First Abu Dhabi Bank P.J.S.C. (FAB) Earnings Call Transcript & Summary

Hello, and welcome to the First Abu Dhabi Bank Q4 Full Year 2022 Earnings Call and Webcast. My name is Alex, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Abhishek Kumat, to begin. Please go ahead.

Good afternoon, everyone. Thank you for joining us today to review FAB's financial performance for the year 2022. You will be -- this is Abhishek here from -- Deputy Head of IR at FAB. Unfortunately, Sofia El Boury, Head of IR, is not feeling well and apologizes for not being able to hold the call as usual. As usual, all our financial disclosures are available on the dedicated IR section of our corporate website as well as on the IR app. Today's call is hosted by our senior management team, represented by Karim Karoui, FAB's Group Head of M&A and Interim Group CFO; Pradeep Rana, Group Chief Risk Officer; and Rajesh Deshpande, Acting Group Chief Credit Officer. They will be here to answer your questions at the end of the short presentation as well. So without further ado, I'll pass it on to Karim for introductory remarks.

Thank you, Abhishek. Good afternoon, everyone. Thank you for joining the call today. As you will have seen in the news this morning, we have appointed Lars Kramer as our new Group CFO, and he will be joining us in May this year. Lars has extensive experience in our industry and joins us from ABN AMRO, where he has been CFO since June 2021. Previously, he was Group CFO at Hellenic Bank and for almost 20 years worked in ING as CFO in various parts of the businesses. We very much look forward to having him on board with us soon. In the meantime, and as James had announced his retirement, I am assuming the role of Interim Group CFO, in addition to my current responsibilities as Group Head of M&A until our new CFO joins. I will now run quickly through some strategic updates and key highlights before handing over to Abhishek for the financial review and before opening for the Q&A. So in Slide 4, you will see that FAB achieved another standout performance in 2022 with record net revenue and record net profit despite ongoing global market volatility. This was driven by strong underlying business performance in a rising interest rate environment combined with prudent risk management and cost discipline amid ongoing investments. We witnessed positive momentum across all business lines, resulting in double-digit growth in loans and deposits and made excellent progress on our strategic focus of further diversifying sources of income, enhancing the revenue contribution of our international operations to 24% from 18% from a year ago. We are very pleased with the excellent progress that was made against our strategic priorities, creating significant shareholder value. Some of these achievements included monetizing a 60% stake in Magnati, supporting regional capital markets and a dynamic equity market, completing the integration of Bank Audi into FABMisr, advancing our ESG strategy and our transformation agenda. In light of these results and the group's capital position comfortably above regulatory requirement and our internal threshold, the Board is recommending a cash dividend per share of AED 0.52 compared to a cash dividend of AED 0.49 in 2021. This implies a total cash dividend amount of AED 5.7 billion, which is 7% higher than 2021. Despite a more challenging global outlook, FAB scale, leading market position and FAB strength position, position us very well to pursue our growth journey and to drive further value creation for all our stakeholders. Before we cover the financial performance, I would like to spend a few minutes taking you through our group strategy and then our medium-term strategic priorities. Overall, that's in slide -- you can see it in Slide 5. So overall, our ambition is to create a future-proof FAB. And we believe there are key structural market shifts that favorably support this ambition. This includes the evolving and growing strength of the GCC as an economic heavyweight; a favorable interest rate environment; a healthy pipeline of capital markets activity across lending, M&A and IPOs; the increase in sustainability and ESG needs of our clients. Within this evolving environment, our long-term aspirations as a group are clear and then can be summarized in 3 points. One is to be the banking powerhouse, driving regional economic growth and diversification; two, to be the most trusted partner for our clients wherever we operate, and to be MENA's most innovative and agile financial institution, fit for the future. These aspirations truly reflect our deep roots and heritage as well as our unwavering commitment to sustain our track record of superior and sustainable shareholder returns. Moving to Slide 6 and for us, in order to meet these aspirations, we have been focusing and will continue to focus on 3 strategic priorities over the medium term, which you can see here on this slide. Three pillars will help us deliver improvements in underlying returns by, first, stimulating the growth across the franchise. This means strengthening our position as the regional leader in our chosen segments and markets by diversifying revenue streams, expanding capabilities, enhancing cross-sell opportunities and unlocking value through strategic partnerships. Two, catalyzing the change. So we want to accelerate investments in key areas, including digital capabilities, leveraging data analytics and AI, investing in systems to reinforce operational resilience as well as cultivate high performance-driven culture across the group. Three and -- so the third priority is to enhance connectivity across our footprint, positioning ourselves as GCC plus Egypt's preferred financial gateway and a leader for cross-border banking flows while also expanding our presence in priority markets through organic growth and as well as M&A. I know many of you would have questions about FAB's inorganic growth strategy following recent media reports of an exploration of a possible offer for Standard Chartered. While we cannot expand further on this specific topic as we are bound by the restrictions of the U.K. takeover code, I would like to emphasize a few key points as regards to how M&A features in our strategic aspirations. One, growth is at the very center of FAB's vision and inorganic growth is undoubtedly going to be part of how we achieve growth and diversify our revenue streams. We are constantly monitoring for external growth opportunities to assess how they could fit with our growth strategy and meet multiple criteria, including diversification of our geographic and product offering, growing profitable businesses and more importantly deals that make sense for FAB's shareholders. In summary, FAB's growth strategy is intact, FAB is a disciplined investor, and we will only proceed with transactions that benefit FAB and its shareholders with our priority being to create long-term value for our shareholders. Our key enabler is to support our strategic priorities, investing in people, investing in technological innovation to support business growth, an optimal risk appetite and strengthening our ESG leadership position as we continue to embed sustainability in everything we do, nurturing culture and talent. In Slide 7, and just spending a little bit of time on ESG, although it's a business slide, it's important that we show the significant progress that has been made against our sustainability targets in the first year of launching our ESG strategy. I will let you go through it in due course, but just to call out a few points. Over USD 9 billion equivalent of sustainable financing were facilitated by FAB during 2022, in line with group ESG targets and then our strategic focus to help clients navigate the energy transition. Half of the group's funding issuance in 2022 were in green format, and we've significantly expanded our green product suite across the group. On diversity, we are pleased to have increased female representation at senior management while also enhancing diversity on the Board of the group's subsidiaries. ESG is a top priority for the group. And with 2023 being officially the year of sustainability in the U.A.E, FAB will continue to act as a pace setter in this area. And if you have any specific questions on this topic, Shargiil Bashir, our Chief Sustainable Officer, is on the call to attend any queries. In moving to Slide 9. So as I mentioned earlier, it's been a record year for the group. So full year net profit of AED 13.4 billion, which is a 7% growth year-on-year and group revenue of AED 23.9 billion, which is 10% year-on-year records for both. This was driven by strong underlying momentum across all business lines, the benefits from rate hikes as well as gains on sale of stake in Magnati. We have also further diversified revenue streams with double-digit growth in international revenue and the completion of our integration activities in Egypt expected to help accelerate that growth going forward. In terms of balance sheet, it is very strong. So liquidity position is strong with the LCR at 154%, and we ended the year with a CET1 above 13.5% before proposed dividend, which is within our guidance, thanks to risk weighted assets optimization and earnings generation. In Slide 10, so you can see that we have met or, in some cases, exceeded elements of financial guidance for 2022. We delivered what we promised, which is a very positive outcome, which you can see here. So plus -- so on the loan growth, plus 12%; cost of risk 62 basis points, largely below the 80 basis points committed; 98% of provision coverage and 13.6% CET1 above the 13.5% we guided for the year 2022. I will now hand over to Abhishek to take you through the remaining slides.

So looking at Slide 11, yes, we are going to talk about the year-on-year net profit bridge. And as you can see, net profit was up 7% year-on-year or AED 880 billion, amounting to that. And this was driven by strong activity levels across all the business lines, coupled with the benefits from the rate hikes, the gains on the Magnati stake sale as well and which -- all of this helped to offset the softer trading gains that we had in last year, the exceptional trading performance that we had in 2021. Operating costs are higher, mainly reflecting the integration in Egypt, some of the legacy system write-offs that we took in Q4, roughly around AED 260 million. And this is in line with our technology transformation strategy that we are undergoing. Plus continued investments into the business in terms of strategic and digital investments to drive future efficiencies. Impairment charges were higher by AED 181 million, reflecting prudent provisioning. Particularly in the last quarter we have taken AED 1.1 billion. Within the F&C also, fees and commissions, you will see the negative amount is primarily due to the deconsolidation of Magnati, which was deconsolidated last year. Moving on to Slide 12. Here, the net profit bridges between the sequential Q4 performance versus Q3. And within this, you can see that net profit was down AED 2.5 billion -- net profit was AED 2.5 billion, down 16% sequentially on a reported basis. But when you take out or when you exclude the negative MTM on the real estate that we have taken in Q4 in terms of conservative asset valuations, that percentage would be something like a 5% only. So during the quarter, we saw very strong underlying revenue growth, almost AED 750 million or AED 745 million to be more precise, mostly again driven by NII, AED 556 million. You have fees and commissions, which were again -- we had some good growth in our Investment Banking segment. Plus you had some good gains on the FX as well as good gains on our equities trading portfolio as well. So all of this has given us the headroom to take several precautionary measures to ensure that we enter 2023 in a strong position. And these include, like I alluded earlier, impairment charges of AED 1.1 billion in the quarter. In terms of legacy systems, we have written off almost AED 260 million in that. Plus, we've taken a relative conservative view on the valuation of real estate. As you can see, the AED 327 million in blue small bar on the Q4 2022 NPAT. So AED 327 million of negative MTM. Moving further and to talk a bit more about the businesses and how they have performed. Underlying revenue performance, as you can see, sustained levels of activity across the business lines in general. During 2022, our 4 core businesses saw strong volume growth, driven by healthy pipeline execution in a relatively favorable regional backdrop and increased consumer spending. As you can see, loan and deposit growth is there on the bottom of the slide, across businesses has been largely positive. If you look at the balance sheet growth at the bottom left-hand side of Slide 13, you will see that CCB is up 44%; Investment Banking was up 2%; and even Consumer Banking after a period was up plus 4%. Revenue growth is there almost across the segments in general, except IB, where we talked about the year-on-year gains -- that we had exceptional trading gains that we had last year. And in Consumer Banking, it's primarily due to deconsolidation of Magnati. In terms of the head office, the variance is AED 1.3 billion, mainly attributable to the classification of FABMisr under HO, plus strong FX gains as well as one-offs associated with the accounting and full integration of the business. Moving on to Slide 14 and talking about the balance sheet movements. The key highlight is simply that double-digit balance sheet growth reflects the strong business momentum that we have been talking about all through the year. Group foundation remains robust across all key metrics. Starting with the liabilities. Despite the outflows that you have seen in Q4, deposits are significantly up by AED 86 billion in the year, and this represents a 14% increase, one of the record increases that we've seen over the last 5 years since the merger. Most of that growth is attributable to the Abu Dhabi government and GREs, but it also includes good corporate-related growth and particularly on the CASA where despite rising rates we've seen a 3% growth year-on-year. In terms of deployment, you can see we have deployed liquidity primarily into loans, investments, the due from banks while cash balances with CBs have dropped off, and this is a reflection of the deposit outflows during the last quarter. The increase in other assets is driven by the increase in valuation of derivative positions on both sides and this is primarily as a result of higher interest rates. In terms of loan growth and despite the runoff of trade-related loans and some repayments in Q4, we are finishing the year in line with our guidance of low teens with a 12% growth year-on-year, which is a net AED 50 billion incremental lending, simply outperforming the market by almost 2x, where we've seen 5.5% growth year-to-date on gross credit according to Central Bank data as of November end. FAB's liquidity profile remains very strong with a liquidity coverage ratio at 154% and a net stable funding ratio of over 100%. Moving further and talking about further developments in terms of the NII and the NIM slide. NII was 23% higher year-on-year, reflecting the significant benefits from rate hikes, volume growth and Bank Audi Egypt inclusion. Q4 NII was AED 4.2 million, up 15% sequentially and 39% year-on-year. From the quarterly NIM trend on the bottom of the slide, you can see that NIM has picked up quite notably in the Q4. And this was mainly driven by rate hikes, partly offset by the margin compression due to competition and higher Fed placements. Our asset mix, again, shows that the mix of average interest earnings and average interest-bearing deposits where you can see 31% of interest-earning assets versus 27% last year. And all of this has had an overall mathematical impact on the overall mathematical calculation of NIM. We continue to manage our balance sheet sensitivity dynamically based on the market outlook. And as of year-end, a 25 bps increase in rates would result into AED 343 million in NII and profits -- in terms of the interest rate. You can get more details in note 46(c) in our financials as well on this. In terms of the outlook for '23, as always, we will continue to focus on enhancing our net interest income through volume and better pricing. And margins are expected to improve in line with a couple of further rate hikes in first half of '23 and perhaps flattering for the rest of the year. Moving on to the noninterest income slide here. Noninterest income for the quarter was AED 1.7 billion, down 8% sequentially, mainly account, as we said, of the MTM negative losses on the real estate portfolio. Other components are showing good growth: sequentially, as you can see, fees and commissions plus 9%; and FX and investment income was up 21%, driven by sizable FX gains, healthy client flow and cross-sell activity in global markets as well as strong trading performance of our equities portfolio. Overall, this brings the noninterest income for the year to AED 6.5 billion, down 36% Y-o-Y, again, because of the exceptional trading performance in 2021 that we had. Fees are down 8%, mainly as a result of derecognition of Magnati. If you reverse that out, as you can see, they've actually grown 2% year-over-year. Moving on to Slide 17, which is OpEx. Excluding FABMisr costs -- so what we have done here is we've taken out the whole of FABMisr, whereby Bank Audi Egypt was consolidated starting end of April last year. So just to give a more simpler explanation of the increase in the costs year-on-year, we've taken out the FABMisr completely to show you what does the cost growth look like. So within which you can see again AED 260 million of that is related to legacy systems write-off, and this, like I said, is part of the ongoing technology transformation strategy that we've been adopting. Further, excluding that, the growth, if you exclude that out as well, the year-on-year growth would be roughly around 8%, which is in line with the growth that you've seen across the quarters. Overall, main investment is going into systems related infrastructure, depreciation uplift coming through the investments in technology, and we're confident that these investments will deliver productivity, both in terms of revenue and cost. Cost-income ratio for the year is just below 32%, excluding the gains on sale of Magnati. Although we expect OpEx growth to decelerate in '23 versus '22, it will continue to reflect investments in our systems and infrastructure with the objective of creating future efficiencies. Moving on to asset quality. NPL ratio remained healthy at 3.9% with coverage at 98%. And the NPL formation during fourth quarter was primarily due to downgrade of a few large corporate accounts in the real estate and contracting sectors. We do not see this particularly as an emerging trend or general deterioration in the creditworthiness of our clients, although we do remain vigilant towards any such signs going ahead into the year. Cost of risk came in at 62 bps for the full year, with high impairment charges taken in the fourth quarter as a result of prudent provisioning as we build up buffers in the context of a more challenging global macroeconomic outlook. In terms of outlook ahead, FAB enjoys a high-quality portfolio, strong provision buffers and a superior credit profile. This puts the bank in a very strong position to withstand any deterioration in the credit cycle, which would be caused by a more challenging macroeconomic picture. Further specific guidance can be covered on the cost of risk coverage -- will be covered on the guidance slide. On the capital front, we are very pleased to report that we've seen a 50 bps improvement in CET1 ratio to 13.6% pre-dividend. This was on the back of ongoing RWA optimization, strong earnings generation as well as recovery in the AFS investment reserves but partially offset by adverse impact of currency depreciation and devaluation. Capital generation in 2022 overall was strong, although partially offset by regulatory and market headwinds. We are finishing the year with a CET1 within our guidance and enabling us to increase dividends year-on-year by 7% while retaining sufficient capital to support future growth and transformation. Moving on to Slide 20, and this is about our strategic focus is constantly shared by the structural market shifts that we see, the evolving client needs that we experience across the franchise. And in the context of a slowdown in economic growth globally, that is expected, we do expect this region to continue to outperform on the back of the positive momentum that we see across non-oil economic sectors, and the ongoing structural reforms to accelerate growth and diversification. We also expect regional capital market activity to remain sustained with a healthy pipeline in the equity capital markets and an acceleration of initiatives on sustainability, helping our clients navigate the energy transition front. So this leads us into the guidance for next year ahead. And largely, it's pretty consistent with the guidance that we gave for 2022 in terms of cost of risk, provision coverage ratio as well as CET1 guidance. On the loan growth side, we are conservatively targeting mid-single-digit growth and in light of the potential expected slowdown as well as strong growth that we have seen this year. To conclude, we've achieved another year of record revenue and net profits, reflecting positive momentum across our core businesses in a favorable regional backdrop and successful strategy execution. We will continue to invest in the franchise to expand our product offering, strengthen digital capabilities and technology platform. We are entering 2023 with a robust balance sheet formation and a cautious approach very well prepared to navigate a more challenging global macroeconomic outlook. With this, I would like to hand over to the operator and open the floor to Q&A.

[Operator Instructions] Our first question for today comes from Nida Iqbal from Morgan Stanley.

My first question is a strategic question. As you mentioned, inorganic growth is one of the key things on the agenda for management at the moment. It would be great if you could get some color on what regions or countries you're looking at for inorganic growth opportunities. And what are the factors that make these markets interesting for you? And in particular, the business lines that you're looking to develop via inorganic growth. So that's the first question. And then the second question is on the negative mark-to-market on properties of AED 327 million that was taken this quarter as well as the NPLs that you mentioned were driven by construction and real estate. I find it quite interesting, and I'm a bit surprised, given the macro environment is quite strong in the UAE property market is doing very well. So negative trends being driven by property is a bit surprising for me. So any additional color there would be quite helpful, please.

Yes. Thank you for the questions. So on the first one, so for us, we remain the same. Our priorities remain the same in terms of organic growth across the businesses, the products, et cetera. So that -- and then we've been showing this over the past few years. We continue on growing locally and internationally through the products where our strength in organically. On the inorganic growth, frankly, it's same thing. I mean -- and then as we stated -- in the past, we remain focused on the region. And then we mentioned a few new countries in the past talking about. So UAE, of course, is our local home market. We talked about Egypt and KSA in the past. We keep the same priorities for us. And then this is within the framework of being the regional champion and then, okay, our positioning in the region. Plus also, we look at the flows in and out the region through Asia, through Africa, et cetera. So we continue on strengthening our position there in terms of -- and then focusing on the trade flows, focusing on the presence of our clients in the region and outside the region. So we continue on keeping the same priorities for us. Also, as you saw some news in 2021 regarding one bank in Egypt. So basically, we have any opportunity which will help us in the fast growth in our key business lines like the investment banking, the consumer banking, especially the digital part, the private banking, we will always continue on looking at opportunities. Same thing internationally. Whenever we have -- whenever something which will help us have stronger presence in the areas and then in the target countries and then where our focused areas and then where the trade flows our business are we will continue on looking at other opportunities. And having said that, we will never deviate. You saw what we've done in the past. We maintained the discipline, and then everything for us is driven by the shareholder returns. Anything which does not add value to our shareholders, we look into it. But at the end, we will not go for it unless it is bringing the value it is expected. I will answer one part of your question related to the real estate. One is on the negative valuations which you saw in the last quarter of this year. The first one, it is more linked to our real estate portfolio. So currently, our real estate portfolio has more of commercial than residential, while the residential is doing well, and then as you rightly said. But given that -- so that we got some negative valuations on some particular areas in the commercial business of real estate. The other part, which is related to the contracting, et cetera, I'll pass it to my colleagues.

Nida, this is Pradeep. Just to give you some more color. The NPLs in the real estate and the contracting sector are from our restructuring portfolio where we have adopted a more prudent classification. We are seeing some positive momentum in some of these exposures and may expect to see some recoveries in the next few quarters. At the same time, we have followed prudent provisioning norms by taking overlays on these accounts and adjusting for macroeconomic variables in certain geographies where we are seeing challenges. Rajesh, I don't know if you got anything more to add.

This is Rajesh. Just to build on what Karim and Pradeep had mentioned. If you look at the real estate sector, that's quite broad, right? So you have the residential real estate and the commercial real estate. Even in the commercial real estate, what we do is we would like to bifurcate between that part of real estate, which is more associated with the tourism industry and then you have the commercial, which is with the offices. So what we are seeing on an overall basis is that the residential is doing very well. The hotels and the other associated real estate with this sector is also doing well. And then we see some stress on the commercial or the office building. So that's where we are looking at taking -- building our buffers. The other lens, which we also have used in terms of trying to be more prudent, is to also look at the real estate assets, which are owned by the GREs, our large corporates and then the assets, which are owned by the smaller borrowers. And that's where in certain segments, we've tried to build our provisions on that.

Our next question comes from Waleed Mohsin from Goldman Sachs.

A couple of questions from my side. First, on the cost base. You kindly unpacked some of the one-offs during the quarter. But I just want to get an understanding of how do you see the cost growth shaping up from here. And even if we look excluding some of the integration costs, your cost-income ratio above 30% is significantly above what we are used to with FAB historically. So wanted to get a sense of where you see this cost-income ratio trending going forward and the kind of cost growth you see on that front. Secondly, you talked about the growth ambitions for the bank. And in that regard, you mentioned organic and inorganic both. So where does ROE sit in all of this? I mean, if you see this year, you had strong growth, but the underlying ROE obviously dropped if you exclude some of the one-offs. So in that context, how is the management team thinking about ROE. Karim, you mentioned that, ultimately, the focus is on delivering shareholder return. So in that context, if you could please talk about the ROE aspirations that the group has, both in the short term and the medium term. And maybe last one is on net interest margin. It has been quite volatile. There was a pickup in the fourth quarter. But given where you are, how do you see that trending going forward?

Good questions. So on the cost base, and then you saw some exceptional items happening during the year, some cleanup also because -- okay, we've been investing a lot in the technology and then, of course, and then some systems become obsolete. Some systems are not -- after the investment are not bringing the value. So we are putting now more discipline in our investment in technology strategy going forward. So that's some of the things which happened. So I think after excluding the exceptional items, the integration costs, et cetera, I think if you assume a high single-digit growth in our expenses, it should be a good way of building your models for 2023. When it comes to the growth ambition, et cetera, I think a 15% return on equity should continue being our target for the future. This is where we see the value, which -- the value for our shareholders. Of course, I mean, for us, the way we have always behaved is that we built the story around the organic growth. We are improving on all and then we have good -- I mean we have good reasons to be ambitions, to be optimistic about the growth of our -- in the main business lines of our business. But at the same time, now we always see that exceptional items come. Sometimes that it's a booming IPO market. Sometimes it's a real estate market. Sometimes we see that we have a good asset, which has value, be it in the real estate or any of the subsidiaries, et cetera. We will continue on doing that. But if you look at the core business over the past 3 years, it's a growing story. The trend -- we expect that the trend will continue. And then we will never say no to an opportunity which will come. And then we will continue on having this opportunistic mindset. And then, of course, the 15% is what we will be always looking at. In terms of -- for the NIMs, yes, you saw that maybe fourth quarter was better than third quarter, et cetera, because of the Fed rate hikes. We will continue on seeing the boost happening, let's say, at least during the first half of 2023. So that's why we are -- and then also, frankly speaking, during the discussions which we were having with the Board, with the senior management, is that to make more efforts and then put more focus in order to improve the net interest margins. Of course, given the profile of FAB, the excess liquidity, we are managing, et cetera, but definitely, it is one of our priorities in 2023 to work more on improving the net interest margins, even if it is a few basis points.

Just one quick follow-up. So to get to -- if I understand correctly, 15% is also where you see the current business, right, the organic business going. So if that's true, then if you look at the, let's say, the 2022 ROE, it's sitting at around 12.7% underlying. So that bridge between 12.7% and 15%, do you think it's going to come from NIM improvement and some cost-income improvement, is that a fair assessment because your cost of risk was already below the guidance of 2023?

I think, Waleed, the focus is more on the revenue side. So that definitely will continue. We are doing well. I mean, we are good now in executing our strategies for the locally and internationally. Things are improving. So the key focus will be on the organic growth, on the revenue side. And definitely, if there are some boosters coming from other areas and then God knows what may happen in 2023. And then at the end, we will continue on doing all the efforts, so that organic plus inorganic gives us at least the 15%, which we are -- in terms of return on the equity, which we are looking for.

Our next question comes from Shabbir Malik from EFG-Hermes.

Most of my questions have been answered. Maybe just one question. You've talked about inorganic expansion. But if I look at your capital position, although it's efficient relative to your current balance sheet side, et cetera, but if you plan to do an inorganic expansion, what are your plans in terms of financing and raising the necessary capital for those inorganic expansion? Do you think you will have enough capital internally to kind of make those acquisitions? Or would you be open to tapping the market for new capital?

Thank you, Shabbir for a very relevant question. So you saw our behavior. In general, we are like before dividend, the CET1, which is the driver here. So the CET1 at around 13.5%, post-dividend it goes to 12.5%. And then over -- during the year, I mean, through the accumulation of the quarterly results, we bring it back to that range, which we believe is fine. And again, within the context of giving the returns to the shareholders, maintain the dividend story, at the same time look at the growth components and then look at how we are going to optimize the deployment of capital through the risk-weighted assets during the year. I think at this stage, it depends on if there is a good -- if we see a good opportunity in terms of inorganic growth, of course, we have to look at all the aspects of that particular opportunity and then see if we see what's the impact on the CET1, that is one of the most important criteria for us. And then if it makes sense for our shareholders, we are -- of course, here, we are repeating ourselves, but the discipline is that we have to do it, right? And then if it adds value to our shareholders and then if there is a requirement that we boost a bit the capital to maintain those levels, which are, at this stage, appreciated by our regulators, by our rating agencies, et cetera. So we can only afford to do the right thing and then we will continue on maintaining these levels of CET1.

Our next question comes from Naresh Bilandani from JPMorgan.

It's Naresh from JPMorgan. Karim, it's good to speak to you after a while. This feels like our FGB days, again. So good to hear from you, indeed. Just 2 questions from me, please. First is on the cost of risk. Could you please share any thoughts on whether we could see any pressure in the cost of risk later in this year once we have the implementation of corporate tax in the UAE? Would you see any risk to your guidance in this regard? And just generally, I feel that you still continue to maintain a level of conservatism on your cost of risk. And this especially stands out when one of your competitors earlier during the call, they sounded quite positive on the scope for recoveries potentially in UAE and one of the other markets, but also in the UAE. So just in this framework, can you please share what cost of risk should we realistically look at? I know you're generally trying to be conservative in your guidance. But realistically, how much core should we model in for our expectations into 2023? And specifically, if you can throw any risk to this expectation from implementation of corporate tax. So generally, on cost of risk, that's the first question. My second question is on loan growth. I think this guidance at mid-single digits is looking somewhat more muted than what I would have expected out of FAB. I mean, in my previous meetings, my understanding was that in the medium term, up to high single-digits should still be a good trend for FAB to model through. I'm just trying to understand what has been the basis of your conservatism. Is there any sort of conservative outlook you're putting out with the demand getting affected by higher rates as we go further into FY '23? So if you can please explain this line a bit more in detail, that would be super helpful.

I see that you are still nostalgic with the FGB story. It's no longer there now. It's a different animal. It's much bigger, our positioning. And then we are frankly...

Indeed, Karim. That was an easier one to follow.