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

Hello, ladies and gentlemen. Welcome to the Emirates NBD Results Call and Webcast for the Fourth Quarter of 2024. Today's call is being recorded. Please note that this call is open to analysts and investors only. Any media personnel should disconnect now. I will now pass the call over to our host, Mr. Shayne Nelson, Group CEO of Emirates NBD.

Thank you, Nadia, and welcome to our results call covering the whole of 2024. 2024 has been a year of record achievements and formidable milestones. We delivered our highest ever profit before tax of AED 27.1 billion and a profit after tax of AED 23 billion driven by a substantial increase in lending, a stable low-cost funding base and healthy recoveries. We have also successfully grown our income by 3% despite 100 basis points of interest rate cuts last year. This phenomenal performance is a result of our expanded regional network and our continued investment in digital, advanced analytics and Gen AI. Our Saudi expansion is clearly bearing fruit. KSA's 21 branches now account for over 5% of group lending overtaking Egypt to become our third largest source of revenue by country. Over AED 160 billion of new lending was disbursed by the group delivering very strong loan growth of 10%. It is particularly pleasing to see the quality of income improve with client income growing significantly and further growth in CASA and loans helping absorb the impact of lower rates. Other clear examples of our beneficial investment in products and services include ENBD X and EI+, our banking apps which now include our market-leading wealth management platform, driving a ninefold increase in digital wealth volumes. Digital escrow capabilities, including APIs and virtual accounts, delivered a substantial increase in deposits. EmCap, the #1 investment bank for UAE IPOs, delivered its highest ever revenue during the busiest year for transaction and advanced analytics identified new revenue potential such as SME and FX trade opportunities and merchant acquiring prospects identified using deep data mining. Every part of our diversified business model delivered outstanding results and phenomenal milestones. During the past 10 years, Emirates NBD surpassed local banks to a leading regional powerhouse serving over 9 million customers across 13 countries. We have built a high performing innovative customer-centric bank, developed our agile IT and digital infrastructure, captured regional lending opportunities, expanded our wealth management offering and are recognized as a leader and enabler in ESG. Over the last decade, profitability has risen from AED 5 billion to AED 23 billion. Our strong performance is reflected in the share price, which grew by 24% during the year building on the impressive 33% rise in 2023. The balance sheet has strengthened significantly over the last decade with much lower NPLs and high coverage, a more diverse loan book, a stable low-cost deposit base and extremely healthy capital and liquidity. This strength is recognized by further positive rating actions from both Moody's and Fitch last year. As we look forward to the future, our strategic focus in 2025 is to keep investing in developing our digital platform and product suite. This will drive wealth management revenue as this affluent sector substantially grows within our footprint. We need to maintain our leadership in our core markets, including Abu Dhabi. This includes increasing our market share across the UAE and CASA, trade finance, regional IPOs, credit and debit cards. Emirates Islamic will continue its strong growth momentum as it's now recognized as the UAE Islamic banking champion. We need to ensure we have a meaningful international presence aspiring for 4% to 5% market share across key markets. We continue to look for acquisition opportunities in strategic markets and evaluate pockets and segments to grow organically. In KSA, we will enable further growth through supportive infrastructure. As we actively prepare for open banking, we'll keep investing in high potential areas such as Gen AI, analytics-based hyper-personalization and fintech opportunities. We will maintain effective cost control, particularly as interest rates have started to fall. Sustainable and transition finance remains a big opportunity. We are recognized as a regional leader in ESG and supported our customers across the region with landmark ESG-linked working capital facilities. Our workforce is motivated, agile and adaptive. We are committed to gender equality, developing the next generation of Emirati leadership, upskilling our workforce and empowering them to grasp new career opportunities as the banking industry continues to rapidly evolve. The UAE remains a beacon of growth with the economy expected to expand by a very healthy 5% this year. We stand ready to help finance and benefit from this solid economic growth. Given the positive economic outlook, we expect high single-digit loan growth this year. We have trimmed our margin guidance given lower interest rates, but expect asset growth to more than offset lower margins. Cost of risk and cost to income ratios are expected to normalize. We expect NPLs to remain in the 3% to 4% area, the lowest level in over a decade. In light of the group's excellent performance, the Board of Directors are proposing AED 1 dividend. The banking industry has transformed immeasurably over the last decade and Emirates NBD has seized this opportunity with great success. We remain ideally positioned to benefit from future change. I'll now hand you over to Patrick to go through the results in more detail. Patrick?

Thank you, Shayne, and a very good afternoon to all of you. We've closed out an exceptionally strong 2024 with all businesses and product lines continuing to perform very well. As we do each year, we have updated guidance for the year ahead, which I'll come to. But first, let me take you through the summary results and then we can dive into a bit more detail by component. Starting with the performance summary on Page 4. We can see here our business momentum for the earlier quarters has continued into Q4. The group's ongoing investment in the UAE and the region is delivering at both the top and bottom lines. Total income of AED 44.1 billion in 2024 is up 3% on last year. Within that, net interest income increased 8% on the back of a very strong 16% increase in assets, which has more than offset the margin contraction. Nonfunded income is lower year-on-year, but our customer fee and commission income has grown extremely well. The overall decrease relates more to DenizBank's variable nonclient income, which I'll go into a bit more detail shortly. As usual, we've split out the contribution from ENBD and DenizBank in the appendix on Page 13 for later reference. Costs have increased 18% year-on-year supporting strong volume growth across all businesses. There is also an inflationary impact from DenizBank's cost base and accelerated depreciation of some IT systems as new completed IT projects come online. The cost-income ratio at 31.2%, however, remained well within guidance. We have registered an impairment allowance of just AED 0.1 billion for 2024 on the back of strong cash repayments and recoveries that we saw in the first half. In Q4, we had a AED 1.5 billion charge equating to 108 basis points cost of risk. Last quarter we had signaled a normalization of the cost of risk on a lower likelihood of further recoveries coupled with the effect of high interest rates on the retail book in Turkiye. This gives us a very strong 15% rise in the profit before tax to AED 27.1 billion and after the new 9% UAE corporate tax, a AED 23.0 billion bottom line profit, which is up 7%. And since I mentioned UAE tax rates, just to reaffirm that we will be accruing tax at a rate of 15% for the UAE in 2025. Turning briefly to the results for the fourth quarter. You can see that profit before tax is up 26% against Q4 2023 and net profit is broadly flat year-on-year with the impact of the new 9% UAE corporate tax. Quarter-on-quarter is down mostly from the Q4 provisioning as we had indicated in Q3. On the bottom summary table, you can see that the balance sheet metrics are in really great shape. Lending and deposit growth in double digits and capital liquidity and credit quality metrics all remain robust. Turning to net interest margins on Slide 5. The bottom left chart shows that margins tightened by 31 basis points during 2024 mainly due to higher funding costs and competitive loan pricing at Emirates NBD and year-on-year DenizBank NIMs were higher as loan pricing caught up with the higher funding costs after the significant rate hikes. For Q4, NIMs were 10 basis points lower at 3.65%. DenizBank NIMs margins continued to improve in the fourth quarter, which partly offset lower NIMs at Emirates NBD as last year's 100 basis point cut flowed through to loan pricing. We expect margins in 2025 to edge a bit lower into the 3.3% to 3.5% range as the full effect of last year's cuts flow through. Our guidance assumes 3 further cuts at the end of each of the first 3 quarters. Guidance also assumes Turkish interest rates reducing to around 30% by the end of the year. In the appendix, we show that Emirates NBD's Q4 margin was 3.18% and we expect that to be about 20 basis points to 25 basis points lower from rate cuts just mentioned. DenizBank's margins in Q4 was 6.11%. We should see some upside from the expected rate cuts, but there are other variables such as FX, inflation and regulation that means our guidance assumes their NIM stays around the 6% mark for the full year. Sensitivity to a 25 basis point cut has reduced to AED 450 million for the full year. This equates to 5 basis points for a full year 25 basis point cut. Just for reference, Note 45p of the financial statements shows that the repricing profile of the balance sheet is now less sensitive to interest rate movements than 2023. You have our sensitivity numbers so you can adjust if you have a different view on interest rates. Moving on to Slide 6 and nonfunded income. Net fee and commission income is up 39% year-on-year with a very strong trend of quarterly growth across almost all of the group's customer-driven businesses. The increase in fee income as per the bottom left chart is from substantially higher investment banking activity, increased loan and global market volumes, higher retail card spend at both ENBD and DenizBank with the added impact of the higher interchange rates in Turkiye. Chart at the bottom right shows that other operating income has a really stable client and trading flow income component of around AED 1 billion to AED 1.2 billion per quarter. This relates to businesses such as retail remittance, FX trade flows and client hedging. Nonclient-related income is lower year-on-year mainly from higher swap funding costs in Turkiye and lower gains on sales of property. Although we don't give specific guidance on nonfunded income, given the continued population growth and strong economic activity, we see potential for the positive trend in client fee and commission income to continue. On Slide 7, we see that gross lending increased 10% during 2024. Retail had its strongest ever year adding AED 34 billion in loans. Corporate also had a very strong period with AED 88 billion in gross new lending. There was strong financing demand across most industry sectors throughout the region, especially trade and transport and communication, which more than offset sovereign and other scheduled repayments. DenizBank also had very strong loan growth, up 37% in local currency and up 13% in AED terms with regulations allowing a good pickup in sectors such as agriculture. KSA is benefiting from the network expansion registering an excellent 57% loan growth in 2024 accounting for over 20% of the growth in group lending. Loan growth guidance for 2025 is high single digit on the continued positive economic outlook and further announcements on infrastructure investment. Business momentum remains strong. But for guidance, I do overlay some conservatism to factor in sovereign repayments. On the liability side, total deposits increased an excellent AED 82 billion, up 14%. Within that, strong demand for CASA from proactive initiatives within both corporate and retail have helped maintain the group's CASA ratio at 59%. This is a very healthy ratio especially when you bear in mind that DenizBank's CASA ratio is typically 25% to 30%. So ENBD's CASA ratio is actually in excess of 65%. On Slide 8, we see that the NPL ratio improved by 1.3% to 3.3% during the year. This is a result of strong recoveries in earlier quarters and the write-off of NPLs older than 5 years. Coverage remains extremely strong at 156%. On the bottom left, you will see that Stage 3 coverage dropped in Q4 to just over 88%. This is a function of written-off loans having 100% coverage and new NPLs transitioning in with lower initial coverage. Nonetheless, our Stage 3 coverage remained well above the market average. The chart on the bottom right shows that Stage 2 loans improved by 0.6% to 4.7% during 2024 as a result of repayments and staging transfers. In Q4, we had a AED 1.5 billion cost of risk charge, which equates to 108 basis points cost of risk. We had a 0 basis point overall cost of risk for 2024 as the first half recoveries offset the charge in the second half. We have set cost of risk guidance at 40 basis points to 60 basis points charge for 2025 as we start to see a normalization albeit with the economy remaining buoyant. We expect NPLs to remain within the current 3% to 4% range in 2025. Paddy will now just take us through the remaining slides.

Thanks, Patrick. On Slide 9, we see the cost to income ratio at 31.2%, finished the year at the range indicated earlier and comfortably within long-term guidance. As with other years, the cost to income ratio tends to peak in Q4. Q4's cost to income ratio was 36.4% as it includes seasonal marketing costs, higher professional fees and accelerated depreciation of some systems being replaced as part of our ongoing technology investment program. Staff costs increased to drive strong business growth and to invest in human capital for future growth in digital and international, including the branch expansion in KSA coupled with an inflationary impact from DenizBank's cost base. We've made substantial investments over the last couple of years when income was high and now is the time to drive returns on these investments. For 2025, we expect the cost to income ratio to be broadly similar in the 31% to 32% area, around the same level as last year. Slide 10, funding and liquidity shows the group maintains very strong liquidity with an AED ratio of 75% and an LCR of 197%. We have AED 24 billion of term debt and sukuk maturing this year. Half of that relates to DenizBank syndicated loans and short-dated MTNs, which typically roll over. It's pleasing to see that in November DenizBank was able to upsize their syndicated loan with 44% of demand for a 2-year tranche. ENBD has AED 12 billion of term debt maturing. We've already refinanced over 1/3 of that through the $500 million SLLB at the end of last year and the $750 million 5-year Formosa earlier this month. Moving to capital on Slide 11. Slide 11 shows the common equity Tier 1 ratio remains very strong at 14.7% and this includes a 0.9% reduction for the proposed AED 1 dividend. The common equity Tier 1 capital base has grown to over AED 100 billion with retained earnings able to absorb the proposed dividend and the 18% increase in RWAs and the increase in credit risk RWAs is from strong retail and corporate loan growth. On Slide 12, we see that RBWM income grew 10% year-on-year with the highest-ever revenue, strongest-ever loan acquisition and a substantial growth in balance sheet. RBWM originated AED 67 billion of new loans as lending increased by a record AED 34 billion, growing 30%. We enjoy a 1/3 market share of UAE credit card spend and AUMs grew by an impressive 58% in 2024 reflecting ongoing success of our wealth management strategy. Digital wealth transaction volumes are up ninefold and over 215,000 digital accounts were opened in 2024. CIB achieved an excellent 38% increase in profit before tax on higher income and healthy recoveries. Nonfunded income grew 18% due to higher lending with a record contribution from investment banking and improved cross-sell. Corporate lending grew 9% in 2024 driven by AED 88 billion of new lending across our network. CIB continues to grow CASA backed by its best-in-class digital escrow capabilities, including APIs and virtual accounts. Global Markets and Treasury delivered another solid performance generating AED 2.7 billion of income. Net interest income continues to be strong at AED 2.8 billion despite the general increase in cost of wholesale funding and term deposits due to higher interest rates. Trading income remained robust with structured trading delivering impressive growth and both FX and credit trading significantly higher on elevated regional issuance and macro positioning. Sales delivered strong results driven by new products and expanded commodity offering and innovative structured solutions for clients. DenizBank delivered a AED 2.9 billion profit before tax and AED 1.2 billion bottom line as the impact of higher interest rates did flow through to a higher cost of risk. We expect 2025 to be a year of transition to lower inflation and lower interest rates. We have a couple of extra slides in the appendix containing more granular detail and a dollar convenience translation. But with that, we'll open up the call for questions. Nadia, please go ahead.

[Operator Instructions] Our first question goes to Olga Veselova of Bank of America.

I have three. One is on net interest margin guidance for 2025. I hear you, you assume 3 policy rate cuts. But even if I adjust your guidance to assumption that there will be no policy rate cuts, your margin will still go down and this is despite potential improvement in Turkiye. So how do you think about this? What creates this margin pressure for you in the UAE in 2025? My second question is on potential M&A. In case if there is a deal, how low would you be comfortable to lower your capital management buffers? And also a slightly technical question. Can you use your ECL regulatory setbacks? I understand that what you report CET1 is after adjusting ratio to these setbacks. And last question is on loan growth. You have been growing below sector average in lending in the fourth quarter. Your guidance for 2025 is not necessarily aggressive. Any other factors than the sovereign repayments? Anything else that we're missing?

Olga, thank you for those questions. Let me just canter through those for you. Just on the NIM guidance, I'm aware there are some firms that have a view that there may be 0 rate cuts. The market view changes, there could be more. It always does change through the year as different political and economic news comes out. So we have set out a baseline and being very transparent with what the impact is if there is or is not cuts aligned to that baseline. But you asked why would there be a margin compression in the range if there were no cuts? Yes, there is some upside from the guidance if there are no cuts. However, we have to remember that there have already been 100 basis points cut in the last 4 months of last year and the sensitivity we gave was 5 basis points impact per 25 basis points. So straight away there, you have 25 basis points coming through. It's close to AED 2 billion straight off the bat for the cuts that were in last year and that had some impact in the fourth quarter, but not much, but we'll see that come through. Just on the M&A side, I'll let Shayne answer that one. But you had a point about ECL addbacks. And the answer is no, the ECL addback that's all finished in 2024. So it's the post-pandemic transition where 2025 there's no longer any ECL addback in the capital base. Shayne, do you have any thoughts on that?

I mean the only thing I'd say on M&A is I think that all the analysts are very aware of the markets we're looking in. Again I'll just confirm here that we have 5 markets that we want to grow more meaningful. And I mentioned earlier about the 4% to 5% market share in each of those markets and we have it in Turkiye. We certainly don't have it in Egypt. We certainly don't have it in Saudi and we certainly don't have it in India. So they are markets that we're looking to acquire to get bigger both organically and inorganically. So I think from a capital perspective, we grew our RWAs very aggressively in '24. And if you look at our CET1, basically we've lost a couple of bps because of that growth. So we're basically slightly down on what we were last year on CET1. So I think we're in a decent position. We always like to be conservative. I'm sorry, but I've got a terrible cold. We need to be conservative on our capital.

And Olga, you had a third one there on loans and advances growth. Any other reasons why it's high single digit rather than higher other than sovereign. Look, the main factor is the pace of sovereign repayments. Net-net it was AED 14 billion for 2024. The related party part of that with the government of Dubai was AED 19 billion. You can see in the notes to the accounts. So yes, the business momentum on the lending side continues through into this year. So even in 2024 when we had the very strong retail and corporate growth with the sovereign repayments, net-net we came in at 10% on a gross basis, 13% on a net basis. So we're also very happy with the growth we're seeing in KSA making a bigger contribution to the annual growth rate. So no, there's nothing else we can say that's sort of holding it back other than expected repayments. But I think we're doing a great job to replace that lending and still maintain close to double-digit growth for this year ahead.

And if I could just add to that, Olga, I think also it's a base effect as well. Our book is just getting bigger and bigger. And I know some banks have said double digit, but their base is much smaller. So the effect on us to get double digit is massive as it is to get into midteens is super aggressive. And I think if you look at the sovereign side, Dubai has paid back a lot of debt in the last few years. And the Emirates is in a super strong financial position given the stamp duty, VAT and now company tax will kick in. So we're trying to be a bit conservative. We're never really sure what we're going to get repaid, but we want to be a bit conservative rather than lead you to build models that don't reflect what we think will be a reality.

This is very comprehensive. If I can just double check on second question. How low would you be comfortable to go with your capital management buffers in case of any M&A?

I don't think we can really comment on that, Olga. You have to deal with that as and when there are regulatory minima, there's risk appetite and if anything happens, you also have to look at the pace of organic growth. So we don't have a minimum that would say. You can see what our regulatory minimum is in the accounts. So can't really say anything other than that.

The next question goes to Jon Peace of UBS.

So my first question, please, is on the cost of risk. I think the message seems to be a bit more upbeat than in the third quarter where it felt like you were playing down a little bit recoveries and worried a little bit about Turkiye. So what's changed to make you more optimistic? Second question, please, is on rates. You've given us a 20 basis point range. What's going to determine where you end up in that range? Should we start at the midpoint and what would drive you to the high end or the low end? And then lastly, could you just talk a little bit about your thinking behind carrying the dividend forward at AED 1 rather than AED 1.20, which is a relatively low payout? Did it relate to a little bit of a dip in CET1 or to thinking about M&A potential during the next year?

Just on the cost of risk, I think actually as we were also indicating in Q3, we're just seeing a normalization albeit in a very buoyant economy of the cost of risk. So we've given the range of 40 basis points to 60 basis points. If I looked at the 2023 sort of rolling 5-year cost of risk, it's around between 110 basis points, 120 basis points because we have had almost no cost of risk this year. If you factor that into a 5-year rolling, that would be something like 65 basis points. So we've factored all of that in. Cost of risk in Deniz we are seeing will be a little bit more elevated through this year just with the high interest rates of 50%, it is naturally having an impact on the retail borrowings where you'll see more charge-off coming through. It's very manageable. The cost of risk there will be somewhere between 100 basis points and 200 basis points. So we're really comfortable with that. So I wouldn't say it's more upbeat. I'd say it's just normalization and the range is given is lower than our typical what we would say is our more normalized cost of risk just given the great state of the economy in our markets. Just on the 20 basis points range for the margin, you asked what's the main variable in that and what could drive us to the top or bottom of that range. The main variable is typically in DenizBank where the interest rates we have assumed 20% cut to 30% through for the rest of the year. I think some of the market thinks that may come down to more like 40%. It's at 45% at the moment. So that does actually have a bigger impact. And I remember through 2023 when we had to update some of the -- indicate where we were in that range and all that variability was coming from DenizBank. For ENBD, I think I've given a fairly clear indicator of where we see that heading 20 to 25 basis points of the 318 they're at the moment. That's assuming the 3 rate cuts. And dividend, Shayne, do you want to touch on the dividend?

The first thing I'd say on the dividend is we clearly communicated last year that we were paying AED 1 dividend plus AED 0.20 special. So it is basically back to where we were on the AED 1 base. So in our own mind and in the Board's mind, it's flat to what we paid last year other than the special for our 60th. I don't think it means that -- it tries not to infer that there's an acquisition pending. If and when we have something to announce, we would. But one of the key drivers that we've done in '23 and '24 is drive loan growth super hard to try to offset as we saw rates starting to come down. So RWAs increased 18% in 1 year. So that's a huge increase. And somewhat I suppose we've been filling a hole of 0 risk-weighted sovereign with 100% rated corporates. So it's sort of a situation where we've been driving growth super hard for that offset of rates. Again in '25, we'll be doing exactly the same thing. So I think for us it's a reasonable payout, but I'll just remind you that that's a Board decision not a management decision on what the dividend payout is.

The next question goes to Rahul Bajaj of Citibank.

This is Rahul Bajaj from Citi. I have two quick questions actually. The first one is on cost of risk and, as Patrick mentioned on the last question, that they're probably running -- the 40 basis point to 60 basis point guidance is probably just below the normalized level. Just wanted to understand is it fair to assume that you will slowly but gradually kind of migrate towards the normalized level? And is that normalized level in your view more like 65 basis point, 70 basis point now or it is still closer to 100 basis point where you were I would say prior to 2023? So where is the normalized level and will you gradually move towards those levels over the next 1 to 2 years? So that's my first question. The second one is on OpEx growth. Last year's growth was 18% on a Y-o-Y basis. Similar double-digit growth was seen in the prior year as well, 25% almost. So is this kind of the run rate of OpEx growth that we should factor in for the next couple of years? I know you have given guidance for CIRs and that is what you closely monitor. But just in terms of the run rate of growth that we should expect to have, is early double digit or mid-teen kind of the run rate that we should expect to continue in the near future? Those are my questions.

Just on the cost of risk, I think that's one of those things that we have to provide guidance on year-to-year reflecting what's going on in the economic cycle. When we talk about normalized cost of risk, that's really just trying to be helpful to see what a typical run rate is from the past. But even in the last 5 years, we've had what that average cost of risk, I said, between 110 basis points and 120 basis points included the pandemic. And then before that, we had just acquired DenizBank and you may recall, we were hitting the impairments on that pretty hard post acquisition. Before that, I think before 2019, the cost of risk in more recent years might have been 80 basis points or 90 basis points. So it depends which part of the cycle you're in, what the bank's looking like, the risk profile of the balance sheet. So I wouldn't say it's something we would automatically expect it to tick up in the future, but it really depends on what's going on and we have a call each quarter so we can keep you pretty well up to date with that.

I'd just add on cost of risk that we have a heavy preponderance of retail in our book compared to a lot of our competitors. So it's a big retail book and as you can see from our numbers, a significant profit driver for us is retail. So in good times, retail lending has a pretty low cost of risk which we are in now, but that can swing depending on the economic cycle.

And just your second one, Rahul, on the 18% costs and looking at that in a bit more detail. Look, we're really excited what we've been able to do with that OpEx and CapEx for that matter in the last couple of years. We've been planning for 3 or 4 years. I guess post-pandemic rate cycle, the rates went up. We knew that couldn't last forever. We've consciously as a management team been investing in sales teams, building our wealth capability, building out our presence in Abu Dhabi, expanding KSA and international, advanced analytics and all of that comes at a cost, but we were consciously doing that knowing we were going to go into a rate cutting cycle and therefore, you have to build the volumes to actually be able to more than offset the cut in the rates impact. And I think we're really well placed for that. So obviously, we've got it stated as one of our key focus points for the 2025 year that was set out in the summary that Shayne went through. We're very mindful of costs and how we spend it and the returns we're getting on that. Obviously stepping back even at 31% to 32% range is a very lean and mean organization. You still need to have some increase in investment or some spend to maintain the momentum of volume growth to offset that. If you weren't investing, you would have the double whammy of no volume and rate cuts, which would be even worse from that point of view. But I think also we've given enough guidance on the income side of things and the costs that you can probably triangulate on that and it would indicate that costs are unlikely to be -- more likely to be in the single-digit growth rate next year. So very much moderated in that sense and will be driving the returns.

I'd just add that I read an interesting piece. I think it was from Olga from BofA. She basically said the GCC banks are investing because they can and I think that's actually very true. We saw we had the capacity when rates are rising and when rates stabilize to go for investment that, frankly, when rates started to fall you couldn't go for. So I think we're in a really good position that we've done that. We've basically completed or just about completed that expansion in Saudi for example. If we'd done that -- tried to do that in a falling rate environment, that would have been very punitive. But we have the earnings capabilities to do it and as Patrick said, we built out the advanced analytics, we've done a lot of Gen AI work. We've done a lot of development on tech. So we have the capability to do it at that time and now as you would expect, we're pulling the cost lever much tighter because the rate cycle is going against us.

The next question goes to Kazim Andaç of Goldman Sachs.

My margin and cost of risk questions have already been answered, but perhaps just one on fee revenues, if I may. So fee income generation was quite strong in 2024, almost 40% increase. Can we see further improvements in fee to loans over the coming years? And how does the bank ensure it continues to build its noninterest revenue profile going forward? And with that respect, which segments are driving this growth on the fee front, if I am to ask? Is it like cards for example? And are you charging higher fees relative to peers, which also help drove this strong growth in 2024? And separately and a final one on the topic. Can you please comment on the penetration of credit cards among consumers in UAE?

Just on the -- I think you were asking about sort of the nonfunded income versus total income or net interest income ratio. Look, we don't actually set specific targets around what mix we want to see. I think it's a great indicator though that if you have strong nonfunded income, it shows that while you're leveraging your balance sheet for earning interest income, you're also getting the ancillary business that isn't capital intensive. And if it fell below a certain level, then you'd be worried about whether you're getting that ancillary and the additional returns on that capital deployed. But we're just very happy at the moment with the pace of growth that we're seeing across all business segments, all products, all geographies when it comes to the nonfunded income. You can see in the deck that we went through a very strong pace of growth. The economies remain strong. Just calling out some, we did call out and I guess, when we had the earlier presentation just the investment banking with IPOs and debt issuances have been very strong. Yes, credit cards is an important part of that. We have a significant proportion of the market, about 1/3 of the market in the UAE. We also are very strong in cards in Turkiye as well. And the volumes there have been particularly strong in an inflationary environment and coupled with the increase in the interchange fee that was permitted a year or so ago has really helped on that as well. But it's not just those. We're seeing across lending, services we're providing for current accounts, just all products, particularly wealth as well. So it's across the board. It's nice to call out some of them, but it's good to know that everything is going at the same time. I think that also answers your second question on the credit card penetration as well.

I think one thing I would say on the cards business is penetration of cards as per how many cards per individual is sort of interesting. But to us, the key metric is what percentage of spends do you have? Having lots of plastic in your wallet means nothing if you don't use it. Credit cards are about 1/3 of spends and debit cards are about 30% of spend. That to us is the key metric that we monitor. No matter how many cards we issue, all very interesting, yes, it's fees; but the ongoing revenue stream comes from the spend and we are getting that spend. We have increased our market share in both debit and credit, which for us is more important than just how many cards in issue even though we are by far the #1 card issuer every month in the UAE in credit cards and debit cards.

The next question goes to Ghida Barbari of Introspect Capital. Moving on to the next question from Tejkiran of WhiteOak Capital.

I had two questions. The first one, I wanted to get your comments on if you're seeing any pricing competition on the deposit side, savings and time deposits from the fintechs. I anecdotally hear about attractive rates offered by fintechs. So would like to understand how you're looking at it and whether that is impacting how you are viewing deposit pricing. And the second one, you mentioned there is some accelerated depreciation on the OpEx side due to some systems changes. Could you comment how critical these systems are? I mean are these on the core banking software level or are these on the maybe ancillary customer service management suite of products? Those are my 2 questions.

On pricing competition on deposits and I won't just focus on fintechs, I think it depends on which market you're in. So for the UAE, advance deposit ratio is about 75%. So we are massively liquid and to be honest, the competition around pricing in the deposit space because every bank is very liquid is not so high. Conversely, actually the competition on corporate pricing has intensified. So with all that liquidity, corporate spreads are coming in a bit. But if you go to Saudi for example, Saudi is liquidity short as a market so you are seeing a lot more competition for deposits in Saudi and in fact there's quite a lot of arbitrage of deposits flowing from the UAE into Saudi. Turkiye, I have to say it depends on the week and the regulations that they change. In Turkiye, they change regulations there a hell of a lot. I noticed that they're now talking about increasing their tax on interest in deposits in Turkiye. Egypt not so bad when it comes to deposit pricing, competitive market, but it's not being driven through the floor. So I think our funding base is huge. In the UAE, we have a massive surplus of liquidity as a bank and as a market. So I think our core prime driver of profitability, we're not getting a lot of pricing pressure.

And just on your question for the accelerated depreciation, it's a range of items. It's not the core banking platform in any way. There are many things we're doing, all focused on making a better customer experience. What that means is that sometimes you have to invest on a faster rotation. So you haven't finished the depreciation of the system that it's replacing. So there are many features that we're adding in the transaction processing systems or our customer interfaces in the app, et cetera, and that just means if it's replacing something, the accounting requires you to either accelerate the timing of that depreciation or write something off of it if the replacement is going live.

Thank you very much. I believe that's all the audio calls. I'll just wrap up with the calls we've had over the web. And then, Nadia, we just go back to you just to make sure that there are no further audio calls outstanding. We did have a question on the Tier 1s that are callable in March around our plans to call and if we have any plans to call and replace, et cetera. From an economic perspective, it makes absolute sense to call that. So there's an economic incentive to call that. The reset margin would be substantially higher than the current market rate for a Tier 1. Again we haven't -- the call period is only in March so we can only make a formal announcement around any decision to call that in March. But yes, from an economic perspective, it makes sense to call that. And from a sort of regulatory and capital perspective once capital is in play, the Central Bank doesn't like to see capital reduce. So the market expectation really is around a call and replace. Just in terms there was a question on expectations regarding deposit growth. Again we never turn away any current and savings accounts. Fixed deposits do tend to be more of a top-up. If you want to bring fixed deposits in, you can increase the price on deposits. But as Shayne mentioned, the UAE market is very, very liquid. A question about the long-term ROE targets. We don't publish any long-term return on equity targets. I would just point you to the Page 2 of the presentation shows over the last 10 years the ROE, return on tangible equity, has been 18% on average; last year 22%, the year before 24%. We've answered most of the other questions on dividend, on growth ambitions, on margins, costs and cost of risk. One final question then on NPL recoveries in 2025 and another question is our recoveries factored into the cost of risk guidance. Yes, recoveries are factored into the cost of risk guidance. And as we sort of alluded to last year, most of the recoveries that we had over the last couple of years, we don't expect the same level of recoveries to continue into 2025. There could be the odd instance of a recovery coming through on a corporate, but the large amount of recoveries have already come through primarily in 2024. That concludes all the questions on the web. Nadia, is there any further audio questions?

We currently have no further audio questions.

Well, with no further questions, I'd like to thank you all for participating in today's call. 2024 has been a record year of achievement and formidable milestones for Emirates NBD. We delivered our highest ever profit before tax of over AED 27 billion driven by a substantial increase in lending and stable low-cost funding base. Our expanded regional network and continued investment in digital, advanced analytics and Gen AI is bearing fruit, helping identify new sources of income. We are extremely well positioned to benefit from expected strong regional growth. I'll now hand you back to Nadia to provide details in case you have any further follow-up questions and to close the call. Over to you, Nadia.

Thank you. For any further audio 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.

Thank you.