portfolio and primarily the fixed income book has expanded and stands at around AED 76 billion from around AED 68 million at the end of last year. This growth is nearly 11% year-to-date. And on a year-on-year basis, if you compare the first quarter of 2023 versus the first quarter of 2024, it is circa 37% growth year-on-year. Now this is part of a deliberate strategy, which I had alluded to even last year in the last call that we had. This delivery strategy is to book long-term assets in the current high-rate environment because the interest rate environment has remained higher for longer and would continue to remain higher for longer in the at least anticipated next 2 quarters. So we wanted to make sure that we've grown this book and locked in some high rates at this stage before the rates start going down.  So nearly 3/4 of our Sukuk portfolio is -- you can see from the pie chart is within sovereign, while 90% of the remaining is investment grade or above, underpinning very high quality. The yields on our fixed income book have also expanded. To be precise, they've expanded by 27 basis points year-on-year. They stand at around 4.8%, and that is because the incremental Sukuk investments that we are doing are carrying higher coupons, and we've been doing that over the last 12 months. So hence, we've seen some pickup in our yields on the fixed-income book.  Revenues over the year have picked up by around 29% and they stand at AED 607 million. And those revenues not only include the profit income or the profit coupons from the Sukuks, but also income from derivatives, profit rate swaps, foreign exchange, and all of the other components that are within our treasury business.  Slide 15 looks at asset quality. I've already mentioned that we've seen some strong asset quality in the first quarter, and that is predominantly on the basis of certain settlements that we've done. Our NPF ratio, you can see from the graph stands at 4.97%, and that has improved by about 43 basis points. Cash provisions have increased, and they stand at 93%. They were at 90% at the end of the year, so they stand at 93%, and this has been up by close to around 3% or 300 basis points. Impairment charges for the quarter declined on a year-on-year basis by 40%. And we've used the strength of our P&L to make impairments and provisions close to around AED 300 million. They are lower than our normal run rate. And the reason for that is because of the settlement that has passed through the P&L. There was a recovery of certain provisions we have made in the past, and that has enhanced the P&L or brought down the impairments.  But the 40 basis points cost of risk that we have seen in the first quarter, you have numerous times asked me what the normalized cost of risk is, and I would still guide it to be between 70 to 80 basis points.  Slide 16. We look at asset quality, but by stages, I've already mentioned this, but as a part of the settlement that we reached with a new medical center, we have received some cash consideration as a final settlement as well as what we refer to as Holdco notes. And this is nothing but equity within the company against our claims. The impact is accordingly exhibited in the Stage 3 accounts, which have dropped by 7.6% year-to-date and they stand at around AED 10.6 billion. So the numerator definitely has gone down. As a result, Stage 3 coverage has increased by around 450 basis points. And you can see from 68.3% coverage at the end of last year, it has reached to around 72.8%. Again, Stage 1 and Stage 2 graphs show that our financing has remained stable, and also the coverage ratios have remained pretty much stable.  Slide 17 looks at our liquidity positions and our liabilities. The liquidity of the bank continues to remain strong. You can see that the quarter-end LCR has reached about 168%. And that allows the bank to meet short-term obligations. Our NSFR ratio also, you can see is at a healthy 106%. CASA, very importantly, stands at around 89 billion, and we see increases in our CASA accounts and increases in our CASA balances. Balances have increased within CASA by 9.1% year-to-date and our CASA ratio as a mix of overall liability stands at around 38%. The remaining is in the form of Wakala, which is close to about 62%, and that's just a reflection of the high-interest rate environment.  Slide 18 looks at capitalization ratios and all of these ratios are Pillar 1. Capitalization levels remain robust. You can see that our CET1 ratio stands at around 13.1%, up by around 30 basis points from 12.8% and our total capital adequacy ratio stands at around 17.5%, which is up by around 20 basis points. Both of these ratios are well above the minimum regulatory requirement of 10% CET1 and 13.5% Tier 1, respectively.  On Slide 19, rather, we look at our digital strategy and our digital strategy continues to support our overall growth. Now our efforts to pursue our digital capabilities will continue, and we have seen some strong growth momentum across some key metrics. For example, mobile banking transactions, we've seen a very strong rise to see close to around 6.2 million transactions in the first quarter, and that's a robust growth of around 20% year-on-year.  Similarly, we've introduced WhatsApp as a channel. Now this channel has reached close to around 144,000 subscribers as of Q1 2024, and that's a rise of around 100% year-on-year because at the same time in Q1 of 2023, we had close to around 67,000 subscribers. That's when we had recently started the WhatsApp channel. So we've seen some very good traction in the WhatsApp channel.  Now we've also, as you are aware and recall that we've launched our full-service digital banking, which is ALT. And that continues to fulfill the day-to-day banking needs for the customers. And it's all about accessibility and convenience and there are close to around 135 services that are available to our alternate channels or what we call as DIB ALT. And those channels include subchannels like mobile banking, online banking, WhatsApp channels that I just mentioned, and our ATM network that also contribute to how services can be rendered across our digital platforms.  Slide 20, another important slide. We've been talking about this slide over the last 18 months or so. It's a slide that speaks about our ESG strategy. Here, we continue to be at the forefront of sustainable finance within the region. We have successfully issued our third Sukuk, and it's a sustainable Sukuk. As you recollect, as a part of our strategy, I had mentioned that every issuance that we will do within our capital be sustainable in nature. And in order to do that, we came up with ESG framework, which was nothing but the ESG strategy. And then we supported that with an ESG financing framework. So within all of that, within that financing framework, we also made a commitment to the market that all of our issuances from there on would be sustainable in nature. We've done exactly that. Our third Sukuk, which we issued in February of about $1 billion was also sustainable in nature.  And that actually saw some very good demand. It was subscribed close to 2.5x, and that just highlights the resonance of the bank's financial and sustainability narrative, and it went very well with regional as well as global investors. So in total, our sustainable Sukuk issuances are at about $2.75 billion. And that is something that we will continue to do every time we come to the capital markets space.  Now obviously, while we mobilize sustainable liabilities either from the local market or from the international market, we also have a commitment to make sure that these are invested within sustainable assets. And how do we do that? We do that by coming up with sustainable products on the asset side. Our product on the auto finance called Evolve has done very well for us. We've also supported new products within our asset offerings. We've come up with a new product called Nest, which is nothing but our sustainable home finance. And we will continue to enhance our sustainable products on our asset side in order to make sure that we then deploy the liabilities that we are generating, sustainable liabilities that we are generating. So nothing new here in line with our strategy that we have unveiled to the market, and we will continue to build on this area. And this to us is very strategic in nature and forms an inherent part of our overall strategy.  On Slide 22. This is just a summary of everything that I have mentioned. I am going to pause here. We will definitely touch upon this slide, one slide then the Q&A session because the last 5 minutes of this hour would be for me to recap and summarize everything that we've said. And we'll probably look at Slide 22 in greater detail. But before I open the floor for Q&A, you can just see that the target metrics that we had unveiled to the market at the beginning of the year, which is the annual guidance that we gave, you can see that we have made a very good move towards each of the full year guidance. And in some cases, we are very, very close to what have already achieved the year-end guidance. But clearly, we will, at this stage, stick to the annual guidance because one quarter should just not be a reflection of what should be changed or what should not be changed.  So with that, I'm going to open the floor for Q&A and then again, wrap up the hour with the last 5 minutes for a recap.

[Operator Instructions].

So the first set of questions is from Janany. The first question is on -- if you can throw some more color on the full impact of NMC settlement. The second one is on the loan growth being lower than expected given the pipeline you mentioned in the year recall, and third in terms of margin, which is in line in guidance for down year.

Janany, as always, thank you for your question. NMC settlement, is it reflected in our books as of now? Yes, I can tell you that the NMC settlement has been completely reflected in our book. It's reflected on 2 sides. One is that our asset quality has improved. We have -- the settlement has been reflected in the numerator of our nonperforming financing. We have taken that out of our books now. It is completely off. And the result of the provisioning that we had made over the past have been used towards this settlement, and there have been certain recoveries that have also enhanced the P&L. I wouldn't say substantial, but they have enhanced the P&L. The only thing that now we can see in future from this remaining portion of settlement. The Holdco notes that we have on our books, we have made sure that they have been accounted for on face value.  So if there is an upside there, that will obviously flow to a P&L eventually. We are being conservative and not trying to take any upside valuation at this stage. But other than that, I think NMC for us is a closed chapter. We have, as you know, reached a settlement with there are no pending litigations from either of the parties. Our asset quality has improved. As a result, our coverage has improved. And in essence, for us, it is now business as usual. So NMC, you don't see -- you will not see anything flowing into future quarters, except whenever at the right time when NMC is sold off, we would then value the whole connotes and we will see what positive value it gives us and that will be enhanced -- that will flow through our P&L.  Loan growth was lower than expected. So if you dissect that question a bit, if you look at loan growth on our consumer side, it's in line with our expectations. We have grown 2% year-to-date on our consumer side, which is close to about AED 1.4 billion of net portfolio growth or close to around 6-odd billion of gross underwriting. So on the consumer side, I think that's good traction. On the corporate side, if you look at our gross underwriting, we've done well. We have grown that business, of course, not as much as we would want to, clearly, because it's a timing issue. There are certain very large financing applications that have been approved but are in the documentation stage. So we will see them flowing through Q2. However, we have also witnessed a continuation of some pre-settlements and early settlements that have dented the overall financing growth portfolio, and that's why the financing growth only looks at on a portfolio basis when you just loans, looks at around 1.2% growth.  But overall, obviously, our fixed income book is also -- should be looked at as a contributor to our growth because that's a deliberate strategy. It's a strategy that we have been following over the last couple of years, more so in the last year, and we have continued to do that in this year because of the high-interest rate environment. So we are locking in high rates for now. And again, there would be a time when our fixed income book growth would slow down. And our corporate loan growth or our consumer banking loan growth would be more than that. If you recollect, when we started our growth journey in 2013, that was what we were doing. So we were growing faster on our corporate banking. We were making sure that our consumer banking is growing.  And our fixed income book was not growing as fast as it has grown in the last couple of years. So I think we are very agile when it comes to maneuvering around our strategy. We are very opportunistic. We look at where the market is, and where the direction of travel is. And based on that, we kind of tweak our strategy. And you should not be surprised enough, you should be surprised because this is something I've alluded to. I have mentioned that in the last couple of years, we will continue to grow our fixed income book, and that is exactly what we are doing, what we've done. And we will also continue to focus on growing our corporate book and our consumer book. And again, in the next 3 quarters, you will see growth in these businesses.  The margin is in line with guidance, yes, you're right, but it is down year-on-year. What is driving this? What is driving this is again, we had anticipated this. If you remember, and that's why we came up with this guidance. We knew that the cost of funding would continue to be a challenge. There is a lag always because the first quarter of 2023 rates were at a certain level when compared to the first quarter of 2024 rates are at a different level, much higher. So let's say, if these 1-year deposits are being matured and they are rolled over, they are being rolled over at a higher rate. So there's always a margin pressure, always the cost of funding pressure on us because there is a lag.  Of course, the interest rate forecast over the remaining part of this year has changed significantly than where we were when we were planning in the last year. There are fewer cuts that are being deliberated now. There is also some narrative that there might be at least one interest rate hike. It's anybody's guess, we'll wait for that. But all in all, at least, there are a lesser number of rate cuts. Now that would then mean that margins would always be under pressure. And again, if rates remain at this level, if we continue to maintain our net interest margin guidance at 3%, that would be an achievement.  Having said that, if rates continue at this level until the end of the year, we might see some uptick in net interest margins, right? But I don't want to get ahead of myself. You need to do some simulations and get some color on where the interest rates are going to be. So we are closely watching this, but it's a good time to be in for financial institutions because another year of very strong earnings is anticipated.   [ Break ]

Okay. So we will have a few questions from Rahul. I think that whole of your questions have already been answered in the last one when Adnan talked to Janany. So we'll jump to the content. So the first question is around the comment on the impact on flood last week or any direct impact on the bank and the Central Bank has asked the bank to defer the loan, what do you see? The second one that we're looking at is the increase in OpEx and the new run rate of quarterly costs and what should we be baking in towards 2024. And the last is on what's driving the sequential quarter of the -- 2 sequential quarters very high other income.

Rahul, thank you for your questions. I think the impact of floods, obviously, the floods were witnessed in the UAE, and we've never witnessed something like that. But hats off to the leadership, the country has bounced back in as little as a couple of days. Is there any indirect impact on the bank? No. We've not seen any impact of that on the bank as such from a customer standpoint. However, it is great to see the kind of leadership that the Central Bank has shown in this respect and has allowed the banks to defer loans for any customer that would have been impacted by this and defer loans for about 6 months at absolutely no cost to the customer as well as no reclassification required as far as the banks are concerned, i.e., we did, if you recall, similar things during the COVID time. So this is similar to that. So this has been received positively by the market as well as all the financial institutions.  For DIB, what does that mean? It means that we are ready to support our customers where we are required. So whoever would approach the bank and would talk about being impacted by these floods, we would give them a leeway and make sure that we defer the installments by about 6 months. So obviously, this has just come in yesterday. So we will wait to make sure that we are at the forefront to support our customers.  Increase in OpEx in Q1, the new run rate of quarterly costs -- no, this is not the new run rate of quarterly cost. I think the increase in OpEx that you're seeing in the first quarter as well as the last quarter of 2023. So if we just look at these 2 quarters, these are exceptional quarters. It was because we were working on the settlement of the new medical center dispute. We've made sure that the legal costs that were accrued till date were actually expensed between these 2 quarters. And hence, this uptick that you see in quarter 4 as well as of 2023 and quarter 1. So that is not going to be repeated. And if you take that out, you should be guided by the cost-to-income ratio that we've mentioned. So if you want to extrapolate this, our cost-to-income ratio guidance, as you recollect, is at around 27%. So definitely, this cost that you are looking at or the uptick in cost is not the normal run rate. You should go by possibly Q3 of 2023 or Q2 of 2022. That should give you a good indication of where our costs should be, yes.  And what is driving 2 sequential quarters of very high other income within the revenue line? Well, it's a general positive macro environment that we are looking at within the country, and that is reflecting in the real estate inventory that we have on our book to be at a better level. And when we initiate a sale, there are certain gains from that portfolio. So that is one thing that is going into that line. Another thing is that our investments in our subsidiaries and associates and in the case of subsidiaries, DR specifically which is a line-by-line consolidation. So that is also being reflected in each of the lines and also within the other income line.  So I would say that the general trend of this other income line is pretty much peaking, and it has peaked. And over the next 3 quarters or so, you can see similar kind of numbers coming in from this line as well. So other income will continue to remain strong for us for the remaining part of 2024 as well.

[Operator Instructions].

So the question from Varuna from CECO. It's on the fact that the deposits have grown by 6% and the financing is muted. So the deposits are being deployed in scoop. So what kind of spreads are we making that makes this scenario.

So Varuna, a few things here. Yes, muted loan growth. But then again, that's you're looking at one quarter, right? We need to also be prepared with the kind of pipeline business that we have. So we obviously are planning for the future also. This is one. Second is we cannot take our eyes off our regulatory liquidity ratios, LCR, and SFR also need to be at a certain level. So you will definitely need to support those ratios with deposit mobilization. Yes, we've increased our Sukuk book, so that's a good investment. Remember, if you look at our blended cost of funds, overall, it's close to around circa 4%.  The new Sukuk investments that we are doing are on average at 7%, 8% given where the interest rate environment is. So there is definitely a positive spread there. But more importantly, I would not like to kind of look at this on a silo basis. We've got to look at overall growth ambitions we have, where the balance sheet should be, and what should be the composition of our mix. So all in all, also the 6% deposit growth that you're talking quarter-on-quarter, not all of that has come in the form of fixed deposits, right? So there are current and savings accounts, which are very negligible. So there is definitely -- every business that we are doing across consumer, corporate, or treasury is coming at positive spreads. So deposit mobilization is good. It shows you the strength of the bank, the strength of the franchise, we are able to grow the deposits. In fact, it should be -- we are able to grow our liabilities by 6% quarter-on-quarter, and that is just being deployed within our asset side of the balance sheet.

So there are some, a list of questions from Shabir. The first question is on NIM. What does fewer no rate cut mean for the name of the bank? The second is on asset quality, any potential spill because of high rates due to the climate issues last week. Do you have any -- third is on capital. Do you have any major capital commitments that could affect your dividends? Fourth, on associated income via the associated income increase, and can we expect this to be sustainable. Fifth is on deposits? Why has deposit growth been so strong this quarter? And lastly, on the fee income, can you impact the main drivers of the fee income?

Thank you, Shabir, as always for your questions. I think once we cover these questions, we are probably also coming close to the end of the hour, so I'll use the last 5 minutes to recap. But I think these -- covering these questions would have probably also answered questions that some of your colleagues would be having. Net interest margins, what does fewer or no rate cuts mean? When we were looking at our net interest margin guidance for this year, you were anticipating close to around 4 or 5 rate cuts. And then we had baked that in and then we came up with a net interest margin of around 3% guidance of around 3%.  Now we stand at 3% today. If no or fewer rate cuts, we anticipate that our net interest margin should improve. And I say that because of two reasons. One is that, obviously, our variable portfolio on our asset side will continue to be repriced or if there is any interest rate increase or if there's no rate increase, they will continue to be yielding a certain return for us on the asset side. Our fixed rate loans that we are booking are being booked at premium prices today, and that means our consumer banking business, personal loans, auto loans, or our fixed income book. So that is giving us positive momentum on the asset side.  When you look at our liabilities, of course, our cost of funding is I just mentioned to Varuna is that blended at 4%. But the more current and savings accounts that we are able to generate, and we are doing that, the more that we are able to generate, the more we will be able to bring down this cost of funding. And when we do that, our net interest margin should only improve. So I don't -- so while we have done some calculations and sensitivities in our minds, we don't want to touch the net interest margins right now. As you know, as a practice as a discipline, we do that once a year on the second call. So if required, upwards or downwards, every metric will be revisited. But I can tell you that if the interest rate environment remains where it remains, we should probably see some enhancement in net interest margins.  Asset quality, do you see any potential spill on asset quality because of higher rates? This high-rate environment has remained a high-rate environment for a large part of 18 months now. And we have not seen any deterioration in our asset quality that would have shown by now. So no, we do not anticipate any spill on asset quality because of the high rate or for the matter of fact because of the storm last week. Capital -- any major capital commitments which could affect our dividends? No. There are no major capital commitments at this point in time that would affect our ability to pay dividends.  Associate income has increased, can we expect this to be sustainable? The simple answer to that is yes. We are looking at this run rate now from our associate. If anything changes, we'll guide you to that, but we can see that this is sustainable. Deposit growth has been so strong in this quarter because we've managed to bring new operating accounts and enhance the balances within our operating accounts. So these are current and savings accounts, certain escrows that we managed to bring. They will only increase from here on. This is purely on the corporate side. And of course, on the consumer side also, you will see some new liabilities coming in because that has been the focus of our deposit mobilization drive.  Fee income, in fact, the main drivers of our fee income. Again, fee income has a few components in there. The normal business that we are underwriting. So there's a fee element to that. We've done some good fee business on our treasury side with derivatives and profit rate swaps and foreign exchange and all of that. On the consumer banking side, it is a reflection of the underwriting that we do, account maintenance fees, administration and processing fees, and thereabouts on the corporate side, again, a reflection. On the corporate side, we had good gross underwriting. Of course, it does not show in the portfolio on account of the early settlements. But when we have gross underwriting, we make fees on those also. And then in addition to that, obviously, we've seen some other income also grow. And that other income is on account of a good macroeconomic picture that we have, some real estate gains.  All of this put together reflects a very strong quarter across interest income as well as fee income. And then generally going to the overall net profit before tax and after tax. Good. There are many other questions that I can see, some of which have been repetitive because I have answered Janany, Rahul, Varuna as well as Shabir now. So pretty much the other questions that I can see are in line with what 4 of your colleagues have already asked. But if there is anything else that comes up, please, our Investor Relations team is very active. You can get in touch with them and we'll definitely try and answer those questions as always.  I am going to use the last 5 minutes of the hour to summarize everything that I've said because it's important that I take your attention again to the wonderful quarter that we've had. This is the third or the fourth quarter in a row that we've seen very good traction. So if you actually strip out all these one-off gains and all of that, you can see that the bank's net income is moving positively upwards and is heading in the right direction on an overall basis, net profit for this quarter is better than net profit for the prior quarters. So on an overall basis, I think we've had a very, very good start to Q1.  And with the higher interest rate environment, I think 2024 is going to be a year similar to 2023. And on a pretax basis, we would probably announce better results when compared to the whole of 2023. But we don't want to get ahead of ourselves right now. Q1 has been a very, very good quarter. You can see that in terms of our overall growth, which we had guided to at 5%, we've reached at around 3.3%. So that's great. We are also anticipating certain prepayments in Q2. And that would then reflect within our overall portfolio. But generally, a very strong pipeline as far as growth is concerned. We've remained well within our guidance for real estate. We had ended the year at around close to around 20%. We said that guidance should be at around 18%, and we are at 18%. Our asset quality has improved. Again, I've spent some time explaining to you NMC as well as denominator increasing, numerated decreasing. All of that has reflected in our asset quality to be below 5%, stands at around 4.97%.  And our ability to continue making provisions has also allowed us to make sure that our cash coverage has improved to around 93%, and our total coverage stands at around 126%. Now pretax profits of 1.850 have then translated to a very, very good return on equity and return on assets. That stands at around 20.4% return on equity, tangible equity, and at around 2.3% return on assets. And both of 2.1% return on assets. And both of these numbers on an overall basis are better than the guidance that we had given. So even if you strip out the tax implications because this is -- we've just started that to the bank would be working diligently with tax authorities to see what sort of tax deductibles we get an advantage that we get.  But from the current vantage point, if you just start looking at our net profit before tax, I think there's wonderful traction. And even if you look at net profit after tax, I think we are in line with all the key guidance that we had given. So overall, despite the introduction of corporate tax, the bank's profitability has remained -- profitability ratios have remained robust and intact in line with the guidance.  What should one expect from us in the next quarter or so? I think we will continue to grow the way we have grown across all our businesses. Gross underwriting will be at similar levels, if not better. We have a very strong pipeline across our wholesale business. So that would reflect within our Q2 numbers. We are anticipating some repayments, but we'll have to see when that happens, what would be the net impact on our portfolio. More importantly, our profitability seems to be robust. Our asset quality has stood the test of time. We do not see any surprises from our asset quality.  So if you extrapolate all of this and you continue, let's say, the cost of risk on a normalized level at 60, 70 basis points, you will see that quarter-on-quarter, we would be looking at very good net profits. And that would just continue until the end of the year unless we see any surprises. In this high-interest rate environment, the bank is very well geared to make sure that we take advantage of that by ensuring that, one, our asset book continues to increase based on our gross underwriting that I've alluded to. Two, we will have to make sure that our yields are passed on to the customer, and we've done that very well. So our asset yields are good and strong. And the one thing that we would want to further improve is bring our cost of funding down on the liability side, even furthermore, thereby enhancing our net interest margin.  So overall, in line, we are going to make progress in line with our guidance, and we will continue to hold this guidance for another quarter. We will continue to grow. We'll continue to make sure that asset quality is intact, and we will try and enhance our net interest margin. So overall, you should be expecting more of the same from us over the next quarters. Thank you. And with this, I come to the end of the call, stay safe, and we shall talk to each other soon.

Thank you, Dr. Thank you, everyone, for joining the first quarter earnings call. We look forward to welcoming you again in the middle of this year. Thank you, and bye.

This concludes today's conference call. Thank you all very much for joining.