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

Ladies and gentlemen, good evening. I will now hand 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 Q4 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. Today's speakers are Mr. Tareq Al-Sadhan, Group CEO; Mr. Hussein Eid, Group CFO; Mr. Raja Asad Khan, Group Chief Economist; and Mr. Abdulbadie Alyafi, Head of Investor Relations. I will start by handing over to SNB Capital Head of Investor Relations, Abdulbadie. Please go ahead.

Thank you. Good afternoon from Riyadh. We would 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 our earnings presentation for the disclaimer notice. All supporting materials for this call are available on the Investor Relations page of the SNB website. With that, I'll hand over to our Group CEO, Mr. Tareq Al-Sadhan. Please go ahead.

Thank you, Abdulbadie, and warm welcome, everyone, and thank you for joining our call. 2025 has been a remarkable year for SNB. We kicked it off with our Capital Markets Day last February and the launch of our new strategy cycle. During that session, we shared our vision for the future, supported by comprehensive road map and the KPIs we would use to track our progress. We set our priorities and ambitions with transparency. And as promised, we continue to share updates along the way. Having these clearly defined strategic priorities has helped us to stay on track to focus on what matters and in evolving markets and to win buy-in from our partners and investors who share our vision. We continue to prioritize the key elements of our strategy that you all know by this point, expansion of our business while pursuing sustainable value creation and the capture of profitable market share, ensuring that we know our clients' needs and are keeping them in the heart of everything that we do with a clear customer-centric approach, deepening efficiency in every area of our business, investing in innovation and technology and attracting and fostering the most talented people who makes SNB the Kingdom's leading financial institution and national bank champions. As a result, in year 1 of our strategy cycle, we have delivered and even exceeded 2025 guidance, notched another year of record financial performance with higher core revenue on expanded NSCI and strong growth on fee and other income, leaner operating costs, a standout deposit and funding franchise to support our balance sheet growth, healthy financing expansion including 68% growth in total credit and MSME with robust credit quality and strong capitalization. All of this has come together to deliver expanded RoTE, attractive returns for our shareholders and record net income. Along the way, we have built structural improvement that are making our business more robust in the face of a competitive and dynamic market. We aim for this improvement to support us in maintaining this position momentum going forward. For example, we have delivered faster turnaround time. Corporates have seen an improvement of 68% and real estate finance has seen an improvement of 35% and our lease finance have witnessed a 38% improvement in turnaround time. Higher client satisfaction, retail branches has -- Net Promoter Score has improved by 3 points. Corporate Net Promoter Score has improved by 5 points. And also, we focus on faster complaint resolution where we witnessed a significant improvement. On the people side also, we've seen a significant engagement from our people on participation in the OHI pulse survey, which we are yet waiting to hear the result out of that. Our strategic priorities are guiding our pursuit for the sustainable growth and supporting us to continue delivering meaningful value expansion for our shareholders. With that, I'll hand over to my colleague, Hussein, then I'll be back with you to talk about the update on our strategy. Hussein?

Thank you, Abu Khalid. Good afternoon, everyone. It is a real pleasure to share such a strong set of results. As usual, we have the full detailed presentation, including 2025 results and 2026 guidance. Rather than going through all the details page by page, I will focus on the most important highlights. Looking first at the summary here on Page 7, you will see that SNB has continued its strong growth and momentum across all key drivers. We will touch on all of these key points as we go through the presentation. Beginning with the balance sheet on Page 8. We expanded the balance sheet 10% to a new record level, driven mainly from financing and investments. SNB remains at the head of the pack, making up over 1/4 of the total banking assets. The asset growth has been funded mostly by customer deposits, which also grew 10%. We also had several successful issuances and other wholesale funding activities during the year, demonstrating our ability to access international capital and liquidity. To highlight this, the securities and term loans increased 40%. Moving to financing on the next page. Financing expanded 11% in line with the guidance. We have added SAR 75 billion of net financing with the majority of growth coming from corporate up 15%, MSME up 48% and retail up 3%, including an 8% increase in mortgages. Other retail saw strong growth in personal financing and other lines. And overall, it would have been recorded 10% growth instead of the negative 2%, which was offset by the high net worth repayments as we discussed in our previous calls. Wholesale financing overall is up by 21% with the following growth drivers. We continue to see demand in corporate across all segments, supporting the SAR 30 billion increase. Also, MSME financing remains a key driver, aligned with our strategy, growing almost SAR 26 billion. This reflects continued progress towards our ambition to be the biggest enabler of MSMEs, leveraging digital onboarding, faster credit decisioning and improved risk selection. FI moderated in the fourth quarter due to maturities, reflecting the shorter-term nature of this segment. Next to the investment on Page 10. The 9% expansion of the investment book during the year tells a clear story. Our growth has been focused on quality assets with attractive yield and delivering a robust track record. The SNB investment portfolio continues to provide strong liquidity and revenue enhancement from investment-related income. Please moving to the next page. Customer deposit strength has been another key highlight for SNB, growing 10% in 2025. Within that, CASA grew 11% and CASA ratio sit at 73%, well within our comfort zone. While funding supply in the system remains healthy, there are a few things to keep in mind on deposit cost, in line what we have been messaging in the previous calls. Domestic competition for domestic deposits has been elevated. Across the industry, cost-bearing deposits have seen the most growth, which, of course, have impact on cost of funding in the system. Looking ahead, the 2 expected rate cuts this year should be supportive of cost of funds to an extent. In parallel, we will continue to source funding internationally, reinforcing our position as one of the lowest cost and most diversified funding franchise in the market. It is also worth mentioning that the sequential moderation in deposit is related to business as usual transitory deposits behavior in domestic CASA. Moving to the income statement on Page 12. Our record SAR 25 billion net income was delivered by an uplift from core revenues, careful cost discipline, continued robust credit quality and strong recoveries. Together, these elements drove return on tangible equity improvement of around 100 basis points, exceeding guidance. Let's briefly touch on each of these elements, starting with net special commission income and margins on Page 13. Net special commission income grew 5% year-on-year, in line with the guidance, driven by the expansion across the board. Retail special commission income is up 5%, supported by healthy average volumes, which also grew by 5%, even considering the repayment in the second quarter. Our ongoing pricing initiatives also contributed to the retail special commission income enhancement. Wholesale special commission income also contributed meaningfully as a result of our 21% growth in this segment. While the investment book expanded 9%, our efficient management of these positions have contributed to a 12% increase in the special commission income. The 8% increase in the cost of funds reflects elevated market competition for local deposits as we saw before. SNB substantially grew customer deposits, including CASA and attractive wholesale funding, delivering optimization of funding costs. Looking at the net special commission income margins, NIM moderated 15 basis points year-on-year. We stabilized during the year, where we can now see improvement in the current quarter. NIM sensitivity remains largely unchanged and slightly positive with an estimated 2 to 3 basis point expansion over 2 to 3 quarters following a 25 basis points rate cut. Despite this positive sensitivity to rate cuts, as we always mentioned, this sensitivity is point in time and assume all else being equal, including the mix and the spreads. We have also seen positive traction in the second half from international with meaningful uplift in the fourth quarter, mainly driven by improvement in international special commission expense. Next page. Fees and other income reached SAR 10 billion, up 21% year-on-year, driven by investment income, FX, trade finance and international operation. Key highlights for the period are as follows. Investment-related income contributed the most to the nonfunded income. FX continued to be a bright spot, expanding across all customer segments. The growth in trade finance and cash management fees is evidence of successful execution on our strategy. Financing and cards income was actually maintained even considering that fee structure has been adjusted for the sector. The capital market business continues to be challenged with softer trading environment and international continues to contribute positively, especially in the second half. Next topics on Page 15. Operating expense management was a key highlight in 2025. We reduced operating expense by 11% year-on-year and exceeded our guidance on both group and domestic efficiency ratio. As we announced, there was a one-off benefit from release of prior year provisions which were no longer needed as per the accounting standards. In addition to these reversals, please note that a material portion of the decline in the year-on-year OpEx is also coming from our cost optimization initiatives that are recurring in nature and will continue into the coming years. Next page. Cost of risk came at 15 basis points within guidance. In previous calls, we highlighted the expectation of some cost of risk normalization in the second half. As you may notice in the current quarter, we have provisioned some exposure that resulted in an increase in the cost of risk for the quarter. Following the prior periods of material recoveries, leading to low or even negative cost of risk, the full year level now is aligned with the guidance set in our previous calls. Even with this increase, the cost of risk remained within the modest level and our core focus on prudent underwriting and credit risk management remains firmly in place. Next to credit quality on Page 20. The notable decline in NPLs reflect the write-off of fully provisioned exposure and recoveries. In combination, this drove the NPL ratio to a record low of around 20 basis points. It is also worth highlighting that our coverage ratio remained healthy across all stages. Next page. On capitalization and liquidity. In 2025, we increased total eligible capital 12%, supported by net income accumulation. Risk-weighted density remained broadly unchanged at around 69% with a reduction in market risk offsetting the growth in credit risk. Improvements in capitalization were supported by multiple factors, including RWA optimization efforts and net supplementary capital issuances of SAR 3.1 billion. During the year, net issuances of Tier 1 amounted to SAR 2.7 billion and net SAR 7.8 billion in Tier 2 issuances. Also worth highlighting the common equity Tier 1 ratio strengthened to 17.7%, placing us once again among the highest in the region. Finally, liquidity ratios are comfortably above potential threshold and the SAMA LDR stands at healthy 82.5% versus 90% ceiling. Moving next to guidance on Page 19. Beginning with the macro outlook, the operating environment in Saudi Arabia remains robust with continued expectation for expansion in both the overall GDP and non-oil GDP. We expect tailwinds in the non-oil sector from lower benchmark interest rate, resilient private consumption and continued project execution and stable inflation despite anticipated moderation in energy prices this year. Moving to the financial guidance. We are targeting high single-digit financing growth in 2026. We will continue to pursue sustainable, capital efficient and value-accretive growth being both selective and opportunistic. Net special commission income will also track this. We expect mid-single-digit growth as we balance cost of funds pressure with our pricing discipline. Group and domestic cost-to-income ratios should continue to be at very attractive level as we target positive jaws and continue to pursue long-lasting efficiency gains, aiming to deliver further improvements, driven by our cost-saving initiatives. Cost of risk is expected to be slightly higher than the level of 2025 as we progress on our strategy to grow in attractive segments. We'll continue our focus on maintaining strong capitalization, which should remain healthy in 2026. In mid-January, we successfully issued USD 1 billion of additional Tier 1 notes, once again demonstrating our ability to access international capital markets on attractive terms. Overall, return on tangible equity is expected to remain between the 16% to 17%. We will pursue strong net income generation, which would likely to be moderated by higher growth in the equity base driven by improvements in OCI reserves. This would be followed up by return on tangible equity re-expansion into 2027 as our CEO will cover this in the strategy update. Back to you, Abu Khalid.

Thank you very much, Abu Diala. We move to Slide 21. From the start, I would like to highlight that our strategy remains intact and our priorities remain firmly in place. But as the market is changing, we are also adapting. And to keep you informed, we are sharing our refreshed expectation along with our rationale for the revisions while maintaining our core return and capitalization target unchanged. Looking first at the 2024 to 2027 financing CAGR, we are updating the target to low double-digit growth. Our focus remains on sustainable value-driven domestic growth, while at the same time, prioritizing the long-term return balance sheet efficiency and maintaining strong capital position. To balance these considerations, we expect to maintain or expand our financing market share from the current level. Obviously, funding is a critical component in the overall story, and this is another place where SNB shines. We know that the entire system is contending with high competition and pricing pressure for customer deposits. Despite that, SNB has won of the strongest funding franchise in the Kingdom with reach in both domestic and international funding markets. As we discussed, SNB has achieved very strong growth in customer deposits and CASA. As per the latest available system-wide data, SNB CASA market share expanded by 324 basis points to reach 30.4%, with clear indication that Q4 market share strength has held up. Nevertheless, in light of the ongoing conditions, we are revisiting our expectation for the years '24 to '27 CASA CAGR target to be high single digit to low double digit. But rest assured that we will spare no efforts on this front, and we will continue to keep very strong focus on our CASA acquisition strategy. In line with these updates on financing and deposits, naturally, we also have to adjust the 2024, 2027 CAGR for NSCI. As a result, we now expect the NSCI to grow by high single digit. Banking fees have seen some changes this year, and this is reflected in the results. We are updating the expectation for the banking fee CAGR to be mid-teens, considering the updated sector fees and also, of course, of the financing growth. Nevertheless, as a result of this, we are also adapting and enhancing our product offering so we can mitigate these impacts. On the cost-to-income ratio, SNB remains among the global leaders in cost efficiency. Our investments in innovation and digitization as well focus on overall platform efficiency are delivering savings across our businesses. As a result, in addition to the ratio improvement signed -- signaled, sorry, in 2026 guidance, we are confident that -- on our ability to continue to drive positive jaws, delivering further enhancement in 2027 to reach below 24% for the group and below 20% for the domestic cost-to-income ratio. Cost of risk is expected to be modestly higher in 2026 than 2027. This is normal given our focus on subject -- sorry, giving our focus on the SMEs and lucrative sectors and in line with Vision 2030. Nevertheless, we will continue to focus on -- focusing on our discipline in line with risk appetite, thanks to our robust credit quality and supportive operational environment. So we are upgrading our risk range for 2027 to be between 20 and 30 basis points. The target remain unchanged for return on tangible equity and capitalization as they are the key elements of our strategy. Going to the nonfinancial KPIs. I'll go quickly through this. We continue to focus on the digital efforts and the share of retail digital sales, data usage and training per days for our employees. Also, we -- the main addition to highlight in the customer centricity, it's worth mentioning that we have a different way to look at our customer centricity now, and we will continue enhancing that. We will adopt the voice of customer framework, which will bring us more insight on the customer needs, and that will help us to improve our customer centricity and our customer focus. Going to our strategic priority on Slide #23, and to conclude today's remarks, it is compelling to consider the continued robustness of the Saudi economy despite the challenges global macro backdrop. Similarly, for SNB, even with the adjustment we are making to our plan, account for the evolving market and our commitment and convictions on our ability to deliver the cornerstone of our strategy remain firmly in place. We will continue to focus on profitable, sustainable and sustainable growth in the domestic market with our targeted return on tangible equity ranging between 17% and 18% remain unchanged. And we have also preserved robust capital, which has always given the market and regulatory authority the highest level of confidence in SNB with Tier 1 capital adequacy ratio between 19% and 20%. I would not try to dismiss the challenging ahead. Obviously, there are always risks and obstacles, but we rely on today's -- the track record of our delivery capabilities, carefully laid strategy, strength of our people and our optimistic spirit to give us the tools to navigate through these difficult times and economical challenges. We will continue to focus on serving our customers and pursuing value-driven growth in order to deliver sustainable profitability and more shareholders' value creation. With that, and to give more time for Q&A, I'll open the room for questions.

[Operator Instructions] And our first question comes from Mohammed Al Rasheed from Hassana. Mohammed, please unmute yourself from your device. We aren't receiving any audio from Mohammed. So we'll move on to Jon Peace from -- apologies, go ahead. You're audible.

Congratulations on the results. Just 2 questions from my side. The first one is regarding the net special commission income guidance. So you're expecting a high single-digit financing growth and mid-single-digit commission income growth. This means that you are implying a decline or a contraction of net interest margin by around 10 basis points. I'm just trying to understand what will drive that given your focus on value-driven growth and the improvement we are seeing in the Turkish operation, where there is a massive NIM improvement there. So that's the first question. My second question is, if you can please quantify the amount of reversal that was booked in the operating expense during the fourth quarter. That would be very helpful.

Hi Mohammed. Regarding the net special commission income, we are relying on our efforts for repricing activities, being selective, going into lucrative segments and growing our portfolio. That will drive a CAGR basically of high single digit considering the 3 years strategy. At the same time, our efforts to optimize cost of funding and diversify our funding, both of these will benefit our NSCI, considering also the expected rate cuts during the coming periods. Now when it comes to reversals, we cannot specify the exact number. It is a sizable amount when it comes to the Q1 reversal. However, majority of the decline during the full year is really coming from cost of optimization initiatives that is recurring in nature and will continue into future year as well.

Our next question comes from Jon Peace of UBS.

So I just had a couple of questions around the revised 2027 guidance. I think in the plan a year ago, you expected other revenue, so non-fee income from banking services, not that the other revenue to grow in the low single digits. Now I think after a good year in 2025, consensus is probably in the low double digits rather than low single digits. So just how should we think about that line item now? And also, I think in the original plan, you were looking to grow costs in the mid-single digits. Does that absolute growth rate still apply?

Yes I think the fees new structure has negative impact to an extent, it's not material to the bank. However, if you can see from the disclosure that card fees actually improved in quarter 4 coming from higher usage as we have a lucrative rewards plan or program for the customer that we kept intact and we didn't change, which has helped us to increase usage and therefore, increase the fees coming from the volume. We'll continue to focus on fees and investment-related income that will support this line, and it will go in sync with the financing growth. It is always our priority. We are also exploring partnership with other parties to introduce new products and new stream of fees generation that will support the bottom line overall. For the next question, can you repeat it again, please?

Yes, it was on the cost growth. You'd guided us to mid-single-digit cost growth between 2024 and 2027. And I just wondered if that run rate still applied. I can see you've given us a cost-income ratio, but do you still expect a mid-single-digit CAGR in costs?

Cost is always a focus for us. We'll keep improving our cost base and implementing more and more initiatives, we are already, that a lot of initiatives that generated the cost during 2025, and it will continue in the 2027 and the next years. Also, there are some initiatives in the pipeline that will have further cost reduction, and we are really sticking to our guidance that to maintain the overall group cost-to-income ratio below 25% and domestic cost-to-income ratio below 22%.

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

I have 2 questions. One is on provisions and other on costs. On provisions, what helps you to reduce 2027 cost of risk outlook from guidance provided just a year ago? What shall go better than you have budgeted last year? That's question number one. And question number two, there is improvement in cost outlook. I see that your cost/income ratio guidance is improved despite worsening of revenue outlook. So what remains to be optimized and you didn't optimize in the first year of strategy? Yes, so what shall go better than you thought a year ago?

Thank you, Olga. If you remember on the provisioning, we said that in the 2024 and 2025, potentially these are one-offs, but we are improving really in our collection efforts, and the quality of assets that we've been booking in the previous years, that's really helping us whenever we have obstacles that we are able to collect our money. We take provision in a very prudent approach, but we managed to collect and reverse this in the coming years. And now we have a good track record of that, and that gives us more comfort that in 2025 -- 2026 and 2027, that momentum will continue of having good recoveries from both retail and corporate. So that's really the driver for the improvement guidance. And I did mention and alluded before that also the judicial system in Saudi has improved significantly. And now we are able to collect our money faster than in the past. So that -- these aspects really give us the comfort that in the next 2 years, for this year and next year, we will see a good and decent collection as we have witnessed in 2025 and 2024. On the cost-to-income ratio or on the efficiency program that we started in 2025, we believe there are still room to enhance the employee side, but also the non-employees cost side. We still see a big improvement potential savings on IT spending and also in the employees element where we are investing in both, but we see more room to optimize certain costs that really not bringing the value that we expected. So we believe that we will continue to enhance our cost efficiency in 2026 and 2027 until we reach the right level of cost for SNB.

And when you were answering question on costs earlier during Q&A, you did mention majority of decline in cost during this year -- last year was from cost optimization initiatives. Is this majority out of 10% year-over-year improvement? Is that a correct way to read this?

I cannot give you okay on the calculation, but we have made an excellent saving that's recurring, and that will help us sustainable cost savings that will help us in 2026 and 2027. And we still -- there are room to work on other elements. There was a one-off in the fourth quarter, but that's a one-off that will not be coming. But again, I think our exercise on the cost optimization will continue to contribute to the enhancement in our cost-to-income ratio.

Our next question comes from Murad Ansari of GTN Middle East.

Just 2 questions. Firstly, on loan growth. So I think this -- even following the third quarter, I think that comments coming from most of the management on the bank was guiding towards a slowdown in fourth quarter and slower growth in 2026. And I think the general impression was that there's still quite healthy demand for credit, but banks are being cautious, a, profitability, partly some on capital ratios. My question is that if demand is already there, what could be a factor that could help surprise on credit growth? Is it really the challenge on funding that's keeping your guidance on sub 10% as well? And secondly, on mortgages, so we've seen some data come through on December numbers. Now December was quite active. We had Cityscape as well. But the numbers on mortgages on fourth quarter, unlike last year were although up month-on-month were quite low. So my second question is that on this is that what would you expect to change for mortgage growth to pick up? Are the recent changes that we've seen and we're talking about third quarter, are they supportive towards growth in mortgages or the fact that the rents have been capped for 5 years means that customers have more time to now make decisions and could possibly delay those home purchases? And second question on NIMs. So you're still expecting some pressure on NIMs in 2026. Given the rate cuts and the outlook for next year, is -- I'm just trying to understand that either we're expecting funding cost pressures to sustain, meaning liquidity situation remains tight into next year? Or are asset yield declines being quicker than funding cost improvements?

Thank you, Murad. I'll take the first question on the loans and Abu Diala, if you take the NIM question. I think I did allude in my strategy part that we are seeing a market dynamics changing. We've seen a significant competition in deposits that's increasing the cost of funding and the cost of funding is our raw material. So we need really to manage to transfer these costs to our end customers. So we will never stop supporting the economy, but also these loans to be -- need to be priced rightly to the end customers to ensure that we maintain our margins. So with that cautious, we are adjusting our growth assumptions in the loans. We would like to go for more profitable segment, as I mentioned, the SME, MSME and the smaller mid-caps, but that requires a lot of shifting internally because that's different than -- so in order to achieve, let's say, SAR 2 billion of an asset growth with small and medium companies, you will need potentially 20 clients or 30 clients depending on the size of these tickets. So that would require more efforts and more credit assessment and a lot of extensive internal exercises that will definitely potentially might impact your growth going forward in the asset side. On the mortgage, I think the fundamental for mortgage are solid. The demand is there. I think the recent regulatory framework that came from the government to combat the inflation in real estate has definitely impacted the appetite from the end users. So potentially in the last 3, 4 months, they are on the wait-and-see mode to see what implication that will come after this regulation are kicked off in January 2026. So will this means that lower land plots, so developers can acquire cheaper land that will enhance and bring more affordability to the off-plan units that's coming in the market. But definitely, the mortgage market is solid, and we expect the demand to pick up during the 2026. Abu Diala, the NIM question.

Okay. So Murad, when it comes to the NIM, liquidity and funding, we think it's available. However, due to competition, it's challenging impacting the cost of fund. And we believe even with the positive sensitivity considering the decline in the benchmark, the spread of the benchmark and the cost of funding is expanding faster than the spread on the asset yields. All in all, we are selective in our finance growth, we prefer and look for value rather than growth that dilute our value or return to our shareholders. And all in all, our repricing strategy should offset really that increase coming from the competition that is impacting the cost of fund. So we are really targeting to have a flattish NIM over the medium term.

So just a follow-up. So I mean, would it be fair to say that there is -- banks are still facing challenges in terms of passing on the cost of higher funding to end customer because I think the last discussion point in the last quarter was that there was some movement on passing the incremental liquidity and capital cost to customers.

We continue this exercise. We know that this is not a short-term exercise. It's not a quick flip. It is a continuous discussion with our clients. I think they are understanding and realizing the impact of cost of funding on the banks, and they are starting -- accepting the acceptance. And you know this is the repricing happens on a quarterly basis. So it takes 3 months when you convince a client of adjusting the pricing. So we'll start seeing that mitigating some of the cost of funding on the year.

Our next question comes from Gabor Kemeny of Autonomous.

A couple of questions from me, please. I'm trying to reconcile your 2026 guidance with the updated '27 plan. And on the NSCI, I believe you grew your NSCI by 5% last year and guide for a similar growth this year, but still a high single-digit CAGR up until '27, which I believe implies a pretty steep growth in your NSCI next year, at least 11%. Can you elaborate a bit on what you expect to drive these dynamics next year? That's the first question. And then the second one would be on the cost income dynamics because I believe you guide for a bit higher, like put this way, the below 25% cost income leaves room for some deterioration from '25 levels, but then you assume a further improvement from there in '24, can you -- below '24. Can you elaborate a bit on these dynamics? This a bit of a bump. Do you think that the cost savings initiatives you talked about earlier would come with some upfront costs perhaps in '26 or some other factors? And just finally, a technical one. I believe you alluded to OCI gains to be recognized in equity, which might put some pressure on your ROE this year. Can you help us quantify this impact and clarify what drives this?

Okay. When it comes to NSCI, we are -- during 2026, we're trying to set the best for 2027 by really trying to optimize our cost of fundings and reprice our assets and maintaining better yields and maintaining intact NIM that along with the planned growth during 2027 should give us a boost and to reach to the level of a CAGR of high single digit during -- by the end of year 2027. Now when it comes to -- and also we are focusing on attracting current accounts, improving the funding mix, repricing discipline. All of these will help us really to try to get to high single-digit guidance as we are setting in our 2027 strategy. Second question, cost-to-income ratio. I think this will be -- the ratio will moderate next year, definitely. But it will be within our guidance, which is upgraded really. The group, it was 26%, below 26%. Now we upgraded the group to below 25%. And specifically, if you look at the domestic operation, it used to be below 23%, and now it's below 22%. Most of the initiatives is really coming from domestic operation. As we stated earlier, we have savings that are recurring in nature and will continue. And we have new initiatives in the pipeline that will create further savings, and we are comfortable to meet our guidance or beat our guidance by end of year 2027. Of course, OpEx is always on our DNA. We always look for optimization opportunities, digitization, automation to support our businesses as well. And this is something we are confident about. When it comes to OCI gains, that's due to enhanced mix of our alternative investments, equities and funds that we are expected to move positively with the market -- with our expectation of the market condition during next year and after.

Our next question comes from Shabbir Malik of Morgan Stanley.

Can you hear me?

We can hear you.

So my first question is around your loan growth expectations. You've obviously reduced your loan growth guidance for the 3-year strategy, but it's still -- the CAGR is still above what you've achieved last year and what you're planning to deliver this year. So if you can maybe give us a sense what gives you some confidence about loan growth picking up potentially next year? And my second question, again on loan growth. What do you think will be the key drivers of loan growth this year? Are we going to see similar trends in retail, corporate as we saw last year driving your loan growth in 2026?

Thank you, Shabir. Shabir, if you recall on the call on the -- after the second quarter, we had a huge settlement -- big settlement from one high net worth account that really impacted the overall growth. If you normalize that, we will be beating our target for the year, and we will be higher than also what we have put as a target for this year. We still see the demand on loan is healthy, our ability to attract deposits as well. And that's giving us the confidence. It is our elective approach to go after the profitable tickets, which will have the reason why we are saying high single digit on our growth. On the corporate and retail, I think retail mortgage is still healthy. And as I mentioned earlier, we expect that to recover during the coming months once the people are realizing the impact of the certain -- sorry, the new introduced regulation on the real estate, idle land taxes and also the rent regulation that potentially impacted the decision of the individual buyers. But we believe that will normalize in the coming few months, and we will see normal demand coming back on the retail activities. And again, credit card, auto lease and personal loans, it is in the normal demand. Corporate, again, is the same. Just as I mentioned, we want to extend our support mostly to the MSMEs and the lower cap markets where we can generate higher return on our loans.

Our next question comes from the line of Rahul Bajaj of Citi.

This is Rahul Bajaj from Citi. I have 2 mainly. I'll come back to the cost question again. So I understand there was a big reversal in fourth quarter, one-off reversal, which you're not going to quantify. But from a modeling perspective, is it fair to assume the third quarter sort of cost run rate, quarterly cost run rate as a fair sort of underlying run rate when we start thinking about 2026? Would you be able to say that, that is a fair assumption? So that is my first question. And my second question is around loan securitization. I think on one of the slides, you mentioned there were some securitizations done on the mortgage side this -- last year. Just wanted to understand, did you do securitization in the fourth quarter as well? And what was the quantum of that loan sale?

Thank you, Rahul. I think if you promise me not to calculate the difference between normalizing the cost, I can tell you, yes, I think it's fair to apply the third quarter achievement on the cost and run it on the fourth quarter, and that would be the normal cost optimization initiatives input. On the securitization, yes, we did around SAR 3.4 billion on the first quarter of 2025, but that was it. We didn't do any securitization post that. So nothing happened in the fourth quarter.

Our next question comes from the line of Naresh Bilandani of Jefferies.

It's Naresh Bilandani from Jefferies. The update that you provided to the targets for 2027 in the face of new realities is much appreciated. Thank you for the same. Just 2 related questions on those targets. One, in light of the regulatory and competitive pressures coming through, I'm just keen to hear your thoughts on what product areas or what segments will be key in contributing to the fee income targets here? Will it be payments and cards, capital markets, trade finance or just origination? Because in some sense, we could perceive a pressure coming through from regulation or competition in each of these areas. So just keen to hear your thoughts on what area could outperform the other to achieve those targets? And also, Tareq, could you please offer your view on how do you see the industry response to the Saudi brokerage pricing, an area where you have a strong market share currently trending following the reduction to these fees to 0 by one player. Are you or other players kind of compelled to match these prices or you don't see that? Any color that you could provide on how you think the industry will reshape itself in the new reality, that would be super helpful.

Sorry, Naresh, I was talking and it was on mute. I think, Naresh, you perfectly answered the first question. You gave all the right examples for the segment that we are focusing on to generate the fee. I think the MSME is a great segment from a margin perspective, but also from a fee perspective. The payments and point-of-sales activities also comes with a good scheme of fee. So -- and you're absolutely right. This is a very -- every bank is saying that they are focusing on this segment. The beauty is that this is a big segment, and we have a vast experience in handling them and a good infrastructure in the bank to cater for them, which we believe it will give us a competitive advantage, including our physical network that's around the Kingdom where we are starting to have offices and SMEs and everywhere trade finance and FX also comes with a good -- with these segments. In terms of the brokerage, I think the brokerage business in Saudi has witnessed a slowdown last year, driven by the slowness in the Saudi stock market. I think that, that will -- in 2026, will start seeing more recovery on the brokerage activities. And the competition on attracting customers, we do the same, Naresh. We do offer certain clients a very competitive pricing on mortgage, some of them free. So we look at this very competitively in maintaining and keeping our key clients that really trade and do the brokerage activities, and we'll continue to monitor the market and make sure that we are always competitive and protecting and maintaining and growing our market share when it comes to brokerage.

So Tareq, do you sense that this year, because of the moves that have been made by some industry players, the pressure could aggravate further on this line? Or do you believe that's not necessarily going to be the case?

If you look at the moves that happens from the newcomers, whether in the banking sector or in the investment side, you will always have these tactical events that they do as a campaign, and we do the same. So that's a tactical element. And we'll keep an eye on it. We'll keep an eye on it and see the impact of it, and we are strong enough to compete.

Our next question comes from Chiro Ghosh of SICO. Chiro, we're not receiving any audio from your line. Please ensure you're unmuted on your side. Now, we can hear you.

So yes, most of my questions have been answered. Just one last one. So it's obvious that you're focusing more on the MSME sector. So this sector should technically ideally be earning you higher yields than your current average portfolio. Is my assumption right? Because in that context, if you -- we see that there might be mild margin pressure. So basically, going ahead, if you can give some more clarity on that side of it, the MSME side, should we ideally be earning a slightly higher rate, right?

Yes, you're absolutely right. MSMEs are less sensitive when it comes to pricing. But again, it's -- to generate the volume, you need to have much bigger portfolio and much bigger RMs to cater for that. So the answer is yes, we can charge higher for the SMEs because their risk profile is higher and they require also a certain investment on the reach for them as well.

And I just missed the point. So for every 25 basis point cut, what is your NIM sensitivity?

Hi Chiro. I think it's 2 to 3 basis points and around 2 to 3 quarters. However, this is assuming the benchmark decline without changing anything else. So if the mix is changing, and it's the case always. And the spread impact over the benchmark has also been playing a role. So that's more or less a theoretical sensitivity, but it will be impacted by a lot of factors, mainly the mix and the spread expansion over the benchmark for the cost of fund and for the asset yields and pricing.

Our next question comes from the line of Abdullah Al Buraidi of Emirates NBD.

Hello. Am I audible?

You are indeed.

This is Abdullah Al Buraidi from Emirates NBD. Congrats for the very excellent results. My question regarding the guidance, I have 2 questions regarding the guidance. May my math help me. We are starting the year with a higher interest-bearing asset by about 11%. And in the fourth quarter, we noticed that the NIM has bottomed out. It increased from the third quarter. So -- and you've mentioned during the call that you are focusing on the repricing activities in MSME. So I can't square figures on how we are going to have a high single-digit financing growth, but the net interest income to be a mid-single digit. I mean, assuming even flat financing growth for the year, it's very hard to look lower than high single digits or low double digits. That's for the first question. Regarding the second question, you've mentioned on the OpEx, the cost-to-income ratio positive jaws. And assuming such positive jaws, how are we having a higher cost-to-income ratio in the next year? I'm not sure if this means higher because it's below 25% and even '22 is below 25%.

Hi Abdullah. When it comes to the guidance of the asset growth of 11% comparing to the growth in the net special commission income of 5%. It's really a competitive market. As we explained, the cost of funding become a challenge and the spread over the benchmark is keep increasing and increasing. So you cannot pass all of this to the customer. You can virtually pass part of the spread and maintain positive carry, but it's not really that big, let me say, a positive carry. But this is the only way in order to grow that you need to let go some of the spreads and price selectively and just managing our cost of risk -- sorry, cost of fund through call accounts, cheaper fund, international fundings and growing our retail base and corporate base. Now when it comes to OpEx, the next question is -- yes, cost of risk is -- sorry, of cost-to-income ratio is coming higher next year as a result of the one-off we explained during the last quarter, and it's becoming within our guidance that we are providing since the beginning of the year. So there is a temporary decline in the cost of fund to reach 20% in the domestic level that is resulted from the one-off reversal during quarter 1, but then it will normalize to a level of below 22% as we suggested in our guidance.

That's very positive on the second question. But on the first one, do you see a good probability of beating that guidance? Is it fair to assume?

Which one, the loan and the NSCR?

No, the NSCR.

It depends on the market dynamics, to be honest. This is really a challenging target. As we stand today, this is our expectation to grow around mid-single digit. However, if the markets allow us for a better or...

Abdullah, there is a lot of changes, the last quarter and this beginning of the year. I think we will be in a much better position in the second -- sorry, not the second, in the midyear earnings call to have a view. And if we have to adjust this by midyear, looking at the first 6 months of the year, we will come back to you. Even if we see more stability and more clarity on the dynamics, we will come back on the first quarter. But I think it's fair to keep it at this and reassess it again in June by the call that we will be doing in July.

Thank you. We have now reached the end of today's call. Please note that for any remaining questions, you may kindly reach out to SNB's IR 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.