Emirates NBD Bank PJSC (EMIRATESNBD) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Emirates NBD 2021 First Quarter Results Call and Webcast for analysts and investors. Today's call is being recorded. Please note that this call is open to analysts and investors only. Any media personnel should disconnect immediately. I will now pass the call over to our host, Mr. Shayne Nelson, Group CEO of Emirates NBD.

Thank you, Margaret, and welcome to this briefing call for Emirates NBD first quarter results. Joining me as per usual are Patrick, the group's CFO; and Paddy, our Head of Investor Relations. The strong set of results reflect the improved economic sentiment for 2021. This economic growth is expected to improve this year in all the countries that we operate in. The pace and level of economic recovery will be a function of the successful rollout of vaccine programs. UAE is fortunate to have the second highest vaccination rate globally, and this is important for an economy the large service component coming from the tourism and hospitality sectors. This year, the UAE celebrates its 50th anniversary. The nation has developed a reputation for innovation and creativity. And as we celebrate the year of the 50th, we look forward to empowering the next generation to develop the vision for continued success over the next 50 years. Continuing with the optimistic theme, the group's operating performance this quarter also had many positives. Nonfunded income showed a marked recovery. Strong CASA growth improved the deposit mix, which benefited net interest margin; costs improved as earlier management actions took effect; impairment allowances reduced 31% year-on-year; DenizBank contributed 1/3 of income and 1/4 of group's profit. All segments delivered higher income compared to the previous quarter. Capital, liquidity and credit quality metrics all strengthened. There were further repayments from our customers receiving support, reflecting improved business conditions. I'm delighted to share with you a number of other achievements during the quarter. We're the first bank from the Gulf region to issue an ESG-linked syndicated loan. The cost of the $1.75 billion facility is based on the percentage of women in senior management and water efficiency. EmCap had its best-ever quarter in debt capital markets, raising over $18 million for 24 customers across 12 countries. DenizBank successfully issued its first diversified payment rights transaction since 2014, raising $435 million from a range of international investors. Momentum in contactless payments continued in Q1 2021 as payments using Apple Pay, Samsung Pay and Google Pay more than doubled in 2020. We successfully expanded our branch network in KSA to 6 and became the first foreign bank to own branches in Madinah and Makkah. In summary, there are positive signs of economic recovery as vaccination programs are rolled out. Emirate NBD has delivered strong operating performance in the first quarter and also made progress on many strategic fronts. We continue to support our customers where needed, and we will use our strong balance sheet to enable customers to grow their businesses in the coming quarters. I'll now hand you over to Patrick to go through the results in more detail. Patrick?

Thank you, Shayne, and good afternoon to you all. I will walk through the first quarter of 2021 performance, which is set out starting at Page 4 of the presentation. Total income improved 25% quarter-on-quarter as nonfunded income recovered significantly from Q4 last year. This was due to improved market activity as well as higher FX and interest rate hedging and swap gains. Net interest income was up marginally on the previous quarter as NIM increased 4 basis points on an improved deposit mix. Year-on-year, total income was down 10%. Within that, nonfunded income improved 6% on the higher client activity. And this was offset by a 17% decline in net interest income on the back of the rate cuts of last year. We also had the expected decrease in DenizBank's NIM after the significant rate rises in Turkey in Q4 2020 and then also in Q1 this year. Costs improved 9% quarter-on-quarter from the impact of earlier cost management initiatives and lower marketing expenses. The cost of income ratio for Q1 was just over 30%, which is somewhat better than expected due to stronger nonfunded income, particularly from DenizBank. Costs also improved 9% year-on-year due to cost management initiatives, coupled with the lower cost [indiscernible]. Credit impairment allowances were 31% lower year-on-year following proactive provisioning in Q1 2020 when there was more uncertainty. Our provisions increased 12% compared to the last quarter to maintain Stage 2 coverage following some credit migration, which is not unexpected following the disruption of the last 12 months, and I'll give some more detail on this shortly. So this all sums up to a net profit of AED 2.3 billion, up 12% year-on-year and 76% quarter-on-quarter. Turning to the balance sheet. Net loans declined 2% due to 3 main factors: repayment of deferral support; currency translation of DenizBank lending; and impairment provisioning -- excuse me, got a problem here, sorry. Deposit balances declined 1%. DenizBank deposits grew 6% in local currency terms, but contracted 5% when translated into dirhams. During the first quarter of 2021, the NPL ratio improved slightly by 0.1% to 6.1% due to corporate recovery, some write-offs and the effect of FX translation. So we haven't seen any significant NPL downgrades during the quarter. Our continued proactive provisioning has further strengthened the coverage ratio by just under 8% to 128%. As Shayne mentioned, system-wide liquidity remains healthy as reflected in the group's liquidity coverage ratio of 165% and advances to deposits ratio is 95%. We do have strong and diverse funding base, which we have used to support customers and clients. So let's look at that all in a bit more detail on the following pages. On to Slide 5. At the bottom right-hand chart shows the margin improved in Q1 as higher CASA balances lowered the overall funding costs, more than offsetting lower margins that we had been expecting from DenizBank after the Q4 2020 rate rise. Loan yields were stable, reflecting the interest rates have now largely fed through to the loan book outside of Turkey revenue. On the bottom left chart, we see year-on-year loan spreads were adversely impacted by 145 basis points due to lower interest rates. This, combined with lower margins from DenizBank more than offset the 96 basis points improvement in deposit and funding costs. As I mentioned in the last quarter, we expect some short-term pressure on NIM as DenizBank liabilities reprice higher following the rate rise -- the rise in interest rates in Q4 2020, we expect further impact from the 200 basis point increase in rates in March and the full effect of that has yet to come through. We have maintained our full year guidance of 2.35% to 2.45% as the favorable deposit mix helps offset the additional pressure on DenizBank's NIM. On Slide 6, we see that the group continues to operate with strong liquidity. We have AED 88 billion of liquid assets, which covers 14% of liabilities and 19% of deposits. And again, here, we see the LCR ratio remains healthy, 165%, while the AD ratio strengthened to 95%. The targeted economic support scheme introduced by the UAE Central Bank has helped ensure good liquidity within the banking system and following the Central Bank's decision to extend the 0 cost funding facility until December of 2021. We will continue to actively support our customers. We have been to be raising term funding, taking advantage of favorable conditions. In the first quarter, the group raised AED 15.4 billion of term funding, which covers 90% of this year's maturity. There were a couple of noteworthy transactions, as Shayne noted. Emirates NBD became the first bank in the Gulf to issue an ESG-linked syndicated loan, raising $1.75 billion of 3-year funding with an interest cost linked to the performance of several ESG measures. And DenizBank also issued $435 million equivalent diversified payment rights transaction with 3-, 5- and 7-year tranches, which significantly increases and extend its term liability profile. So to the next page. On the bottom right of Slide 7, we see that while deposits are down 1% during the quarter. This is largely due to movements in Turkish lira. DenizBank grew its deposits by 6% in local currency terms. But when translated into dirhams, this represents a 5% decline. Deposit mix continued to improve in the third quarter with CASA growing a further AED 16 billion, enabling us to replace AED 18 billion of more expensive fixed deposits, which in turn lowers our funding costs. CASA across the group represents 56% of total deposits with domestic CASA up at 65%, the highest ever level. Continued CASA growth is a function of some specific factors, including successful marketing campaigns and strong digital adoption and other external factors such as low interest rates, abundant liquidity and less spending. As I mentioned last quarter, if the economy recovers, future CASA growth may moderate if we see increased spending and more investments in inventory. Gross lending on the top right chart declined 1% during the quarter. Within that, retail lending grew 3% due to higher demand for personal loans, auto loans and mortgages. Islamic financing was stable and corporate lending declined 1% due to repayments. And DenizBank's gross loans grew by 6% in local currency. It declined 5% in dirham terms. The pie chart on the bottom left shows the loan book sector profile, highlighting the group's success in the diversification in recent years. On to Slide 6 -- sorry, Slide 8, apologies. As mentioned earlier, the NPL ratio improved slightly by 0.1% to 6.1%. As with year-end, it is a little too early to predict the high tide level that NPLs will rise to. But in anticipation of some further migration and credit quality, we continue to maintain strong coverage level. Coverage has risen by 7.8% to 125% as we took AED 1.8 billion of impairment charges in Q1. The annualized cost of risk for Q1 of 158 basis points is lower than the 163 basis points cost of risk for 2020 and the 210 basis points recorded in Q1 2020. We do see further room for improvement in the cost of risk should the economy continue to improve. DenizBank's 285 basis points cost of risk for Q1 improved significantly from the 430 basis points in Q1 last year. Emirates NBD's comparable cost of risk of 131 basis points were also significantly lower than 161 basis points for Q1 last year. Just to add some more color. Slide 9 provides more detail on our Stage 1, 2 and 3 coverage. The chart at the top right shows that impairment allowances have grown by a net AED 1.1 billion during the first quarter to AED 36.1 billion. And within that, Stage 1 coverage remained flat at 1.1% on 87% of total gross outstanding loans. Stage 2 ECL allowances increased AED 1.2 billion to AED 6.9 billion, and that increased the Stage 2 coverage to 21.5%, whilst Stage 2 loans increased from -- by 1% to 7% of total gross outstanding loans. Stage 3 ECL allowances remained stable during the first quarter, increasing Stage 3 coverage to 88% as the amount of impaired loans declined slightly, including the FX impact. On the bottom left of the page, I have included some additional information on the support provided to customers, benefiting from repayment deferrals. It shows that the level of support provided by the group to UAE customers and clients that support the amount of -- and the significant amount of repayments during the quarter. In summary, we had AED 10.3 billion of support for over 110,000 customer deferrals, with AED 5.5 billion already repaid and of that AED 1.5 billion was repaid in Q1. So that's leaving AED 4.8 billion of ongoing support. At the end of Q1 2021, we had about AED 4.1 billion zero cost funding from the Central Bank support. So we have set out further details of staging and grouping in Note 25 of the quarterly financials. I'll now hand over to Paddy, who will take us through the remaining slides.

Thanks, Patrick. Slide 10 shows that core gross income improved 77% over the previous quarter, with large contributions from fee income, foreign exchange and rates. Fee income improved due to investment banking activity and retail volumes recovering to pre-COVID levels. Foreign exchange and rates contributed more on increased income from hedging and swaps and higher foreign exchange relating to DenizBank. Income from trade finance, brokerage and asset management also increased over the quarter. Total nonfunded income grew 6% year-on-year as lower trade finance income was more than offset by growth in transaction volumes and higher investment securities income. On Slide 11, we see the costs for the first quarter improved 9% over the previous quarter from the impact of earlier cost management initiatives combined with lower marketing expenses. Costs also improved 9% year-on-year due to lower staff and operating expenses, coupled with an FX element from DenizBank's cost base. As Patrick mentioned, the cost-to-income ratio for Q1 at 30.3% is lower than guidance on stronger nonfunded income, particularly from DenizBank, which may moderate in subsequent quarters. The cost-to-income guidance remains 35%. Slide 12 shows that the common equity Tier 1 ratio improved 0.5% (sic) [ 0.6% ] in the first quarter, driven by AED 2.3 billion of retained earnings, combined with a modest decline in risk-weighted assets. The reported capital ratios includes an accumulated total ECL add-back of AED 3.1 billion for incremental Stage 1 and 2 ECL allowances as permitted by the UAE Central Bank, and this improved the capital ratios by 0.7%. TESS offers banks relief on capital buffers until the 31st of December of this year were very supervisory consequences. Hence Emirates NBD's minimum common equity Tier 1 ratio is 8% and minimum CAR at 11.5%. Even excluding the add-back, Emirates NBD's actual capital ratio is about 7% higher than the minimum. Moving to Slide 13, divisional performance. For all business units, you'll see a consistent theme of improved income over the preceding quarter. On Slide 13, we see that RBWM quarter-on-quarter revenue improved 4% on account of higher transaction volumes. Revenue was down 6% year-on-year, mainly due to lower net interest income. Loans grew marginally as credit card volumes and spend recovered to pre-pandemic levels. Deposits grew 3% helped by successful domestic usage campaigns with CASA growing by 5%, while customer advances maintained 2020 levels. Emirates Islamic total income improved 12% quarter-on-quarter as nonfunded income improved 51% on higher volumes in the first quarter. Total income declined 10% year-on-year due to lower profit rates. Financing and investable -- investing receivables grew 1% while customer accounts declined 1%. And EI has a healthy 79% of customer deposits coming from CASA accounts. On Slide 14, we see that corporate and institutional banking income improved by 8% quarter-on-quarter due to higher business volumes. Income was down 11% year-on-year due to lower interest rates, which was partially offset by improved nonfunded income. Loans declined 1% and deposits declined 3%, having reached a record level at the end of 2020. Global Markets & Treasury revenue increased by 103% quarter-on-quarter due to significant improvement in nonfunded income. The credit trading desk delivered a strong performance and the sales desk have worked closely with customers to explore beneficial opportunities in this low interest rate environment. Net interest income improved from the previous quarter, following some hedging restructuring last quarter. Slide 15 shows that DenizBank contributed over AED 2 billion in revenue and AED 642 million of net profit to the group's performance. This represents 1/3 of income and 28% of total profits. Total income improved 51% quarter-on-quarter driven by higher fee and investment securities income and mark-to-market gains from hedging and swaps. Total income was down 10% year-on-year on lower interest -- on lower net interest income, more than offsetting higher nonfunded income. DenizBank continues to take provisions as needed to boost its coverage levels with a 285 basis point cost of risk in the first quarter compared to 430 basis points in Q1 of last year and 327 basis points for Q4 of last year. Margins declined by 14 basis points during the first quarter to 4.13%, and as we guided earlier, due to the increase in Turkish interest rates in Q4 of last year, and we expect NIMs to be further affected by the 200 basis point rise in March. With that, I'll pass you back to Shayne for his closing remarks.

Thank, Paddy. So to summarize, the group had a successful first quarter, delivering a strong set of financial results and achieving a number of strategic and operational milestones. Net profit of AED 2.3 billion was 12% higher year-on-year and improving economic conditions with DenizBank adding significant diversification to the group. Total income grew by 25% over the previous quarter on a marked recovery in nonfunded income. And impairment allowance were 31% lower than a year ago. Deposit was substantially lower for indirect provisioning in 2020. Capital, liquidity and credit quality metrics all strengthened. Domestic CASA is now at an all-time high of 65% of total deposits. We have supported over 110,000 customers with AED 10.3 billion of deferral release. And EmCap had its most successful best quarter ever in debt capital markets. And NBD became the first bank to -- in the region to issue an ESG-linked syndicated loan. And on international expansion, we continued with 2 additional branches in the Saudi network. With that, I'd like to open up to questions. Margaret, please go ahead.

[Operator Instructions] We can take our first question from Rahul Bajaj from Citi.

This is Rahul Bajaj from Citi. I have 3 quick questions, if I may, please. So the first 1 is around corporate lending recovery. You talked about repayments on the corporate side kind of hampering credit growth in the domestic economy. Just wanted to understand, one, do you think these repayments would continue and for how long? And when should we expect like a potential recovery on the corporate side? What will drive the recovery in your view on the corporate side. That's my first question. The second question is on the coverage ratio. So 88% is your Stage 3 coverage, as I understand. What would be the number, including collaterals? I assume 88% excludes collaterals? And is this the optimal kind of Stage 3 coverage level where you want to stay in the current environment? Or you want to grow it further as we move ahead in 2021? And my final question would be on your Group 1, Group 2 disclosure in the financial report. If I notice correctly, and please correct me if I'm wrong, the Group 2 exposure have increased substantially during the quarter. So it was around AED 3.5 billion end of 2020, it is close to AED 7.5 billion now. So just wanted to understand, I mean, are there accounts which you earlier thought had temporary issues because of COVID-19, but now you think that they have kind of permanent issues, a permanent sort of impairments out of -- coming out of COVID-19? So can there be more such sort of movements, so to say, for accounts who initially thought had some temporary issues, but ultimately turn out that they had more serious issues? I'll stop there.

Rahul, it's Patrick here. Those 3 -- maybe we can work through those backwards, and I'll start with question 3 just on your point on Group 1 and 2. So in the first quarter, you will also have seen that overall, we had seen credit migration from Stage 1 to Stage 2, so that's gone up by 1% of our loans, that was around AED 5 billion going through. An element of that is in the deferrals as well. And I think the note that you've been looking at, if you look on Page 36 of the accounts, there's about AED 1 billion of that relates to corporates that essentially also gone, therefore, into Group 2 from Group 1. Also, there is the portion of our Stage 2 loans that are in deferral, where there has been some credit deterioration, and therefore, it's gone from Group 1 to Group 2 within that additional Central Bank disclosure type. So it sort of fits in with that profile of the overall credit migration that we had seen in Q1. And I don't think that really particularly comes with a surprise given the last 12 months in the credit pressure around that.

Maybe if I could just add to that, I'd say, Patrick, is when I read a lot of the analyst reports, they often talk about the clip effects of when test runs out and the effect on that. You're not going to see a clip effect with us. We're grading clients according to the risk profile now, and we will migrate them if they deteriorate. So from our perspective, TESS is not holding back our stage migration that is not happening whatsoever. We are moving them in accordance with the risk profile that they're currently evidencing.

And then to your second question, you were talking about 88% of Stage 3 coverage at the moment and how we feel about that. The first part of your question was, what that if I include collateral? It's just over 200% if you include collateral. Do we want that coverage to grow higher? We don't have a specific target around that. It is what it is, and what we feel comfortable in terms of recovery. And then on your first question, just about corporate lending timing for the recovery. Just with -- I mean the UAE itself is open. I guess the economy is due to pick up through the year. The GDP for non-oil sector growth in UAE is around 3.5%, albeit overall GDP is expected to be around 1.4% with some contraction in the non-oil -- within the oil sector. So as we go through the second half and the economy picks up with that, corporates may be more willing to borrow and invest. Now the flip side of that is, in the meantime, they do have surplus cash. And so we have seen our CIB CASA balances grow significantly over the last couple of quarters as well.

And we can take our next question from Waleed Mohsin from Goldman Sachs.

A couple of questions from my side. The first 1 is on Turkey. Just wanted to get your base case or house view on how do you expect the situation to pan out in Turkey? And what steps are you taking to deal with the uncertainty? In particular, I'm interested in the access to swap market, access to local currency funding, especially given that post the change in the Central Bank governor, which has somewhat derailed the orthodox monetary policy that Turkey was following for the last 6 months or so. So curious to hear your thoughts on how the changes and the spike in the swap rates, which have somewhat normalized, but how has that impacted your -- the performance of DenizBank's -- DenizBank? And if you've seen anything so far in April and May, which either worries you or gives you comfort post that event? So that would be my first question. The second question is on costs. I'm conscious that you've reiterated your guidance of 35% cost-to-income ratio. However, if I look at the first quarter numbers that you've reported, operating expense number of around AED 1.9 billion, revenue of around AED 6.2 billion. So if I were to work out a 35% cost-to-income ratio for the full year, this either means that your cost number for the next 3 quarters will increase from AED 1.9 billion to AED 2.2 billion per quarter or alternately, it means that your revenue per quarter will shrink from AED 6.2 billion to AED 5.2 billion per quarter. So just curious to hear your thoughts on why maintain the 35% cost-to-income ratio, which implies either significant downside to the revenue line or a big pickup in the cost trends?

Thanks for that. Maybe I'll take the cost question first. And Shayne, do you want to take some of the macro aspects on Turkey?

Sure.

So just on that cost, so the cost income ratio at 30% is a function significantly of the strong income, particularly that we saw in Turkey. So some of the drivers of that means that, that may moderate in the second quarter. You can do the math on our net interest income, just you can reduce our average assets and the margin guidance that we have given and take your choice where in the range of that margin guidance you like. But some of the nonfunded income, given an element of it was mark-to-market, may reverse in Q2. We are seeing some of that already in April. But that's also a positive and that it's a sign of improving stability in Turkey and the volatility in the market as well. And then on the cost side, we do have the capacity to continue our investment and -- in digital and the completion of our transformation program and also invest in international. So if you had to ask me whether it's denominator or numerator, it's a bit of both really.

I think on the macro side, Turkey for us has been a good market so far. How do we -- what are we doing to protect it? So obviously, what we've done is ramped up. You would have seen how much we've ramped up the provisioning levels in Turkey since we acquired it. We've been very aggressive in that provisioning buildup and they're getting close to our sort of group levels now. So we've done a good job, I think, of providing quite a bit of buffer for them there. I think on the corporate, again, I'll just reiterate, I think I said the same thing last time, we're not finding new problems there. What we're finding is probably a bigger deterioration in some of the problems that we already had. That's largely because a lot of it was in the tourism sector, which has been quite severely affected in Turkey and continues to be affected given where they are at the COVID stage. So we are, I think, in a good position where we had a strong first quarter in Turkey, but there were some one-offs where we were protecting our position around FX and interest rates, and we did get some mark-to-market gains out of those. Well, funding access, you asked on Turkey. So far, we haven't heard any problems getting funding access for them. If they are able to raise money on the market [indiscernible] that we talked about on the DRPs they did. They're very successful with their initial syndication along in the year, in the last year. So I think so far, we've had no problems with liquidity there.

And if I could ask a follow-up. So on the funding side, no issues on the Turkish lira funding as well. I mean I appreciate that you have good access to the dollar market. But local currency funding, which is a little bit of problem with the swap market having dried up a little bit?

Nothing significant at all, to be honest. There -- I mean, most banks in Turkey, obviously, have heavy foreign currency than they do local currency, but we haven't had a problem funding so far at all.

We can now take our next question from Vijay Harpalani from Al Tayer Group.

Congratulations for good set of numbers. I've got a few questions. The first 1 is related to the staff cost. Staff cost reduction, is it sustainable? I mean, the level that we've done? And given that since transaction volume has increased and perhaps it will grow further, do you see at some point we need to grow capacity as well in terms of staff? That's first. Second is with regards to about AED 150 million gain reported from sale of bonds. Is that a major shift in asset allocation when it comes to your investment book, given that bond valuations are also at peak? Is it a shift in asset allocation between bonds and equity? Is there a reason for sales?

Yes. It's Patrick. Just go on your first question on the staff costs. Yes, you will see that we have made -- staff costs actually year-on-year is down around 12%, so we took specific actions in Q4 2019 and then Q2 2020. So that effect is coming through. But also with the pandemic that has, obviously, also accelerated digitalization. So some of the benefits of that comes through and will benefit us in the future. There are certain good costs that can come back with volume. So as certain sales growth reemerges, there can be variable cost incentives, et cetera, that may come back through there, but I would consider that good costs that supporting good revenue growth in the future as well. Just on your second point on any bond gains in the P&L there. Look, that's more a function of liquidity management, sometimes if you reposition the portfolio as we have done through the quarter end as we do in other periods as well, then we will have some element of gains coming through from that as well.

Yes. I think on the staff cost, the comment I would make on that would be, certainly, our core costs we're getting as tight as we possibly can. As Patrick rightly pointed out, there's good cost if we're selling more product and we're going to take commissions on those, that's good. So I've no problem with that part. I think the other thing that we're going to continue to invest in advanced analytics program. So that will actually add some costs as we -- data scientists, unfortunately, aren't cheap. And so we will be actually ramping up our investment as we come into the second half of 2021 into that space.

We can now take our next question from Kate Carpenter from Morgan Stanley.

Just a few follow-up questions on asset quality. On the Stage 2 migrations, could you provide any additional color around which segments or industries, in particular, were driving the migration from Stage 1 to Stage 2? And then on TESS, I mean, the repayment trends are quite encouraging. I'm wondering if you can give any additional color around sector exposures and how much of the customer is currently benefiting from TESS support measures are directly exposed to say -- versus those exposed to like real estate and other kind of more domestically focused industries?

Right. Thank you for that. Just on the Stage 2 migration, which sectors. Look, I think across the board, there wasn't any particular sectors, I would say, in that migration, that really is a function of modeled calculations where if there are downgrades in probability with defaults and loss given default. When you hit certain triggers, it does step down into Stage 2, and then you have to provide the lifetime expected loss on that. But it's probably more across the board on that one. And the repayment, look, I think that's across quite a number of those that have benefited from it. If you're talking specifically about corporate, I don't think there's a particular sector that stands out. Among the year-end disclosures we have in our accounts, I think we break down that -- there is an element of a break down by sector that doesn't come through in the quarterly reporting. We'll take some from the web.

Yes. We have a couple of questions just come in on the web. If in terms of ForEx and derivative income of Q4 an anomaly, how do you see the income stream going forward? And what have been the drivers for the strong increase in CASA over the past couple of quarters?

Okay. So yes, just on the ForEx and derivative income for Q4. You may recall that we had the year-end presentation. We didn't know that there has been a significant rise in the Turkish interest rate, which went up sort of 9% in 1 quarter to 17%. And that meant we had a significant increase in our swap funding costs which flows through nonfunded income rather than through the interest income line as well. So that sort of depressed it. Of course, we had an element of repositioning some of our hedging as well, which depressed that income in Q4 last year. As we then move into Q1 this year, if it's -- just keeping it to Turkey and DenizBank. We still have that increased swap funding costs, in fact, probably gone up. It was a bit more given there's another 200 basis points rise, then that was substantially offset by our ability to hedge some of our lira deposit funding costs. When there was -- that wasn't just a function of the interest rate rises, when the -- there was the replacement of the Central Bank governor, that also added significant volatility in the market, which meant the sort of the yield curves really rose, and that added a mark-to-market element to some of the gains that are in that most or the gains that hopefully, with more stability will ease in Q2. But overall, DenizBank has really come out well after that period of uncertainty and volatility. What was the second part of the question, Paddy?

The drivers of the increase in CASA.

Right. Okay. So with CASA, on the corporate side, I think I did mention earlier perhaps that with corporates not investing as much as they might at the moment before all the global economies are open up before investment decisions are taking both with surplus cash are able to maintain that in cash with term deposit rates relatively low, they do typically have been keeping it more in CASA. And on the retail side, that is actually very proactive actions by the team as well with a number of their initiatives and campaigns to grow CASA.

There was 1 further question on the muted demand for corporate credit. I'll maybe just answer that and then if you want to add anything. In terms of the drivers for the 2% decline in gross lending, that was really a function of 3 things. One was the depreciation in Turkish lira. So a low -- and DenizBank in local currency terms, the loan book grew by 5% and in dirham terms, it was down 6%. We also had repayment of support funding. And thirdly, there was some repayment of corporate loans. We maintain our guidance from low to mid-single digits for the full year. Operator, do you want to take another call? Is there any more calls? Any more questions?

The next question comes from Hootan Yazhari from Bank of America.

I have a question with regards to the changing landscape of the digital banking system in the UAE. We've seen the recent launch of banks from some high-profile businessmen in the region. We've got ADQ looking to launch an online-only digital bank with the license they got from the former FGB. Emirates NBD is, obviously, the leader with Liv. At this stage, how much more capital intensive do you think Liv. will have to become in order to maintain its leverage? Do you foresee significant investments required in order to maintain that lead? Or are you comfortable that your first-mover advantage means that these guys can't really cap up? And I really wanted to see what the progress of Liv. has been in the Saudi market? You have launched it and you've had some time now to observe the results there. I would love to get your thoughts. And my last question is really on the broader strategy around the Saudi business. We've obviously seen a big pickup in the outlook for government investments, you've seen some announcements coming through recently, and it looks like momentum is going to pick up there. What are you doing in order to benefit from those trends? And can you see Saudi growing a bit more aggressively than you thought in your previous plans?

On Liv. what I would say is that we have over 450,000 customers on Liv. at the moment. And it is a success story for us and makes money, which, frankly, if you look around the board, how many digital banks actually make money? There's very few, right, pure digital banks. One of the advantages of Liv. has is because it's a brand rather than a separate bank license, so to speak, it feeds off our capital. So we don't need to put separate capital into Liv. It's a brand of the bank. Yes, it's purely digital. It's got a separate team at London, et cetera, et cetera. But it is purely a brand of the bank, and we leverage all the technology investment that we've done. We're up to 83% cloud native now. We leverage for Liv. So I think we do have a strategic advantage. Am I complacent about that? Absolutely not. And I think for us, one of the big things that we need to push hard on is, a lot of the digital banks in the world are very good at attracting deposits. They're not very good on the other side of the balance sheet. They're not very good lending. I think 1 of the things that we need to be a lot more aggressive on Liv. is actually growing leading products, growing wealth products and equities products of the lifestyle advantages that it currently give. On KSA, Liv. is still in the sandbox. It's growing at about 7,000 customers a month. It's over 60,000 customers now. So it's making good progress from nothing. On Saudi itself, we've always -- we've said to this audience many times, frankly, Saudi is a market that we want to grow in. If there was something that makes sense for us to acquire, we'd be interested. It's a core market for us. And certainly, with the Kingdom aggressive growth plans, we want to grow with that. We're a small player there still. The substantial big players in Saudi already that are tough competition, but we are making inroads certainly on things like -- we are starting to penetrate through NBD capital acquired through few of the issuances there when it comes to sukuks. So we're making progress there. Do we want to do more? Absolutely. We still are nowhere near as big as our ambition in Saudi. We need to be much, much bigger. It's a much bigger market than an economy than the UAE, and we know we need to get bigger there. I think I'd say the same about Egypt. Egypt is a market that is a big population that we still participate more in.

And I'll just take a couple more -- sorry, Hootan do you have any more questions?

I just was trying -- what I was really also trying to understand is how the cost pressures of your digital investments are going to weigh on the outlook for your cost. You mentioned that you are going to incur some increased costs in the second half of this year. But are we now looking at a rebased cost outlook that's going to be increasingly focused on the digital channels and keeping the lead on those and continue to be the best-in-class in a lot of those...

I think that's an excellent question. The answer to that question is absolutely. Are we going to be continually focused on building out the digital capability of the bank? Absolutely. It's -- from an investment perspective, it's our #1 priority. There's so much more that we need to do. And the first thing we needed to do with the technology transformation, right? Now we nearly completed that now. It -- Has it been slowed a bit by COVID? Yes, it has. But we've nearly completed that. As I said, we're 83% cloud native now. Now that goes the engine, right? Now we've got the engine, we can really start to rapidly do a lot of different stuff. Now data analytics, which I mentioned earlier, is something that we'll be investing heavily in. We've got a great data warehouse now that we've built. Now we need to use it. We've now got a platform where we can build 1 app and roll it across multiple markets. So we'll, obviously, reskin it for Egypt or reskin it for Saudi, but we've now got the capability to really leverage the platform and take it forward. But there's lots more that I think we need to do on our digital applications. And I think equities is 1 we need to build out. Wealth is another we need to build out. And I think a lot more to go through processing when it comes to lending on digital is where we need to get to.

And I'm conscious of time, we would take -- okay. Go ahead on that.

Last question comes from Shabbir Malik from EFG Hermes.

Just 1 question maybe from my side. A couple of weeks ago, you made an announcement that you're potentially -- you're selling the Dubai Bank. I just wanted to understand if there is going to be any gain or loss recognized on that? And when it's going to be recognized? And what is the potential impact if you can give a number that will be very useful as well?

Patrick here. Yes, we have put out an announcement that we've signed a sale and purchase agreement on Dubai Bank. The operations of Dubai Bank had substantially been tuned into the rest of the bank. So we just wanted to put in our disclosure, the sort of the current balance sheet just to show that actually, it's not significant at all in ongoing operations of ENBD as the group. It is still subject to regulatory approval and completion will be later in the year, possibly into the second half. And at that point in time, we'll be able to come back and say what the size of any gain, if any, there is on that.

There was a related question on the web about Dubai Bank being consolidated with Emirates Islamic and how this will be structured? Patrick, is it fair to say that the Dubai Bank, although the assets from the Dubai Bank were transferred over to Emirate Islamic, Dubai Bank remains a separate entity from Emirates Islamic?

Yes. It's still a separate legal entity. Yes.

There was 2 final questions on the web. Exposure to NMC and associate -- sorry, coverage on the exposure to NMC and MAP negotiations. We had previously disclosed our exposure is AED 204 million. We don't disclose what the provisions against that are, and we're unable to give any further detail on any ongoing negotiations with NMC. And then the final question, could there be more sustainable quarterly or annual numbers for DenizBank, nonfunded income? As you know, we give guidance on various metrics. So it is net interest income for the group -- sorry, net interest margin for the group, loan growth. We don't give specific guidance on noninterest income in -- for DenizBank or for the wider group. So I can't give you any more information on that. Is there -- Margaret, is there any further questions on the line?

There are no further questions on the line, sir.

Well, there's no further questions, I'd like to thank you all for your participation in today's call, and I'll hand you back to the operator to provide further details for any follow-up questions you may have. And let's concludes the call. Thank you for joining us. Cheers.

Thank you. For any further questions, please contact our Investor Relations department whose contact details can be found on the Emirates NBD website and on the results press release. A replay of this call and webcast will also be available on the Emirates NBD website next week. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation.