The Saudi Investment Bank (1030) Earnings Call Transcript & Summary

Hello, good afternoon and good morning, ladies and gentlemen. It's my pleasure to welcome you all to Saudi Investment Bank's 3Q 2025 Earnings Call. At this point, I would like to hand over the call to Ms. Najla AlMutairi, who's the Head of Investor Relations at Saudi Investment Bank. Please go ahead, Najla.

Thank you, Muhammad. Good afternoon, everyone. We're pleased to welcome you all to Saudi Investment Bank's earnings call for Q3 2025. My name is Najla AlMutairi, Head of Investor Relations. Kindly note that our earnings disclosures are available on our website. And also be aware that the call will be recorded. A transcript will also be made available on our IR web page. If there are any members of the media, please be reminded to share your questions separately with the corporate communication team. I am joined today by Mr. Faisal Al-Omran, Chief Executive Officer; and Mr. Ahmed Almohsen, our Chief Financial Officer. Moving on to the agenda. Faisal, our CEO, will cover the performance highlights for the period and will give an update on our strategy. And Mr. Ahmed will then discuss the financial performance and guidance in more details. We will then open the floor for questions. With that, I will now hand over to our CEO to begin the presentation. Over to you, Faisal.

Thank you, Najla. Good afternoon, everyone. A warm welcome from our side. We're very pleased to be speaking to you today. We delivered a good performance during the first 9 months of 2025, demonstrating a solid progress and robust year-over-year growth across our key performance metrics. Sustained strong balance sheet momentum and quality has been shown in the 11% loan expansion driven by the growth in Corporate and Private Banking segments. We also have witnessed a 12% growth in deposits, mainly from time deposits. We had strong also credit quality overall, and we have maintained solid capitalization and healthy liquidity positions in the first 9 months. We also have profitability net income growth of 6% year-on-year, reaching SAR 1.534 billion. ROE stood at 12.7%. Also increase came in spite of NIM contraction, which we will go into more details shortly. But we also have maintained a low cost of risk at 23 basis points. We have maintained cost discipline with cost-income ratio improving to 40.8%. This strong performance has helped mitigate the effect of NIM contraction and maintain the overall profitability. Moving to next slide 4. So briefly, we'll share some of our key highlights and accomplishments for the period. On the debt capital markets front, we have successfully launched a $1 billion CD program, of which we have issued $650 million. Also in September '25, we closed our $750 million Asian syndicated loan. We're very proud of the result, a major step in our diversifying our funding base. The deal was actually upsized from $500 million to $750 million, following the strong demand and have actually attracted 36 investors from across China, Hong Kong, Taiwan, Singapore and Japan. The transaction was actually more than 2x subscribed on the $500 million. Thus, we have actually increased the size. [indiscernible] We have also, during the year, introduced Shariah-compliant, Zakat-exempt Savings Account, offering an excellent profit rate and a fully digital onboarding experience through our mobile app. We believe that's a great initiative that we have accomplished and you will see the effect during the coming period. On the digital front, we have also launched the S60 Accelerator, one of the S60 Ventures initiatives, in collaboration with Fintech Saudi during the Money20/20 event. The accelerator aims to support fintech start-ups and contribute to shaping the future of the financial services, both locally and internationally, but the focus is on locally on this Accelerator. Also on the innovation front, we have remained a key area of strength for us. As part of our vision, we've made significant progress in enhancing our digital capabilities and launching innovative products, which strengthen the customer operating and market position and that also have shown in our newly launched app where the rating of the app has been the highest among Saudi banks, and we believe we will continue to keep that edge going forward. we'll go to the next slide. This is our 5-year strategy. I mean, as always, our vision is to be the trusted bank to our clients. Our mission is to build long-term relationships with them, provide an exceptional work environment for our people and deliver sustainable value for our shareholders. These are the 3 pillars that we will always stick by and evaluate any strategy initiatives that we do. Our strategic objectives for the business segment for Corporate and Private Banking is to accelerate profitable growth. For the public institution, we are looking to increase penetration and growth in the current accounts and also fees. In our Consumer Banking, which basically tackles the affluent, we are looking also to have a differentiated value proposition to be able to capture [indiscernible], so the initiatives are the savings account and also to be able to build quality assets that are not price sensitive compared to the mass segment. There are also critical enablers for our strategy: treasury, IT, human resources, risk management, marketing. And we are so far happy with the accomplishment of the strategy. And I think it shows in the next slide where we have accomplished 42 out of the 43 initiatives. The delivery has been excellent, the execution has been on the time lines very adhere to. And we believe also that these projects that have been delivered will start also giving us the value expected, inshallah, in the near future. I think we have mentioned before on the details, and also actually this slide, where we talk about our corporate Internet banking that we are looking forward to launching, also the introduction of the new analytics powered CRM system, also putting in products that are built on data science-driven initiatives. So I think this is something that we have already spoke about before. So I'll make it short and I'll leave the next section to our CFO to give more time with the explanation and also to give more time for the questions. So with that to you, Ahmed.

Thank you, Faisal. [Foreign Language] Good afternoon, everyone. I would also like to extend my warm welcome to all of you joining us today and pleased to share that SAIB delivered another strong performance for the 9 months of the year 2025. The balance sheet, loans increased 11% year-to-date or 16% year-over-year reaching SAR 110.6 billion. This was supported by healthy deposit growth of 12% year-to-date and 7% growth year-over-year, taking total deposits to SAR 105.2 billion. Even with the NIM contracting 45 basis year-over-year, where it reached 2.31%, our profitability continued to improve, driven by income growth, positive jaws and [indiscernible], resulting in a 6% increase in net income. Our return on equity reached 12.7%, up 10 basis points from last year. SAIB maintained a healthy asset quality with NPL ratio improving to 94 basis points, while the cost of risk reduced to 23 basis points. Equally, capitalization and liquidity were strong and remained supportive of future growth. Turning to Slide 11, please. The balance sheet expanded 11%, driven mainly by higher loans, which has increased 11%; investments, which rose by 14%. Balance sheet growth was primarily funded by 12% expansion in customer deposits and 6% growth in interbank. In addition, SAIB successfully finalized a new $750 million term loan in September 2025, further supporting funding diversification. We will now look more closely at each of these trends in the following slides. Our loan book continued to demonstrate a solid momentum, earning 11% growth in the 9 months. Most of this growth came from corporate lending, which grew by 14% during the 9 months of the current year. Here, we continue to focus our lending on priority sectors that align with our strategic focus. Active participation in financing large infrastructure projects continues to support growth. This was further aided by widespread demand across key economic sectors such as building and construction, utilities, services, manufacturing, et cetera. This disciplined approach to ensure we balance growth with prudent risk management. On the retail side, the loan portfolio grew by 4%, mainly supported by 12% growth in private banking, which grew by SAR 1.7 billion and has reached SAR 16 billion. The remaining consumer loan book decreased 7% year-to-date as repayments exceeded origination limit. We expect this segment to gradually stabilize with opportunities for improvement as our initiatives in that particular segment, especially in housing gain traction. On a quarterly basis, loan growth slowed to 2% on a sequential basis compared with 9% growth during the first half of the year. This is as a result of our focus more on profitable growth amid tight liquidity conditions and funding cost pressures. We will continue to take more selective approach to lending in the fourth quarter, but we are still comfortable that we will be -- we will reach our guidance range of 15% growth. Moving on to the next slide. Our investment portfolio grew 14% year-to-date, supported by favorable market opportunities. During the third quarter, we added SAR 2.9 billion in new investments, resulting in a 7% increase in the portfolio, which has reached SAR 46.4 billion by the end of the period. These new investments were primarily placed with banks and other financial institutions where we were able to capture attractive fixed rate spreads that contribute meaningfully to our net special commission income. We remain focused on high grade fixed rate debt securities fully aligned with our investment strategy. This consistent approach ensure we enhance yields without taking on undue risk, while also supporting the bank overall net interest margin. And as always, we are highly data-driven in deploying capital, investing only where the return profile is accretive to our earnings. The quality of the investment book remains strong with around half of the securities issued by the government, 39% by banks and other financial institutions as illustrated in the chart. Moving to the next slide on deposits. Our customer deposits rose 12% year-to-date, and have reached SAR 105.2 billion. Market liquidity remains tight with intense competition on deposit pricing. In this context, growth was mainly driven by a 25% increase in interest-bearing deposits, mainly in corporate, while noninterest-bearing deposits declined 14% year-to-date. This shift reflects a broader market-wide trend that many governments and public sector organizations have been moving balances from current account to core account. As a result, our funding mix has adjusted with noninterest-bearing deposits now representing 26.1% of total deposits, down from 33.7% at the end of last year. Towards the end of the quarter, we also introduced our new Shariah-compliant, Zakat-exempt Saving Account which offers attractive profit rates and a fully digital experience. While it was launched only at the end of September, we are already seeing encouraging inflows. We expect it to gradually improve our funding mix and support funding cost in the coming quarters. In addition, with the recent term loan issuance, we further diversified our funding and improved our maturity profile. Now turning to a summary of our income statement on Slide 17. Net income increased 6% year-over-year, driven by 2% growth in operating income, further supported by improved cost of risk and operating efficiency. On a sequential basis, net income was broadly stable. In the third quarter, we recalculated return on equity following the restatement between investment and other reserves on the balance sheet, which resulted in the ratio appearing slightly lower than previously reported. 9 months ROE stood at 12.7%, and we maintain our full year guidance unchanged to more than 13.25%. Here, we have seen good growth during the quarter in terms of investment related income as well as other income. We expect this to continue next quarter, which should help us achieve the guided ROE. I will expand on all net income components in the following slides. First, let's look at the net special commission income and the NIM on Slide 18, please. Net special commission income was broadly stable year-over-year amounting to SAR 2.6 billion as average earning assets growth of 20% was offset by NIM contraction. As you can see in the waterfall chart, the upper middle section, special commission income from lending increased, primarily driven by higher volumes, while income from investments benefited from higher interest rate and newly purchased instruments during the period. However, these positive effects were partially offset by higher funding costs, reflecting a shift in our deposit mix and intensive pricing competition. The year-over-year NIM declined by 45 basis points and have reached 2.31% in the 9 months of the current year. It Was due to 57 basis point decrease in asset yield while the cost of interest-bearing liability excluding the demand deposits decreased by 48 basis points year-over-year and reached 5.29%. The improvement in the funding cost was consistent by the shift in the deposit mix mentioned earlier as well as increased competitive pricing pressure during the period. On a quarterly basis, the NIM declined by 23 basis points, mainly due to cost of fund pressure while the asset yield increased marginally by 3 basis points. Looking ahead, we expect the NIM to stabilize within the range of 2.25% to 2.30% for the full year, which is a slight downward revision from the previous guidance. Now let's look at the fee and other income on the next slide, Slide 17. Fee and other income for the 9 months increased 13% year-over-year. This was partly driven by robust growth in foreign exchange income, reflective of customer growth and activity, and we expect to maintain a positive momentum during the last quarter of the year. The overall growth was also supported by the increase in fee income from banking services from consistent expansion in trade finance and accelerated growth in fund management related income during the quarter. Partially offsetting this was a modest decline in investment gains. Moving to the next slide on operating expenses. During the 9 months, we delivered a consistent improvement with both the cost-to-income ratio and absolute operating expenses declining, the later down 1% year-over-year and landed at SAR 1.29 billion. This was mainly driven by lower general and administrative expenses as well as reduced rent and premises-related expenses, while employee-related costs and depreciation and amortization expenses increased slightly. The decline in operating expenses reflect 2 key factors. First, most of our strategy-related investments have already been completed. And second, the bank has initiated the cost optimization program, the benefits of this have started to materialize and are expected to continue in the coming quarter. The cost-to-income ratio improved to 40.8%, down from 41.5% in the full year of 2024 and 41.9% a year ago. For the full year of 2025, we maintain our guidance of keeping the cost-to-income ratio below 41%, supported by strong performance achieved during the 9 months of the current year. Turning our attention to credit quality on Slide 19. Impairment charge decreased by 11% from the previous year to SAR 186 million. This reduced our cost of risk by 8 basis points year-over-year and 23 basis points for the 9 months 2025, reflecting a benign credit environment and healthy overall asset quality. NPL formation also remained moderate and the NPL ratio was further improved to 94 basis points as of the end of September. Our NPLs remain adequately covered with an overall coverage ratio now at 168.7% (sic) [ 168.9% ]. Stage 3 ECL coverage decreased modestly to 45.8%, while Stage 2 ECL coverage slightly decreased to 12.5% compared to the level that we have seen last year. For the remainder of the year, we don't expect a significant rise in cost of risk or a deterioration in credit quality. That being said, potential macroeconomic shifts could affect ECL models. So we are maintaining our guidance at 50 to 55 basis points as a conservative stance. Moving to capital and liquidity. SAIB continues to maintain a strong capitalization and liquidity position. The liquidity coverage ratio, LCR, increased to 209.4%, NSFR at 111.9%, both at a comfortable level. The SAMA LDR reached 81.5%, the quarter-over-quarter improvement arising from the term loan issuance at the end of the quarter. Total regulatory capital increased 3% during the 9 months from profit generation and the favorable OCI movement from investment revaluations, which were partially offset by dividend payments. RWA grew by 14% year-to-date to SAR 124.3 billion during the period, mainly reflecting growth in lending and balance sheet expansion. Sequential RWA growth was up by 7%, primarily driven by higher investment loans and interbank placement as well as off-balance sheet commitments. The bank is currently undertaking a capital optimization exercise and expect to partially offset this RWA growth in the coming quarters. Our CAR is 18.1% with Tier 1 at 17.5% and CET1 at 13.2%. And looking to year-end, we expect capital ratio to improve net profit generation, further OCI gains and RWA optimization. We, therefore, remain comfortable with our Tier 1 ratio guidance above 18%. Now moving to the outlook and guidance for the full year. Overall, we delivered a solid performance over the first 9 months of the year. Financial results were broadly in line with our expectation. Looking ahead and as mentioned earlier, we have revised our full year guidance for NIM, our guidance for loan growth, cost-to-income ratio, ROE, cost of risk and Tier 1 ratio remains unchanged. We remain focused on decent balance sheet growth, maintaining a strong asset quality and improving efficiency to support sustainable profitability. With continued progress under Strategy 2027, SAIB is well positioned to achieve its strategic and financial objectives, and we continue to see no change to our full year guidance. This concludes the management's presentation. As we wrap up, I want to extend my sincere gratitude for all of you and for continued attention and interest in The Saudi Investment Bank. Now we are happy to answer any questions you may have.

Thank you for the presentation, gentlemen. We'll open the floor for questions and answers now. [Operator Instructions] Our first question comes from Reem Alkhulayfi.

This is Reem Alkhulayfi, Riyad Capital. I have 2 questions from my side. The first one on the capital. We see your CAR ratio declining and also CET. My question, what CET level are you comfortable maintaining over the medium term given the upcoming regulatory requirement? And should we expect capital strength to take priority over loan growth in 2026? Or do you believe you have sufficient headroom to support both? Also, given the tighter capital environment, do you anticipate any adjustment to the payout ratio similar to what we have seen from some peers recently? The next question on the liquidity. We continue to see strong competition for deposit and funding costs remain elevated, even though SIBOR is lower year-on-year and the spread versus SOFR has widened. How do you assess the current liquidity environment? And do you see -- expect this pressure to ease next year also with countercyclical buffer increasing? Could liquidity condition limit loan growth in 2026?

Thank you, Reem. I'll address the first question on the capital and the dividend payout. Now we actively monitor and manage our CET1 ratio as part of our capital planning framework. CET1 stands at 13.2% compared to 14.1% in the second quarter. During the second quarter, maybe you noticed we implemented risk-weighted asset optimization measures that helped stabilize the capital ratios, and we are preparing for another phase. This includes evaluating, for example, unutilized limits, shifting towards the collateralized lending which will be within our normal business activity. This should further support the CET1. And I think also importantly, we remain well above Basel requirements even factoring the additional countercyclical buffer. On the dividends, we evaluate -- as usual, we evaluate payout decisions on a semiannual basis, and we consider 3 key factors: our growth projections, our capital requirements and the overall operating environment. I don't see any change to this approach. We will continue applying this disciplined approach.

And second question was on the liquidity. Yes, we have seen competition on liquidity. Given also the growth that we have seen in the banking sector, it's normal to see that competition on liquidity happening. But SAIB has always maintained that we grow within our means. And if we have profitable growth, we say that we can source liquidity for our product. We just need to properly book the right assets at the right yield. So I think from that, specifically for SAIB, we see the competition. But I think if we decide to grow more in the areas that we are focusing, I think that growth will materialize. As for the countercyclical, I think it will have a different, I would say, dimension because it's more capital rather than the liquidity front. Definitely, with such, I would say, accelerated growth of the banking sector, it's normal to have these measures to be put in place to ensure the adequacy and soundness of the Saudi banking sector. And the higher CAR definitely affects the bank's ability to have more capacity in loans. But I think there are also other measures that can help buffer up the capital, whether it be the expected retained earnings that are built up for Tier 1 issuance. That was our way.

[Operator Instructions] We have a question from Murad.

I just want to get a sense of how you're looking to manage the pressures on NIMs. Obviously, you've delivered very strong growth consistently over the last 3 quarters, but it's coming to a certain extent at the cost of margins. You've revised your NIM guidance now for the second time in the year. This one is a relatively smaller cut in guidance. But where do you think you can -- what areas do you think -- I mean, is it more funding cost management or asset yield improvement that can help you navigate these margin pressures better in the fourth quarter and into next year? And also, I mean, typically, we tend to see a lot more pressure on funding costs towards the end of the year on the deposit side as well, I mean, although it's temporary, lasts for maybe a week here and there towards the end of the year, but that also is a phenomena that comes through every year. So how do you expect to navigate through that -- these challenges to kind of manage your margins?

Yes, during the year, we've seen a continuous reduction...

I'm sorry, we can't hear you gentleman.