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

Ladies and gentlemen, welcome to the Emirates NBD 2021 Full Year 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, and 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, Elliot, and welcome to this briefing call for Emirates NBD's results. Joining me as per usual are Patrick, our Group CFO; and Paddy, our Head of Investor Relations. I'll run through the main highlights for 2021, and Patrick will discuss the results in detail and talk about the guidance for 2022. In January, we aligned with the new Monday to Friday work week adopted throughout the UAE. I don't think there is any country in the world who could so seamlessly change the work week with less than 4 weeks' notice. This is reflective of the can-do attitude of the UAE. We've proudly celebrated the UAE 50th National Day in December, and we look forward to the next 50 years of opportunity with excitement. The Expo is proving a great success. And as the official banking partner, we're using it to showcase our pioneering vision for the future of global Banking. Turning to economic sentiments. The outlook for the economies in which we operate is positive, although the emergence of future COVID variants increases uncertainty in economic activity. UAE economy enjoyed a strong finish to 2021 with Expo 2020 and increased tourism boosting domestic demand. [indiscernible] such as tourism, transport, logistics, manufacturing and retail are expected to perform well in 2022. The non-oil economy is predicted to grow by 3.5% in 2021 and faster growth of 4% is forecast for 2022. Increased oil production will push headline GDP growth to 4.6% for 2022. The Kingdom of Saudi Arabia's economy is also expected to grow from increased oil output, with GDP forecast to grow by 5.7% in 2022. Higher oil revenues will also help the budget move into surplus in 2022 for the first time since 2013. The Egyptian economy is expected to grow 5% this year as tourism recovers and supply chain dislocations improve. Turkey's GDP came back strongly from the pandemic with growth estimated at 9.3% in 2021. GDP is expected to moderate to 3.7% this year. the Turkish lira weakened considerably in 2021. While lira strengthened from mid-December high [ Indiscernible ] from the Turkish Central Bank that is wrapping up in the cycle of interest rate cuts as well as the finance industries introduction of the deposit protection scheme for retail depositors and just last week for corporate deposits. We'll surely give you more detail on how the lira's depreciation affects both the bank as a group and DenizBank Bank. Now turning to the results. Today, we've announced a 34% growth in profits to AED 9.3 billion for 2021. These strong results demonstrate the resilience of the group's diversified business model and the strong rebound in economic growth in 2021. Despite interest rates remaining at record lows, the underlying business momentum continued to strengthen throughout the year with record demand for retail financing. The group's balance sheet strengthened with further improvements in deposit mix, core capital and liquidity as credit quality remains stable. We continue to use this strength to finance the real economy, support customers and then power them during last year's economic recovery. Considering the group's strong performance, the Board of Directors are proposing a 25% increase in the cash dividend to 50 fils per share. I'll leave it to Patrick to walk you through the main drivers of the financials, as I want to outline some of the progress we have made on strategic initiatives. During 2021, Moody's, Fitch and Capital Intelligence all affirmed the group's credit ratings with a stable outlook, with DenizBank securing an upgrade from Moody's. For IT and Advanced Analytics, we successfully closed the upgrading the consolidation of our core technology platforms, featuring a modern architecture which allows greater agility. We moved to 95% cloud native infrastructure. We're the largest private cloud in the region and we will soon be 100%. We have a fully operational big data platform, which captures 21 million customer data points each day. On the back of this, we launched our Advanced Analytics Center of Excellence. We are already working on some use cases to significantly enhance our understanding of customer behavior and detect untapped future revenue streams. In terms of international, 38% of 2021's income came from international operations. Despite the volatility mentioned earlier, DenizBank's experienced management team delivered a 20% increase in profit to AED 1.6 billion. We successfully expanded our branch presence in both KSA and Egypt and received approval to expand our presence in India. There are other initiatives ongoing within the group: ESG grant and increasing importance in 2021; Emirates NBD Management became the signature of the United Nations support of Principles for Responsible Investment .

Sorry, Shayne. Just -- go on ahead, Shayne.

Branches in the UAE and KSA were the first in the region to secure leadership in energy and environmental design gold certification and we received our first CSR label from Dubai Chamber, recognizing International Organization for Standardization, ISO 26000 guidelines on social responsibility. In summary, Emirates NBD has delivered a strong operating performance in 2021 and continues to make good progress in transforming itself into an international data-first bank. And now I'll hand over to Patrick to go through the results in more detail. Patrick?

Thank you, Shayne, and a very good afternoon to all of you. I'll turn on Page 4 with the overall full year 2021 results before running through the component parts in more details, including guidance for 2022. So just running down the results table. Total income of AED 23.8 billion is up 3% year-on-year. Within that, non-funded income is more than offsetting the obvious drag on net interest income from the ongoing low interest rate through 2021. In NFI, we have seen strong underlying business momentum across all businesses. Costs continue to be firmly under control with the cost income ratio of 33.5% for the full year, well within the 35% guidance. And costs are up by 2% year-on-year, aligned to business recovery and as we invest to drive growth in our core businesses and develop our international and digital strategy. Impairments of AED 5.9 billion is down 26% year-on-year due to improving economic conditions and proactive provisioning in 2020. Cost of risk for the full year was 124 basis points, which is within the pre-pandemic range. We expect to maintain the cost of risk within the range of 100 to 125 basis points for 2022. So overall, the full year net profit is AED 9.3 billion, a strong 34% increase over last year. So touching on a few of the key balance sheet metrics. Loans are down 5%, predominantly due to the FX translation impact from DenizBank and corporate and other repayments in the UAE, more than offsetting the strong demand for retail and Islamic Financing. ENBD loans, excluding DenizBank are broadly stable year-on-year. Deposits were down 2% during the year, again, mainly from the impact of Turkish lira translation to AED. However, we had a strong deposit mix, which keeps the cost of funding optimized in this low rate environment and positions us very well for future interest rate rise. Capital remains very strong with a CET1 ratio of 15.1% on the back of our strong set of results for the year. That is after the proposed dividend of 50 fils per share, a 25% increase last year. Liquidity remains strong with the LCR at 177.6%. And despite the economic impact of the pandemic, the NPL ratio increased only 0.1% in 2021, illustrating the success of the bank's deferral support and risk management. A few overall comments on the quarterly results page. That's out on 5 -- Page 5. Q4 total income increased 32% year-on-year and 13% over Q3. We have seen ongoing strong underlying business momentum and a step-up in FX and derivative gains in Q4. We also have a AED 300 million gain relating to the disposal of Dubai Bank in December. Expenses for the final quarter increased on higher staff costs due to retail incentives and the investment for future growth, while other costs are up due to seasonality, campaigns and IT investment. Despite the Q4 increase, the cost-to-income ratio remains within the 35% guidance. The cost of risk at 172 basis points in the final quarter reflects the increase in provisioning to AED 2.2 billion, including DenizBank, which has been building coverage in Turkey since acquisition. Nonetheless, DenizBank's total impairment is down almost 20% year-on-year. So let's look at the component parts in a bit more detail. Turning to Page 6. We have closed out the year with a margin of 2.59% for Q4 and 2.53% for the full year. Q4 margin is down slightly on Q3, which itself had stepped up from the low point of Q1 and Q2. The bottom right chart shows the composition of this 6 basis points decrease in Q4. Loan yields are down 6 basis points, reflecting some competitive term loan pricing as we look to grow assets in advance of interest rates increasing. This is a small decrease relative to the full year drop of 55 basis points from the rate cuts through 2020. Funding costs improved 2 basis points on record CASA balances and the efficient deployment of liquidity, and DenizBank margins contracted by 2 basis points due to higher funding costs. On the bottom left chart, we see that year-over-year 2020 interest rate cut impact of loan spreads by 55 basis points. This, combined with lower margins from DenizBank, more than offset the 47 basis point improvement in deposit and funding costs. We have increased our 2022 NIM guidance by 10 basis points to 2.55% to 2.65%. We are mindful of the changing interest rate environment in Turkey and increasing market expectations for rate rises in the U.S. And even in the last few weeks, the number and timing of rate rises has been changing as inflation data becomes available. Our entry point NIM into 2022 is 2.59, and the guidance range sits around this at this point. We do disclose our interest rate sensitivity in the accounts, and we'll be able to take a view on upside of NIM from that. We will update in Q1 once we see how both the Turkey and U.S. rates are panning out. Slide 7 shows that the group continues to operate with strong liquidity. We have made AED 71 billion of liquid assets, which covers 12% of liabilities and 15% of deposits. The Central Bank test program successfully met its objectives, providing market liquidity so banks, in turn, could provide customer loan repayment support. We have fully repaid the test cost funding and continue to see healthy liquidity within the banking sector. Last year, we took advantage of historically low rates to raise AED 27.5 billion in term funding. And on the chart on the bottom of the page shows that we're growing debt and sukuk term funding to 11%. The AED 12.6 million maturing this year is comfortably within the group's refinancing capability. Turning to Slide 8. We see that gross lending declined 3% compared to Q3 and is down 4% during the year. This was due to AED 4.2 billion of customer support repayments and FX translation impact from DenizBank. DenizBank's Turkish lira gross lending and deposits grew by 31% and 19% respectively. It declined in [ dirham ] terms due to currency depreciation. Retail loans and Islamic lending, however, are up a very strong AED 10 billion in 2021. The deposit mix has improved during 2021 with the AED 38 billion addition of CASA, raising the overall CASA of percentage to 61%, more than replacing the AED 33 billion of fixed deposits. And the bottom right-hand chart shows the progress we're making in improving the diversification of the loan book across product and geography. Slide 9 shows, as mentioned earlier, the NPL ratio increased 0.1% to 6.3% during the year as well as during the quarter. Our cost of risk of 124 basis points within the pre-pandemic range, improving from 163 basis points in 2020, while coverage was risen by ratio from 10% to 127.5%. The charts on the bottom left shows the impairment allowance grew by AED 2.2 billion during the year to AED 37.2 billion. Within that, Phase 1 ECL allowances and coverage declined modestly in 2021 due to stage migration. And Stage 2 ECL allowances and coverage increased -- Stage 2 allowances increased by 1% to 7% of gross loans, as shown in the center -- circle chart. Stage 3 ECL allowances increased by AED 1.7 billion, increasing the Stage 3 coverage to a very strong 91.1%. The bottom right-hand chart shows that we have provided deferral support on AED 10.7 billion of repayments to over 151,000 customers. AED 8.2 billion of the support has now been repaid and further information in staging and grouping is contained in Note 46 of the financials. I'll now hand over to Paddy to take you through the remaining slides.

Thanks very much, Patrick. Slide 10 shows that fee and commission income for the year was up 15% on higher transaction volumes, coupled with higher brokerage and asset management fees. Foreign exchange and derivative income for Q4 is up quarter-on-quarter and year-on-year, partly due to a healthy increase in foreign exchange client business by Emirates NBD and partly due to hedging and swaps relating to DenizBank. Other operating income includes a AED 0.3 billion gain relating to Dubai Bank, and investment securities income improved year-on-year due to gains on the sale of securities, mainly in the first quarter. On Slide 11. We see that costs for the final quarter increased 16% over the previous quarter and 11% year-on-year. This includes -- this increase includes higher retail incentives and investment for future growth. It also reflects higher operating expenses as activity increased along with additional marketing campaigns to keep driving business momentum and IT investment. Even so, Q4 costs are around 10% lower than Q4 '19, which also included a full quarter of DenizBank. The cost-to-income ratio for Q4 increased to 34.8% due to seasonality. This brought the year-to-date cost-to-income ratio to 33.5%, a 0.3% improvement from last year, in line with our guidance to finish the year within 35%. We've maintained this guidance level for 2022. Moving on to capital adequacy on Slide 12. Shows that the Common Equity Tier 1 ratio improved by 0.1% in 2021 as AED 9.3 billion of retained earnings more than offset the impact from currency translation and proposed dividend for 2021. Risk-weighted assets were little changed in the year. The group's Tier 1 and capital adequacy ratio has declined modestly, following the additional Tier 1 management exercise in 2021. However, all capital ratios remain comfortably above the UAE Central Bank minimum requirements. Reported capital ratios include a total ECL add-back of AED 2.5 billion for incremental Stage 1 and 2 ECL alliances. Ratios would be 0.5% lower if we exclude the ECL add-back. Turning to divisional performance on Slide 13. We see that RBWM income improved 4% year-on-year, helped by record growth in retail financing, CASA growth and higher fee income. The increase in expenses is partly related to staff incentives and campaigns to help drive growth. This success is evident as can be seen from the strong 17% increase in retail lending and deposits up by 8%. CIB income declined 4% year-on-year due to the impact from last year's fall in interest rates and lower lending balances. This offset the growth in non-funded income with EmCap in very prominent in a number of high-profile debt, equity and ESG transactions. Expenses improved by 11% year-on-year as CIB tightly managed its cost base. Loans declined by 4%, partly due to deferral support repayments that CIB has identified a healthy pipeline of lending opportunities across the UAE and internationally. Deposits were 4% lower as CIB grew its CASA base whilst retiring some more expensive fixed deposits. Emirates Islamic income grew by 15% year-on-year on higher fee income. Financing and investing receivables and deposits grew by 4% and 1%, respectively, during the year, as EI maintained a healthy ADR of 90%, whilst further growing their CASA base. EI also successfully issued a benchmark sukuk during the last quarter. Global Markets & Treasury income improved year-on-year on increased income from hedging and banking book investments as the ALM desk efficiently managed their excess liquidity. The funding there took advantage of the low rate environment to issue a significant amount of senior debt and undertook an additional Tier 1 management exercise, as I mentioned earlier, to improve the efficiency and cost of Tier 1 notes. DenizBank is covered on Slide 13 and with further detail on Slide 14. We see the drop -- the 3% drop in income in dirham terms as a result of the depreciation in Turkish lira during 2021. Turkish lira net loans and deposits grew by 26% and 19% respectively in 2021. And on Slide 14, it shows a 20% increase in DenizBank's full year profit. The 2021 cost of risk of 343 basis points improved compared to 383 basis points last year. DenizBank contributed nearly AED 7 billion in income and over AED 1.6 billion in profit the group during 2021, which is a significant 18% contribution of group total profit. With that, I'll pass you back to Shayne for his closing remarks.

Thanks, Paddy. So to summarize, the 34% increase in profit was driven by improved loan mix with record demand for retail financing, a more efficient funding base and a substantially lower cost of risk. Total income was up 3% year-on-year, and the group is well positioned to benefit from increasing interest rates, as reflected in the increased NIM debt guidance. Corporate lending have identified a strong UAE in international pipeline, following a year of significant repayments of deferral support. Emirates Islamic delivered a big improvement in profitability. We've launched our Advanced Analytics Center of Excellence already working on some use cases to analyze our 21 million daily customer data points. This will significantly enhance our understanding of customer behavior and to take untapped future revenue streams. International locations contributed over 1/3 of the group income, and we continue to expand our international footprint. These results demonstrate the group's financial resiliency and the success of our diversified business model. And with that, I'd like to open up the call to questions. Elliot, please go ahead.

[Operator Instructions] Our first question today comes from Waleed Mohsin from Goldman Sachs.

I had three questions. First, just on the macro, I wanted to ask how you're thinking about a rising rate cycle and the impact on economic activity. I mean, there's a lot of debate that if you look at the previous cycle, wait for rising within a period where oil prices are falling and economic sentiment was a little bit weak. And this time, we have a more of a positive backdrop with higher oil prices and then rates are increasing. So curious to hear your thoughts in terms of prospects for economic activity within this backdrop. That's the first question. Secondly, I also wanted to get a sense of how many rate hikes are you incorporating in your 2022 guidance. Because when we see your CASA balances and largely floating rate loan book, the NIM expansion guidance seems to be quite modest and the cost income ratio guidance seems to be quite conservative. And finally, the third question. I just wanted to get your thoughts on the steps that you've taken in terms of risk management in Turkey. It seems that you are one of the only banks or one of the few banks which has actually brought down the loan-to-deposit ratio to below 100% in this particular quarter. So, I wanted to get your sense on what are you seeing in terms of funding, especially given that in Turkey, they have introduced this new deposit product. And if you can see dollarization or are you seeing any other trends on the funding side.

I'll have a shove at the economic. I think from our perspective, how we're seeing the economy. Certainly, in retail, demand is massively strong. I have seen some of the competitors' results that are coming out and talked to some of the other guys. And I think they're seeing the same exact growth in retail as we are. And we're up to now about 25% of all payments either the debit or the credit card and are coming through our retail base. And we certainly we've started off strongly in the year in the retail side. So I think from a retail perspective, the demand seems to be a lot of confidence out there. Spending patterns are pretty high. In the corporate space, I have to say we're not seeing a lot of loan demand. I mean, I've been able to talk to a lot of clients. Some of them, they're not seeing loan demand because, say, for example, developers that I've talked to, they've been launching projects and the presale they're getting is so strong that they're not needing any cash to complete the projects because of the -- they don't need a performance bond for the escrow accounts, so they can draw the escrow. But that's about it. So we're not seeing a lot of corporate loan demand out there. And I'd be very surprised if we get -- when the Central Bank produces statistics that there is any growth in corporate in 2021. I'd be very surprised. So what -- I think in the retail side, I think we're confident that we'll continue with the momentum that we've been building. And we are gaining market share both in payments and in loans. And corporate, I think a bit more difficult in the UAE until we see some build there. Saudi, there are opportunities. There are certainly opportunities for us to grow in Saudi and we have been growing that business quite reasonably. I think there's more growth opportunity there. There's more growth opportunity in Egypt. A lot of our clients from the UAE are looking to expand in Egypt. So we can certainly help there. I'd say in Turkey, on growth, we're not seeing a lot of corporate growth at all. Retail, yes, but not corporate. So I think from a macro perspective, oil prices obviously drive a lot of the GDP growth. 4% versus 4.6% is our forecast for the UAE and certainly, obviously, reflecting in a better fiscal position to Saudi. I think the countries that are well conditioned at the moment for growth. We'll see where our clients expand to in 2022.

So I'll take the second question there just on the rate hikes and the assumptions within the guidance. As you'll see, as our Q4 margin is pretty much at that midpoint of the guidance. Back in November, when we were looking forward into 2023, at that point in time, we thought we were being quite bullish assuming an early rate rise at the end of 2022. And it's obviously become more apparent as station data becomes available that the number and timing of expected rate rises has been increasing even by the week, if not by the day, in some cases. So the way we've approached this for this year is to really say, "Look, it's the base." We provide the sensitivity in the accounts. I think that's what Note 46 has, Page 114 in the accounts. And that sensitivity is showing that there's about AED 3 billion uplift to 200 basis points. If we take out DenizBank, which sort of goes the other way specifically with global interest rates, it would be about AED 3.2 billion upside for 200 basis points. If I drove that down to, say, 25 basis points, that works at AED 370 million, including Deniz and about AED 400 million if I could scrip that out. And that's about AED 30 million, AED 33 million a month. So whatever your view is of when rates rise, you can do the pretty simple arithmetic on that. Just a few points of caution on that. Obviously, that's fairly formulaic approach to it. As rates rise, it can take time for the repricing to go through assets also rates rise. There may be some move from cash accounts into term deposits. So sometimes your funding mix also changes. So there is upside from that. And if I took, say -- just if you took a AED 400 million upside, that would be equivalent to about 6 basis points, which would then take us to the top end, if not slightly over the guidance that we -- guidance range we have got there. You have to remember also with the environment in Turkey in the interest rates, the interest rates had been cut typically, our margins there wouldn't increase. That's been happening through Q4. We haven't seen that benefit really come through. Commercial rates remain more elevated. So they're sort of two different key moving parts in the NIM guidance. That's really the approach we have taken. Of course, we'll come back at Q1 and update that and see whether the interest rates actually have gone up.

I think one last question on was on risk management in Turkey and liquidity. You're right. And we do manage our liquidity quite robustly in Turkey, and we do like to have any country ADR ratio under 100%. We try to manage ours at around the mid-90s. And I think we have purposely pushed some hard on deposits there. On the risk management side, you will notice when you break out the accounts of Turkey, which are published, that we did top up the provisioning in the fourth quarter. That was purposely done given our earnings view was better to be conservative there. And we've lifted the Stage 3 coverage ratio there from low 50s to mid-70s in a pretty short period of time. So I think we've got a very good handle on the risk there and we manage it very closely, both on liquidity, both from a credit and on credit risk and also on a country risk basis.

[Operator Instructions] Our next question comes from Shabbir Malik from EFG Hermes.

Just wanted a clarification on the earlier question. So you said you closed 2021 NIMs at the midpoint of 2022 guidance. So effectively, you've not really baked in much rate hike impact for 2022. Am I correct? That's my first question. Second question is on credit quality and provisioning. Fourth quarter, you saw sizable provision in Turkey. Shayne, you've made some comments on that. I just want to get more details on what was the driver for this? Were there any specific provisions that were taken? Or these were more precautionary given the macroeconomic environment? And maybe if you can also comment on your guidance for cost of risk for 2022, which is broadly similar to what we have for 2021. Why do you see that considering a favorable backdrop at least in the GCC? And finally, do you have any date for the AGM for your full year results?

The AGM is the 23rd. I think on the Turkish risk side, it was Stage 2 increase. So yes, you would say that, that was prudent provisioning rather than specific provisioning. On cost of risk, we're always pretty conservative of how we manage our risk. If you look at our Stage 3 and 2 coverages against everyone in the market, we're leading by a country mile. And our view on that is that we'd like to remain conservative. We would like to maintain strong coverage ratios. But also remember that we continue to grow our retail base, and that cost of risk as you keep -- as you switch your retail base from corporate base is substantially higher in percentage terms. So I think we have a very big credit card book. We're growing, and that has been growing at record levels by the way for new card acquisitions, new personal loan acquisitions. I think we beat new car loan acquisitions as people could actually buy cars, stock shortages still. So the retail space is pretty hot for us. So we continue to grow market share there. And that does have a cost of risk just as a BAU, more so than the corporate space. I think if I look at the early alert meetings that we've been having, am I worried that we've got something to kind of blow up this year? At this stage, I would say, no. Otherwise, we would have covered it. That's the way we operate.

And Shabbir, I'll just wrap up that first question you had on the margin. Yes. So the guidance includes relatively little assumption about rate rises because it's broad -- broadly where we are now. And in a way, it's sort of presumptive given the ever-changing assumptions about how many and when, I think I would be almost getting on that basis other than to give you some good idea of what any upside actually means for us. Two points I would add to that, though. One is Turkey is going sort of -- it may go the other way as the margins compress slightly in the fourth quarter. Rates going down usually means that goes up some more. That environment is a bit more dynamic at the moment. So we'll have to see how that ends up. The final point is around volume. So if you're looking at your -- if you're looking at margins and trying to calculate net interest income, we also have the guidance on the volumes. We factor that in. So with strong repayments of a pipeline for gross net-net, that could be fairly moderate. We've guided sort of low single digit through the year.

And just one clarification, the 23rd of February, is that the date for the AGM?

Correct. Yes.

Our next question comes from Naresh Bilandani from JPMorgan. .

It's Naresh Bilandani from JPMorgan. Just four questions, please. So one, could you please show some light on the strong derivative gains that you have delivered in the fourth quarter? Now if I refer you to the Note 29 of the financial statements. I'm just also comparing this to a similar trend that we saw in the first quarter when the Turkish lira saw weakness against the dollar. So it may sound simplistic, but should we assume this line to stay strong? Should -- going forward into 2022, we see a weakness again in TRY compared to the dollar. Or is that not necessarily the case? That's the first question. My second question is, could you please share the reasoning behind the retention of 10% interest in Dubai Bank, as you are highlighting in Note #49? Just curious to understand why not dispose of all 100%, or alternatively, since the Dubai Bank license is being used for the creation of [ SAM ], is there anything strategic that we should read into this 10% retention of the stake? That's the second question. The third question is, I'm looking at your cost of risk guidance that you have shared in the presentation. Your conservative cost of risk for 2022, is this largely being led by Turkey? Or do you see asset quality deterioration in the UAE in any form on the back of high interest rates in 2022 as a risk in any manner? Or should we not be worried about UAE asset quality at this stage? That's the third one. And my fourth one is, yes, if you could quickly please also share with us the capital position of your Turkish business and how comfortable you are with on that position right now.

Thanks, Naresh. Patrick here. I think I counted five actually. Let me see if I can get through those. Just on the foreign exchange and derivative gains in Q4. You did point to Note 29. And if you look at the year-on-year, the net number of those is basically AED 1.7 billion versus AED 1.7 billion. So year-on-year, there's relatively little movement in that. Obviously by quarter and business, there are some movements within that. And I think you referenced also Q1. So in Q1, when interest rates went up 200 basis points and then the Governor of the Central Bank [indiscernible] there's volatility. And we saw mark-to-market gains through hedging of interest rates on the liability side in Turkish lira. And I think as we indicated at that point in time, some of that would reverse as the market settled down and indeed it did. And then we could see through Q2 and Q3 somewhat moderated overall as far as FX and related income. So it was sort of suppressed the reversals method against real underlying ForEx growth that we did see through both EMBD in the UAE and in Turkey as well. So -- and then the increase through the fourth quarter, about 2/3 of that relates to DenizBank of that AED 900 million or so 2/3 of that is the leaseback and another 1/3 of that income is actually underlying ENBD income as well. So hopefully, that gives a little bit of color. I thought the second question, I think, was the -- on Turkish, what the expectation is for that going through next year?

No. I was just trying to understand the trend, how should we look at these gains. Like is there any quarter where we see a significant volatility in the Turkish lira, should we expect these gains to be strong? I mean, is there a natural position that your treasury takes in Turkey? Yes. And how should we forecast this?

Okay. So it's not just a low mark-to-market gains within there. You've got the swap funding cost as well. So some of those gains could reverse through as well. And so you can essentially see some of that trend and not say next year will look exactly the same in terms of reversal. But one would hope when the market does settle down, those gains reverse. So in essence, that is a good thing if they do reverse. Okay. The second question then is just on the 10% stake on Dubai Bank. That was just part of the deal. That keeps a bit of skin in the game there as well and comes with a [indiscernible] as well. So that was just the normal part of the transaction. When you use the word strategic, does that mean anything for later? I think that's what you're very -- no, that's just the residual stake we are holding. But from an accounting point of view, we are fair valuing back through OCI in that sense. And then you had the cost of risk?

Pardon me. If I can -- yes, what I actually meant -- sorry, what I meant was if you still retain a 10% stake in Dubai Bank, does that imply your interest in ultimately the new entity that has been created in any form? Or am I reading too much into it?

You read too much into it, yes.

Okay. All right.

Cost of risk for 2022, as Shayne mentioned early, we've been building up Turkey coverage from 50% to the mid-70s on a local basis there. We're happy with building that. And the guidance of [ 100 to 125 ] really reflects what we were seeing pre the pandemic with some elements of building coverage as well. So there's no -- it's not signaling any increase in risk. It's signaling actually that we are coming back to the normal level. Now of course, the impairment amount itself isn't all CIB Corporate Stage 3 impairments. You naturally get sort of an annualized flow from the retail businesses as well, which can be a substantial amount of that. Having said that, actually, delinquency rates and the risk profile on the retail side has come down in some parts of the book to at or better than pre-pandemic and some -- and may be slightly elevated but really in good shape. So we're getting back to what we see as normal flows. Having said that, obviously, the world has been through something of a shock in the last 2 years, plus 2 years now almost. And some things will take time to work out as well. So previously, we didn't really give a cost of risk guidance. But post the acquisition of DenizBank, we thought that would just be more helpful to give at least some parameters of what we have in mind as well. And what was the...

The capital position in Turkey.

Yes. No, no. Look, okay, so locally Turkey is -- has a good capital position, absolutely meets all of those regulatory minima, et cetera. Obviously, we have to keep an eye on things. Turkish lira has settled somewhat with the introduction of the FX protected deposit scheme. But we also have a strong management team there that are very adaptive, navigating the local market volatility. And that includes managing the capital base as well. They have numerous actions they can take to manage key metrics, as they have been doing before we would have to consider any further need for capital. And at a group level, there's been no adverse impact on the group's CET1 capital position. In fact, it was basically 0 impact on CET1. So we get, yes, the negative side from the OCI FX revaluation, but that's been offset by strong earnings and the translation reduction in the risk-weighted assets in the calculation of the CET1 as well.

That sounds good. But could you please share the CET1 number for DenizBank?

No, we don't disclose that separately, I'm afraid, Naresh.

[Operator Instructions] Our next question comes from Nida Iqbal Siddiqi at Morgan Stanley. We have lost connection with Nida. [Operator Instructions] We have a follow-up question from Naresh Bilandani from JPMorgan. .

Sorry, let me take this opportunity to ask one more question. Maybe, Shayne, if you could please highlight the progress that Liv. has made in the fourth quarter, as you regularly do in your conference calls, if you could please just throw some light on the growth in the number of subscribers in UAE and KSA. Any thoughts on the profitability and how the trends have been, that would be extremely helpful.

Sure. On Saudi, we have been moved out of the sandbox, which is a good thing. We -- they're up to about 80,000 clients in Saudi now, and it's on top of think about 5 -- 25 or something like that clients here in the UAE. So it's got over 600,000 clients now. So and if you look at that, how many clients most banks have got, that's a pretty good number in retail. We also launched [ Livia ], so that's target at the 8 to 17 year olds, opened up some U.S. dollar account as well. So now you can save U.S. dollars there. Also an overdraft facility in Liv. And I think the important thing before we really get started on expanding the capability and investment in Liv, we're moving the whole platform to our cloud-based infrastructure. So that's underway at the moment. That's an important milestone for Liv. because we need to get it on to the cloud-based system, both here and in KSA, which will enable us to really ramp it up for future expansion. So profitability, it's profitable. Unlike most digital banks around the world, it is profitable. But I think that one of the reasons, to be honest, why is it profitable because it leverages the infrastructure that we've built. And therefore, it doesn't have the cost allocations and capital allocations that a lot of digital banks around the world. And we looked at this strategically on day 1. Should we -- because we had a spare license, right, to buy banks. Should we launch a separate digital under Dubai? And strategically, we decided that we wouldn't, that we wouldn't want to as a brand because we could then leverage that infrastructure and we wouldn't need to put additional capital into the entity. So I think strategically, we're happy with that decision. And as I said, it is profitable. We don't break it out as it is. But I think it's one of the few banks on its core operations that's digital-only is profitable.

[Operator Instructions] We now go to Hootan Yazhari from Bank of America.

A quick question, maybe a follow-up on Naresh's question just now. But looking towards Liv. I guess the big price has always been when you're going to start to deploy more balance sheet against this and start to use it as a platform for acquiring more assets, selling loans, et cetera. I just wanted to understand where you are with that. How much more investment needs to go into getting the platform ready to start maybe lending more or getting into that side of the business? And has the start-up of a number of these online banks like Zand started to accelerate or expedite your thinking on how you're going to monetize the customer base that you've developed on Liv. maybe on a more quick or a more expedited basis?

Yes. I think that's a very good question. Because I think if you look at around the world, the easiest part to do on any platform is the deposit side on a digital platform. That's the account opening, the deposit products. That's a very easy piece to do. Now we've already got credit cards on there. But you're right. The money really there for most digital banks is that they need to get to the other side of the balance sheet and land because they normally pay a slightly higher price for their deposits. and therefore, deploying that cash is pretty important. But remember, because we have this as a brand, we can deploy the cash in the main bank, which is not the same strategic option the other digital banks have. They have to deploy it themselves. So we can use that liquidity that's provided out of Liv. into our main engine. Having said that, we absolutely understand that we need to get that platform as also a lending platform. And one of the things we've talked about previously here is our big driver on STP, straight-through processing, or not only account opening but credit cards, personal loans. And that certainly, if you talk to any of our staff, the one area I'm whipping people to death on is around of STP. And very -- not only critical for the bank as a whole, but absolutely critical for Liv. going forward to ensure that we get digital capabilities for loans on that platform. Part of that means moving it to the cloud-based infrastructure because we need it on that platform to do it. And then we've already started building credit cards. We've taken through our first straight through credit cards in the main bank just recently. We're building personal loans. So for us, we want to get a large proportion of our sales in retail on straight-through digital-only. And certainly, Liv. is a critical part of that. We need to migrate it to the cloud-based technology. Then we need to actually push through the product. But if you build it for the main bank, Liv. is easy, right? It's really there. So it's on the same architecture. Hope that helps.

Yes, it does indeed. And I guess one of the things I was just keen to understand was how the startup or the start of new online-only digital banks who are quite clearly looking to muscle in on your turf, how you're taking that threat. Because often, these guys go with predatory pricing or they incentivize customers to get them on the platform and buy market share. I mean, does the startup of these banks change the way or the speed at which you're looking to do these STP initiatives? Or are you just continuing along the path that you had before?

I think from our perspective, whether it's Liv. or whether it's the main bank itself, absolutely, the launch of competition in digital-only space increases our investment and our focus to improve our STP processes right across the organization, whether it be here, whether it be in Egypt, whether it be in Saudi, absolutely. The pace of our investment, the pace of our prioritization, the greater thinking not just about banking but the ecosystems around the product offering absolutely change. And I think we're probably leading in that space at the moment, and we don't want to lose that lead. And the competition coming at us is not just here, right? There's other markets that have digital-only banks being launched. That means that we really need to speed up. And I totally agree with you. I'd see it as a -- it's a competitive threat. And we have big market share, and we don't want to lose market share. We want to grow market share. So we're absolutely razor-focused -- laser-focused, not razor-focused, laser-focused on getting these operations expanded and in the right fit for the future. But I would say that we do, in my opinion, have that advantage, that we -- all of these banks start up, if you look at around the world, they haven't made money for a long time. They get customers but they don't make money. And part of that equation, which I don't know when Zand is going to launch it, but is getting both sides of the balance sheet actually firing. And as I said, the advantage we have is we can use that liquidity that it provides us at the moment.

Elliot, before we move on to any other questions, voice questions either on the phones or over the webcast, we had an e-mail -- question e-mailed in about the 13% stake in Bank Islamic Pakistan. Patrick, do you want to -- whether it's just a transfer out of Dubai Bank as part of the sale transaction. So we have just retained that?

Yes. It's a simple transfer.

So that was within the group and just transferred to NBD. Thanks, Patrick. Elliot, we're happy to go back to any further voice questions.

We now go to Nida Siddiqi from Morgan Stanley.

Apologies about earlier. My line got disconnected. I have -- my first question is just a follow-up on NIM sensitivity. Just wanted to understand better on how loan yield spread survival changed as interest rates are increasing. If I go back in history, the spreads were lower than what they are right now during periods of high rates. So should we expect some compression on the spreads? Also linked to this is the loan yield pressure mentioned in 4Q as well. What is driving this? Is this more retail or corporate? So that's the first question. The second question is on costs. The increase in cost this quarter, you mentioned it was partially driven by investments for future growth. Will this continue? And if you can get some color on what these costs are. And also, on the other hand, what initiatives ENBD is taking to cut costs further, if any. And lastly, a question on the fee income. If I see Slide 10, fee income excluding brokerage and trade finance has been declining for the last few quarters. So I just wanted to get an understanding of what's driving this.

Thanks, Nida. Patrick here. Let me work through those backwards perhaps. So Slide 10 on fee income declining for 4 quarters. Actually, a, first of all, the fee income level is a significant step-up from last year. And there was a particularly strong Q1 and 2 -- well, mainly Q1 actually, when there was a lot of capital market activity and [indiscernible] is a significant participant in that. And also DenizBank had particularly strong payment flows as well. There was a point in time when things were opening up there more and they had a particularly good quarter. So I wouldn't say this is a trending pattern of reduction. In fact, the underlying businesses have been doing well, but they're just more fairly consistently from Q2 to Q4. On your second one just on costs. Yes, typically, we do have something being stepped up in Q4. Having said that, the -- and look, a part of that is actually the recovery of the business. We actually did -- had a significant cost reduction through 2020 as income fell off, and our cost increase is at a rate less than the income increase. And as Paddy mentioned in his presentation, the actual Q4 costs of about AED 2.2 billion, AED 2.3 billion. It's still almost 10% lower than the AED 2.5 billion that we had in Q4 2019. So yes, we were on costs right through 2020, but there is a return of business growth, whether it's incentives, et cetera. So that should be a normal part of the business. And I think that's got -- that sort of bookended by the cost/income ratio guidance that we give you. If we're operating between 33% and 35%, that's a very efficient cost income ratio. So do we have further initiatives? We're always mindful of looking for cost saves, but it's not going to stop us investing in growing in our international footprint and digital analytics and also the business growth that comes in capture. We'd rather grow cost to grow at revenue rather than shrinking costs from that perspective. And then just on the NIM and spreads. Actually, through 2020 when the rates were being cut, as the rates were coming down, it did take some time for benchmark rates to then flow through to the actual rates, whether EIBOR, LIBOR, et cetera. So the repricing of the assets, it's not because of credit spreads coming down. We make sure that we price for risk. And if risk is going up, we price up for that. And it could come down, then the client may get a reduction [indiscernible] about, what, July really quickly. Yes. So it took from March through to almost July to bottom out before the 1 month and 3 months got down to close to where the reference rates -- the Central Bank reference rates were. Now as it goes up, we'll have to see what happens to that dynamic. It's also, I think I mentioned earlier, the mix of the funding cost side of things. So we've got the asset pricing. Not every client reprices the next day after a rate increase. So it can take 3 months, 6 months in some cases for corporate repricing to come through, et cetera. So we need to factor that in too if you're making some assumptions of our interest income. Hopefully, that covers the three points that you have.

We are over time. So I think there's maybe two more questions. So we'll try and be as quick as possible with those questions. Okay. Elliot, if you can just open up the line to the final two questions, please.

Of course. Our next question comes from Chandra Kumar from Al Ramz Capital.

My first question is regarding what if we can remove the impact of devaluation -- lira devaluation, what would be the normalized loan growth, overall loan growth? And my second question is I wanted to know the loan coverage ratio of DenizBank.

So that was quite faint.

Yes. So loan growth, what's the underlying loan growth?

The Turkish lira assets in Turkey grew on a net base was 26%, on gross 31%, [indiscernible] first impairment when you factor that in. Does that help? So there's strong TL growth there. Just when we translate back to AED where there's been a 50% depreciation just in the fourth quarter, that's why it then becomes sort of negative when it's projected on Page 8 of our presentation.

And your second question, Chandra, was on...

Loan coverage ratio of DenizBank.

Loan coverage ratio for DenizBank. DenizBank-only loan coverage ratio. I think we mentioned...

That's mid-70s.

Yes. So it's mid-70s for the Stage 3. Yes. A little bit lower. And the total's over 20.

For our final question, we go to Raj Basware from International Securities.

Actually, I have three questions. I will be very brief on that. Firstly, on the 4% reduction in the corporate loan book. I just wanted to understand, is this coming from the private sector or the government and related entities? Second question was regarding the 6 basis point pressure on NIMs in the fourth quarter. I was just trying to understand whether this reduction is because of some higher yielding loan getting a prepayment or something of that sort because of which there have been some pressure. Or am I just reading too much into it? And on the third question, it was more like on your point, where you mentioned that when you speak to the real estate developers, there's no actual loan demand over there at this point of time because they are lot of pre-bookings and the sale is good over there. But when you really think like this, sale growth and the development side is going to phase out and the developers will actually be needing more of capital to develop their projects. So what is basically the time frame in which they generally come up for loan to the banks?

Right. It's Patrick here. Maybe I'll just take the first two if that's all right. And then maybe, Shayne, you can have a #3 there. Just on the CIB down as we have shown on Page 8 there. Private sector or public, both is the answer. So on the private sector, we have seen just over the AED 4 billion of deferral repayments as -- along with other regular repayments and new originations. And then on the government side, we also have had a reduction of just under AED 10 billion for the year. So that's within that number as well. So that's your private-public number. And on the second part, just on 6 basis points pressure. We did have a good step-up in Q3. Part of that was the very strong flow of retail assets, which does have actually a larger margin. And that enabled us to then be more competitive on some of the pricing side on the corporate side, the pipeline going into next year or so. And if that perhaps connects to your first question, if we're seeing these repayments. We do have to be competitive to maintain the average asset balances, et cetera, and drive income as well.

On developers, I think the equation is fairly simple. And it's really linked to the housing demand. So you've got super strong demand, the developers can obviously presale early, the cost of development is basically in the prebooking deposits and the drawdown that they have. And so the demand is normally only for the escrow account guarantees that they need so they can start drawing that down. So I think it's really linked to -- if you start seeing a falling off in housing demand and sales, that means that the developers will have a longer lag time in their cash flows. And therefore, then you'll see a return to net funding for the developments versus having the funding basically come out of presales. So I think that just depends on the real estate cycle as to where we are. At this stage, as you all know, here in the UAE, it's been pretty strong. I would say, in my opinion, that it's come up a bit in the last month from where it was. It was super high earlier on. I think it's still quite robust, but I don't think it's a hot as it was in the previous quarter -- in the last quarter of fiscal '21.

Thanks, Shayne. Okay. And just confirm there's no further questions?

We have no further questions.

Well, if there are no further of questions. I'd like to thank you all for participating in today's call, and I'll hand you back to the operator who'll provide you further details for any other questions you have after we conclude the call. Thank you very much for your time, and I appreciate there's a lot of people on the call today, some good questions. And I look forward to all speaking to you again after the first quarter results. Thank you all.

For any further questions, please contact our Investor Relations department. These contact details can be found on the Emirates NBD website and on the results press release. The 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.