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

Ladies and gentlemen, welcome to the Emirates NBD Results Call and Webcast for the First Half of 2025. Today's call is being recorded. Please note that this call is open to analysts and investors only. Any media personnel should now disconnect. I will now pass the call over to our host, Mr. Shayne Nelson, Group CEO of Emirates NBD.

Thank you, Drew, and welcome to our results call for the first half of 2025. Strong momentum across our footprint continued throughout the first half, enabling us to deliver another set of outstanding results. Our best hedge against falling interest rates is to drive loan growth and broaden our product offering. The success of this strategy is clearly evident as 1, we delivered 12% higher income in the first half helped by strong loan growth, a low-cost funding base and an 18% jump in non-unded income from new products and services. Profit before tax was slightly lower for the first half and although we had a recovery credit, it was nearly AED 2 billion less than the credit to the same period last year. Lending grew by an excellent 8% in the first half, enabling an upward revision in the loan guidance. Nearly half of the increase in lending is sourced from our international network with strong double-digit loan growth in KSA, Egypt, India, Singapore and London. Deposits increased by a further AED 70 billion in the first half, including AED 48 billion of low-cost CASA maintaining a well-diversified and resilient funding platform. I'm really pleased to see Emirates [ bank ] continuing its excellent performance, delivering nearly AED 2 billion in profit in the first half as it registered an excellent 13% growth in customer financing. Emirates NBD continues to be the dominant retail bank in the UAE with a 35% market share of credit card spend in the first half, and this translates to over AED 100 billion being spent on our credit and debit cards in the first half. And we've continued to build on this strong market position with the launch of the share credit cards, co-branded with Majid Al Futtaim and it's our fastest ever card to reach the 10,000 issue mark. Our suite of innovative product offerings continues to expand with new product -- new structured products, gold financing and fuel hedging recently added. We've also enhanced our product suite, driving growth in private banking, wealth management, escrow, corporate and investment banking. The strength of our results and financial stability was recognized through our credit rating upgrade by Moody's in May. With our credit rating now at par with some of the leading global bank institutions. As I mentioned last quarter and is clearly evident from the group's performances, we have seen -- not seen any direct impacts from tariffs. Currently, the minimum tariff level applies across most of our footprint and our regional presence also benefits from diversification through a mix of oil producing and oil-importing countries. We have not observed any negative impact from the regional complex. In fact, we had a significant inflow of liquidity during this period. You may have seen our name as being linked with a number of potential acquisitions in both Egypt and India. There's not much more to add to what we've already said. Strategically, it makes sense for us to explore opportunities in our core markets. We will continue to maintain a disciplined approach. If there are any material developments we will, of course, make a public disclosure as per our regulatory obligation. Our strong balance sheet, regional footprint, world-class IT infrastructure and agile workforce ideally positioned Emirates NBD to grasp future growth opportunities. 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. I'll briefly walk through the main points to main highlights so that we have plenty of time for questions. Just on Slide 3, first of all, it is worth noting some changes to our full year guidance at the bottom row of dots. Loan growth guidance as revised higher to low double digits, given the continued strong growth throughout the first half. And with continued impaired credit recoveries and a healthy economic environment, we have improved our NPL guidance to less than 3% and lowered cost of risk guidance to 20 to 40 basis points. On the performance summary on Page 4. Despite interest rates being 100 basis points lower than this time last year, strong loan growth across our regional footprint has helped drive interest income up 10%. And product innovation boosted non-funded income, delivering a very strong 18% year-on-year. And with that, you can see the operating profit at AED 16.7 billion is 9% higher. Profit before tax at AED 15.4 billion is slightly down after AED 2 billion lower impairment recoveries this half relative to very strong recoveries last year. Bottom line profit is 9% lower at AED 12.5 billion for the first half, which includes the higher 15% tax rate compared to 9% last year. We also have a positive story for the second quarter's performance with profits rising 1% over Q1 as higher income and cost efficiencies helped absorb a higher cost of risk. Now to drill down into the components in a bit more detail, turning to net interest margins on Slide 5. The bottom left chart shows that margins tightened by 12 basis points year-on-year as higher margins at DenizBank partially offset the impact of last year's rate cuts on Emirates NBD's loan book. The margin in Q2 of 3.36% is 22 basis points lower than Q1 due to the flow-through of last year's 100 basis points, coupled with lower margins in DenizBank due to the higher funding costs following April's 350 basis point rate hike. Real interest rates in Türkiye, currently 11% and the market is anticipating rate cuts in H2, which will benefit DenizBank's margins as funding costs fall. The NIM of 3.47% is now within guidance, and we continue to expect the margin to finish 2025 in the 3.3% to 3.5% guidance range. Pending the Fed meeting next week, we assumed for guidance purposes, 3 U.S. rate cuts this year and with rate cuts later in the year having less of an impact on margins. We also expect a recovery of DenizBank's margins from Q2's 5.6% to average around 6% for the full year. We have split out the ENBD and DenizBank margins in the appendix. Moving to Slide 6 and long-funded income. The healthy trend in fee and commission income continues up AED 1.1 billion in terms or 18% in the first half of 2025 with a very strong trend across almost all products, such as credit cards, trade finance, wealth management and investment banking. Other operating income is up 13% year-on-year, and the bottom right chart shows a good quarterly trend with core clients and trading income consistently in excess of AED 1 billion each quarter this year, especially in Q1, we had a very good boost from the very successful expansion of the Global Markets product offering to local and international clients. For H1, we also had a strong 74% upswing on trading securities, mainly from regional bond valuations in Q2, some of which are held against client total return swaps that have an offsetting negative valuation booked in the other operating income line, which accounts for much of the drop from Q1 per the bottom right chart. On Slide 7, we see the gross lending increased 8% during the first half momentum has continued from earlier quarters with retail and corporate both growing by 13%, helping absorb a further GBP 13 billion of sovereign repayments so far this year. A really pleasing point to note is that nearly half of the AED 41 billion increase in lending has come from the international network with loans in KSA, Egypt, London, Singapore and India, all growing by double digits in the first half. So we're very happy with the diversification that our investment in the regional footprint gives us, and we do see that as a strong competitive advantage. Over the last 3 years, loan growth was, on average, 3% lower in the second half relative to the first half, and we continue to see government of Dubai repayment despite this pattern, given the 8% growth in the first half, we have revised up our loan growth guidance for the full year to low double digits. If it weren't for the government repayment, our guidance would be high teens across gross loan growth. On the liability side, another exceptionally positive point to note is that AED 48 million of the AED 70 billion increase in deposits in the first half with its low-cost CASA a real strength of the group. This maintained the group's CASA ratio at an extremely healthy 60%, which helps absorb the impact of lower interest rates as we can be selective in sourcing and pricing for fixed deposits. On Slide 8, we see that the NPL ratio improved by 0.5% to 2.8% during the first half on further recoveries aided by the continued buoyant property market. Coverage is extremely strong at 156% with stage 3 coverage rising to 91%. Stage 2 coverage declined due to a mix of repayments, model review and movements to Stage 3. In H1, we had AED 0.3 billion impairment credit, which equates to an 11 basis point cost of risk credit. Within that, ENBD cost of risk credit was 57 basis points from significant recoveries on the back of the continued strong property market in Dubai. DenizBank had a 252 basis point charge for the first half due to the effect of high interest rates on the retail and SME books. We have lowered full year cost of risk guidance by 20 basis points to 20 to 40 basis points charge. We expect DenizBank to be closer to 250 basis points for the full year with the prolonged higher interest rates. At ENBD, more recoveries may or may not happen. These are never certain until we receive the cash, but if we do crystallize more of these, we could land at the lower end of guidance or perhaps slightly better than. On Slide 9, we see the cost income ratio at 30.3% for H1 is comfortably within long-term guidance. The spend is delivering strong business growth and digital and international investment continues. The cost-to-income ratio improved again in Q2 to 29.8% as we maintain a strict discipline on spending, given the prospect of further interest rate cuts. I continue to expect the cost/income ratio to finish the year around 31%. Slide 10 shows the group maintains a very strong liquidity with an AD ratio of 74% at an LCR of 181%. ENBD had AED 12 billion of long-term of term debt maturing in 2025, and we have already issued over AED 11 million in debt and Sukuk. DenizBank successfully upsized its June loan syndication to AED 1.1 billion and extended duration with 44% demand allocated to 2 and 3 tranches. But we remain extremely liquid and as Shayne mentioned continue to see further liquidity inflow throughout last quarter. Slide 11 shows the common equity Tier 1 ratio remains very strong at 14.7%. Retained earnings have absorbed the 12% increase in risk-weighted assets in H1, 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 continues with AED 39 billion in new lending, growing the loan book by 13% and a record AED 31 billion CASA added in H1. With 35% market share of the UAE credit card spend over AED 100 billion was spent through our debit and credit cards in the first half. We also had a successful first half raising CASA predominantly from escrow, thanks to the best-in-class digital escrow solutions. And Global Markets turned in a very strong AED 1.1 billion profit despite interest rate cuts last year. Before we open the floor for questions, I would like to wish Paddy well in retirement and thank him for his 18 years with bank and heading up Investor Relations, and welcome to [ Karen Goyal ] and as our new Head of Investor Relations.

And Paddy, may your golf handicap reduce accordingly.

I hope so, Shayne. Thank you very much. With that, Drew, we can open up the call for questions.

Thank you, Patrick. [Operator Instructions] Our first question today comes from Jon Peace from UBS.

Best of luck Paddy in your retirement. First question, please, is on loan growth. How do you see that going into 2026? Do you think that the sovereign repayments might slow enough that we see more of that underlying momentum that you can sustain double digits into next year? And the second question, please, is on the NIM. Where do you see the exit NIM at the end of this year? And how should we think about 2026? Presumably, you've got the further impact of rate cuts in the UAE coming through, but also maybe some positive momentum still in Turkey?

Thanks, Jon. Thanks for joining. Okay. Just on the loans and advances question and your looking into 2026. Look, I -- you're right, the underlying momentum is very strong with the businesses last year. Both businesses are around the 23% to 25% growth. We're at 13% for both of them for this year so far. We haven't seen anything just at this point that would indicate momentum would flow, where we do the guidance at the start of the year. You are looking out at that point a whole year ahead, we do have that strong pace of government repayments. We don't expect those necessarily to slow down. I think if you look back the quarterly numbers for the last 2 years, sort of around the AED 5 billion or AED 6 billion per quarter that we are receiving. So we don't have any formal guidance on that. But when we will actually more formally update our guidance when we come back in January. But at this point, we did not see a slowdown in the momentum from that. On the margin side of things, where we're going to finish the year, look, we're very comfortable with the guidance that we've had out since the start of the year 3.3% to 3.5%. And I think, each quarter, I've reiterated that we expect the ENBD ex Deniz margins to close somewhere between to 290 and 300 basis points. You can see we have actually broken that out for Q2, they were at 297. So they're in that range. Obviously, with further rate cuts coming through into next year, you can see from our historical trend of what that margin might look like. The big variable, obviously, is DenizBank and Turkish mandatory policy. I think there's a meeting going on right now, in fact, and we'll find out whether there is a cut or not. But yes, the margins there did drop down to 5.6% for Q2. We indicated during the Q1 results that, that is what we would have expected, given the 350 basis point rate hike. And so that has come through. But if the rate, given the real interest rates are 11%, inflation is down to 35% from the peak of 72% this time last year. There's no reason why the rates shouldn't continue to cut throughout the second half. I guess it's matter of timing. And that's also why the margin guidance is 20 basis points wide because quarter-to-quarter in the past, we found we've been at the top and bottom of that usually all because of DenizBank's margin that we only need to make 6% for the full year for them -- for us to achieve that guidance range. So we think we're tracking pretty well for that. We're pretty transparent with that our margins are strong in the market. I think we have the highest margins of any conventional bank in the UAE. There may be some smaller exceptions, but also we will give the guidance of what that rate sensitivity is. As the rates went up, we didn't leave any shareholder value on the table. We optimize that, both at the top and bottom line, and it's coming down, and we're fairly clear about the profile of that.

We'll now take our next question from Shabbir Malik from EFG Hermes.

Congratulations on the results. Wish you all the best, Paddy. So I have a couple of questions, please -- I have a couple of questions, please. First, on fee and other income. Is there anything lumpy in your noninterest income anything very concentrated that you think probably is going to normalize in the coming quarters? That's my first question. My second question is around your M&A strategy. You may have answered this previously, but I just want to understand, would you be open to owning a minority stake in an international bank I think in the past, you've said that your priority is the majority stake, but is that something that you'd be open to? And you've also outlined India as a key market I just want to understand how friendly is the Indian regulator toward the foreign investor, especially one that would like to buy a majority stake in a domestic bank. So yes, those 3 questions, please.

Shabbir welcome to the call. Thanks for the questions. I'll take that first 1 on the fees and then maybe hand over to Shayne for the M&A one. The short -- the very short answer and shortest answer to your question, is there anything lumpy in there? No. You can see in Slide 6 of the deck, we just have a very good quarter-to-quarter trend. DenizBank is a strong presence within our fee and commission income, particularly on cards, what have you in there. So we haven't seen any slowdown in any particular country or product. It's across a wide range of our products, when it comes to fees and commissions. There's no 1 type of product that's really dominating that. So we're very happy with that. And even on the other operating income side of things, we're not a prop bank. We -- our income is all derived from our customer relationships, and we've got a very healthy trend even in the FX and derivative line, and that's why we have presented the other operating income line in that way to show that consistency. And in fact, that just in this year alone, that started to grow more legs and get more momentum. So we're very happy with that growth as well. Shayne?

On M&A strategy. Just to go back on 1 thing I'd say just on the fee side and other income is that exactly what Patrick said is about lumpy we're definitely not lumpy. And our view is that, that income is sustainable and repeatable. It's largely coming from client flows and our prop trading is frankly, a bit smaller than we want. But I think where we are is a sustainable client flow of revenue that's coming through those lines. On M&A strategy, I think minority stakes. I mean, in theory, in some markets, you could have a definition of control with a minority stake. So if you had a management and technical service agreement, but it's certainly not our preference. I mean, our preference is always to have more than 50% and that's how we've always been looking at acquisitions. We prefer 100 to be honest, rather than the minority. So I think from my Board's perspective, I need to demonstrate management control, board control and shareholder voting control. So I think that's really how that ends up there. On India, I really can't comment about regulators and their views on foreign banks. But as you know, India is a market that is very interesting for us. And we see it as a growth market that will grow either organically or inorganically or a combination of both. It's a market that we have lots of trade and capital flows, excellent cultural cross flows between the 2 countries. I think it's 1 of our prime targets for organic and inorganic. But I can make the same comment about Egypt. Egypt is another market that we think that we're too small, and we'd like to get a lot larger.

Got it. Just on fee income, would it be possible to get a more granular breakdown on fee income in terms of cards and other items?

We're quite comfortable with the level of disclosure that we have at the moment. Because it's very broad based. It's quite a broad base. So you're not going to see 1 product in there that's. It will get to itsy-bitsy because it's so broad based.

Our next question comes from Olga Veselova from Bank of America.

My first question is about net interest margin outside of Turkey. I would like to ask about drivers for this non-Turkish margin in the second quarter. How much of this was driven by Saudi? And what was the dynamics of margin, excluding Saudi quarter-over-quarter, that's my first question. And my second question is your outlook on cost of risk in Turkey beyond this year. I'm hearing you're saying this year could be 200, 250 basis points. What would be a normalized level for Turkey in the next couple of years? And if you can disclose what is your Stage 2 and Stage 3 coverage in Turkey alone right now?

Thanks for joining Olga. Just on the margins outside of Turkey, and you referenced KSA. So total assets that we have outside of the UAE and Turkey is around 12% and half of that is in KSA. But then when it comes to margins, I think during the last call, we had some discussion about the margins there being reasonably close to the industry average. We're not the best. We're not the worst. In fact, we actually have some of the stronger asset yields in KSA partly because of our product mix, but also because of the factors that we're in, particularly in the private sector and being able to price for risk, obviously, is a smaller financial institution in Saudi Arabia, our cost of funding is higher. Interest rates and margins in KSA have been coming down as they have here with SIBOR rates coming down post Fed rate cuts. It's also a pegged currency. But I'm still satisfied with those margins. But when it comes to did they have a large impact on the overall margins of the group. I think the answer is no because you can actually see our ex DenizBank margin. So it's 3 point -- we were at 313 basis points in Q1, down to 297. The larger part of that would be coming from the UAE, simply as a mathematical basis given the 6% of the assets versus the rest of the bank. So those margins aren't really materially enhancing or depleting the overall ex Deniz margins. And hopefully, the margin guidance we have given you is pretty consistent as well. And then just on the Deniz cost of risk, yes, 250 basis points. Remember, when we post acquisition with DenizBank, we were some quarters 350 -- I think we got to 420, 430 basis points 1 quarter post acquisition. I think in the last 5 years, they had a rolling 5-year average up to the end of 2023 of about 270 basis points. So last year, that had very strong recovery. So with -- in 5 years, we've gone from one end of the cycle to the other. So even if it was somewhere around the 200 basis point mark, I think we would be comfortable with that recognizing that economy.

And I think you also asked on Stage 3 coverage, off the top of my head, 71 -- 65.

For Deniz.

For Deniz, off the top of my head stage 3, 71.

65 for Stage 3, yes.

Can I just double check on your first answer. Thank you for comments on Saudi margins. That's helpful. If this was not a meaningful factor in the second quarter, what was pressure in your ex Deniz margin quarter-over-quarter. 16 basis points is a visible compression versus local peers. And policy rate cuts have already probably materialized in the first quarter. So what were the main factors in the second quarter, excluding DenizBank?

Excluding Deniz, that's the flow-through of the 100 basis points coming through. So it does take time to fully price through. I think actually, the majority -- when you look at our table, the ex Deniz part in the Page 5 chart, it's a net of 49 basis points when we showed that in Q1, it was AED 42 million. So the year-to-date, most of that had come through in Q1 and then Q2 is repricing. So if corporates typically reprice in the 3-month period from the start of those -- just take 3 to 6 months for that to fully come through. So there's nothing unusual. Yes, there's some overall margin pressure as there has been for the last 2 or 3 years from competition. It's a very liquid market. We do resist the temptation. We do like to price for risk. But inevitably, you get some parts of the overall margins coming down through competition and not just from the base rates. But that's nothing new.

I think you're seeing when you're doing the analysis of all the banks, everyone is super liquid, looking for loan growth to offset rate cuts. So that does translate into lower spreads, especially in the large corporate space in the UAE.

Our next question comes from Aybek Islamov from HSBC.

So I'd like to ask about the asset quality. So I can see a jump in the write-off ratio in the second quarter. Can you comment whether it's domestic or international loan portfolio, where you booked the write-off in Q2. That's my first question. Second question is your international business. Obviously, you opened a subsidiary in India. Can you tell us how much capital you're planning to commit into the subsidiary, right, in the context of your surplus capital position? And if you decide to grow through a subsidiary level like organically during the first stages, can you tell us what is the quickest way to ramp up your funding in India, right? Can you, for example, raise wholesale funding in local foreign currency, so it will be interesting to hear that. And the third question is investment properties. I was looking through the footnotes and I can see there is a loss on investment properties, I think, AED 41 million in the first half. What has triggered that?

Maybe -- okay, I'll start at the top. I was going to start backwards, but I'll start at the top. Just on the asset quality, and they're not write-offs per se. The majority of that reduction is from recovery. So Q1 stock of NPLs was AED 16.8 billion, come down to AED 16.1 million. You've also -- that's the numerator factor. You also have the denominator factor, where our loan book has then grown from AED 548 million to AED 570 million. So that's part of the factor of the ratio also coming down. So it's not write-offs. You may recall when the new Central Bank credit standards came in for the year-end. The bank -- all the banks no longer have -- and t by exception any NPLs that are older than 5 years. So it's that stock from 2020 to '25 and they're now -- so I think that's -- it's not -- and from a geography point of view, the majority of those recoveries are coming in from the UAE as we have seen the past trend, albeit last year, we had strong recoveries in DenizBank as well, that is more now just the UAE.

And I'd say, if you remember with the new Central Bank policy, some banks took up the 5-year grandfather to write-off the loans. We were so heavily provisioned that we didn't need to do that. We took it on the chin immediately. So that's 1 of the reasons to see that such a significant drop for us pretty quickly.

And just from your point on India, I think you're referring to the establishment of a loss. The capital that we have to commit there is not material in that sense. So -- that's something that we haven't -- we don't know what the ultimate destination amount that is. But in the meantime, as we go through the setup, it's really not a large sum at all, where I call it material. And on your third point on the investment properties, we are disposing our properties from time to time, whether they've come from formerly non -- NPLs or other parts of the estate depends on what the original booked amount was. But again, AED 41 million, just not material and you'll get that coming through from time to time. So yes, there's nothing significant about this. I think you'll see other banks have much larger gains on disposal of properties, but that's not something that we rely on as underlying income.

I mean we haven't got a ton of property on our books these days majority we've sold off over the years. So we sort of had head office campus out of Meydan and a few branches here and there. But besides that, most of the other property assets we've disposed off over the last 10 years.

Our next question comes from Kunpeng Ma.

This is Kunpeng Ma from China Securities. Could we have some color on the loan growth outlook in the medium term, say, 2 or 3 years about the trend, the major sectors and geographies driving that kind of growth?

KunPeng, thanks very much for your question. Look, GDP in the UAE forecast to be around the 5%. The economies in our regions are pretty strong. Banks typically expand their balance sheet at 2x of GDP. That's not a guaranteed fixed number. But as I said earlier, we have strong momentum across the businesses. It's nothing we can see just at this point that would indicate that, that would slow down. We do have a big loan base. So when it comes to percentages, our percentages may appear smaller than some other peers simply from base effects. But otherwise, we're pretty excited about the prospects. The economy in the UAE, in particular, KSA. It's just very bright and very active. There are cycles in economies. No economy is in the island, and we're always scanning the horizon for risk factors. But at this point, we're comfortable with the pace of rate of growth, and that's not any longer-term commitment because we update our guidance formally in January each year.

There is a question here on the text sort of correlated around property itself. Are you happy with your property exposure? One thing I would say is I mean the interesting thing about the big property development boom that you've seen in Dubai and Abu Dhabi is, a lot of it is not funded by the banks. It's basically funded by presales with escrows. So on one side, we've got the benefit of the escrow accounts, but we're not seeing the big developers come to us for large chunks of funding because they get a real guarantee, for example, and then they're able to use subject to contractual criteria about where they are in the development cycle to draw down on those presales the amount in escrow. So if we go back previously, we would have had large chunks of development finance sitting on our balance sheet, and then we've concerned about the cycles, I suppose, a lot more than we are now because we're seeing the developers -- they're basically prefunded the developments through the presales. So the impact on us is far less than it would have been historically. A lot of that is, we don't get the loan growth out of it that we would have historically.

Our next question comes from Rahul Bajaj from Citi.

This is Rahul Bajaj from Citi. I have 3 questions actually. The first 2 are on loan growth. So I see you registered 27% Y-on-Y growth in Saudi during the first half of the year. That's kind of phenomenal number actually, if I compare it to the growth that we've seen coming from the domestic banks in Saudi. So just wanted to understand how are you able to grow at kind of this multiple of local banks, are you not seeing competition coming from some of the local aggressive banks on pricing, et cetera? Or are you part of that competition? I mean, how are you pricing your loans in the Saudi market to grow at 27%? So that's my first question. My second question is around the loan mix again. So if I compare the loan mix on your presentation end of last year versus the end of 2Q, 2 key differences comes out. 1 is sovereign exposure going down quite materially, the other 1 is FI exposure going up quite materially. Now on the sovereign base, you're at 9% now of the total gross loans. You think I mean this is the level where it will stick around? Or you think it can go down further from these levels and you can probably be in the low-single-digit -- mid- to low single-digit sort of sovereign exposure? And similarly, on the FI bit, the exposure has gone up from 13% to 15%. Just wanted to understand who are you lending to when you say that you're lending to FIs on your gross loan mix? Are these banks in the market? Or these are nonbank financial entities, who are these FIs? And are these only UAE or outside the UAE as well? And my third and final question, if I may, please. This one is on India. And there was this question asked earlier around the conversion of the Indian branches into a fully owned subsidiary. Just wanted to understand what was the rationale or the strategy of the bank to go in for this fully owned subsidiary model. What do you gain out of that sort of model compared to the earlier model where you had branches, individual branches?

Rahul, welcome to the call. Let me try and unpack quite a lot of questions in those 3 questions. Maybe I'll just start at the top with the loans and advances up 27% in KSA. Yes, it is a great rate of growth, and we're very happy with it because we've been investing for 20 years now there. We've rolled out what's different between us and some of the other banks? Well, obviously, mathematically, if it's large, well-established bank, then they have a higher base, and therefore, their percentage is lower. Our base is lower, kind of the inverse of what I said earlier about us in the UAE. With our new branch network, we're now actually starting to get really good traction with that. We've been growing both the corporate and retail side. The corporate is about 60% of the total mix. Happily, we are operating there in the private sector. So we're able to -- if it's in the middle of the PD curve, then we can price for risk and get the ancillary business. So that's helping with our growth. And on the retail side has been very helpful with the funding. So it is self-funding there. So it's an excellent self-sufficient bank there, and it doesn't rely on funding new loan growth from outside of Saudi. Just on the loan mix question that you have sovereign 9% going down. Yes, it will continue to go down. You can see it's been repaying something like maybe on average AED 5 billion or so a quarter for the last couple of years. So it might be a reasonable assumption that it will continue to go down. We would like the government to borrow some more money so they can do the infrastructure spend. But at this point, the finances are in such good shape, they're very much in repayment mode. And FIs are going up, yes, indeed, we have a strong FI relationship business there. Are they banks? No, that is not bank by lateral lending in there. We record our bank bilateral lending in due to banks -- sorry, due from banks, that's where bank lending is supposed to be recorded, not in loans and advances. So this lending is to nonbank financial institutions. Obviously, I'm not going to name them, but it's the -- they're across a wide range of different financial activities. So I can't really say too much more about that. Otherwise, you might be able to identify, I guess, the counterparties, et cetera. Is it in the UAE or in other countries? I guess a predominant part of that growth for the FIs is from the UAE, yes, but not exclusively. And the third part was India, okay.

So I think if we look at the -- what advantages does it give us 1 key 1 is we don't need preapproval to open up our branches, and we're not restricted on branch numbers there. So from an organic play that makes a lot of sense, it also gives us capacity to consolidate a lot of our management like our offshoring, et cetera, and capital markets into that was. It also makes a lot more straightforward when it comes to tax in India, which is also always quite complicated. And we also believe, if we acquired we would not require a sell-down under the loss structure. So both from organic and inorganic, it makes sense for us. I know you would probably say, well, why haven't some of the other big international banks converted to a lot structure or I think the problem is that they're going to have -- because they're so big in that country, they're going to have a [ solid ] problem. [ Solid ] capital problem, if they did convert to a loss because of the size of their operations there, where we are at the moment, that doesn't make any difference to us. So I think we're in a good position to do it from the ground up rather than try to do it at a later juncture.

Thanks, Drew, I have a number of questions to address that have been submitted online. So we'll take 1 final question -- verbal question. And then we'll stop there, and I'll finish off with the written questions.

Understood. So our final audio question from Rahul Rajan from Bank of America.

A couple of questions from my end. One is on the noninterest income part. With the run rate, the noninterest income run rate get negatively impacted with lower rates in Turkey. That's #1. Secondly is on your earlier mentioned point, right, on the subsidiary in India. If you could just elaborate further on how having a subsidiary in India helps with your acquisition, you mentioned in your last sentence, I didn't really get you there. And finally, sorry, if I can add just 1 more question, please. On the RWA density that is growing clearly because of sovereigns coming down and the growth in Saudi? How do you see this -- the RWA density going forward?

Thanks, Rahul. Sorry, could you just repeat the first question on the NFI, the non-funded income?

Sure. Would lower interest rates in Turkey negatively impact the noninterest income that the Turkey entity generates?

Okay. Not necessarily, no, I think it's inflation it is certain that would have changed the income more than the interest rate per se, albeit maybe they're connected. If interest rates are coming down, there's lower inflation, presumably. And therefore, the volume and scale or the -- over time, the increasing volume of fees you earn because it's in an inflated currency, short partly offset by Turkish lira depreciation, that may be a variable -- that is something that you can't exactly put your finger on right now. If it does come down, there would be an offsetting reduction in the hyperinflation charge that you see further down the line.

I mean, I would see it on the basis is, if rates drop I mean, let's be clear where we are. I don't know how many of you cover Turkey and there's some questions on cost of risk for Turkey. But you've got retail rates mid-60s, right? So frankly, the shape of the book and the bad debt charge for when we're charging retail clients mid-60% is quite remarkably good, in my opinion. So I think if we have rates falling from a volume perspective and a borrowing perspective, that will be good for us, which will also drive fees. So I think from a fee income-driven basis with interest rates falling, I would actually say it is beneficial to us from rates lowering there because at the moment, I mean not only have you got very high interest rates, but the regulator has stopped a lot of growth in most segments of the market. I think agriculture is 1 that's a bit freer, but look, most of them have asset growth caps. So at the moment, you're growing under quite constrained circumstances in Turkey that I think that as the pressure comes off of rates because what they're trying to do is they can't control, I suppose, demand purely through interest rates, so they're basically bringing out the macro prudential toolbox and saying, okay, I'm going to slow your growth by regulatory caps on them. So I think as that comes down, I think we will get volume growth in Turkey. And remember, it's mid-90 million people. It's a big, big population and a big economy. You can take the second one.

Well, the -- well, actually, I'll just cover the RWA density question you had. Yes, you're right. When you get large repayments that are at 0 risk weighting and you are growing the businesses at 13% for the first half as an example. The risk weighting on that will vary between 50% and 100%. So that will weigh somewhat on the capital base. But you can see that our capital generation through earnings, is covering off any RWA growth that we have. Actually, if you look and you mentioned density, I've been reasonably happy with the density level over the last couple of years. Yes, it is increasing because of those repayments. And I think it costs us close to 100 basis points last year, we formed the repayments I think it's more like 80 basis points actually. So when you've got 14.7% CET1 ratio, we certainly got lots of capacity to first cover that. But also enough firepower to continue our strong track record of organic balance sheet and income growth. And then I think there was the question on subsidiary in India. And I think that was the same as previous question.

I've got nothing additional to add there.

Thank you, Shayne. Thank you, Patrick. Drew, I will have to pause the audio questions there. I'll quickly run through the written questions. Shayne and Patrick, you feel free to jump in if you want to add anything to what I say. The first 1 is just about international activity exclusion. That relates to the tax rate, and the expectation is our tangible assets are over EUR 50 million, indeed, that is the case. So we are very certain that we are paying 15% and there's no ambiguity about what we will be accruing tax at. We -- there's no possibility that we will go down to 9%.

We'd love to pay lower rates, but we would love to -- no tax. Yes.

Second batch of questions, can you share something on the higher tax rate? Again, if you look at the effective tax rate for the first half, it's just under 18% again, which coincides with the 15% tax rate plus a slightly higher tax rate in 2 other jurisdictions, Turkey and Egypt. And lowest NIM since 2022, what's driven this. Again, back in 2022, the Fed rate was 4.5%. Since then, it's been 5.5%. So the drop in the NIM to 3.36% is consistent with where we were when industries were lasted 4.5% around that 3.4%.

And even so, these are very strong margins by any measure, international standards, any of our peers, probably only the UAE Islamic banks that would have margins stronger than this. And that's a testament to the quality of our low-cost funding.

What led to the 18% rise in operating expenses? Again, we're investing the generating additional income from the sales force and investing in the international network, GenAI and Advanced Analytics. And as Patrick mentioned that we do expect the cost to moderate in the second half, so more like a year-on-year increase of mid- to high single digits for the full year. And some like on the drop in the AED 2 billion of recovery, Again, that last year's recoveries, particularly in the first half coincided with the tenth anniversary of a number of restructures and the successful recovery from those.

Yes. And actually, you can get more insights on that from Note 24 in the financials. And when you compare it to last year, actually Stage 3 recoveries was slightly -- this half was slightly stronger than last year's first half. The big difference is the Stage 2 recoveries that were very strong this time last year. And those have not repeated this year.

Okay. Question on asset quality in Turkey. Again, I think most companies and most individuals are feeling the effect of the higher interest rates, which is exactly what they're designed to do. In terms of the real estate economy in the UAE, we are -- our research team are seeing and expect prices to moderate. Prices are still -- particularly for village are still higher and still positive year-on-year. But as the supply demand dynamics start to equalize, they do expect prices to moderate this year from the high levels last year. In terms of our funding plans, we've had a very strong, as Patrick mentioned, we've funded AED 11 billion of the AED 12 billion maturing this year. Strong demand for private placements. We've done Sukuk issuance, Aussie dollar issuance. Of course, we're regular issuers and DenizBank successfully upsized their syndicated loan, but we continue to look for opportunities to fund and in terms of Tier 1, our next instrument is callable in Q2 of next year. Okay. Final few questions regarding ambitions for Egypt, again, Shayne addressed our organic and inorganic growth appetite. Nothing further to add to that. And in terms of the lending strategy in Saudi, again, I think it's about roughly 40% retail -- 35% to 40% retail and the rest of what we would call midsized corporate focusing on corporates that we can control and influence the pricing on. In terms of GenAI, we've had a question about use cases. We've been using GenAI for various use cases around SME and FX, trade opportunity identifying FX and trade products, document extraction really streamlining, particularly SME and other clients onboarding. We've been using it for anti-money laundering and just to -- to our existing AML activity or monitoring activity to try and identify additional any suspicious activity, identifying cross-sell merchant acquiring opportunities. And again, the Info Board is reducing manual searches really speeding up responding to customers. And then the final question, Patrick, which I may ask you to talk about is DenizBank's loan book. How long does it take to fully reflect the policy rate changes?

I think the average maturity in Deniz is just over 5 months. The average maturity on the funding side is 2, 2.5 months. So that's why when the rates drop, you very quickly get a lower cost of funding, but it does take time for the assets then to reprice down. And in that time, that's when the margins can recover in the near term.

Perfect. That's us exactly on the -- Shayne.

Okay. So I'd like to thank you all for participating in today's call. The strong momentum continues, enabling an upward revision in loan growth guidance. We remain extremely liquid, and our financial strength is recognized by an upgraded Moody's ratings during the quarter. Nearly half of the increase in lending is through our international network and our strong income growth reflects the benefit of strategic investments in our regional network digital infrastructure, GenAI, helping offset the impact of lower interest rates. Our final, thank you to Paddy after 18 years, we wish you well with your golf handicap. And I'm sure we'll see you back in Dubai in your retirement period. Thank you for your fantastic effort over the years, Paddy, highly appreciated. And I'm sure the listeners on the call would have interacted with you many times. And hopefully, they're appreciative of you as we are.

Very kind, thank you. Okay. Just handing back to you now, Drew, for the close up.

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