The Saudi National Bank (1180) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening. I will now hand you over to your host, Mr. Iyad Ghulam. Mr. Iyad, please go ahead.

Good afternoon. On behalf of SNB Capital, I would like to welcome you to this conference call with SNB management regarding the bank's Q3 2025 results. Today's call is being recorded. Please note that this call is open for analysts, investors and shareholders only. Any media personnel, please disconnect at this point. Today's speakers are Mr. Tareq Al-Sadhan, CEO; Mr. Hussein Hassan Eid, Group CFO; Mr. Mazen Khalefah, Acting Head, Group Strategy and Innovation; Mr. Raja Asad Khan, Group Chief Economist; Mr. Abdulbadie Alyafi, Head, Investor Relations. I will start by handing over to the SNB Head of Investor Relations. Abdulbadie, please go ahead.

Good afternoon from Riyadh. We'd like to thank SNB Capital for hosting today's call. Before we begin, a quick reminder that today's call includes forward-looking statements and discussions of financial performance. So I'll remind everyone, please to refer to Page 2 of the earnings presentation for disclaimer notice. All supporting materials for this call, including the presentation, earnings release and data supplement are available on the Investor Relations page of the SNB website. We've also included publishing of company compiled consensus, which we released prior to the release of results. With that, I'll hand over to our CEO, Mr. Tareq Al-Sadhan. Please go ahead.

Thank you, Abdulbadie, and good afternoon, everyone. First, to the stage, I think Saudi Arabia continues to demonstrate strong resilience, representing an attractive investment headwind despite the global uncertainties. Last week, we had the future investment initiatives here in Riyadh where I cannot think of any figure on the financial economic side who wasn't here in Riyadh, which shows a commitment to the Saudi market, believe in the Saudi story, which will enable the continuous growth in Saudi Arabia and the continuous prosperity for also the banking sector in our case. Global macro outlook remains mixed, but in Saudi Arabia, we continue to benefit from the strong fundamentals. The diversification journey that started with Vision 2030 is progressing very well. Today, non-oil GDP is up by around 5%. And we continue seeing the contribution from the initiatives that the government has taken to contribute to the economy and the diversification from the reliance on oil. The recent rate cuts and the potential another cuts during this year, 1 or 2, we'll wait to see, will support our earnings since we have a big fixed income book. On our performance, secondly, we are delivering tangible progress on our strategy by focusing on our clients and delivering value to our shareholders. Our SME strategy continued to gain traction. Yesterday, we launched our Largest Enabler Campaign, reflecting SNB's commitment and leading position as a key enabler to growth and the segment that we aspire to support, and it is alignment also with key Vision 2030 priorities. Today, we are accelerating digitization, adoption and driving innovation through our business model while maintaining our customer needs at the heart of what we do. We continue to make progress on digitization of customer journey, leveraging data to customize the customer offering and automation of service to increase convenience to our customers. And the result of these efforts are tangible, where we are witnessing a continued improvement in turnaround time, enabling faster approval, higher customer satisfaction and operational efficiency gain as well. Higher customer satisfaction, and when we look at our retail branch NPS, we have reached 89 and corporate NPS reached 71 marking a new highs for our client engagement. Looking at our financial performance for the first 9 months, I think we have delivered continuous very strong financing growth of around 11% year-to-date, driven by significant growth in our wholesale business of 20% and 3% in retail. But if we exclude the one-offs on retail, we will be around 11% growth in retail. An example of our strategy commitment, our MSME continued to expand exceptionally, rising around 52% year-to-date and now exceeding SAR 100 billion of financing. MSME now represents 11% of our total financing, up from 7% 2 years ago, knowing that we have significantly also grown other line of business in the wholesale business. We have reinforced our market leadership position with solid pipeline supporting the asset expansion growth in the coming periods. And on the efficiency side, I think our cost-to-income ratio has improved significantly at a record low of 25.2%, and on the domestic side, cost-to-income ratio at 22.6%, reflecting our continued cost discipline and supporting our also efficiency initiatives, supported by strong core revenue growth with operating income reaching at 29.3% -- sorry, SAR 29.3 billion at 8% year-on-year and the bottom line growth with record net income reaching SAR 18.6 billion, that's a 19% year-on-year growth. Our key return metrics, return on tangible equity expanded further to reach 17.5%, an enhancement of 119%. With that highlight, I'll hand over to my colleague, Mazen, to take you through the execution of our strategy, and I'll be back with the closing remarks and also the Q&A session. Thank you. Mazen?

Thank you, Tareq, and good afternoon, everyone. Delivery against SNB's comprehensive strategy is continuing with a healthy cadence. We are focused on a strong execution across all 5 pillars, as you can see with our 2025 to 2027 strategy. Allow me now to share some key highlights. And of course, the full details are provided here for your easy reference. Starting by the market share and value creation pillar. Total financing market share of 23.3% is supported by double-digit growth in wholesale and sustained retail performance. We continue to demonstrate the bank's focus on balancing value delivery with volume growth. The healthy ancillary revenues growth showcases our progress and delivery in delivering income diversification and growth in profitable sectors. It's also worth noting SNB capital return for having the highest market share in Q2 despite softer market conditions and higher competition. We continue to making steps in enhancing our already strong capital market business. Moving to the operational excellence, ongoing redesign of core processes to shorten turnaround times and improve productivity across all segments is supporting our continuing progress on cost optimization. And the customer centricity, we sustained gains in customer satisfaction, retail branch NPS up to 89 and corporate NPS at 71, both among the highest in the sector. We also launched the first stand-alone SME flagship branch in the Eastern province to enhance proximity to business clients. There are more to come in the SME front in terms of our physical and digital offering for this key segment. In the innovation side, accelerated rollout of digital financing and end-to-end onboarding and around 26% of retail financing sales are now digital, up from 15% last year. And the personal finance digital sales are up to 82% year-to-date. We reached over 1.2 million NEO customers, reflecting rapid adoption of our digital ecosystem and expanding our reach across younger segments. We are making significant progress in data analytics with the number of data use cases up from 3 to 17 year-to-date, driving better leads and cross-sales opportunities. We launched 2 hackathons, both across the bank with the middle management to validate and prioritize innovation initiatives. Last but not least, in the talent and culture, we're still focused on the talent development, both in specialized courses across digital, data and risk disciplines to strengthen our core capabilities. We also introduced our flagship enterprise data management development program for key staff to boost digital and data excellence. Overall, we remain on track to deliver on our strategic milestones across growth, efficiency, customer experience and digital innovation. Next, an update on our sustainability journey and progress. Since 2021, SNB has advanced its sustainability program through the expansion of the Sustainable Finance Framework multiple ESG-compliant Sukuk issuance and disclosure of sustainability metrics in our annual ESG report. SNB has earned strong and improving ESG rating from leading global agencies. And also the Bank ESG Framework aligns with the Saudi Green Initiative and defines key priorities to expand green and social products, support emissions reductions and integrate climate considerations into decision-making. SNB's sustainable finance portfolio spans both green and social projects across Saudi Arabia and UAE, contributing to climate actions, renewable energy and employment generations. SNB has also issued 10 sustainable installments, including green, social and sustainable sustainability issuance totaling of USD 1.8 billion. The bank manages a portfolio of eligible sustainable assets of around USD 3.2 billion with 100% of issuance allocated to sustainable assets and 45% of eligible assets available for future issuance. The portfolio includes 10 eligible assets with environmental benefits, 9 solar and 1 wind projects. It also supports over 1,600 SMEs delivering measurable social benefits through job creation and financial empowerment. These efforts demonstrate how SNB is embedding sustainability into our core business, reinforcing SNB's role as the Kingdom leader in sustainable finance and enabling long-term impact aligned with our Vision 2030. With that, I'll hand over to my colleague, Hussein, for the financial performance update.

Thank you, [ Abu Mohammed. ] Good afternoon, everyone. As always, let me start with a high-level overview of SNB's financial performance year-to-date. We delivered another record-breaking quarter, underscoring the strength of our business model and consistency of execution across all segments. Group net income rose 19% year-on-year to SAR 18.6 billion with a record quarterly profit of SAR 6.5 billion in the third quarter alone. This performance reflects the balanced mix of revenue growth, cost efficiency gain and disciplined risk management. The balance sheet expanded 9% year-to-date, exceeding SAR 1.2 trillion in total assets, driven mainly by 11% growth in financing and 9% growth in investments. Customer deposit increased 10% year-to-date underpinned by strong CASA inflows that pushed up the CASA ratio to 76.2%, further strengthen our funding portfolio. Operating income increased 8% year-on-year to SAR 29.3 billion, driven by growth in special commission income as well as fees and other income. On cost side, we delivered another quarter of excellent efficiency. Operating expenses decreased 4% year-on-year for the 9-month period and 13% year-on-year in the third quarter alone. As a result, the cost-to-income ratio improved to the best level in SNB's history and reflecting our strategic commitment to operational excellence. Asset quality remained robust and the cost of risk stayed exceptionally low at 2 basis points, supported by recoveries from fully provisioned legacy exposures. Finally, profitability continued to improve. Return on tangible equity reached 17.5% and adjusted return on tangible equity reached 18.9%. In summary, the third quarter reaffirmed SNB's ability to drive profitable growth, combining balance sheet strength, cost discipline and prudent risk management. Now let's look at our financials in more details on Page 11. Our balance sheet continued to expand at a healthy base, growing 9% year-to-date to reach SAR 1.2 trillion. This growth was broad-based across assets, supported by strong customer activity and disciplined balance sheet management. On the asset side, growth was led by financing, which rose 11% year-to-date or SAR 67 billion, reflecting solid momentum across both wholesale and retail segments. On the liability side, customer deposit increased 10% year-to-date to SAR 639 billion, driven mainly by domestic CASA inflows. I would also like to remind you that this year, SNB took important steps to strengthen and diversify its capital base. We successfully issued SAR 1.7 billion in Tier 1 and $1.2 billion in Tier 2 while calling SAR 6.2 billion in Tier 1. Let's now look more closely at the financing portfolio on Page 11 -- 12. Total financing and advances reached SAR 725 billion, up 11% year-to-date, 1% quarter-on-quarter, driven by robust growth across both wholesale and retail. Starting with wholesale, this segment remained the main growth driver, up 20% year-to-date, supported by increased activity across the board. Quarter-on-quarter wholesale financing was mostly flat, moderating slightly by 22 basis points as healthy originations were balanced and offset by some natural repayments. Within retail, financing grew 3% year-to-date, underpinned by the continued strength of the mortgage business, which expanded 6% or nearly 8% when normalized for the SAR 3 billion securitization to SRC. Going forward, we expect to continue mortgage growth, supported by our ongoing collaboration with REDF and SRC and initiatives to enhance home ownership affordability. Other retail loans grew over 4% quarter-on-quarter, reflecting most of the decline seen in the first half. We achieved record origination, supported by our enhancement to the customer experience while rolling out our Smart Pricing Initiatives, which together are expected to be supportive of margins. Overall, our financing growth in the first 9 months, combined with the resilience of asset quality, disciplined pricing position SNB well to deliver low double-digit growth for the full year, in line with our 2025 guidance. Moving to the next page. Our investment portfolio grew by 9% year-to-date and 1% quarter-over-quarter, exceeding SAR 318 billion. As in previous quarters, we continue to steadily increase our exposure to high-quality longer-term fixed assets, ensuring a balanced risk return profile and ensuring we will benefit the most now that rates are declining. The portfolio remains prudently positioned at more than 88% investment grade, up more than 100 basis points this year. Now let's talk about the funding. Customer deposits grew 10% year-to-date, mainly supported by domestic CASA inflows. During third quarter of 2025, we saw lower sequential CASA balances driven by some transitory deposit shifts. At the same time, we executed tactical cost optimization by shedding higher cost time deposits and replacing them with wholesale funding as we continue to manage our liability mix strictly. Despite the CASA outflow in the third quarter, we efficiently managed the funding mix and successfully improved the CASA ratio to 76.2% higher than the previous quarter. Next page. Now turning to the P&L. Group year-to-date operating income increased 8% year-on-year for the first 9 months of 2025 and 7% for domestic. This was driven by expansion and net special commission income, higher contribution from fees and other income, demonstrating a solid performance and effective strategic execution. At the same time, we reduced OpEx 4% domestically and the group net income was supported by lower risk cost of only 2 basis points this year. In addition, the International segment also continued to improve, recording a second consecutive positive quarter, which reduced the cumulative year-to-date impact of net income to only negative SAR 20 million compared with negative SAR 88 million last year. In the third quarter, operating income growth further accelerated to 10% year-on-year. Quarterly net income accelerated 21% year-on-year, reaching SAR 6.5 billion and bringing the 9-month total to a record SAR 18.6 billion. Profitability improved with return on tangible equity rising to 17.5% and adjusted return on tangible equity reaching 18.9%. As a result, guidance has been upgraded as we will see shortly. Now let's focus next on the individual P&L components. So starting with the net special commission income, we grew 4% year-over-year to SAR 21.6 billion for the 9 months of 2025, driven by solid growth in earning assets, disciplined balance sheet management and effective repricing asset mix. Average commission earning assets increased 10% year-on-year, supported by double-digit growth in financing and healthy investments investment. This growth more than offset the modest margin compression we experienced during the period. The group margin moderated 15 basis points year-on-year to 2.88%, while actually improving sequentially in the third quarter, which reflects our efforts in the repricing strategy that we are implementing. The group margin moderate -- okay -- the year-on-year movements reflect the impact of lower benchmark rates on lending yields and continued deposits composition across the sector. Our asset mix combined with our far-reaching ability to optimize funding costs allowed us to defend the yield and mitigate a good part of natural margin pressures. We continue to implement measures to strengthen net special commission income, including ongoing funding mix optimization, smart pricing across corporate and retail, a more feasible impact of rate cuts on our funding costs. As our interest rate sensitivity remained largely unchanged, a 25 basis point rate cut would result in 2 to 3 basis point NIMs expansion over the following 2 to 3 years -- 2 to 3 quarters. Overall, the combination of the volume growth, prudent pricing and improved asset mix keeps us well positioned to NSCI growth consistent with our 2025 guidance, likely within the upper half of the range. On fees and other income, this revenue stream delivered another strong performance, reaffirming the growing diversification of SNB revenue base. Fees and other income increased by 22% year-on-year to reach SAR 7.6 billion, now accounting roughly for 26% of the total operating income, compared to 23% last year. This growth was broad-based across business lines supported by foreign exchange, which rose sharply, thanks to deeper customer penetration, higher client activity and increased cross-border transaction, investment income which rebounded strongly, direct finance fees, which saw further increases, reflecting our targeted effort to enhance fees collection. This was partially offset by lower brokerage from the softer market activity, lower investment management income driven by local equity markets and higher other expenses, which is natural to support our sales and growth in loans and growth in revenues. Overall, our fees and other income strategy is gaining strong traction. This revenue now cover 95% of the group operating expenses for the 9-month period. Moving to the next page. Turning to operating efficiency. Group OpEx, excluding amortization of intangible improved 4% year-on-year, down below SAR 7.4 billion and 13% year-on-year in the third quarter alone. On a sequential basis, expenses were down 11% quarter-over-quarter. This performance stems from the continued traction in automation, digitization and our broad range of ongoing cost optimization initiatives. As an example of the efforts which will be supporting this drive, we are delivering efficiency through our subsidiary the Itqan Business Solutions, which is expanding employment opportunities in the Kingdom, while accruing saving to SNB costs. A couple of additional items worth highlighting. Depreciation expenses fell 17% year-on-year, including effects of premises and equipment consolidation. General and administration expenses declined 5%, thanks in part to efficiencies delivered from contract negotiation. For domestic, we expect this healthy OpEx level to continue and potentially even improve a bit in the final quarter of 2025. In international, notably Turkey, inflation dropped staff costs up 12%, which was offset by an 19% decline in depreciation and premises expenses. And we managed to keep total international OpEx contained. Overall, these developments have driven the group cost-to-income ratio down to 25.2% and domestic to 22.6%, the best level in SNB history. And as a result, we have upgraded guidance for the second time this year to be below 26% for the group and below 23% for domestic. Next page. Let me now touch base on asset quality and risk cost. In the third quarter, we once again delivered exceptionally low credit costs, reflecting continued health of our loan portfolio and the benefit of proactive provisioning taken in earlier periods and our successful concrete efforts in recoveries. For the first 9 months of 2025, the impairment charge for financing amounted to around SAR 102 million, representing 90% decline year-on-year and translating the group cost of risk of just 2 basis points versus 22 basis points in last year. To put this into perspective, this is one of the lowest cost of risk levels among major banks in the GCC this year, underscoring the resilience of our asset quality and the effectiveness of our credit risk management framework. Next page. Now briefly on credit quality. The balance sheet remains resilient. The NPL ratio improved to 0.8%, down 36 basis points year-to-date with healthy stage-wise and NPL coverage ratio maintained. Retail recoveries in the 3 quarters were relatively higher as the previous quarter was impacted by seasonality. On the other hand, even though corporate recoveries remained robust in third quarter, it was relatively lower since previous quarters included sizable one-offs. Moving to capital and liquidity, SNB remains well capitalized even after the strong balance sheet expansion. As of September 2025, Tier 1 CAR stood at 19.5%. This performance reflects healthy organic capital generation and OCI evaluation gains along with risk-weighted asset mix optimization, achieved while continuing to support financing growth and sustained dividend distribution. As a result, we continue to remain within Tier 1 CAR guidance for 2025. Moving to liquidity. All metrics remain equally solid. We continue to manage capital and liquidity proactively, ensuring SNB remains well positioned to support its strategic ambitions, while maintaining balance sheet strength and resilience. Now let me conclude with our outlook for the remainder of the year 2025. First on macro, the operating environment remains supportive. Saudi Arabia continues to demonstrate macroeconomic resilience with non-oil GDP growth tracking around 5%, inflation contained near 2% and solid activity across infrastructure, housing and financial services, all of which are key drivers for our business. System liquidity may be getting tighter, but remains manageable. At the same time, sector credit growth continues to be healthy, supported by Vision 2030 activities and robust household demand. Against this backdrop, we are upgrading some guidance for the second time this year. Financing guidance remains on track. Looking ahead to the year-end, we anticipate that the financing guidance will likely come at the higher end of the range. In wholesale, we continue to be selective, anticipate some degree of year-end repayments. Other retail performance in Q3 enjoyed a record quarter, mostly reflecting the previous offset. Nevertheless, Q4 retail growth is expected to be more than normalized, driven mostly by mortgages. Net special commission income guidance is also unchanged. Repricing is ongoing and on track, which could nudge funded income to the higher end of the range, but this will also depend on the cost of funding backed and the monetary policy. Our best guess is that the NIM should hold up around these levels, especially if there is no material shift in the mix or significant difference in rate environment. Next, on cost of risk and Tier 1 CAR, our expectation for strong capitalization and healthy credit risk portfolio remain intact. With regard to the upgrades, we are upgrading the cost-to-income ratio from already very healthy level as we continue to drive efficiencies throughout our business and leading our innovative journey. Thanks to these efforts, we have improved the cost-to-income guidance to be below 26% for the group and below 23% for domestic. As a result, we are upgrading return on tangible equity for the second time this year to be between 16.5% and 17.5%. Our focus remains on serving our customers and communities and delivering attractive shareholder returns. With that, I will hand back to our CEO for his closing remarks.

Thank you, Hussein, and thank you, Mazen. We continue to deliver strong and consistent performance, reflecting the strength of our franchise, discipline and execution and resilience of the Saudi economy. Our results for the first 9 months shows balanced growth across all businesses, robust asset quality and industry-leading efficiency, while we continue to keep our customer-centric focus in order to deliver value to our shareholders. We are investing in the right things, in our people, in our -- in driving innovation and in efficiency as well. We are confident that these investments, which are already showing great promise are shaping the foundations of our success for the bank's future as well. We are entering the second month of the last quarter of 2025 with excellent operating momentum, strong balance sheet fundamentals and clear visibility to deliver on and outperform on our financial commitments. And we are very grateful to our customers and shareholders who supported us, their support is very essential element of our journey. With that, I'll open the floor for the Q&A.

[Operator Instructions] And our first question comes from the line of Mohammed Al-Rasheed from Hassana.

[Foreign Language] Am I audible?

Yes, loud and clear.

Two questions from my side. The first question is regarding your retail book yield. So we have noticed that there was an increase on the retail book yield by around 20 basis points on a quarter-over-quarter basis. What drove such increase despite mortgage percentage of total retail book being almost flat on quarter-over-quarter? So was it repricing? And do you expect this trend to have an impact going into the fourth quarter or not? My second question is regarding the market RWA. We witnessed a decline of around 100 basis points on a quarter-over-quarter basis and the market RWA intensity. So what drove that as well?

Thank you, Mohammed. I'll take the first question since it's easier than the second one, and Hussein will take the second one. You're spot on. If you recall in our previous earning call, we alluded to the repricing activity that started both on the wholesale book and also the retail. It is easier to be implemented on the retail book, and we started in late April this year on the repricing, and that's what drove the improvement that you are talking about. We are also looking at that exercise from a wholesale perspective. And hopefully, we can see an improvement also on our NIM coming from the wholesale activities. It's not as easier as the retail since you are dealing with very high-quality clients that we are dealing with. So -- but we are keeping that in mind to execute the repricing strategy and [Foreign Language] have an excellent also contribution to our bottom line coming from our repricing strategy. Abu [indiscernible] you want to take the next one?

Regarding market risk weight, actually, all listed equities were designated as trading book, as requested by SAMA. And we had some transactions to sell some of these listed equities, which impacted in our risk-weighted assets or reduced our risk-weighted assets. So basically, this is business as usual. We sell and buy. And now this quarter, we sold some of the listed equities and that's had an in the risk-weighted assets for the market risk.

And our next question comes from the line of Yazeed Aljammaz from Aljammaz Group.

Hello. can you hear me?

Yes, we can.

Yes, please. I have only one question that is related to the current situation in the market. Given the current liquidity environment and the expected deceleration of growth of the balance sheet going forward, in the whole system, the banking system in Saudi Arabia, accompanied by lower rates. What would that have in terms of the effect on the NIMs and achieving the targets of the 2027 plan you have done at the beginning of this year?

I'll take this question, then Abu [indiscernible] feel free to comment. Yazeed, thank you very much for your question. I think the higher cost of funding that we have witnessed is driven by competition on deposits by the banks. And the repricing exercise that we started, and I'm sure not only us are taking that approach as well to protect the NIM, hopefully will maintain the -- and enhance actually our NIM. So potentially, you'll start seeing bank very selective on the opportunities that they support, which brings the most contributor to our bottom line opportunities to finance. So that, actually with the interest rate going down, hopefully, the impact on the end client will not be significant because the banks are repricing, but bank's NIMs should be enhanced and the positive contribution supports the profitability of the banks. Abu [indiscernible]?

Yes. And I think to summarize, the repricing exercise for retail and corporate, that would help. Also, the reduction in interest rate in general will help. Finally, how you structure your funding book by. So moving from some customer deposits to wholesale funding, that would help reducing the cost, and this is actually what we are doing. As long as you have the right ratios and the right buffers in these ratios that make you do so.

So would you say that the NIM sensitivity here is quite positive if you take into consideration both the repricing and the declining rates?

Yes. in my opening, I referred to the rate cut, and we are beneficial of the rate cut actually since we have a large fixed book, both on the mortgage and on the investment. So yes.

And our next question comes from the line of Aybek Islamov from HSBC.

One question I have is about the loan recoveries. Do they include recoveries or write-backs that pertain to the POCI assets, which occurred on the merger of Samba and NCB? And if they do, how big is the share of those POCI assets? Would be also interesting to know where does the POCI fair value reserve stand as of today, if you can comment? That's my first question. And secondly, many banks discussed the need for loan securitization to unlock capital, and that's understandable. However, the securitization process is very slow. Can you once again comment about how critical is loan securitization for SNB and whether you would consider it to act as a securitization agent like SNB Capital, where you underwrite loans of other banks and sell? Is that also an opportunity for you to make extra nonfunded income? That's all for me.

I'll take the first one, then Abu Khalid can take the second question. Now regarding POCI, honestly, we cannot disclose how much is really being recovered from POCI or from the other rating of portfolio. Now in terms of reserve, actually, there is no reserve for the POCI. POCI is recorded in our books at the net embedded fair value. So there is no such a provision. So basically, every year or every month, we do valuation. And if there are actual payments coming, then we record that recovery. But there is no specific reserve. And it wasn't even disclosed during the merger, in the financial statement of year 2022 or 2021.

And the quality of collection that we witnessed in SNB since the last year, I think it's driven by a very active collection activity, both in retail and corporate that we have started in the bank and also driven by an improvement on the ecosystem. So the judicial system today, the courts are very active, and we're enjoying that activeness from the whole ecosystem. So that's helping us not only the POCI elements. On the securitization question, I think definitely, securitization is an option to unlock capital and enable banking sector to continue the growth and continue supporting the economy. But the only thing here that the mortgage portfolio, which is the most lucrative portfolio to be securitized, is a portfolio that the banking system loves and likes having it in our balance sheet. It is light from a risk-weighted asset. It is backed by the security and it is -- it helps you cross-sell to the same customer and clients. So we really enjoy having the opportunity. But definitely, when we have the opportunity to replace it with a bigger contributor to our bottom line, then we'll definitely go ahead. What we are doing today with SNB Capital is to ensure that we are ready to offload wherever we are seeing a better opportunity. So we are laying the ground for that engine to be ready to offload that, also including syndication and recycling of even corporate wholesale loans. So we are considering that as well. And definitely, the capital is hungry for that business and happy to consider that with other banks as well.

So our next question comes from the line of Chiro Ghosh from SICO.

This is Chiro Ghosh from SICO Bahrain. Two questions from my side. So first one is, of course, the cost side of it. It has been like quite stellar, quite an amazing performance there. So -- but want to get a sense that in the context like the other banks, they have not been able to manage cost to this level. Would there be a lot of pressure in managing that? I know I saw that you gave a favorable guidance improvement, but just want to understand whether these kind of cost-to-income ratio would be sustainable, especially the domestic part of it because that looks quite impressive, to be honest. That's my first question. And the second one is there's been a lot of real estate-related development over the last few months. So what is your take on it like from the collateral point of view, from higher mortgage demand, commercial real estate side of it? So how are you seeing all these developments? These are my 2 questions.

Yes. Okay. When it comes to the cost, yes, there is, I think, very positive improvement during quarter 3. A small portion of that is one-off. However, you can assume it's sustainable because we always have initiatives and program to reduce cost. And we have further costs to reduce in quarter 1 -- sorry, quarter 4, quarter 1 next year. And I think that's the trend you should assume going forward.

And if I may add as well, we are counting on the AI, Agentic AI and to capture this on the medium and long run. So today, we are experimenting some of the use cases that we believe mastering it will enable us to really enjoy more sustainable. And once we are successful in implementing these use cases, we will go for another set of use cases that to ensure continuous enhancement on our cost efficiency. So we believe that we have a sustainable one from that where we're doing, but also we are planning for the medium and long term to capture further enhancement, not only from an operational efficiency, but also from a customer experience and turnaround time that will also be a side benefit to that. Real estate, if I might may comment on the real estate as a collateral, I think if you recall, SNB one was a latecomer to support the real estate sector. We were shying away from that sector. And when we talked in our strategy earlier this year, we talked about the real estate business and also the contracting business that 2 sectors SNB were shying away from supporting and we would like to enter this market. So we entered that market with a very conservative approach. So whenever we go to support any transaction on real estate, our loan-to-value will be very high -- sorry, very low. So the loan will be very limited to the value of the land, and this is just a way of starting, supporting the real estate. Definitely today, with the regulation on the real estate, we witnessed -- we expect the real estate prices to be declining, but we have no concern on our portfolio. Two reasons. One, the conservative approach we applied in entering the support of this sector. The second one that the portfolio that we have in terms of supporting real estate or white land real estate is very, very limited. So in every stress testing that we've been done to our Board Risk Committee and to our Board, the outcome is very comforting and no concern coming from that portfolio.

And the mortgage loan book, what would the impact?

Mortgage usually will not be impacted because this is the most elements of the mortgage is the government-backed support, and these are the first homeowners. So we don't expect an impact on that portfolio. The affordability of what the National Housing Company is doing, which is a big part of our sales goes to these segment is anyway very competitive prices on these houses in Riyadh. Other regions are not impacted by the regulation significantly. So again, that also part is not concern for us.

And do you expect the demand to pick up? Let's say mortgage demand to pick up?

Mortgage demand is driven by the young population and the eligibility for the people who are eligible to the support. We've seen also an increase on the people who are outside the government support. And yes, we are a young population growing. So that also will ensure that the mortgage demand is still there. Supply is being availed in the market. We've seen the large contributor like the National Housing Company, ROSHN, is continuously delivering units for affordable units to the market. And yes, once the supply is there, we will ensure affordable pricing, and that will definitely support the young Saudis male and female in going for the buying mood. Also now the expat also available regulation, to enable expat to own, is another thing that we expect to contribute to the demand on loans -- on the mortgages.

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

I have 2 questions, please. One is on your willingness to do repricing of the wholesale book. When do you want to start? What part of corporate loans can be affected? And is this for new or for existing loans as well? And if you can disclose or maybe rough guidance, what is the typical revision of spread on average for during this repricing exercise? So that's one question. And second question, in light of this repricing, do you believe that the market share is no longer for now at least, no longer a target? Or you plan to get back to targeting market share? If so, when do you think you will start doing this?

Thank you, Olga. The repricing exercise has started already. We started on the second half of this year, the wholesale. Looking at the wholesale book and the exercise of the repricing, took place. Of course, it is much easier to reprice on the medium segment and above. So it's always harder when you go to the large companies where all the competition are trying to penetrate. So when you go to reprice, for example, for Aramco, other banks will be ready to come and support Aramco because this is a very high-quality asset. So it is much easier to start with the middle market. And we are always evaluating the sensitivity not to lose the opportunity as long as it is contributing positively to our bottom line. In some cases, we are trying to enhance the all-in yield by activating the ancillary business and push for more ancillary business to contribute to the profitability. In terms of your question about the margin, we don't -- this is a very competitive information, and we don't like to share. I know our competition are listening to us. So we prefer to keep this information to us. Market share? As long as we are growing, our bottom line faster than our growth on just to capture market share, then we are happy with that. So the most important is to bring value to our shareholders. Market share is secondary. We would love the market share to continue. We continue gaining market share. And with the pressure on the cost of funding, we expect all banks also to be in the same focus on the value and improvement of the bottom line. So naturally, the market share will go along with the enhancement. But definitely, bringing value is more important than just a market share for no value or limited value. I hope I answered your question.

Yes, you do.

Our next question comes from Gabor Kemeny from Autonomous.

A couple of questions from me, please. One is on the cost of risk, which is at historically very low levels, 5 to 15 basis points. What do you see as a sustainable level here? I understand you benefited from write-backs. But yes, if you think about '26, '27, interested to hear your thoughts. And then on -- a follow-up on margins, I believe the SAIBOR SOFR spread is at relatively high levels. How does this impact your NIM outlook going into 2026? And final one would be, I think you started your presentation by pointing out the popularity and high-level attendance of the International Investment Forum in Saudi. Do you actually see any tangible business opportunities shaping up from potential foreign investor interest for SNB?

Yes. Thank you. I'll take the first and the last question. And Hussein you may take the SAIBOR SOFR or, Asad. The cost of risk story, we've been saying that in 2024 that our cost of risk was exceptional, we made a good collection, and we expect in our guidance for 2025, we said that our expectation is to be between 20 and 40 basis points. Then we had an excellent year from a collection point of view that really brought our cost of risk to be lower than our guidance. I always say that the normal in Saudi today would be between 20 and 40 basis points. But in reality, the excellent transformation in the judicial system, the activeness of the court, the execution law has really helped us beating that guidance. And if you ask me personally, maybe Hussein doesn't agree with me, potentially for the first 6 months of next year, I see the pipeline of collection might be also positive, and it will be, in my view, below 20 to 40. But it should normalize at a certain point of time at a level of 20 to 40 basis points. The assets that we've been booking since the transformation Vision 2030 is a high-quality assets. What we are collecting, we are collecting from the old debt. So that should normalize towards the second half of next year potentially. The appetite of the investor in the Saudi market is increasing year-over-year. And if you look at, if you follow the FDIs, I think it was also increasing year after year. I think looking at the globe and trying to see where are -- where you can make money, definitely, GCC will be one of the attractive regions to invest and make money. And also speaking to the international investors, I think the appetite for the Saudi equity market is there, and we've seen that in the participation for the equity market. The debt equity market is also -- the appetite is there. So foreign direct investment, we're speaking to our counter party and their clients. There are also very serious talks about how they can enter the market. We've seen a lot of companies coming to Saudi, and we are supporting them, and we hope to see more. I think the last 5, 6 years, the story about the Saudi Arabia took a lot of attention. People now are believing on the story. People are believing in our ability to execute, and that definitely will bring business and growth to the economy in Saudi. Abu [indiscernible] do you want to take the -- sorry, Asad.

Yes. Look, I think the SAIBOR SOFR spread, saying that it's high is probably not entirely correct. It does fluctuate significantly, and that kind of patterns out and evens out over the months. So we haven't seen anything that is significantly higher than recent years. And I think going ahead with the kind of macro liquidity dynamics still very constructive, as we mentioned, I think there shouldn't be too much pressure on this spread going ahead. So from where we stand, looking at short-term trends in SAIBOR SOFR spread shouldn't be extrapolated to kind of be indicative of where it's heading in the future. So overall, we're looking at medium-term trends, which have been pretty stable. Abu [indiscernible], if you want to add to the NIM expectation question?

I think the NIM, we are expecting the NIM to be within the same levels that we have today, and we don't anticipate any impact from the spread between SAIBOR and SOFR. So I think our guidance for NSCI will remain valid. Our NIM will be around the same level. We're increasing the prices, containing the cost of fund, benefiting from the rate cuts and just to try to maintain that level of NIM or even increase it.

So our next question comes from the line of Rahul Bajaj from Citi.

Rahul Bajaj from Citi here. Two quick questions from my side. The first one is on OpEx. And I just wanted to clarify, I think there was a previous response to the OpEx question. So cost absolute number in 3Q was around the 2.5 billion mark. It has hovered around 2.7 billion to 2.8 billion mark over the previous few quarters. So should we see 2.5 billion as the new base for fourth quarter and kind of build from there and with more sort of cost control coming in? Or do you think you were referring to the growth element and not the absolute number when you said that we can continue with this kind of run rate. So that's my first question, clarification on cost. The second one is on dividend. With these new capital requirements kicking in next year, how should we think about -- how should you think about your dividend strategy? I mean, is there a rethink on how much you pay? I do appreciate you do have quite sizable capital buffers. But then is there -- did the recent sort of capital requirement increase warrant a rethink about dividends going forward?

Thank you, Rahul. I'll take the dividends question. Abu [indiscernible], do you want to comment on the cost sustainability?

Okay.

I think in terms of dividends, we -- our philosophy continues the same. We like to be a bank that continuously pay dividends on the range of 50% to 60% as a payout ratio, and to continue supporting also the growth story. And whenever we have a constraint from the capital, we will tap to the market to ensure that we have that buffer to enable us to continue paying dividends to our shareholders. I think our shareholders like our philosophy when it comes to dividends. So we will always keep in mind growing while also being able to pay dividends to our shareholders. Comments, Hussein, on the cost side?

Okay. Now on the cost side, as you see, we have upgraded our cost-to-income ratio. we are reaffirming that our cost base is sustainable and it will continue for the second quarter and even for the next year. We have multiple initiatives on cost optimization. We already worked on it, and we're still working on it. And every quarter, hopefully, we get more and more cost savings till to reach to a sustainable level that maintain a good cost-to-income ratio.

Please note that for any remaining questions, you may kindly reach out to SNB's Investor Relations team. Mr. Iyad Ghulam, back to you for the conclusion.

SNB Capital would like to thank SNB management for taking the time to conduct this call. We would like also to thank all participants for attending. We wish you a pleasant day. Thank you.

And this concludes today's webinar. Thank you all for joining. You may now disconnect.