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

Ladies and gentlemen, welcome to the Emirates NBD Results Call and Webcast for the First Quarter of 2025. 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 for the first quarter of 2025. We continued the strong momentum from last year, delivering another set of outstanding results and highlights for the first quarter include Emirates NBD's profit before tax rose 56% over the preceding quarter to AED 7.8 billion on strong demand for loans and improvement in deposit mix and the introduction of new products. Income increased 11% year-on-year as the strategic investment in the group's regional network, digital and GenAI is clearly generating income to successfully offset lower interest rates. The balance sheet surpassed the AED 1 trillion milestone boosted by impressive loan growth and deposit growth from the buoyant regional economy. Emirates Islamic quarterly profit crossed the AED 1 billion mark for the first time ever highlighting its position as a leading Islamic bank in the UAE. We continue to be the dominant retail bank in the UAE with a 35% market share now in credit card spend in the first quarter. Deposits increased 5% with a record AED 27 billion of low-cost CASA added. Loans grew AED 18 billion in the first quarter with over half of the increase sourced from our growing international network with double-digit loan growth in KSA, India, Singapore and London. We relentlessly drive core business with healthy retained earnings, supporting a 5% increase in risk-weighted assets during Q1. Innovative products have helped successfully harness key growth areas, including private banking, wealth management, escrow, regional corporate growth and investment banking. The region's growing affluent population propelled assets under management to USD 50 billion, affirming the group's successful focus on wealth management. Every part of our diversified banking model delivered outstanding results. We are ideally placed to embrace further opportunities with our strong balance sheet, productive regional footprint, world-class agile IT infrastructure and motivated flexible workforce. There has been a lot of research published analyzing how tariffs may impact lower oil prices, tighter funding conditions and a slowdown in trade. Currently, the minimum tariff level applies across most of our footprint. At this stage, we do not see a material direct impact from tariffs on the group's balance sheet and profitability. However, indirectly, there could be effects including a potential slowdown in trade and corporate confidence. Also, given the volatility in equity and bond markets, individuals may assess the appetite for property, holidays and consumer spend. We continue to monitor this potential impact, but have so far not seen any material effect on corporate or retail customer behavior. I'll now hand you over to Patrick to go through the results in more detail. Patrick?

Thank you, Shayne, and good afternoon to all of you. We picked up where we left off in 2024, delivering another exceptionally strong set of results this quarter with all business and product lines continuing to perform very well. As we published the results pack earlier today, I will briefly walk you through the main highlights and hopefully leave more time for questions. On Slide 3, it's worth just noting there that the full year guidance is unchanged from that announced in January. Moving to the performance summary on Page 4. You can see our business momentum from the earlier quarters has continued into Q1. The group's ongoing investment in the UAE and the region is delivering at both the top and bottom lines. Total income of AED 11.9 billion for the first quarter is up 5% on the preceding quarter and up 11% on the Q1 2024. Within that, net interest income increased 14% year-on-year on the back of a very strong 14% increase in assets, coupled with an overall improvement in margins thanks to DenizBank. Non-funded income is up a substantial 27% over the preceding quarter and up 5% year-on-year, driven by a positive trend in fee and commission income and excellent client FX and derivative income in the first quarter, particularly as Global Markets expanded their product suite. As usual, we'll split out the contribution from ENBD and DenizBank in the appendix for later reference. Costs are 10% lower than Q4 when we had accelerated depreciation and seasonal staff and marketing costs. Costs decreased -- increased, sorry, 20% year-on-year, supporting strong volume growth, along with ongoing investments in digital and international. The cost-to-income ratio at 30.9% is well within the 33% long-term guidance range and I would expect it to finish the year somewhere between 31% and 32%. We registered AED 8.5 billion impairment credit in Q1 with the appendix showing that ENBD had a AED 0.8 billion impairment credit while DenizBank had a AED 0.3 billion impairment charge. This gives us a very strong 56% quarterly rise in profit before tax to AED 7.8 billion. And after the new 15% UAE corporate tax, AED 6.2 billion bottom line profit, also up 56% on the preceding quarter. In the bottom table, you can see the balance sheet is in really great shape, with lending and deposit growth in the double digits year-on-year and capital, liquidity and credit quality metrics were extremely healthy. So just turning to net interest margins on Slide 5. The bottom left chart shows that margins widened by 6 basis points year-on-year as higher margins from DenizBank more than offset the impact of last year's rate cuts on Emirates NBD's loan book. The margin in Q1 was 7 basis points lower than the preceding quarter as the effect of last year's 100 basis points cut flowed through to loan pricing. Our guidance continues to assume three further cuts, albeit our house view is now expecting these cuts to be towards the end of Q2, Q3 and Q4. Guidance assumes lower Turkish interest rates in 2025. And given last week's increase in the policy rate, we will update you next quarter when we have more time to observe the likely path of interest rates. In the appendix, we show that ENBD's Q1 margin was 3.13%, down 5 basis points in the quarter, whilst DenizBank's margin was flat at a very strong 6.11% in Q1. I indicated last quarter that we expect ENBD's margins to tighten 20 to 25 basis points for the full year from rate cuts with the DenizBank's margin expected to stay around the 6% mark for the full year. So margins are tracking as expected towards the guidance range. Sensitivity to a full year 25 basis points cut is AED 450 million or about 5 basis points so you can adjust your models if you have a different view on interest rates. Moving to Slide 6 and non-funded income. Net fee and commission income is up 14% year-on-year and 15% quarter-on-quarter with very strong trend across almost all products such as credit cards, trade finance, wealth management and investment banking. The chart on the bottom right shows that total other operating income was slightly down year-on-year due to higher swap funding costs at DenizBank, but the core customer FX and derivative income stepped up considerably in Q1, driven by a very successful expansion of the Global Markets product offering to local and international clients. We can see this core customer FX and derivative income trend is consistently in excess of AED 1 billion per quarter. On Slide 7, we see that gross lending increased 3.5% during the first quarter. Momentum has continued with retail and corporate growing by 7% and 6%, respectively, helping absorb a further AED 6 billion of sovereign repayments. A really pleasing point to note is that over half of the AED 18 billion increase in lending has come from the international network with lending in KSA, London, Singapore and India all growing by double digits in the first quarter of 2025. So we're very happy with the diversification that our regional footprint gives us, and we do see that as a strong competitive advantage. On the liability side, another exceptionally positive point to note is that AED 27 billion of the AED 31 billion increase in deposits is low-cost CASA, a real strength of the group. This pushed the group's CASA ratio up to an extremely healthy 61%, which helps absorb the impact of lower interest rates, and we can be selective in sourcing and pricing for fixed deposits. On Slide 8, we see that the NPL ratio improved by 0.2% to 3.1% during the first quarter on further recoveries, aided by a continued -- the continued buoyant property market. Coverage is extremely strong at 158% with Stage 3 coverage rising to just under 89%. Given recent oil price volatility, we have been asked about the macroeconomic variables used to model expected credit losses, aka ECLs. These are detailed in Note 5 of the 2024 annual financial statements and the downside scenario for oil price, just as an example, is $60 a barrel for 2025 and 2026. These assumptions are actually reviewed and updated regularly, but we don't anticipate any material impact if the oil price assumption was lowered further. In Q1, we had a AED 0.5 billion impairment credit, which equates to a 34 basis point cost of risk credit. ENBD's cost of risk credit was 68 basis points from significant recoveries on the back of the continued strong property market in Dubai. DenizBank had 150 basis points charge in the first quarter, reflecting the effect of high interest rates on the retail and SME books in Turkiye. We maintain our full year cost of risk guidance at a 40 to 60 basis points charge with DenizBank expected to be closer to the top end of the 100 to 200 basis points range I mentioned at year-end. Paddy will now take us through the remaining slides.

Thanks, Patrick. On Slide 9, we see the cost-to-income ratio at 30.9% for Q1, is comfortably within long-term guidance. The spend is delivering strong business growth and digital and international investment continues. The cost-to-income ratio is lower than Q4, which experienced higher staff costs, accelerated depreciation of completed projects, seasonal marketing costs and increased professional fees. As Patrick mentioned, we expect the cost-to-income ratio to finish the year in the 31% to 32% area. We will maintain clear discipline to ensure existing and further investment delivers value for money as the group selectively invests in human capital for future growth in digital and international. Slide 10 shows the group maintains very strong liquidity with an AD ratio of 75% and an LCR of 184%. ENBD had AED 12 billion of term debt maturing in 2025, and we've already issued AED 8 billion in debt in sukuk, covering 2/3 of this year's maturities. This year's DenizBank maturities are mainly syndicated loans and short-dated MTNs, which typically roll over. We successfully called a $1 billion additional Tier 1 note and refinanced it with a new Tier 1 note in Q1 with a much tighter spread. Capital adequacy on Slide 11 shows that the common equity Tier 1 ratio remains very strong at 14.7%. Retained earnings have been able to absorb the 5% increase in RWAs in Q1, which have come from strong retail and corporate loan growth across our network. Slide 12 contains divisional highlights. Just to mention a few of these. Retail momentum is continuing with a AED 9 billion increase in lending and a record AED 22 billion increase in CASA. We have continued to boost our share of the UAE credit card spend for which we now command a very healthy 35% market share. Wholesale Banking also had a successful quarter raising CASA, predominantly from escrow, thanks to the best-in-class digital escrow solutions. Trading delivered an excellent performance with the credit and commodity trading desks both delivering a significant increase in income as they successfully navigated volatile markets. Treasury sales delivered an outstanding performance driven by new structured credit, commodity and investment products, which drove a substantial increase in income from both local and international clients. And this is clearly evident in the higher client income in the first quarter. We have a couple of extra slides in the appendix containing more granular detail and a dollar convenience translation. And with that, we can open up the call to questions. Nadia, please go ahead.

Our first question goes to Nida Iqbal of Morgan Stanley.

My first question is on loan growth. Your quarter-on-quarter growth of 3.5% is quite impressive. So I wanted to understand if you see any upside to your high single-digit loan growth guidance for the year. And just wanted to get some more granularity around the loan growth. So you do mention that half of the lending is being driven by international and strong momentum in Saudi. If you can elaborate on the drivers of the growth in Saudi, is it mainly corporate or retail? And if it's corporate, if you can share any color around the kind of spreads that are there in the market? And then secondly, in terms of the weaker oil price environment, do you see a risk of a slowdown in loan growth momentum in the UAE or Saudi in the next 12 to 18 months? And then my final question will be on asset quality in regard to oil prices. Do you see a risk to asset quality in UAE or Saudi? And if so, what sectors do you think are most at risk?

Nida, thanks very much for joining the call. We'll work through those. Just starting with the loans and advances growth. Yes, very strong start to the year. On the retail side, we haven't really seen a let up in momentum there. On the corporate side, Q4, we typically see can be a little bit quieter as corporates get towards their end of their year-end, there can be a buildup of the pipeline into the new year that we're then seeing being executed. So retail momentum, we expect to see continue, maybe not entirely at that pace every single quarter. The corporate side, we would expect to moderate a bit. We have maintained the guidance because, as you will have seen, we also have AED 6 billion of sovereign repayments in that quarter, and we would be reasonable to expect there would be more there. So look, high single digits is the guidance. We've got good momentum. If by the half year, we see that we might be able to do better than that, we'll update the guidance. But I think that's a reasonable level for us to be aiming for in the meantime. I think you mentioned also the second question was around half being international and Saudi corporate versus retail and any stresses on that. The growth is not exactly 50-50, but pretty close to 50-50 on the corporate and retail side. We have our 21 branches that's generating and self-funding the loan growth there. So we have that discipline. But we're not seeing notable changes in stress. We are in the origination mode. I guess if we were seeing any stress, we wouldn't be growing as fast as that. And as for weaker oil 10 to -- 12 to 18 months, maybe Shayne has a view on that.

I think one of the things that analysts often say is the breakeven oil price, for example, on the UAE. Let's use that one as an example and say, UAE needs $65 a barrel to breakeven on its budget. Well, if you go and have a look at the federal budget, it's about a 71.5 billion budget for this year. And if you look at the breakdown of it, it's about 20% contribution from the Emirates versus VAT and excise duty and fees that come into it. So the reliance upon the individual Emirates themselves to contribute to the federal budget is actually not that high. And then if you further think about it, corporate tax is not included in that budget at all for 2025, and we're likely to see corporate tax payments start to flow from September of this year. Now we don't know how exactly that corporate tax is going to be distributed, but one would assume some of it would go to the federal budget. So I think we also need to step back for some of the assumptions that we make around oil is really critical for the federal budget. Actually, in the UAE, it's not so critical. Obviously, it's very important to Abu Dhabi and the cash flows for Abu Dhabi in its own right. But we all know that the breakeven oil price for Abu Dhabi is massively below where the current oil price is. So it will still be very positive and generative from a cash perspective for that Emirate. Saudi is a bit of a different story, obviously, because their budget does rely significantly on Saudi Aramco's dividend. But Saudi Aramco, again, is not very leveraged as an entity. So there's other methodology that they can use to keep the dividends flowing through to the government to help with their budget. So at the moment, I don't see oil price being a major negative impact from credit quality across the region. And then conversely, when you think about where we're also trying to grow Turkey, Egypt and India, lower oil prices are good for those economies. They're importers of oil. So for them, lower oil prices is a good thing. So one of the reasons that we've spoken to you before about our strategy of going offshore into some of the other markets was it's also an absolute flip strategy when it comes to oil that we have markets there that actually when oil prices are low, that's good for their economy, albeit it's not so good for the Gulf countries.

The next question goes to Jon Peace of UBS.

So well done on the results. My first question is you didn't revise the cost of risk guidance given the possibility of further provisioning in Turkey. But it must be very conservative right now. I mean, is it reasonable to expect you'd be coming in towards the bottom end and potentially even a little better? And my second question would be, I don't know if there's any update you can give us on your thoughts around M&A. But perhaps also in the absence of M&A, should we expect the good performance to lead to potentially a higher dividend at the end of the year?

Thanks, Jon. Thanks for joining. Maybe I'll take the cost of risk point and Shayne can have a go at the M&A point. Yes, look, we did have pretty strong recoveries in the first quarter. It's one of those things where they are all cash and you don't know exactly when it's going to come in. We do have over AED 16 billion of NPLs with a substantial amount of it collateralized by property. And with the property market being where it is, we now are in a great period for making substantial recoveries. But they aren't linear. You don't know exactly when they come in. Actually, you'll see, if you look back the last 2 or 3 years, our quarterly recovery levels being relatively consistent between the sort of AED 500 million to AED 1 billion per quarter. And yes, we have maintained the guidance there of 40 to 60. And if you take the midpoint of that, and we've had a credit of 34 basis points in the first quarter, implies the rest of the year is something like 80 basis points from a cost of risk. But you are right. I think we -- it would more likely be towards the lower end of that range. But just where things are in the world, you know we operate pretty conservatively. And we just felt it would be perhaps a little bit premature at this exact point to start lowering cost of risk guidance. And that is coupled with DenizBank, we're seeing that cost of risk heading towards that 200 basis points, which is at no point -- it's not too significantly high in that post acquisition, we had been seeing impairments of around 300 to 400 basis points. So 200 given the little bit of stress that we're seeing with the high interest rates in the retail and SME book, we're quite comfortable with. But we will update that at Q2, otherwise -- and we would be aiming towards the lower end of that guidance, if anything.

And Patrick, I'll just reiterate the no pain, no gain comment I've made quite a few times. One of the reasons we do get these recoveries is that we're so conservatively provisioned on our Stage 3. So we do get flow. But there's nothing in the first quarter that it's not like there's one massive number. It's spread quite widely in the recoveries. And obviously, the property market being where it is, is helping those recoveries. On M&A, I really haven't got anything to say more than I did at the last quarter. We continue to look. When we have something to announce, we will. On dividend, it's really early to be talking dividends where we are. And I think one of the things that we've done, the question around M&A, look at our loan growth and what we've been able to achieve despite a lot of sovereign repayments, it's been very strong. And we have been eating a lot of that spare capital with RWA growth. So we are also mindful that RWA build has been quite big on the back of -- we don't want to rely having a lot of spare capital hanging around waiting for that acquisition if and when it happens. And we've made two in the last 13 years. So our view is we have to drive our core business, and that's what we've been doing with our loan growth. And we've had the opportunity to do it. So we've been grabbing that opportunity while it's available.

The next question goes to Naresh Bilandani of Jefferies.

It's Naresh Bilandani. Congrats on the results. Just two questions, please. One, could you indicate if the market volatility experienced recently has been favorable to your flow business from both trading as well as hedging perspective? I'm just keen to gauge if the strength observed in noninterest income in Q1 is likely to continue through into the second quarter should the volatility continue to remain elevated? And my second question is on trade finance income in Q1. That has come quite strong actually. It's the highest quarter-on-quarter increase that we have seen in the past couple of years, which seems counterintuitive to the pressures that we are seeing emerge in the global trade world. So can you please explain the drivers of this trend? Is there any front-loading activity happening from your clients? And given that the tariffs both in U.S. and China were imposed -- starting to get imposed from March, is there any early trend emerging that you have seen in the recent weeks come through on this line? Any insights that you can offer would be greatly appreciated.

Look, I think on the market volatility driving our Global Markets business and our traders, yes, it helps. I mean, traders love volatility, but I think a lot of traders have been sitting on their hands because it's been so volatile up and down. But let's be quite clear. We're not much of a prop trading house. It's a very, very low percentage of our business. We'd like it to be larger, but at the moment, it's a very small part of our business. Yes, they've done well in the first quarter, but it's not material to us. And frankly, I would like it to be more material than it is. On trade finance, we -- at this stage, we've seen nothing affecting trade, and we've been growing trade, as you rightly pointed out and focused on growing trade. And we haven't seen that tariff impact. We're lucky enough most of our markets, Turkey, Egypt, Saudi and UAE have all got the minimum threshold of 10%. The only outlier for us a bit is India, which I think is 26% from memory. Well, 26% announced and then back to 10%, we'll see what it turns out to be. But most of our markets have actually trade deficits with the United States, including the UAE and Saudi. So there's not a lot of impetus there to increase tariffs. Now whether or not we -- to me, a lot of this is confidence to invest, et cetera. Does that reduction in confidence lead to people not spending on large projects, which then flow a lot of goods and services into the country. That we haven't seen yet, but it's something we're obviously watching.

The next question goes to Shabbir Malik of EFG Hemes.

My first question is around your CET1 levels, 14.7% as of first quarter. I would like to know is, what would be your minimum capital threshold? Is there a minimum CET1 level that you'll be comfortable with, assuming you have M&A aspirations and then you will need some excess capital for that. So I just want to understand what's your minimum capital threshold. That's my first question. The second question is around your NIM guidance. So currently or at least first quarter, you were at 3.6%. You're guiding towards 3.3% to 3.5%. Is this decline mainly due to the expectation of the three rate cuts that you mentioned earlier? Or it also the fact that UAE potentially is growing faster than Turkey? That the change in business mix is also contributing to that decline? And finally, I would like to see -- hear some more -- get more color on the cost growth, which was about 20%. Now I think a large part of this has been volume driven. But I would assume that some of your retail sales would be done through digital channels, so the customer acquisition cost should be lower. I think you mentioned in your comments that you've also invested in IT and also in your international network. So some more color on this 20% cost growth, which optically looks high. So what are the reasons for that?

Thanks for joining. Just on the CET1 14.7%. I mean, we have a regulatory minimum just over 11%. We haven't published or stated any target threshold that we would have with or without acquisitions. So you can use a rule of thumb if you're looking at how much capital we have in excess. It's not a guide that we have. But if you took 12.5%, and therefore, we're at 14.7%, you can calculate how much capital that we have if we were to use that for any potential acquisitions, plus there are other things we can do on RWA management to create additional capacity. Just on the NIMs, yes, 3.6%, very strong in this market. We have maintained that guidance of 3.3% to 3.5%. And in fact, I think back in January, we split out in a way the expectations or assumptions within that. One, the actual Fed rate cuts, which I did mention through the presentation. But also, we said that we expected ENBD ex Deniz to tighten between 20, 25 basis points. We closed Q4 at 3.18%. It's down 5 basis points to 3.13%. And if I took that 20, 25 basis points tightening, we're still expecting that margin to be in the 2.9% to 3% range. And then on top of that with DenizBank, we made the assumption that they would close the full year around the 6% mark. That was before the rates went up. We do expect the cost of funding -- actually, we can see that in March that the cost of funding started to go up again, and that will moderate somewhat the margin in DenizBank to somewhere just under 6%, I would estimate, but it's still not enough to change the guidance. And we have the guidance at a 20 basis points range for that very reason because in the past, DenizBank has meant we've been sometimes at the top or the bottom of that range. So we're still quite comfortable with that. Obviously, we'll update at the half year if anything has changed significantly. Just on the cost growth side of things, the cost growth for the first quarter and the 20% year-on-year, it's sort of 1/3 DenizBank, 2/3 ENBD. On the DenizBank side, they obviously have inflationary salary increments coming through and with less FX depreciation through much of the quarter. Obviously, in March, there was a drop in the value. But when you're looking at the average rate, there was less FX depreciation. So implicitly, the cost growth is essentially at a higher rate. And on the ENBD side, most -- that cost is mainly staff costs and CapEx amortization coming through. On the staff cost side of things, that's in line with the volume-linked incentives and sales. So yes, we are very digital, but still there are -- part of our model is the sales teams and they are incentivized through that as well as a variable cost. FTE hiring from last year is part of the flow-through. You get annual increments. And also international, we have continued the expansion on that. So -- and one thing on the guidance, we have stuck to the verbally 31% to -- between 31% and 22%. I think I also said at the beginning of the year, I would expect the costs to be moderated to more like single digits, albeit high single-digit cost growth. So while it's 20% year-on-year at this point in time, we should see that moderate more as we move through the year.

And a lot of it, you've got the year-on-year effect of the big branch field we've been doing in Saudi and the big increase in sales force in Saudi that's fueling a lot of the growth in Saudi. So it's to be expected. It's something that we're focused on. But our view was, given how strong we've been performing, if we weren't going to build out our network in Saudi now, there wouldn't be another opportune time to do it. And we should finish this year with the 24 branches, which is our complete licenses in Saudi done. And that also will include more staff, obviously, because not only do you have the branch opening up, but you also have to have supporting the sales force to go with that platform. So we would expect Saudi to close out their network expansion, but we continue to drive growth. And what I would say is it's good cost growth. And we continue to invest heavily in technology, as you will see from the amortization coming through.

Great. One clarification regarding the RWA optimization. What levers are available to optimize RWA?

Well, we have an AD ratio of around 75%. So we've got a lot of assets deployed as surplus liquidity and a good yield. It means we don't have to run as tight and efficiently. You can go for yield when you don't have the capital pressure. And that means you can actually tighten that with the mix of the assets to have some of that redeployed into lower risk-weighted asset classes. It's just an example of some of the levers that you can pull.

Another example, Shabbir, was your FI lending, you can unwind that pretty quickly as well, if you need to.

The next question goes to Rahul Bajaj of Citibank.

This is Rahul Bajaj from Citi. A few quick questions from my side. Firstly, you mentioned loan growth, 50% of the loan growth came from outside the UAE, and you mentioned some markets like India, Singapore, if I heard correctly. Just wanted to understand who are you lending to in these markets? Are these local corporates you are lending to, i.e., your risk that you're taking is local economy risk? Or is it UAE corporates who operate in these markets? So your ultimate risk resides with UAE corporates. So just wanted to understand a bit of that. The second question is on provisioning. And you talked about real estate-driven write-backs, which helped first quarter earnings. Just wanted to understand how should we think about these write-backs for the remainder of the year, especially in retail because what I realize looking at your divisional breakdown is that even retail cost of risk was much lower in 1Q compared to previous quarterly levels. So how should we think about these write-backs during the next few quarters, if you have any visibility? So that's my second question. And the third and final one, just a quick clarification. I noticed on your EPS schedule that the AT1 payment has gone up from AED 128 million per quarter to AED 153 million per quarter. And if -- please correct me if I'm wrong, my understanding is this is because of the new issuance you made in February which was -- which replaced the earlier USD 1 billion instrument, which you called. So if my understanding is correct, the AED 153 million is a quarterly number going forward for AT1 payment. Is that correct? So those are my three questions.

Let me take the Singapore question because I think it's a good question. Why are you growing lending in corporate in, say, U.K., London and Singapore. So our strategy with corporate lending in these markets is, yes, you're right, if we have our core footprint clients wanting to borrow in London or Singapore, we will do that. We also have wealth management booking centers -- so private banking booking centers in both London and Singapore to leverage. But I think importantly, from -- are we doing stand-alone European or Asian corporates out of Singapore and London? The answer is yes, provided that these entities also have business in our core footprint. So the example I'll give you is if we have an Asian counterparty that all they do is Asia and don't come into the Middle East, that would not be a core strategy for us. Because the reality is there's a lot of banks in Europe and there's a lot of banks in Asia, what competitive advantage do we have. So if they are then -- they have operations in our core footprint, that footprint, then we would bank them because that's where we can get more ancillary business like cash, trade, derivatives, et cetera, to bolster the returns on risk capital in our core markets, whereas just lending to a world-rated RCF in Europe, for example, that doesn't add a lot of value to the client or to us. So that's really the strategy around these bookings is do they have operations in our core footprint? If they do, yes, and we believe there's upside to bank them within our core footprint, then that would be a client that we want to do business with. If they're just stand-alone in their market or just say, for example, a smaller, maybe they do Singapore, Indonesia, that for us doesn't make a lot of sense. So there's other banks in that market that will do a far better job than us, let's be honest. So that's really the strategy when it comes to the offshore booking centers.

And I'll just take the second question, just on provisioning. Most of the recoveries, Rahul, are coming on the corporate side. So while it's across many sectors, a fair part of the collateral is on the property sector. So I'll probably really refer back to my answer to Jon and his questions around how to think about it and the guidance we have given. Yes, it's looking more positive, but perhaps a bit premature to adjust the guidance at this point in time. Just on the retail side, you noted that retail looks a lot lower this quarter. Typically, they have around AED 500 million or so of a charge-off quarter-to-quarter. That's just the flow after the 180 days and the charge-off. It is a little bit lower in this quarter. Part of that is the ECL model assumptions coming through that gets changed from quarter-to-quarter. But otherwise, the underlying flow looks to be fairly consistent, and we're very happy with the delinquencies by different vintages.

But I would say, Rahul, given how heavy we are in credit cards and revolvers, you as an analyst should always expect that we'll be slightly higher on the provisioning line than a lot of our competitors within the market because we are very heavy in credit cards. Now that's a good business for us. The returns are excellent, but there's -- the cost of risk of something like revolving credit cards is higher than a personal loan or a mortgage. So you would expect us to be slightly higher than a lot of the market participants that have very low penetration in that area.

And the third question, Paddy?

Third question on Tier 1 interest charge. That's really because we called the Tier 1 after we had issued the replacement Tier 1. So there was a sort of overlap for 1 month. So we had a higher interest charge. Obviously, that's called. The interest rate on the replacement Tier 1 is 0.25% higher. So that it would -- Rahul, if you look at the Tier 1 charge for Q4, it would be -- or for 2024, it would be only about AED 9 million higher because of the interest rate differential. So it's just because of the overlap that Q1 looks bigger than Q4.

Just one quick clarification. You mentioned on the retail provisioning, new ECL model assumptions has kicked in. So does that mean going forward, we would be seeing lower provisioning charge in retail in line of the new assumptions which have kicked in or that was just a one quarter impact?

Yes. Yes, that was what I was not trying to say. Actually underlying is more typically around that AED 400 million of a pretty slow charge-off. So Q1 was probably a bit more abnormally low in that sense.

The next question goes to Olga Veselova of Bank of America.

My first question is on your capital adequacy requirements. Your balance sheet now exceeded AED 1 trillion. Congratulations. Does this increase the probability that your CET1 minimum can be increased by the Central Bank as it was done for FAB? Or this is actually not a factor for the Central Bank? So this is my first question. My second question is a clarification on your earlier comments about expected slowdown in cost growth. You mentioned that you expect a slow down to high single digit. Is this for the group or domestic only? And is this by the year-end this year? My third question is on cost of funding. And I appreciate you mentioned that cost of funding started to go up again. We also see that despite lower EIBOR, Emirates NBD almost doesn't cut interest rates on retail deposits. Why is this happening if liquidity is so ample in the banking sector? And the last question is on Saudi. We keep asking the same question every quarter. How much Saudi is a percentage of loans, if you would be comfortable to disclose? And maybe you can tell us if margin in Saudi is better than in the UAE or not?

Thanks, Olga. Maybe I can just work through those ones backwards while it's fresher in my memory. KSA, they are around 6% of total group lending. International in total is 11%. The margins there, I think last year, I think Fitch published a summary showing that the average margins there were 3.1%. We are a little bit lower than that. We -- as a smaller, faster-growing bank in that market, it is competitive, and with our branch network, which we are funding entirely locally, by the way, means that the cost of funding might be slightly higher than if you're a dominant large bank there. So we're quite happy with that margin. It's not too far off the average that's in that market. So their growth is all being self-funded. We're not pushing the funding from Dubai into KSA. And just that cost of funding part and time deposits, I think with our strong CASA growth, it means that we aren't having to price on the time deposit side. So we can be quite selective. We're not having to pay at or above EIBOR, for example. I think that was your question about the payment of that. So -- and then just the slowing of the cost growth through the rest of the year, that is in respect of the entire group from a pace of growth. So obviously, each part of the bank might be at different variables. We're investing in different parts of it. So that is the whole group. And the capital minimum...

I mean we're already a DSIB by definition, Olga.

Yes. So we are subject to all of the DSIB minimum, which is just over 11%. And then I think you mentioned similar to FAB, they do revise every now and then the additional countercyclical buffers, et cetera. So that will push us up to in January '26 to about 11.37% will be the minimum for us, and it's currently 11.07%. Hopefully, that covered those four points.

Yes. Thank you for this disclosure on high CET1. On cost of funding, can I just check? What I meant is despite ample liquidity, deposit betas are very, very low. And why is that? Why do you think interest rates don't go down together with EIBOR on deposits? Deposit interest rates don't go down together with EIBOR?

Well, Olga, I wouldn't be able to answer that precisely, but you can see AED 27 billion out of our AED 31 billion increase was in CASA. So in a way, that is a significant decrease in the cost of funding, and we're not -- people aren't paying up the high rates in the market. So I'm not sure I can really add much more to that.

But I think the reality is that you can use liquidity at the rates -- there's competition for the liquidity at the rates they are at the moment because you can positively get a return out of that liquidity lending into bank or cross-border or whatever. So I think there's money to be made where rates are at the moment for banks. And therefore, you're competing for it. It's the reality.

For those that are dependent on the time deposits.

Yes.

Now, we have 7 minutes left, and I need 2 or 3 minutes at the end to answer some of the questions that have been submitted by text. So the remaining -- any remaining questions we have to be very quick on. Is there any further questions?

We have three more audio questions. The next one is from Aybek Islamov of HSBC.

Two questions really. The first one is, can you remind us like how are you lending in Saudi Arabia? Is that direct lending to the customers? Or are you mostly part of the syndication? What type of lending dominates in Saudi Arabia? That's my first question. And secondly, in terms of your loans, right, are they sensitive to the cash flows or the borrowers or -- are they cash flow linked loans mostly? Or are they kind of linked to collateral? How are you securing your loans? Like is there a particular form that dominates in terms of how you're securing your loans in Saudi Arabia?

So just on the first one, the lending in Saudi is bilateral. We're not doing all of the big syndications or big projects, and it's principally in the -- entirely in the private sector actually. And the second part?

On lending in Saudi, we're a cash flow bank. So no cash flow, no lending that's -- as simple as that. So -- and if you look at the way that the Central Bank here also looks at it, cash flow when you're doing the assessment and when they review you is absolutely critical to if it ends up in Stage 1, 2 or 3. So you need to be able to evidence that there's repayment capacity. Otherwise, they'll drop you in the staging. So AT1, we'll have to preemptively. So I think we are a cash flow lending bank, that's what we do. Our focus in Saudi is mainly into the private enterprise. And the reason for that is quite simple is that we have more chance of cross-selling with cash management, trade, FX, derivatives, et cetera, with the private enterprise than we do to the government entities, which also happen to own a lot of the banks in Saudi. So we're sort of a bit of a competitive disadvantage when it comes to that. And for us, the pricing for loans in general across most markets is the return on risk capital is great unless you've got ancillary. And so our focus is always when we're lending anywhere, whether it be UAE or Egypt or Turkey or whatever is, what ancillary business can we generate that gives us a suitable return on risk capital.

We've time for one very quick question.

The next question goes to Murad Ansari of GTN.

Just a quick question. First quarter loan growth dominated by international business. Is that what you would expect to continue? I just wanted to get your thoughts on how you're seeing loan growth trends in UAE. And linked to that, I mean, would you -- I mean, sovereign repayments, I can understand, I mean, it's something beyond your control. But given the infrastructure spending plans that the government had, do you expect some slowdown on those repayments? That's all.

I think certainly, what we're trying to do is grow our international and our franchise in Saudi, obviously, is one that we're trying to grow, obviously, Egypt and India and Turkey as well. But if I look at the loan growth in UAE, retail has been extremely strong. Corporate, I'd say there's a lot of competition in the corporate space within the UAE. And are there massive new projects onshore? Not a lot so far. I mean even if you might say, well, what about all the property that -- the expansion in property? Well, if you look at most of the developers that we deal with, they're self-funding because they're basically using escrow accounts to fund the development. So we'll provide the guarantee to RWA and then they'll basically use all that cash flow from the stage payments that they receive from the buyers to actually fund the majority of the construction. So even though there's a lot of activity in property, you don't see much lending within that scope for the larger players. Now for the smaller individuals or companies that are doing bits and pieces, yes, you do, but not so much at the top end of developers in. And it's not just Dubai, by the way, exactly the same thing is happening in Abu Dhabi. So I think for us is retail continues to be super strong. Corporate, there's a lot of refinancing going on in the market. We'd love to see some big new projects coming along. We would love that. But we also are very mindful that we want to grow our offshore operation to give us that counterbalance given how strong we are within this current market.

Thank you, Shayne. Now we will have to stop the questions there. I think there's one more pending, but they've also submitted a written question. So I will draw a line under the audio questions. I'll quickly run through the written questions. There was a question about -- that haven't been answered. Most of them have already been answered. RWAs in terms of cross-border lending, we will apply the relevant RWA. A good example of that is in Turkey, for example, some government securities may be 0 risk weighted. But when we consolidate them, we will apply the appropriate risk weighting within the UAE on the consolidated balance sheet. Funding plans for '25, '26, if you look at our presentation, you'll see on Page 10 that we have the maturity profile. As I mentioned, we've sort of covered 2/3 of the ENBD's maturities this year. We have another just under AED 10 billion debt maturing next year for ENBD. Typically, we issue AED 15 billion to AED 20 billion in term debt. So -- and part of this year is also rollovers that typically DenizBank will roll over. So we're very comfortable with the maturity profile. As I said, we've already done 2/3 of this year in Q1. Patrick, just -- there was a question on our reselling properties. Now in Note 7, inventory list -- inventory is AED 3.7 billion. That's -- I believe that's where any property we have would sit. But we will -- any property we've received as part of recoveries, we would sell on a commercial decision as and when it makes sense, but you can see that inventory is AED 3.7 billion. So it's less than $1 billion. And then finally, a question on hyperinflation and the likely roll-off on that. Again, if you look at Page 16 of the presentation, you'll see that the look back -- it's a 3-year look back that needs to be less than 100%. And if you -- the presentation shows that there was a peak in June '24, where year-on-year, it was 72%. So most likely, if you're looking at '26, '27 or...

I'd say '27. We would love it to be earlier given that we had a 900 million deduction this quarter, but we can't stop reporting under hyperinflation until we're allowed to. And I don't think that's likely until unfortunately, '27. Well, I'd like to thank you all for participating in today's call. We've carried the strong momentum from last year into the first quarter. Our loan demand across the buoyant regional economy has seen the balance sheet surpass the AED 1 trillion milestone. That was probably the only thing I was disappointed at in the last quarter because we were so close, AED 997 billion, so it was great to meet that milestone. Over half of our increase in lending has come from our international network, as we've discussed. Our ability to substantially grow income is a direct benefit of the strategic investment in our regional network and digital and our GenAI capabilities, helping to offset the lower rates that we've experienced, and we're extremely well positioned to benefit from the expected strong regional growth. Thank you all very much for attending the call. We highly appreciate it. Thank you for the quality of the questions, and excellent questions there. And I'll now hand you back to Nadia to provide further details in case you have any follow-up questions. Thank you, Nadia.

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