Sohar International Bank SAOG (BKSB) Earnings Call Transcript & Summary

[Foreign Language] We'd like to thank all the stakeholders who are attending this MSX discussion, and we would like to thank MSX for giving us the opportunity to present our financial for the first half of 2025. We'll have the normal disclaimer for all the stakeholders who are attending this presentation. We'd like to start about highlighting the Oman economic, which is the main driver for the banking sector and the growth in the banking sector. Frankly, the economic and the Oman Vision 2040 is the main driver for our growth and our vision and where we can invest and develop. You can see that from the GDP composition that we have well diversified compositions by sectors. And also, we need to highlight that the debt to GDP dropped sharply almost from 71% in 2020 to -- expected to go to 31% in 2026. And we have the third lowest inflation on the ECC and the 10th globally. The physical budget for Oman for 2025 show sizable investment and diversified allocation of those investments between the investment of Oman Investment Authority, the energy development and the development projects. And that give us so many opportunity for the bank to invest and to lend for so many opportunities coming in the market. Also, it is critical to highlight that even with the price of $60, the government will have -- or the physical deficit of Oman will be around $0.6 billion, which is very reasonable. And I believe the government had an amazing strategy to reduce the expenditures and control that expenditures at the same time to grow the non-oil revenue or the non-hydrocarbon revenue, which will ensure the sustainability even with low oil prices. Sohar International started by 2007. And by 2018, the name of the bank change from Bank Sohar to Sohar International, which reflect our international ambition to growth in which we did it. We opened our first branch last year in KSA. Also, we merged 2023 with HSBC Oman, which was a major step for our growth and give us a lot of insight and access to so many customers in Oman and outside Oman. From the map, you can see that we have well-diversified branch network and ATM network. We are placed on the northest point in Oman in Khasab Also, we are -- we have branches on the north-south point in Oman in Dhalkut and in Mazyunah which also reflect our trade ambitions with the neighbor countries. Maybe the maps also didn't cover the Saudi branch, which we may need to add it in the future. Sohar International at a glance. It is very important to mention that our market share as compared with the listed banks in Oman in terms of total asset growth from 17% last year to 18%, and that reflect our growth strategy in wealth in strong asset, also the ability of the bank to raise the right liquidity from the depositors. We'd like to present the financial overview for the first half, and I will leave it to my colleague, Craig, to present those financials. Craig.

Thank you, Abdul Wahid. Good morning, everybody. First half results for 2025. The bank reported a strong return on equity of 10.3%. This was down on last year's exceptional performance where we reported 12.5%. The bank's cost-to-income ratio increased to 45.1%, which I'll discuss in more detail when I talk about the financial P&L for the bank. Loans and deposits ratio increased to 77%, in line with the bank's strategy to continue to grow its loan portfolio and to replace our investment securities. I wanted to give you some context in relation to the bank's compounded growth rate through the cycle since 2020, which were the COVID years and then the very successful merger with HSBC Oman in 2023 and the resultant results of 2024, which saw the first full year of operation of the merged entity. The bank's CAGR for loans of 14%, and deposits of 27% have provided the foundation to support the bank's accelerated growth and its loans. If I move on to 2025 specifically, our net loans grew by 21% year-on-year. If we consider the entire market growth across Oman for the last 12-month period, our bank took 30% of the market share. Supporting that was a growth in our deposit base. And I'll give you some context around the implications on our NIM of that acceleration in our deposit growth to support the loan growth for the bank. A key point to note on the key results. I'm sorry, just back on this slide. I just wanted to highlight here the continued strength of the bank's key metrics around earnings and profitability, the credit quality for the bank, the capitalization levels and the funding liquidity, which I'll again discuss shortly in a bit more detail. Key point to note around the key result indicators is in relation to the credit ratings, which we expect to be supporting the bank very strongly going forward on the back of the upgrade to investment grade by Moody's of the sovereign. Sohar International benefited from also the similar upgrade, but also our BCA increased by 2 notches. We're now 1 below the headline rate is a very positive outcome for the bank. Key discussion point around the profit movements compared to last year. The story in terms of the interest income, there's 2 aspects of that. One is clearly the growth in the loan book has increased the interest income, but also the bank held very large portfolios of treasury bills, U.S. dollar denominated. And with the repricing, with the drop in the U.S. dollar interest rates, the rates and income on those bonds has dropped, which has given rise to a rate variance to that interest income number. So 2 variables, a positive uptick on the volume growth and then the implications of the repricing on those T-bills. On the interest expense side, as we've funded the increase in loans, we've seen an increase in the cost of funds, as you'd expect. But also, the bank has seen an increase in the pricing of wholesale deposits, which we have raised in order to support the loan growth. Building your CASA base, the current savings accounts takes time to come to fruition. But with the bank's initiatives around the loan growth, attracting current accounts as well as the initiatives we have within our retail business, we'll look to firm up that and start to gradually increase that NIM. The positive story we have from Islamic banking, we've seen increase in the volumes as well as the pricing on the assets and stabilization of the cost of funds and some enhancements. Other operating income was a positive story. That's driven by increase in loan processing fees as well as fees from payments, cash management and related activities. The total operating expenses variance, half that variance is from our continued investment in KSA, which we saw for this quarter, we reported a profit for the KSA operation, which I'll discuss in a bit more detail shortly. Loan impairment charges are up, but that equates to a 50 basis points impact as a cost of risk in line with the previous 6 months period. Just to mention on the income tax benefit, which we've disclosed as we received a positive -- to recognize a positive deferred tax benefit on our KSA operation, noting that the entity is now profitable. Balance sheet, just to emphasize the story around the loans growth. of 20%. If you look on the investment securities, you'll see that is beginning to unwind as we look to replace the lower-yielding investment securities with our loan portfolio, funded by customer deposits, which I noted we're sourcing, and some of those are pricing up to support that growth story. Shareholders' equity is a positive story, noting there was a OMR 130 million successful rights issue in 2024, which supported that increase. Just a key point to highlight again, the cost of risk for the bank is 0.5%. This is below the cycle, which would normally be higher than 0.5%. Capital leverage. The bank's capital ratios remain strong. The bank has announced its intention to issue a Tier 1 instrument, and we are progressing with that process and would inform the market in due course regarding the success of that issuance and the timing. Funding liquidity for the bank remains strong across the key metrics. All of their ratios are well above the regulatory minimum, and we look to optimize liquidity for the bank to support the balance sheet initiatives. Thank you very much.

Thank you, Craig. And we'll be glad to receive any questions from all the stakeholders and analysts. [Foreign Language]

[Foreign Language] I have a few questions, if you don't mind. I'll start with the CASA deposits. For the past 4 to 6 quarters, your cost of deposit ratio has been actually very high and solid, averaging at 67%, 70%. And we've seen a significant drop to 53% this quarter. Could you shed more light on this? And where do you see it going forward? Because this has significantly impacted your cost of funds. Actually, your yields on interest-earning assets has actually increased, but we haven't seen that reflected on the NIM due to the significant increase in cost of funds. So what has happened with CASA deposits? And Craig has mentioned that you guys are looking to capitalize on that going forward. So if you could shed more light on this. This is number one. And number two, the significant fee income growth. Is this of a recurring nature or nonrecurring? I'll leave it at these two questions and potentially maybe later, I'll ask more.

Let me take CASA.

Take the first and I'll take the second.

Okay. So firstly, sorry, just on the CASA growth. I guess one thing you don't see is the average balance sheet for the bank. And therefore, you can get volatility within your CASA mix as well as to an extent, some of your deposit mix. So we do see volatility between the term deposits, core deposits, which you class as CASA. So you will get some volatility in those numbers. As I mentioned, the driver for the increase in the cost is repricing on some of the core deposits and also repricing of some of the time deposits across the wholesale portfolio. In terms of CASA growth, if we look at our retail CASA growth, we are increasing. If we look at the -- some of the underlying products that define CASA, those are also increasing through retail, Islamic. So what you're seeing is not necessarily a trend in terms of reduction in CASA.

Thank you, Craig. I think we have very healthy growth in the sticky CASA at attractive prices. That's the things which we can confirm. And about the fees income, I can confirm that the fees and other operating income are sustainable in nature.

Perfect. Would I be able to ask a few more questions or I'll leave it for the others, and I can return back later?

Please go ahead.

Sure. Regarding your -- I mean Craig has mentioned that 50 basis points of cost of risk is normally below your norm. Does that mean in the second half, we may see increase in provisioning? That is one. And the other question was regarding a restructuring that you guys have announced with Liva Group of OMR 63 million. Would we see the impact of this in the third quarter? And I have looked at the financials, I'm sure you have as well very much so and scrutinized it of Liva Group. But it seems that they've incurred a loss in the first half and 2024 wasn't great. So what makes SIB confident in restructuring such accounts? And what is the risk from those accounts as well?

Sure. Regarding the second question, I think we believe on the company, and that's part of our growth plan, and we believe in the sector itself and governance the stakeholders related to the Liva Group.

Just add to that also is the fact that it's a new relationship that has been entered into Liva Group. So the matter related to restructuring of their exposure that you alluded to is not applicable to us. It's a new relationship that we have. They probably had a bad year a couple of years ago due to the heavy rains in Dubai that was associated to their core business. but nothing else apart from that. As for your first question on the cost of risk, the amount of buffers held by the bank, as you can see, are already on the higher side, and they are believed to be more than sufficient to have the bank absorb any potential shocks. That said, the bank continues to be very prudent in its approach when it comes to lending practices.

Sumaya, is it clear?

Yes. Yes.

This is Bishen Bhalla. Just have a few queries. Do you want me to go one by one or put them all out there?

I prefer one by one. It will be easier for us.

Absolute. That makes sense. You mentioned cost of funding, and you said that's basically gone up. Interest expense has gone up because of repricing of certain wholesale accounts. And in general, you said there's some increase over there. Now if you could just put this in perspective with the interest rate cycle that we've witnessed over the last couple of years, where we saw an increase probably up till '23 and then we've seen a decline -- partial decline in '24 and a sort of muted scenario. So in that situation, when you talk of repricing, could you just put it in perspective of the interest rate cycle because you've seen some decline there. So the overall cost of funding should have idly gone down. If you could just give us some perspective there?

Sure. I may answer this question in general that the bank strategy is to have high liquidity, and you can see that we have one of the highest liquidity in terms of loan-to-deposit ratios, and we'd like to maintain that high liquidity because of our future plans. But in order to do that, also, we need to ensure that we keep our deposit and also to attract new deposit. And you can say that we have one of the highest growth in terms of percentage in the deposit for the last 12 months across the market. However, what I can confirm to you that we -- for each new deposit, we apply a proper return on equity based on the opportunity to lend. And we ensure we maximize the return from equity from any relationship and at the same time, to keep the buffer of liquidity.

Okay. So this will be relative to what the market is offering in terms of deposits, not on just an absolute number?

See, what I can tell you, we are at par with the market or below the market, but we are not offering higher prices than the market.

Okay. Okay. I'm finding it slightly hard to comprehend, but I'm sure I can probably go through the numbers a bit more deeper and probably reach out to the team later. That's fine. Just want to understand that. Okay. So next question will be with regards to sort of the other income, you mentioned it's sustainable as well as if you look at the tax sort of number, it was on the lower side for this quarter. So given the sort of status of the bank and the operating environment, what would be a sustainable or sort of a guideline number to go by in terms of bottom line for, let's say, second half as well as over the next 12 months?

Well, as you're aware, we don't give any forward-looking projections. You made a comment there about tax. I mean, just as one example, I already gave -- I gave an explanation for a part of that. I mean the other part is through the -- we had some benefits through the filing of our tax return. We were able to release some over accruals around the tax line specifically. But again, I mean, we don't give any forward-looking projections in terms of profitability.

You mentioned that there was a positive deferred tax benefit on the KSA operations since the entity is positive. Now that could be how -- what's the quantum of those deferred tax benefits in terms of will they continue for the subsequent quarters as the entity continues to be positive? Just to understand that because that...

It's a YTD adjustment and it's disclosed in our financial statements on the segmental section.

Noted. Next is with regards to the sort of consolidation merger with Ahlibank. I understand you put out a disclaimer over there mentioning sort of the regulatory process that you did not get the approvals. Is that a done deal? Is that something there were some sort of market bias in terms of a cool-off period post the HSBC transaction and beyond a certain period of time, that would probably still be on the table? If you could just -- I understand there's no future guidance, but just in terms of your thoughts over there, if anything, for the market?

No new news, frankly. So the latest announcement, which we announced on 22nd of June, as I remember, and there is no any new development since then. And the reason was announced that to postpone this merger.

Understood, fine. So I'll try and rev in the line without much fine. And last question so much is with regards to Saudi, what's happening over there? How do you see that market? What sort of dynamics are there? How different is it from this market? Just some quick highlights to help us understand what's the strategy over there, what's happening over there?

I believe Saudi is one of the fastest-growing market and one of the biggest in the region, which offer us so many attractive opportunity with low risk and good margins.

Just two questions. One on the cost-to-income ratio, like the cost-to-income ratio has seen some upward pressure in 1H '25 compared to 2024. So how do you see this trend for the remainder of the year? Is there any target you're managing towards? That's my first question.

Look, I mean, if we dig into the reasons for the increase, which I elaborated on, I talked about the KSA investment. So clearly, as you're developing that KSA business, we're absorbing higher cost and yet to achieve the full synergies and efficiencies that you'd expect for an operation, which is fully operational and delivering the stand-alone cost-income ratio. Also, I mentioned the continued investment in our people, our infrastructure. We have a number of strategic initiatives, which we're investing in. And we've also invested very heavily in branding over the last 6 months to support a lot of our strategic initiatives, which Abdul Wahid may want to comment on.

And maybe about Saudi, I think to be in green for the first 6 months, that's achievable with high-quality asset and expected good growth.

Okay. Understood. Also speaking on the Saudi operations, like currently, you -- like I wanted to understand are there any strategic plans like you want to expand further within KSA or other GC markets? Like how many expansion plans, any in Saudi Arabia, if you can highlight?

Frankly, we have one branch, and that's what we have right now. If there is any development, we will announce it in the market.

I just had a couple of questions. Starting with we have seen some tremendous growth in your deposits..

I think your voice is not clear to us.

Is it better now?

Now yes, it is clear.

Apologies. So I was just mentioning that we have seen some tremendous growth in your deposits and your loan book. But when we compare these two numbers, we have seen that your deposits are significantly higher than your current loans and you have a sizable investments. Now is this move strategic? Or is it because the market appetite is not there to have the loans in there? Just wanted your view in that?

I didn't get the question.

I think I struggled to hear your question, but what I think you're asking is regards to the level of our assets to deposits. Is that correct?

Yes. So my question is basically, you have sizable deposits, but the loan book that you have is not equal to those levels. Sizable investments as well. Is this more strategic? Or is it just because the market is not there to absorb?

So just to give you again context to what I was saying earlier, I was talking about the evolution of the bank's balance sheet post merger with HSBC where the bank became extremely liquid. So we invested into T-bills because as you appreciate, growing the loan book aggressively in the current market is challenging to source quality assets. But in the same sense, the bank is very committed to supporting the Vision 2040. We're very engaged in trying to address and support growth in the economy. And therefore, we have -- and I'm pleased to say we have a very, very, very strong pipeline of quality asset growth in Oman as well as in KSA. So we really want to position the bank to be able to support that growth. And therefore, as the -- again, as U.S. dollar rates drop as our investments mature, we'll be able to roll those off and be able to then support the funding, not just through deposits. So you can expect to see the loan deposit ratio to start heading upwards towards more where the market is.

It has actually more [indiscernible] .

Just to add, the opportunities are there, but also we are very selective to take them.

And just building on that, would this move -- is it expected to have a positive impact on the net interest margins?

Yes, that's -- of course, that's our target.

I have one more question on the loan growth. It's been robust and high single digits, especially driven by the corporate sector. Could you shed more light on which sectors within the economy are you seeing growth from? And potentially -- yes, I'm not asking for forward-looking, but where do you see that sector growth and demand for credit going forward, let's say, in the next second half and potentially beginning of 2026, depending on among macros which you spoke about?

Sure. Thank you, Sumaya. For the forecast, it will be difficult to disclose or to mention, but we have a very healthy pipeline for that. About the sector, it is well diversified, our loan portfolio. And our growth for the last 12 months was well diversified across different sectors, energy, infrastructures, oil and gas. So we are well diversified in that -- in our growth of loans. And also, we are diversified. So it's distributed between Oman and Saudi. So we have very good healthy growth in Saudi and in Oman.

Just a few questions on the Saudi Arabian operations. Saudi book, I'm seeing it growing very fast, and a significant portion of your loan growth is supported by Saudi operations. So could you please share your thoughts on the market outlook in Saudi and your growth plans there?

As I mentioned, Joice, Saudi is one of the fastest or the fastest growing market or country in the region. And we have a lot of opportunity in lending, and we are very selective in selecting the right lending opportunity with good pricing and top-tier credit rating.

So you will -- does it mean that you will continue to focus more aggressively on Saudi Arabia? And is it safe to assume for me that most of your growth will be contributed by Saudi?

Our growth will be diversified based on the opportunity. So whenever we find good opportunity in Oman, we'll grow in Oman. Whenever there is a good opportunity in Saudi, we'll grow in Saudi. We are committed for our growth in Oman also to support the vision of 2040 and the Omani economy. At the same time, whenever we find attractive opportunity in Saudi, of course, we'll jump and take it. However, we are very cautious in terms of the credit risk about that. So we are very selective in our growth in Saudi also.

Got it. Also on the Saudi operations, what I've seen is the operating income has jumped multifold in second quarter of this year as compared to even first quarter or yes, it was supported by asset growth, but second quarter jump was beyond normal. So could you please tell us what is the reason for this jump during this quarter?

So it is not a jump, frankly, but we have very low base from last year. And therefore, all the growth in the loans contributed for the growth in our income. And those growth in loan was not happening during this quarter, frankly, it was all planned and it was in the pipeline for the last 12 months. Only the execution happened this year, which helped us to grow our operating income.

The operating income -- loan growth was -- you've doubled your loans from OMR 160 million to OMR 320 million. But at the same time, the operating income has jumped from OMR 0.5 million to OMR 2.6 million. So I was just wondering what has happened in this quarter. I'm talking about second quarter alone.

Yes. But as I mentioned also, we also have been very successful in terms of the fee income from our payments and cash management business and associated products. So that has supported our results for the period. And we've also -- for the quarter, we also had a positive flow of dividend income. I think we disclosed over OMR 1 million that also contributed to the growth for the quarter.

But Craig, you're classifying it as net interest income. It's not as a fee income or anything like that?

I'm sorry, I thought you're talking about operating -- other operating income, the fee income.

You mean the operation or the consolidated level?

I'm talking about the KSA branch net interest income OMR 2.6 million.

I'm so sorry.

But I didn't understand what's the problem because also the timing in booking the asset play a critical role for booking the income. And that's however, what we can confirm, we have a healthy pipeline in Saudi, and we will take the right opportunity, and we are very selective whenever we find the right credit to lend with the right pricing.

And also, can you please touch upon the tax reversal from Saudi, the OMR 1.3 million, and that has helped you in achieving profitability for the branch?

Sorry, it's very -- it's also disclosed within our capital adequacy framework. Basically, you can't recognize deduction for your losses until such time as you identify sustainable profitability for the entity. And therefore, that is a year-to-date or life-to-date adjustment, recognizing the deductibility at a group level for the losses carried forward for the Saudi operation. Yes, it's a life-to-date adjustment. So obviously, it's not sustainable. But going forward, we'll be able to book that as a credit against the ongoing or positive, negative depending on the profit losses for the period.

On your loan classification, I'm seeing that there is almost 5% of your loan book is classified as transferred to Stage 2 during this year, which is around OMR 236 million. So could you please provide some color on this and potentially your thoughts on how this specific portfolio is going to affect your NPL ratios and the coverage levels?

So on the Stage 2 portfolio, as you may be aware, they are driven largely -- the classification of the portfolio is driven largely by the regulatory frameworks that we are operating within. And as far as this is concerned, they are quite stringent, and the Central Bank mandates grouping certain segments within the portfolio as soon as very mild indicators are seen. And we are basically fully compliant with these regulations, and we are recognizing such assets as soon as these indicators are highlighted. That said, we do not -- as you have seen, not much of this portfolio continue deteriorating. They are maintained within that and a lot also finds its way back to the regular and standard category of the assets. And as far as risks are concerned, we are maintaining significant buffers to the tune of around 160%. So the bank is very prudent. I must reiterate on that in its lending practices.

See, what I was looking at is Majid, the Stage 2 portfolio, it is growing -- it's increasing from 14% in last year to now it has reached almost 17%. So I was wondering how is it going to have an impact on your provisioning cost, especially when Craig said earlier that this is already -- the 50 bps is already below the cycle. So just wanted to check your thoughts on how is it going to have an impact on the second half as well as maybe into 2026?

So although we were not supposed to provide a forward-looking view here, what you would most likely see with the improvement in the overall economy is actually an improvement in that portfolio going forward. What you have seen in the beginning of the year until now is a result of us adhering to a very stringent set of regulations by the Central Bank, which are a lot more stringent than the International Financial Reporting Standards in that regard. And -- but nonetheless, we maintain adequate buffers and cushions against that portfolio.

Okay. Okay. My last question is on the merger announcement. Mr. Abdul Wahid, if you can provide a little more clarity on the merger announcement because earlier, your announcement was that the merger talks have been postponed. So does it mean that the proposal is still on the table and you will try to approach the regulators again with the same proposal sometime in the near future?

Frankly, there is no development from the latest announcement. And whatever was mentioned in the announcement will continue, and we cannot disclose anything because nothing has happened since the announcement.

This is Bishen here. I just had one more query, if I may, please.

Yes, please go ahead.

Yes. So if you could just elaborate on your KSA operation on the balance sheet, you have an increase in internal funding year-to-date and customer deposits. Internal funding is what equity contribution, just to clarify.

Are you referring to the segmental analysis?

Yes. I am Craig.

Yes. Look, the segmental analysis is aimed to project a balanced balance sheet across the segments. So you can see the external view, how we look at those accounts. And then we balance those balance sheets internally and then to ensure that we're correctly rewarding or recognizing the net interest margin for the businesses on a comparative basis.

Okay. So just help me understand, we've seen obviously the asset side grow, which is loans have grown from OMR 80 million at the beginning of the year to OMR 315 million. You've raised obviously deposits to the tune of almost OMR 180 million to fund that. And the balance is an internal sort of adjustment, which basically came from the parent balance sheet.

Yes, of course, that's right. Yes, that's correct.

Okay. But that's not -- I mean just from an accounting perspective, that's not an equity contribution. Tomorrow, you might reverse that by just balancing out with...

No, it's not equity, absolutely not equity. As I mentioned, when we're looking at the segmental reporting, it's the management view. So we look at, for instance, with the KSA operation, they don't have capital. So we look at internally how much capital would be required to support their risk-weighted assets, and we've given the benefit for that capital. So we're comparing like with like and we're comparing the other businesses. Otherwise, you don't have a fair comparison.

Understood. So from a purely, purely mathematical analyst perspective, there wouldn't be, let's say, a return on equity concept here just for KSA. It will probably be for the group. But just purely for KSA, it will be difficult to sort of derive that. Just trying to understand that part.

Absolutely. Internally, absolutely, we derive a notional return on equity for the KSA business. And we will continue to look at it from the same perspective as we look at all the other businesses as a basis of measuring performance. This is how the CEO analyzes the results.

Noted. And your last query, you touched upon ROE, and that's been sort of -- we've seen significant growth and kudos to the management and the strategy. what would be sort of aspirational ROE in terms of -- I understand not future guidance, but sort of what's the goalpost you'd like to sort of set for yourself. Now keeping in mind, you also have a perpetual Tier 1 issue coming up, which will sort of -- it's an explicit cost. So that might also drag in or eat into your ROE. So the current levels of 10-plus percent sustainable, you see sort of organic growth enough to offset the explicit perpetual cost to sort of maintain that? Just any guidelines over there?

So what I can tell you, we can't give any forecast about the return on equity or our target of course. But what I can assure you that for each lending opportunity or each relationship, either it is a project or corporate relationship, we'll have the right threshold of return on equity and a deep analysis will be there for all project and growth either in loans or even in deposit.

And sir, any sort of guideline on the quantum of Tier 1 issue that you're looking at? You did mention you're looking at that, the right time you'll update the market, any sort of insights on the quantum? It used to be OMR 200 million, then came down to OMR 100 million and was completely paid off. You not had one for almost, I think, 1.5 years, 2 years. Any guidance there?

Yes. The bank announced -- we announced to the market that we would be looking to issue up to OMR 150 million plus it was a green shoe of another OMR 50 million. So that's what we announced to the market. As you're aware, the bank currently has no Tier 1 issuance. And I guess also a point to emphasize that if you're looking at our return on equity as the rating agencies do, they look at the return on equity, including Tier 1, we obviously have no impact. If we were to issue a Tier 1, clearly, that would actually improve our NIM, high-level NIM because of that movement of funding. So our return on equity of 10.3%, including Tier 1 compares extremely favorably with the market. As I mentioned, we have the second highest ROE for the 6-month reporting period on that basis.

Could you elaborate on Tier 1 issuance not impacting ROE? Could you just elaborate on that, please?

I'm sorry.

You mentioned that even if you issued a Tier 1 security it would not impact your ROE. Could you just elaborate on that? You said it will contribute to your NIM but it wouldn't impact your ROE.

The dividend flows through your equity, not through interest.

Okay. But how would a Tier 1 issuance not impact your ROE? It would be an explicit cost which would come into your ROE, right? You're looking at -- and you're looking at an explicit cost, which...

Yes, from the denominator, yes, your Tier 1 flows out of your denominator for your equity, but not through your interest.

Right. Okay. And lastly, on -- again, you know what, it's fine because I was about to ask about dividend, but then that's a future guidance question. So I'll avoid that. That's fine.

Joice maybe a question?

Just two more questions. One is on your deposit trends. You have a very comfortable loan-to-deposit ratio. Liquidity is very good. But you are continuing to add deposits as you have explained that, that's part of your strategy. But what we are seeing is most of the additions are happening in fixed deposit side, and which grew by almost 17% on YTD and 60% over the last 1 year. But at the same time, we don't see a similar momentum in your CASA. It was mentioned earlier that your CASA ratio has come down. So could you please tell us the reason behind you adopting this strategy of going more into fixed deposits and not chasing CASA during your -- using your existing branch network or additional branch network?

What I can say that we have very healthy growth in CASA and especially what we focus is the sticky CASA from the retail and from the branches. So that's our target and what we are looking for. The mix between fixed deposit and CASA, sometimes it will be because you need to cover the maturity mismatch ETC. But as a strategy, we are focused on the sticky CASA and you will see a healthy growth in our saving deposits also.

I think there's also -- for more transparency, if you look at the disclosure, from June '24 to June '25, our savings deposits increased by 17%, which is a very core fundamental part of your CASA growth. We -- our demand deposits dropped by 8%, but there's 2 component parts within demand deposits in Oman. There's current accounts and call accounts. Our current accounts, we don't disclose, but our current accounts are increasing and the call accounts are dropping. Call accounts tend to be at a higher rate. Where you see a very significant increase is our time deposits. Time deposits have increased by nearly 60%. A lot of that growth, as I mentioned, is supporting our loan growth, but also it's also customer driven. So we also, in response to customer demand for time deposits locking in higher rates, we're also responsive to our customer demands. So there's more dynamics in those deposits and what you're seeing. And then drawing, I think maybe that CASA decision discussion around headline rate of 2.5% drop is not material to the bank's growth strategy.

Yes. I totally agree that you're growing strong on the CASA side. But my question was on your relative growth, the 60% growth versus 17% in CASA, that's a strategy that you have adopted. So just wondering how is it going to have an impact on your NIMs, sustainable NIMs over the next 1, 1.5 years. So that's -- if you can throw some color on that on your margin trends and everything that would be much appreciated.

So, if you go to the market right now, then you will see that the long-term bond or even the SOFR is for 3 months is higher than the long term, the 2 years. And it is the same thing applied to the banking system across the world. So in some cases, even you can -- we found that the cost of fixed deposit could be cheaper even than the core deposit. And that's a global trend. It is not something about -- so for us, we need to optimize our cost of deposit, and that's part of our strategy. I am speaking in general.

Congratulations on a great set of numbers. A couple of calls -- a couple of questions rather. One, specifically about the Fed dot plot, people are pricing in a 75 basis point cut from now until the end of next year. Specifically, given your deposit mix and your loan mix, how do you see the price of credit move in relation to those cuts? And how do you see obviously the cost of deposits? I know that CASA will shield you, but I just wanted to understand when you look at that and how do you sort of bake that into your growth strategy? Is there the retail, which is capped at 6% is that the focus? Or obviously, we are seeing that corporate is growing faster than retail. So I wanted to sort of get a rounded view on the Fed cut, Oman following, how do you see the price and cost of risk moving from your perspective?

Thank you, [indiscernible]. I think interest rate risk is one of the key risk for any banks. What we are working is to have sustainable NIM in terms of percentage and to have the right mix between -- and balancing between our asset and liability.

Okay. And if you have any color on how do you see NIMs move given the 75 basis point reduction that's going to come in over the next 18 months?

It will be really difficult to answer this or to disclose it. However, as I said, we are -- our strategy to have sustainable NIM and that's to balance between the cost of deposits and the yield on asset.

So -- and just a follow-up on the loan growth side. Obviously, corporate growth is outpacing retail growth. Is there -- what is the key reason for this strategy? Is it more in terms of the demand on the corporate side? Or is the bank consciously not trying to grow its retail book? I mean I just wanted to get some understanding on how you guys look at the corporate versus retail split when it comes to growth.

As I mentioned at the beginning, we are working in different economical sectors to support the Vision 2040. And we find a good opportunity in different sectors in corporate in Oman and Saudi. And as you know, that we found we lend to diversified portfolios in Saudi, which was a significant part of our growth. And Saudi branch is mainly corporate.

Yes. And you guys have sector-leading coverage ratios. At what point do you start being comfortable saying, hey, my cost of risk has to come down now because I'm anyways far above the sector. You have peers who are not even at 100%. So at what point do you start moderating this and take a view that I don't need to take -- build up these kind of collective provisions. So I just wanted to understand because sometimes one thing that is there like a hidden risk down the road that you're providing for that you haven't. At the same time, then we get comfortable that, okay, the bank is looking okay on the coverage side. So it's a double-edged sword, the way I look at it. So I just wanted to understand your view on this provisioning coverage that you have.

Credit risk is part of the bank risk, and that's part of our cost, which will -- we will continue to provide the right provision as required because that's part of our business. So we'd like to thank all of you for attending and all the right questions and very useful questions, which enrich us, frankly. Also, I'd like to thank our colleagues, Fahad from Islamic, Craig and Majid, the CRO for participating in this event. Thank you.

Thank you very much.

Thank you.