The Saudi National Bank ($1180)

Ladies and gentlemen, it's my pleasure to introduce your co-host, Mr. Iyad Ghulam. Mr. Ghulam, 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 Q1 2026 results. Today's call is being recorded. Please note that this call is for analysts, investors and shareholders. Media personnel are requested to disconnect at this point. 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 the SNB Head of Investor Relations, Abdulbadie. Please go ahead.

Hello, everyone, and good afternoon. We'd like to thank SNB Capital for hosting today's call. The presentation and other investor disclosures for the current and prior periods are accessible from our website. As usual, please take note of Page 2 in our earnings presentation, which provides important information regarding today's disclosures and discussions, including the use of forward-looking statements. With that, I'll hand over to our CEO, our Group CEO, Mr. Tareq Al-Sadhan. Please go ahead.

Thank you, Abdulbadie, and warm welcome, everyone, and thank you for joining our call. Taking a high-level view of our quarter, we delivered a balanced and carefully managed set of results for the group. And as always, we are guided by our comprehensive strategy, focused on maximizing shareholders' value while taking a long-term view. We remain optimistic about the future while also being vigilant and taking the first fiscal approach. Looking at the growth potential of SNB, we must start with the Saudi operating environment, which remains supportive, driven by strong macro fundamentals, a business forward ecosystem and favorable demographics. Throughout this period, the Saudi economy has continued to demonstrate resilience with sustained economic growth and proactive leadership of authorities who are pressing ahead with prioritized long-term investment plans, while at the same time, adjusting with agility in order to navigate a dynamic environment. Despite the current circumstances, we have been blessed in Saudi Arabia to be able to go about our daily lives, run our business as usual and serve our customers without any interruption. SNB and Saudi Arabia is this diversified banking group. We are capturing many individual 2030 driven opportunities across wholesale, retail, capital market, and beyond. We are leveraging opportunities across the Kingdom, including large projects and our partnership with public entities, which are creating attractive opportunities in wholesale. Our large retail business, which is well-positioned to meet the needs of our young and energized and ambitious population. And at the same time, we are leveraging our franchise in MSME, affluent wealth management and capturing the value-driven growth. As an example, in Q1 2026, we launched 2 SME flagship centers to support this key segment, one center in the Eastern province and the other one is in Jeddah. We've planned the third flagship center to be opened in Riyadh in the next quarter. These dedicated flagship centers offer a comprehensive and differentiated customer service model for banking and beyond banking services, which creates convenience for our clients and holds great promise for our growth prospects. With regards to our strategic competitive advantage, we will continue to foster these and build upon them to compound their benefits. We are focusing on leveraging our scale and the breadth of our relationships while investing in our advanced digital ecosystem, enhancing the client experience and improving efficiencies to drive growth, broaden our live market position and develop new revenue streams. This applies not only to our wholesale and retail franchise, but also SNB Capital who is a leader in supporting its large and diversified client base, leading the Kingdom's AUMs as well as offering differentiated advisory and market solutions. As a result, we consistently deliver attractive returns with consistent revenue streams across retail, corporate, treasury and capital markets, reducing seasonal volatility, enhancing revenue resilience and solidifying our ability to capture growth across cycles. This translates into consistent returns of our shareholders where we have continued to boost high teens RoTE. This is backed up by our world-class efficiency ratio, where we maintain a domestic cost-to-income ratio of 24.4%. For capital allocation -- sorry, our capital allocation, we remain disciplined and conservative and our strong diversification supports balance sheet resilience and growth. We maintain robust capital adequacy and strong liquidity comfortably within the requirements. This places us in a unique position with ample headroom to drive toward our growth aspirations. In combination, these key elements of our business, which place us in the center of the large opportunities in the Kingdom continue to give us optimism and energize us as we pursue our strategy to deliver sustainable profitable growth aligned with Vision 2030 and sustainable returns to our shareholders. Moving next to give you an update on our strategy. First of all, you will recall that last quarter, in light of the prevailing market dynamics at the time, we updated some of the strategy metrics that those updates are preserved in the targets presented today. Rather than going through all of the figures, I highlighted a few elements worth noting. On the financing growth, financing growth remains healthy, and we continue to see attractive prospects in our pipeline as our CFO will cover in more detail today. You will see that we continue to be selective in acquiring businesses in line with the key target market and our push for value. Financing market share is mostly stable quarter-over-quarter, standing at 23% versus 23.2% at the end of 2025. This reflects our balanced approach to growth while pursuing value and focusing on our local markets. On the funding side, we are seeing good momentum in card acquisition, and we continue to leverage SNB leading business and network to deepen and expand our relationships. Moving to banking fees, as one would expect, the market is continuing with healthy competition and the revised sector fee. At SNB, we continue to focus on enhancing efforts through upgrading our cards proposition, accelerating transaction banking and other fee-generating businesses such as bancassurance. Next on the operational excellence front and it is an implication for the cost-to-income ratio, we continue to invest in efficiency initiatives across our major OpEx stream as well as our ongoing investment in innovation. The cost-to-income ratio remains within healthy levels. And as I always highlighted, we will not shy away from investing in the key levers of growth, which holds high promise to deliver sustainable long-term value. Speaking of future and shareholders' value, I'm pleased to highlight that ROTE is tracking within our 2026 guidance and will continue to be among our key strategic KPIs as we navigate the evolving condition, which the entire growth economy is contending with these days. Moving to the nonfinancial KPIs. I also shed light on a few key points. We are accelerating our digital adoption by enhancing our processes and adding digital functionalities while improving the user experience. To highlight this retail business financing sales reached 32% already ahead of our target. Also, SNB NEO continued to scale where the number of customers reached 1.4 million. We have a pipeline of additional services and functionalities planned. We will be sure to keep you updated on our ongoing progress. Also, we have received an initial approval from SAMA to launch our NEO financing subsidiary that will complement our retail offering, and we anticipate commencing the operation before the end of the year 2026. As for AI and data intelligence, investing is ongoing, and we have been increasing the number of use cases from 3 to 19 with a clear road map to exceed 30 in 2027. I'm very pleased to share that we are going ahead with the launch of our dedicated SMEs app. I believe we talked about it earlier, which we recently received the approval to go ahead with it. The app will bring together best-of-breed digital financial services, customized support and scale up our reach to this key segment. This is in line with our strategy to be the biggest enabler for SMEs in the Kingdom. Next, on our people front, we continue to invest in our people and embody our group thesis of being the talent segment. We are empowering our staff with specialized training and capabilities building to enhance SME performance-driven culture. SNB Capital, which is the Saudi Arabia's leading capital market businesses continues to be the sector in dynamic markets while it's competitive. The capital market space is also enjoying expanding opportunities in line with the vision and financial sector development program. Objective is to develop the equity and debt capital market. To support this, SNB Capital recently conducted the Equity Connect and the Sukuk Connect event, bringing together key KSA players across ECM and DCM. On the customer centricity front, as mentioned last quarter, we are embedding a customer experience-driven culture targeting best-in-class CX in the Kingdom and guided by the detailed CX maturity assessment exercise. Enhancement initiatives related to this theme are in the works, and we look forward to updating you on the due course. In conclusion, we will continue to take a disciplined approach to execution against our strategy while maintaining a healthy cadence of our initiatives and leveraging SNB's many strengths on broad scale. In combination with the Kingdom's supportive environment, each day, our efforts are compounding and get us closer to our desired outcome, where serving our customers and delivering value to our shareholders will remain the central objectives. With that, I'll hand over to Hussein for more details on the financial performance.

Thank you, Tareq, and greetings to everyone. I will begin with the macro outlook on Egypt. We have had events on surface. We have revised our full year GDP growth from 4.3% to 3.7%. On the other hand, it's the most inflation-related to yield, but slight constraints and disruptions have led us to slightly lower our full year non-oil GDP forecast from 3.2% previously to 2.5%. It is [indiscernible], so that would be how the PMI index expanded to 51.5 points in April versus contraction in March when the figure dipped to 48.8 points. The recovery was supported by improved domestic demand and therefore, new business, but price pressures accelerated slightly as supply oil disruptions continue to weigh on the non-oil sectors. Overall, underlying economic momentum remains, and we are confident of Saudi Arabia economic resilience in 2026. Moving to the financial targets, of course, there is a degree of uncertainty caused by the current geopolitical situation that calls for the cautious approach to guidance. In case of a prolonged conflict or a more stressed situation, we would consider guidance, depending on that situation. In the next [ minutes ], we continue to drive ahead on the leverage on our graphs and figures, and we'll give you a breakdown on our quarterly index scores. A few key points to highlight on the financial targets. On financing, we continue to enjoy a healthy pipeline in wholesale where we are balancing the opportunities with our focus on value. The repair market continues to be our focus but the highlights as we mentioned previously, we estimate most of this 2026 growth will be coming from the wholesale. As mentioned previously, we are projecting mid-single digit expansion of fixed commission income and the soft guidance for margins, we are focused on steps interim and similar gestures. Cost efficiency initiatives are ongoing while at the same time, we take long-term view for the future under the evaluation. These costs came down at the present and recovered in Q1. At the same time, we are expecting normalization within the remainder of the year. We expect the normalization to continue to be held. Finally, as always, tangible equity and sustainable shareholders value creation remain core to our strategy. Next, I will jump to Page 10 and briefly cover the highlights of the financial performance. Overall, looking at the financial performance for the quarter, there are a few key elements to highlight. We took an honest approach to asset growth. We focused on emerging market, and we supported this with healthy growth in customer deposits. As a result, we preserved stable operating income at SAR 9.7 billion, growth 0.4% of yield with the most coming from international, and net income of 6.7% this year while intangible equity at 16% within the guidance, and we achieved solid operating efficiency, robust capitalization, and healthy liquidity. On the coming days, we will review these in more details. I will now turn to the balance sheet of [indiscernible]. Refinance the balance sheet [ 40 ] with the asset up 2% for the quarter receiving revolver to the [indiscernible] around 1/4 of resources the bank invested in the Kingdom. On the liabilities slide, strong customer approach dropped, it specifically allowed us to replace funding in order to support a more efficient lending structure and to optimize those funds. Also worth noting in January, we successfully issued USD 1 billion in hedge funds, which was almost 3x the offer subscribed, demonstrating continued healthy demand for these funds and renewed strength of our initial to help capital markets. Moving to next page, financing was broadly stable for the quarter, up 0.5% sequentially, reflecting our measured approach and focus value. Breaking this down, our internal financing remained healthy overall dragging 2%. The base model activity has gone pre-COVID. Although, we have seen across the market, that [indiscernible] have been modulating the numbers of growth [indiscernible] and disruptions of the markets. We should be supportive of the segments. Q1 also saw contractions in investor finance and private banking, driving [indiscernible] and in line with our focus in these segments. Wholesale financing was broadly stable, declining 0.6% year-to-date, where the contractions in the finance, corpus, and portfolio to a more than offset by the growth in the MSME financing. MSME financing expanded 9% year-to-date or more than SAR 7 billion with a strong traction driven by our focus on the attractive security. Even though, there are some seasonal lags as well as our focus on value, we continue to see healthy pipeline in this segment. Financial institutions remain an integral part of our strategy to enhance returns. However, due to opportunist nature and our focus on local market, we witnessed a reduction of around 20% year-to-date. Overall, we are focusing on emerging labor for quality and value. Going forward, we see a healthy pipeline of potential business, and as discussed, we are maintaining our financing growth with the intention to be at single-digit for the year. On next page, the investment portfolio increased by 1% in Q1, reaching SAR 323 billion. The portfolio remains as follow across various types of portfolio response and is going to position to balance in liquidity and validity. That said, there have been no signification changes in allocation or concentrations, reflecting the stable investments across. Moving to the next page, customer diversity increased to reach SAR 665 billion, further cementing our content profile and supporting our improvement in gross as the security ratios. Balance has increased 2% of growth for a strong confidence and growth in target segments. [indiscernible] has increased 18%, reflecting our ability to capture market liquidity. Other than that, the capital ratio for the quarter came in at from 4% to 1.5%. Moving next to the investment team, net income increased by 7% year-over-year, supported by [indiscernible] thus growth in net income for those core versus the scenarios. This was abruptly set [indiscernible] mainly due to the market during March. Looking at the group overall, it is worth noting that our strategy in Turkey has been yielding positive results and despite the challenge of operations in Iran and operational environment, [indiscernible] to feed into the continued outperformance. The return of tangible equity currently at the upper end of our guidance range standing at 16.7%. Fortunately, SNB shareholders, the Group, the Board proposal to pay a cash dividend of SAR 15 per share for the first half of second of 2025, amounting to a total of SAR 6.5 billion share. On next page, special commission income increased 3% year-on-year, reaching SAR 7.5 billion with traction across wholesale, retail investments and international. As expected, margins remained stable at 2.5% on a sequential basis. As for margin sensitivity, it has remained broadly stable with an expected improvement of around 2 basis points, following the 25 basis point rate that's expected in the [ lobby ] of 2 to 3 points. As always, this is a theoretical destination assuming a static balance sheet. Looking ahead, we expect margins to remain broadly stable and sequential improvement in net commission income during the year, supported by financing global growth catch-up, repricing initiatives, further funding optimization and proactive balance sheet management with a focus on optimizing the earning asset mix. Moving to the next page, yield and other income declined 9% year-on-year, coming in about SAR 2.1 billion for the quarter. Year-over-year growth in increased income from financing and cash management international, and FX was offset by certain factors as to the first half-related income, mainly driven by market and volatility. As we experienced weaker trade finance activity that affected the trade fees income momentum, which came in lower by 27% year-on-year. Investment management income was 16% lower due to softer market activity. Despite this, SNB Capital managed to expand AUMs. Also, 18% weaker brokerage income was mainly due to lower market volumes declining around 20% year-on-year and competitive pressure on foreign investment banks. Despite this in Q1, SNB ranked #1 in terms of market shares. Moving to the next page. 7-year annual salary and hiring in the front office IT and analytics. Looking ahead, we have multiple efficiency program in place, including workforce efficiency, vendor arm secured optimization, automatization as well as physical network and divested optimization. We will continue to focus on our own growing cost efficiencies initiatives with the benefit expected to realize over the coming decades while at the same time continuing to invest for growth. Overall, we will be managing our cost base relative to the expected expansion. Keeping in mind the time lag of a year or two All in all, we will continue to focus our efforts to drive towards full year guidance in order to deliver a growth cost-to-income below 25% and domestic cost-to-income ratio below 22.5%. Moving to the next page, cost of risk at minus 2 basis points for the quarter. This was driven by a variation of deferred [indiscernible] in their portfolio, namely, the credit facilities and continued system recoveries assets offset. It is worth noting that normalized costs of operation, excluding this impact would have been closer to the lower end of our guidance. Going forward we will continue to apply our prudent provisioning approach as mentioned, we are maintaining the cost at 15 to 25 basis points for the year. On next page, quality remains healthy with equity ratio, improving sequentially to 6.7% while [indiscernible] capital remains at loss. Moving to the next page, capital liquidity remains strong, sitting comfortably within all preset ratios. Certainly, demand has delivered a balance set of results with potential growth again and the network to grow. We remain focused on actively managing the balance sheet with a view to optimize security and maintain the certain capital allocation. With that, let's move on to the questions and answers.

[Operator Instructions] And our first question today comes from Mohammed Al-Rasheed at Hassana.

Two questions from my end. The first question is regarding the yield on your corporate book. We have witnessed a decline on your public yield spread over CIBOR by around 38 basis points on a quarter-over-quarter basis. So I'm wondering what drove such a decline in your spread for your corporate book? And how would that be impacted going forward with the repricing initiatives? My second question is regarding cost of risk. So there was a sizable recovery of around SAR 1.3 billion in the first quarter. What was the reason behind such a recovery? Was it a single large exposure? Or was it more of a broad-based recoveries across your corporate book?

For the first question regarding the corporate fees, we are experiencing the decline mainly because of the benchmark coming from the rate cuts happen during the last year. All in all, we are working hard on our corporate book. Again, the improvement of this repricing will be seen over time. But the main impact is really coming from the rate cuts happening over the last year.

Just to clarify, I'm comparing the yield to the benchmark. So the spread of the benchmark has dropped by 38 basis points in the first quarter compared to the fourth quarter. So I'm isolating for the benchmark in market.

Honestly, we don't see that decline in the yield, so honestly, specifically, the offset. You are referring to which slide exactly? We can review and come back to you to be honest.

Okay. And regarding the recoveries.

Regarding the recoveries that we have a strong recovery coming from the wholesale. But in this quarter, we have also a major recovery of incoming professionals, which is not part of the structure points of the professional script, not related to the guidance facilities. And this is business as usual with oils. Working hard the recovery of our group of really cost of risk.

Our next question comes from Shabbir Malik of Morgan Stanley.

My first question is around your financing growth outlook. I think the first quarter, we saw growth was very muted. If my memory serves me right, typically, first quarter is usually a strong quarter for the bank. So I just want to get your sense on how comfortable you are with your full year guidance, which is high single digit. And this implies that 7% to 8% growth for the rest of the year. How comfortable you are in terms of achieving that target with a relatively slow start in the first quarter? My second question is around margins. So your comments were very encouraging around margins, but I was a bit surprised that you're still eyeing a relatively stable NIM for the rest of the year. Liquidity in the first quarter has improved, and you've grown in the SME space and you've grown CASA. So I just want to hear your thoughts on why you're still expecting NIM to be relatively stable for the remainder of the year? And maybe, a clarification regarding the previous question. So you said the recoveries were noncredit related. So just a clarification on that, please.

Thank you, Shabbir. I'll take these questions, and Hussein, you can add. Absolutely, you're right. I think that it has witnessed that the whole banking sector witnessed a slow growth on the first quarter from a lending perspective. And that was anticipated from the guidance of all banks, driven by the country reprioritization, driven by the reform that took place in the real estate sector, driven by the conservative approach standard is going forward. All that was the driver for an expectation for a slower growth on the 2026. Adding to that from the first quarter, adding to that the war, I think the level of growth is expected. To answer you, do we have a strong pipeline. Yes, we do. Do we confirm the single high digits? I think it's premature to change that now. I would be in a better position or we will be in a better position by the end of the second quarter to evaluate the conversion of the pipeline and see the appetite both in corporate and retail on that growth. Adding to that as well, the value generation. So we are very keen to grow in the smaller segment, which doesn't give you the volume, but it gives you the value. So growing like 100 contracts in micro businesses or small businesses equals potentially one transaction in large, but you will get a lot of value of these smaller contracts. So we are very keen to grow, as we said in our guidance and our strategy that we want to move to more of a profitable business, that's definitely the way forward. On the margins, the fact that there was a slow growth on the lending activities, that naturally impacts the repricing activities. So when there's a competition, your ability to reprice is higher. When the competition is slower, then the repricing activities get impacted. We are continuing with our repricing activities, both in retail and corporate. But again, the liquidity increase and the slow activity on the lending makes it harder to reprice compared to our aspiration. But hopefully, we will get there. And I think on the question of the reversal of the cost of risk or the provisioning that I think mentioned that it is an indirect lending, which is cancellation of this is business as usual. It can happen. And it's not really impacting the overall stock of the provisions related to the portfolio. I think we're benefiting from the conservative approach that the bank is taking by being proactive in providing within doubt and these things. And I anticipate that we see also positive outcome in the coming quarters and these as well because we -- when we are in doubt with the client, we just go and provide. We take always the conservative approach when it comes to our provisioning activities. That's why we get lots of levers we have witnessed that actually in the last 3 years. We've been -- our cost of risk was always lower than our guidance, and we always get a very healthy and decent recovery.

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

Yes. This is Abdullah Al Buraidi from Emirates NBD. I have maybe, a follow-up question regarding the NIM and the benchmark and the asset yield. So we noticed that the NIM has been stable, but when we calculate the asset yield and compare it to the benchmark and mainly the corporate book, we noticed that there is a decline in that corporate book, and it might be driven by the way that we calculate things by taking the average at the beginning of the period and the end of period. But when we look at the component of the loan book, we noticed that there is quite a decline in the corporate book that was offset by an increase in the MSME book. So could you clarify how the evolution during the quarter took place? I mean, is it distorting the asset yield calculation for us and the cost of funding calculation? And how does it look like? The second thing on the other G&A. I mean, in the fourth quarter call, the last call, you've indicated that the cost to income is unusual and it has some one-off and that the normalized level should be looked at the third quarter level. But we are back to square one and the same amount of expenses on an absolute basis as the first quarter. So if you could clarify on what is the cost efficiencies to be expected and what is the normal run rate on this? And I will ask the third question later after the queue.

Abdullah, there are a lot of activities leading here, either the [indiscernible], however, there is also an impact that is coming from benchmark 25 basis points will offset almost 70% of that in the first quarter. And our repricing activities helped to mitigate at the same our time, deposits. That also helped reduce the cost of funds. I think we are the lowest in the market when it comes to the cost of that really negative impact coming from the decline in the asset yield. That's why the net income is really stable over Q1. We expect this to continue or improve going forward.

There was a question on the...

And a question on the cost.

Yes, the other G&A.

Okay. The other -- that's quarter, you always have for the increase for the adjustments. And that's the main reason for having higher G&A expenses. On the other hand, we have a lot of initiatives that we should expect and see the result of in the coming period. We are working on efficiency, digitization, a network optimization, premises optimization. And there are a lot of activities really to generate additional cost savings. I think that Q1 is definitely you're going to see better results. And it's a combination of the growth of the revenue going forward plus the initiatives and cost optimization that we are working on. And as I mentioned, we are investing because when we focus on the SME, that requires a lot of investment in human capital and in technology and other costs as well that we would like to see the benefits of this impacting our cost to income. So it has a significant impact on the top line or on the while the impact on the cost side is continued. So there will be an investment. But to our point, the first quarter is always not a good reflection to see the other G&A activities. Yes. And the key here is at year-end, we're still committing to achieve our targeted cost-income ratio. So looking at the cost alone, I think the cost-income ratio is a good indicator, and we didn't change our guidance and we believe that we are achieving this guidance as we question...

Yes. Regarding the third question, the cost of risk. So as we are having a very great cost of risk this quarter coming from the reversal, no change in the guidance does imply that it will be backloaded. And I understand it is just a technicality, but would you confirm that nothing has changed because of recovery and the cost of risk is still as decent as it used to be before accounting for the recovery.

I think I did allude in the previous answer to that. I think the bank is enjoying the conservative approach, which we have been witnessing always the whole improvement of the revision system, which most of these provisions that we took in the past. Now we are concluding these cases and we are collecting our money. So I anticipate this is to be the business as usual at least for this year, potentially next year as well. And I recall also in the previous call, we kept saying this, it was exceptional when the next quarter comes and we have a good collection. So we try -- I'm pushing the team inside the bank to say that this is as usual now. So we expect more collection coming every quarter. So pushing our retail and collection team, both retail and corporate to continuously bring these recoveries to have the best cost of risk in the bank, while continuing being very conservative and booking provisions when we see that. I mean doing business in Saudi has improved significantly. And in the last few years, we -- the need for the provisioning has reduced and the recovery and the collection has also improved. Just the coverage -- the coverage ratio has increased from 18% to 19%. If you look at the stage-wise coverage, the Stage 3 coverage has also improved Stage 5. So all in all, despite the strong provisions still coverage. And the guidance remains as is, and we think we will hit the lower end of the guidance

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

I have several. One is on your CASA ratio. It remains at a very solid level. However, it has been trending down in the past 2 quarters. And this is despite flattish CASA in the banking sector, even improving CASA in government-related entity segment according to SA data. So what is happening in your CASA mix? And where do you think your CASA ratio will be trending from here in the next several quarters? That's question number one. Question number two is on nonfunded income. I understand there were several reasons for weakness in the first quarter, well understood. But which segments do you think can drive the recovery in the rest of 2026 and maybe 2027? And I'm wondering why solid MSME expansion is not feeding into better fees. Usually, this is a very fee generated segment. Yes, I will stop on the questions.

Okay. When it comes to CASA, that's a main focus for us. And usually, it's not tool. We expect CASA to be within the range more or less. We were successful and increased our CASA during this quarter. But at the same time, if you notice that we have let go a lot of interbank and move to time deposits, okay, which is more sticky, more cost efficient, cheaper and it's a core for us when it comes to our funding profile. That's why you see CASA declined a little bit despite the growth in it because we are also moving -- shifting from interbank funding into time deposit, which is more sticky, and our liquidity ratio and also our retention ratios as well. And it will support our growth when it comes to [indiscernible] related to growth and asset growth. On the second question on the nonfunding revenue, I think the first quarter has witnessed a slowdown in that. Definitely, the trade finance fee has been impacted significantly. The other fee also on the retail sector has also been impacted. We are very confident that we will catch up in the rest of the year. We see the momentum improving and the plans to recovery on the fee coming from the retail businesses, SME businesses is on track, and we have the plan to recover what we missed in the first quarter and ensure that we catch up on that. Absolutely, you're right. The SME doesn't only come with the fee element. It comes with everything positive. FX fee, higher margin, and we are pushing for that. And we are also becoming more sophisticated in how to collect fee for these segments. The point-of-sale business is very critical, and we have a big transformation related to that. So we can be the most competitive provider of these services in the market. But it took longer time than what we planned, and then we are back on track in Sala to catch up on what we missed on the first quarter.

And if I can squeeze in a clarification. You received approval for SME app and also new financing. Do you think this can be instruments to improve fees? Or these are more about easier client reach and convenience product...

Definitely, the SME is a value proposition to our SME business. So it will help us scale the reach to our SME. And naturally, SMEs comes with, as I said, the fee, the CASA and the current account. So yes, we hope that our plan is to grow the acquisition of our small and medium customers and business banking through the application. And also the micro financing company is also -- it will focus on the micro lending and smaller and complementary retail businesses. That's also quite healthy. But these both are, I would say, longer term. So if your question, do we expect something impactful to come this year? It would be too early to see the full momentum coming this year. But this is a long-term initiative that we will see '27, '28 and beyond...

Our next question comes from Jon Peace of UBS.

So my first question, please, is just a clarification on the cost guidance. You reiterated your cost/income ratio, but just wanted to understand, are the cost initiatives you mentioned, do they mean that the absolute level of costs comes down from the EUR 2.6 billion base, and that's what helps you to achieve the cost income guidance? Or is it rather the cost initiatives mean that the costs grow very slowly from here and the revenues grow more quickly, and that's what delivers the target? And then my second question, please, is just on your 2027 target slide. Just comparing it with the end of the year, I noticed the dividend payout of 50% to 60% wasn't on the slide. Does that guidance still hold as well?

Okay. For the cost, usually, we need to invest in order to grow our business and support our ambitions for automation, digitalization, AI and to support the growth in the segments. So we aim here to maintain and continue to optimize cost, okay, while we still invest in future development and improvements to contain the cost within the same level or a little bit less grow revenue at the same time, that's a combination that will drive basically the cost take. You cannot look at the cost on absolute terms. You have to consider the as well because there has to be some investments in order to support our business growth. On the dividend side, that's always been the guidance and the attempt from us to continue paying dividends on that range. We will keep monitoring the growth opportunity, what makes more value to our shareholders, and we'll make the right decision accordingly. Today, we have the buffer to grow and the capital to grow. If we see an acceleration of that growth that might impact our policy or guidance on dividends, then we will communicate that to -- we'll take the guidance also from the Board and communicate that to our shareholders and...

Our next question comes from Mehmet Sevim of JPMorgan.

I have 2 questions from my side. One, the irrevocable commitments to extend credit seems like they grew quite notably this quarter and to SAR 70 billion. I was just wondering if this is business as usual? Or are you seeing any potential pipeline build in certain sectors that would be worth highlighting? And on the provisions, if I may, one follow-up. You mentioned in the financial statements that you ran a simulation assigning higher weight to the downside macro scenario. But at the same time, the impact was immaterial. I was wondering if you could please quantify this higher weight. And also wondering why would this result in basically no additional provisions? What's the driver behind that? Is there an offsetting factor like higher oil price or anything else that you'd like to highlight?

Okay. For the first question regarding the commitment that's business as usual as we continue really focusing, as we said before in the wholesale corporate and the MEC segment specifically. And as we said always, we have that will materialize in the coming quarters. It's normal to have this being is basically to allow for the growth -- and I will defer the second question regarding the macroeconomics changes. So Raja, do you want to take the second question? I don't know if you captured it or not.

Yes. If we could just repeat the -- I think it was reference to the ECL model and higher price kind of mitigating any sort of adjustments around that. Is that clear?

Yes, indeed. So it says you run a simulation assigning high weight to the macro -- to the downturn macro scenario, but at the same time, there's no resulting impact on the ECL. I'm wondering why that would be the case.

Yes. Look, at this moment in time, there are -- the numbers are only coming out now. So when we're looking to do these exercises, we're doing them frequently. And when we've done these exercises, the availability of data at the moment, as you've seen March and April is feeding through. This kind of limits the degree of exercise that we can kind of deploy and implement. So -- but we are frequently updating that and looking at that ECL model. But yes, I'm sure some of the impact of the oil price does kind of negate the downside to extent. But we are continually monitoring this model and redeploying kind of reassessing this model frequently as the data is released.

Our next question comes from Naresh Bilandani of Jefferies.

It's Naresh Bilandani from Jefferies. Two questions, please. One, it's quite clear that in this quarter, I think the bottom line performance was helped by the positive impairment charge. I'm just keen to understand qualitatively, did this afford you any leeway in front-loading the OpEx charges that we are seeing in the first quarter? I know this question has been asked in some sense previously, but I'm just keen to understand if this is the high point of the cost base for the year from a quarterly perspective? And can we see the cost trajectory improve in an absolute term in the future quarters? So that's the first question. Second is, could you please quantify what's contributed to the strong 40% year-on-year increase in the exchange income in the first quarter? I mean the run rate was just shy of SAR 600 million in each quarter for the past 3 quarters. Now we're looking at EUR 750 million. So just keen to understand what contributed to this trend? And will this be the new run rate from which we should model? And also equally, within the noninterest revenues, can you please throw some light on the other operating expenses, which at SAR 543 million, again, are looking higher as compared to the run rate that we've seen in the previous quarter. So some of these clarifications would be super useful.

Okay. For the first question about OpEx, No, we are not -- as I said earlier, it's normal because mainly of the adjustments and all these things. In absolute terms, yes, we are working hard to have absolute amount when it comes to absolute value each quarter. But at the same time, we have this to the growth in revenues. Second question is regarding the exchange. Since last year, we are doing great in exchange income this year, they benefited from income of increase of coming from so they benefit from currency exchange income and some of the transaction and the bank as well, they are always moving quarter-over-quarter. It's a good business for us. But the 40%, it cannot be used as a run rate going forward.

Understood. And also, please, on the other operating expenses of SAR 543 million?

Yes. Other operating expenses mainly we had increase in the cost of the insurance portfolio that's basically not all insurance costs being higher due to inflation and other factors. Now we are in our pricing strategy that we are working on incrementally, but trying to observe that higher efficient commission income. You can see that NIM expanded because we are increasing the prices to the current release cost and also assets.

Our last question today comes from the line of Kunpeng Ma of China Securities.

I have 2 questions. The first is a follow-up on the credit -- on lending, sorry. Yes, this is quite top during previous questions, but I still want to look at -- if we look at a bit longer term because there are a lot of things happened since this year. Sorry.

Could you speak because the line wasn't clear. Could you repeat the question?

Sure. You guys are better now?

Yes. And you could slow down also.

Sure, sure. Sorry. Yes. The first is on the financing demand. There are a lot of things happened during this quarter, right? The conflict, the OPEC change and also maybe some longer-term impact on oil price. So if we look at some -- a bit longer term, will this -- all these things affect our financing growth, the speed and also the structure of the loan demand, if there are any impact in the longer term? Maybe it's a bit too early to see the real effect, but some color will be quite helpful. Yes. My second question is on international business. Yes, we continue to see like Turkey business as a drag of our net profit due to the inflation there. But international business is also very important for SNB. So if you can share with us some of your general view on the international business and especially as there are a lot of companies, foreign companies moving into Saudi to do business there. So are there any synergies between the Saudi offices and your overseas offices to work together to support those foreign companies, yes.

Thank you very much. I'll take first part of the first question, then my colleague, Raja can comment from an economical point of view. I think the Saudi government made a strong commitment back in 2016 when they announced Vision 2030. That commitment is we want to diversify from being reliant on oil. And we will keep investing to make that diversification. And that announcement came when the oil prices was in a very, very low stage. And since then, 10 years now, we came through cyclical times and the government continued spending and use the debt and other sources of funding to ensure that the continuous spending. Today, as 2026 budget announced by the government, it has IDR 1.3 trillion of committed spending. Yesterday, the announcement of the first quarter spending came to be very strong. I think the government is continuously spending. Oil prices increase will definitely help avail more liquidity to the government. And -- but we know that we have major events happening in Saudi and in the prioritization exercise on the BIS strategy that was announced. Clearly, there is a direction focus on spending on these projects that's coming and also coming with a good return on investment. So definitely, we witnessed a slowdown in the first quarter. We might see also a slowdown in the second quarter. But we are very confident that spending is coming and the going back to business as usual from a demand perspective will come up. Raja, please feel free to add if you want.

Look, the general comment is that, as we've highlighted, non-oil growth is still at robust levels, resilient levels for this year, 2.9% -- and there are various projects and projects still under execution that will drive the kind of momentum certainly on the industry level. And of course, there is still the kind of story regarding homeownership and on the mortgage side on the industry level. So I think the positives are still there to kind of push the kind of sector-wide growth forward. So certainly, at this point in time, we still remain confident that any short-lived disruptions should not deter the kind of trajectory, the macro trajectory for at least certainly a pickup in the second half of this year. So we're still confident in that respect. And that kind of is how we see the progress.

On the second comment, I think S&P have a long-standing presence in Mainland China through a representative office in Shanghai. We have a branch in Singapore and Korea, and we see the Far East as a strong partner, and we benefited a lot from the relationship that we had on diversifying our funding mix. In fact, our Board strategy exercise last year happened in Singapore, and we thought of going to China. So we see the value of strengthening the relationship and see how can we cooperate more to benefit the SNB businesses in Saudi and on the offices we have in Asia. Thank you very much. I think before we close, just for Mohammed Al-Rasheed. Mohammed, we looked at your comments, and we couldn't have identified where you're coming up on that decline. But will take this offline with you to understand your comments, and we'll clarify with someone.

Ladies and gentlemen, we have come to the end of today's call. Please note that there are any remaining questions, kindly reach out to SNB's IR team. With that, I'll hand back to SNB Capital for any closing or final comments.

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.