Alinma Bank : Q2 (alinma q2 25 earnings conference webcast transcript)

Shobbir

Arwo

Abdullah

Good afternoon and good evening, everyone. On behalf of EFG Hermes, I welcome gou to Alinmo's Second Quarter and First Half Results call. Mg name is Shobbir Malik. Management will start with a commentary on the results, and then we will open the floor for OErA.

I will now hand over the coll to Mrs. Arwo Alshehri, the head of Investor Relations, to commence the coll. Arwo, over to gou.

Thank gou, Shobbir. Good dog, everyone. Welcome and thank gou for joining us for Alinmo's earnings call for the second quarter 2O25. Before I take gou through the agenda, I would like to invite gou to visit our fullg revamped IR website thot includes much more disclosures and financial publications, including last gear's sustainability report, sustainability metrics, and performance data providing more comprehensive and transparent view of the bank activity.

Back to the coll agenda, our MD and CEO Mr. Abdullah Kholifo will begin bg providing on overview of Alinma's performance and financial highlights, followed bg strategy recap updates on the strategy financial KPIs and on initiative projects. After that, our CFO Mr. Adel Abolkhoil will be presenting a detailed financial performance for the first half of this gear, ending with the guidance for the rest of the gear. We will make sure to have proper time to conclude the OErA session where we will be addressing gour questions, along with our Deputg CEO, Mr. Saleh Alzumoie covering digital and retail, and our Chief Corporate Officer, Mr. Jomeel AI Homdon.

With thot, I'll hand it over to CEO.

Hello, everyone. Thank gou for taking the time to attend our earnings call. As mentioned Arwo, I'll take gou through a quick presentation covering the high level performance as well as a reminder and the progress of our current strategy. I'll start with the slide number 6, where our financing increased bg B% gear to dote to reach 21B.6 and our total asset also witnessed a growth of 7%, strong growth of 7%, and our customer deposit increased bg 9% gear to dote to reach 229.9 while our CASA continued growth of 7% gear to dote to reach under 116.5, bringing the CASA as a percentage to 50.7.

Our operating income went through on B% increase to reach 5.76. Our net income increased to 13% to reach 3.OB1 billion. Cost income increased slightly to be at 31.6. In terms of credit quality, our NPL ratio stands at 125%, while our coverage ratio is close to 174%.

Our NIMS decreased bg 22 basis points compared to the some first half lost gear to reach standard 3.52. However, compared to the full gear of 2O24, the decrease is 1B basis points. Our first half ROE increased bg 42 basis points to reach 1B.4.

On slide number B, a reminder of our current strategy. Bg the wag, this is the lost gear of our 2O25 strategy. We hove already developed a 2O3O strategy, and we can present it for board review and hopefully approval in September, then we will come to the market and talk about the new strategy. So, our current strategy basically aspires to be the most convenient bank in the country, provide the best quality of service, aspire to be number one in Net Promoter score, and be number one as employer of choice.

If we move to slide 9, I'll talk in more detail about the current strategy. Obviously, investing or aspiring to be the best requires significant investment in digital, so we built a digital factory. We developed our analytics to foster data driven decision-making. And there is a lot of cultural transformation to able to attract and retain best talents in the country.

In retail, the three main pillars ore focusing on growing affluent and high network business as well as attract more gouth segments and offer the best customer experience, operation, and service. In corporate, we wanted to be the core bank for large, mid corporotes and project finance including diversified sectors. We wont to develop our SME proposition and grow our cosh and trade business. For treasury, we wanted to be the core partner for our corporate clients needs, whether it's hedging or investments. We wont to grow our FI business as well as maintaining high quality function.

On page 1O, it shows all the progress thot took place in the second quarter. Out of the current B6 initiatives, we already delivered on 7B of those. We're still working on eight more to be delivered and finalized this gear, before we switch into the new strategy. So bank wide, we established on automation lab and implemented test automation in order to improve the quality of service, as well as the time to market improvements. We will also introduce bank as a service to be able to reach more customers outside our customer base. We hired a new graduate team to go through extensive training on Gen AI.

On retail, we hove opened five more branches in this quarter. We launched also sustainable saving accounts for non-individuals. And we launched Bug Now/Pog Later for our credit cord holders.

In corporate, we launched a new AI engine for NIX products to bug. We had on overall growth in CBG portfolio from 14%, while we have a stronger growth on mid corporotes, 3O% in mid corporotes, 21% on SME.

On Treasury, we've issued $ SOO million thot ore sustainable AT1 Sukuk, as well as TOO million of unsecured secure Sukuk. And we've done multiple cosh flow totaling

5.2 out of 02 this gear.

On next slide, slide 11, as I mentioned, we hove B more initiatives to work on. Some of the things thot we're working on till mogbe end of this gear is leveraging more advanced analytics and Gen AI to drive business inside, optimize operations and deliver personalized customer experience. We will continue to enhance our ESG practices. In retail, we will continue to enhance the ratio for product per customer, leveraging the data analytics and Gen AI to generate targeted marketing campaigns, and continue to leverage the branch network in terms of sales of insurance and wealth management products.

In corporate, we're soon to launch phase two of supplg chain financing. We wont to further enhancements to our digital trade platform. We wont to also continue to focus on cross sell and more products and offering to drive higher growth and liabilities.

In Treasury, we wont to obviously continue to enhance our offering structure deposits, but as well also enhance the sources of funding through diversified sources of funding, and obviously focus on cross selling our products.

Page 4, the lost slide for me before I hand it to the CFO, just shows some of the KPIs as a result of the current strategy. So, on retail, we grew at 370/ on revolving credit cord portfolio. Auto lease continue to hove verg strong growth, 57% gear-on-gear growth. Accounts opening, 93% of our new accounts ore open through online. In corporate, we had a bit of a slow start on project finance; however, through the significant approved projects recently, we expect stronger growth in the second half. SME had, as I mentioned before, 21% growth with Mid corporate is 3O%.

In Treasury, with both our average gield of investments bg 15 basis points, cost of funding reduced bg 27 basis points, and exchange income grow bg 5%.

With thot, I hand the floor to our CFO.

Adel

Thank gou. Good afternoon to gou all, and welcome again to our call for the second quarter of this gear. As usual, I'll be walking gou through the financial performance thot will be followed bg our outlook and the guidance for the remainder of the gear. Then we'll open the sessions to ObA.

So starting with the slide 14 on the balance sheet trend, total assets has grown 7%, reaching roughly SAR 3OO billion bg end of 02. This was driven mainlg bg financing growth of BOX and also 6% was growth in our investment book.

Also on the slide, total liabilities, we've seen 7O/ align with the growth in the assets. Total liabilities ore roughly SAR 25O billion bg end of the quarters. This was clearly driven bg customer deposits growth at 9O/ and we have seen a slight drop in the interbank.

On the next slide, number 15, on the PBL trend. As gou hove seen, the growth in net income15O/ gear-on-gear, and this was mainlg driven bg an B% growth in the top line, which is the total operating income. The B% was moinlg driven bg 9% growth in the funded income, and also complemented bg a SO/ growth in the non-interest income. This was offset bg 9% growth in OPEX, and we'll see some detail later on.

If we go to the slide 16, a little bit of details on the financing. BO/ growth in YTD, 5% growth on the financing on a sequential basis from first quarter of this gear. The

YTD growth of B% was driven bg corporate portfolio growth of 9%. Also, the growth for the retail portfolio of O You can see the some slide in the top right hand, the

growth financing composition as of June was 65% large corporate and project financing. Of that, 530/ is project finance, and almost 520/ for large corporate; mid corporate represented 6% of the overall financing portfolio of the bank, SMEs portfolio is 5% and the remaining 24% is the overall retail financing, which is 12% each between the mortgage portfolio and the other 120/ is for the consumer finance.

The next slide, slide 17 on the deposits, we hove seen a slight drop in CASA growth on a sequential basis, 1O7; however, the CASA growth YTD is 70/ and also time deposits hove grown 11% since December, so the growth in time deposits on a sequential basis this quarter is more than what we hove seen. If gou recall, in O1the growth in time deposits from December to March was onlg 1%. We hove more growth, 12% of time deposit this quarter, if gou compare it to O1, which, as gou con see on the graph in the center of the page, thot diluted the CASA, the percentage of total deposits being 5O.7% bg end of June. Bg end of March, which O1, this percentage was 53.9o7.

If we moved to slide 1B, which is a little bit of details on the NIM. So we have seen the gross funded income as on amount grown bg B%. It was driven bg 6% to growth in the financing related funded income, and also 24% on the investment side. As gou con see the graph in the bottom left on the net profits margin movements, as mentioned bg the CEO previously, 22 basis points was a contraction on the NIMs from where we were some period lost gear. And clearly this was as a result of the reduction of 55 basis points in the financing gield, even though there were six basis points improvement in the investment gield. However, the drop in the cost of funding has been the elevated liquidity costs we hove seen onlg a drop of 2B basis points from the same period of lost gear. So, the graph in the center here, net profit margin YTD, we closed at 3.52. This is on1B basis point contraction from the full gear NIM of lost gear, which was at 3.7%.

Slide 19 on the fees and other income, the non-funded income, we have seen a verg strong growth during this quarter on sequential basis from O1this gear. The growth in non-gield income was 27O7. This is actually driven bg 220/ growth in net fees from

banking services on a sequential basis, of course, and SBO/ growth in other income. So, the gear-on-gear growth on the non-funded income was 6% from fees from banking services and exchange income was 5%, and the investment gains and dividends remains flat gear-on-gear.

On the next slide, slide number 2O, on the operating expenses, we've seen growth in breaking expenses 1O/ on a sequential basis from O1. If gou recall in O1 the growth was from 04 was 5%. This quarter the growth on a sequential basis for the quarter is 1O/. So if gou look at this gear-on-gear, the growth overall 9% which was driven bg 9% growth in personnel costs and 17% growth in depreciation and amortization, and we have 7O/ growth in other GbAs. So, the growth in overall OPEX 9% which is lower than the growth which we hove mentioned on the top line, has actually increased the cost to income ratio. You con see in the cost to income ratio, if gou recall, we closed the gear December at 5O.9. We closed the first half cost to income ratio 51.6. However, the cost to income ratio for the quarter has dropped actually from where we were when we closed in March, where we closed at 32.2 back in O1, so we hove a 6O basis points drop in the cost to income ratio.

On the next slide, slide 21, on the impairments, this gear the six months charge is less bg B6 million from the same period of lost gear. This is a 15% lower impairment charge for the some period. Cost of risk actually 4 basis points increased from O1; however, we look at the cost of risk back in June 2024 this same period, cost of risk was at 63 basis points. So, we closed the first half at 47 basis points, which is actually a 6O basis points drop.

On the next slide, slide 22, we hove the NPL coverage. We hove seen the NPL has increased bg 2BO/. This is resulting on NPL ratio reaching 101.25O7 Nevertheless, the non-NPL coverage ratio has improved. Back in O1, we were ot156.4%. The coverage ratio as of June 2025 was 173o7.

Also looking into the stage-wise coverage, stage one remains flat at 4O basis points coverage. However, as we mentioned in the coll for the O1 results, we ore working to improve the stage two coverage, which has increased to 114.4 to 116.5. And also, we hove on improvement on stage three coverage thot has reached 7O.4% from

54.B% back in the first quarter.

Looking also in slide 23 on the capitalization and liquidity, the capitalization has improved bg 2O basis points in the total capital, which is tier one and tier two for piller one risks, which was in O1ot1B.3%, so thot's a 2O bps improvement. Thot's also, as mentioned bg the CEO, part of it is because of the S SOO million that wasissued as a capital Instrument during 02. We hove also a 4O basis points improvement in ROE with1BO7 ROE in O1. We closed the quarter, the first half at 1B.4% ROE.

Looking into the prudential ratios, so LCR stands at 123%, which is aligned with the previous periods on average, and remains well above the regulatory minimum of 1OO%. And also we ore operating at B2.5% loan to deposit ratio, which is the regulatory or SAMA LDR ratio, which is well below the regulatory maximum. And also, NSFR remained healthy at 1OB.2%, which, as I mentioned, also was above the regulatory minimum.

On the second section on the outlook and the guidance, on slide 25, we closed the first half of the gear with financing growth at B% to YTD. We're keeping the guidance and change for the full gear as a mid-teens growth for financing. Even elevated liquidity costs which gou hove seen especially in the first half on the cost of funding side where we closed the first half at 22 basis points contraction on the NIMs gear-on-gear, and olsolB basis points contraction from December to compare it to the full gear of 2O24. We ore revising the guidance from previously zero to minus 1O basis points. The new guidance is minus 1O basis points to minus 2O basis points. And in light of that, we ore revising the cost to income ratio guidance, so the guidance will be below 31%. This is revised from the previous guidance, which was SO.5O7. And also the ROE, as a result ROE also of the guidance is being revised to be above 1B.5%. This is revised from the previous guidance for ROE which was above 19%.

Cost of risk remains unchanged. We closed the first half at 47 basis points. Cost of risk, what was mentioned earlier, we ore keeping the cost of risk guidance unchanged SO to 4O basis points. As for as the capitalization for total capital for pillar one, tier one and tier two, we closed the first half at 1B.5 and the guidance is kept unchanged for 1B% to 19%.

With thot, I will end it over back to the operator for the OBA's. Thank gou.

Shobbir Chiro Shobbir Chiro

Thank gou verg much for the presentation. We'll now open the floor for the ObA. If gou would like to ask a question, please raise gour hand. You con also tgpe in gour question in the text box. We'll start the ObA section with the audio questions first.

So, we'll first go to the line of Chiro Kosh. Chiro, gour line should be open. Hi, this is Chiro Kosh. Con gou hear me?

Yes, please go ahead.

So I hove three verg quick questions. So the first one is related to the cost of funding, of course. So, in a scenario of two to three rote cuts, does gour cost of funding improve or the competition is still verg strong for gou to see a NIM improvement? Thot's mg first one.

Second is how, does gour CET1 stand? Would gou be able to sustain these kind of mid-teen level growth, purelg from the CET1 perspective?

And the third one is, again, the project finance growth was relatively softer, like at SOA. Is there a systemic lower demand or it is a strategic decision to stop owag from the segment? These ore mg three questions.

Abdullah Jomeel Chiro Abdullah

As for as the cost of funding, if gou look at the three-month average SIBOR for the first half this gear compared to last gear, it actually went down bg BO to B3 basis points. But the issue here was the demand on liquidity driven bg strong growth on loans has forced the bank to pog well above SIBOR to compete for deposits or have further cuts in rates. Certainly it will help, generally speaking, but it's not the some levels of the cuts of sob two cuts, let's sob SO basis points does not translate, in mg opinion, to a 50 basis point lower cost of funding, because banks ore still paging higher than SIBOR. A little bit some of it was mentioned before, like, I think 27, 2B basis point lower cost of funding, because the SIBOR itself will hove on extreme on SIBOR decline bg B3 - B4 points, so gou can see the gap is obviously lower, a higher decline on interest thot charge our customers.

It's also coupled with the fact thot there is still aggressive pricing in the market for some corporate loans, coupled with higher cost of funding, thot's what forced us to change the outlook. And as we said, all of us promised investors that we're going to continue to report three forecasts before the earning calls and basically report what we as management see going forward.

As for as CET1, we're fullg aware that we're magbe operating below markets average. However, as mentioned before, we keep getting this issue again and again. The issue is that one of the tools that we can obviously do is reduce the dividends pogout. We haven't done it get. We don't see on urgent need to do it, but thot's one of the tools. And ultimately going for rights issue, it's olwags a possibility. We're not planning to do it, but thot's one of the other options.

Now, on project finance, and I think I quickly mentioned magbe Jomeel is our Chief Corporate head, Jomeel, do gou wont to comment -

Yes. In this regard, ges, mogbe there was soft growth, due to the competition, but we ore verg selective on deals thot ore priced well. However, we ore catching up and we ore positive about the continuing growth as projected before.

So the demand is there. It was a strategic decision, if I con summarize?

It's more a timing of projects. I think recently there hove been significant size of project finance thot's been approved, and we're going to see much stronger growth on the second half.

Chiro Abdullah Shobbir Noresh Abdullah

Thot's all from mg side. Verg clear. Thank gou verg much. Sure.

Thanks. Now we'll move to the next question. This is from the line of Noresh Bilondoni. Noresh, gour line should be open. Please go ahead.

Yes. Hi. Thank gou verg much. It's Noresh Bilondoni from Jefferies. Thanks a lot for the presentation. I hove three questions, please.

Mg first question is on the operating environment. So across the board, in the sector, we've seen pressure come through on the NIMS, led bg funding costs and definitely EL's not compensating due to competitive pressures, as gou indicated in the replg to the previous question. But as is also visible in gour numbers, we're not seeing ong notable slowdown in credit origination. I mean, even gour guidance, gou're maintaining a mid-teens guidance even though the revenue is going to be softer probably for the rest of the gear. Do gou believe this phenomenon of growth, despite tight spread, is likelg to continue into the next gear given the market structure or the opportunity in the industry? Or, do gou believe the industry participants could eventually start opting towards a lower growth option to conserve the spreads? I'm just keen to understand how do gou see the situation, which is kind of unique in this Saudi market right now pan out begond sort of like the gear 2O25, at this stage. So thot's the first question.

The second question I had was on CET1. In addition to the answer thot gou offered to the previous question, is there a level of CET1 thot gou're planning to maintain through the medium term? I think the level thot we saw at the end of lost gear was 13.2%. In context of thot level, what would be the level thot gou would opt to maintain over the medium term? Thot's the second question.

And mg third and final question is, we've seen recently changes to the credit cards thot were promulgated bg the regulator in June. Do gou believe these charge changes ore going to be meaningful enough to put a pressure on fees in ong form in the second half of the gear, also keeping in context thot the brokerage volumes ore relatively sluggish at this stage across the industry? Thank gou.

Thank gou. I think in terms of rote environment, certainly there is a pressure on liquidity. There is also competition on pricing. However, I think in terms of the bank's ability to continue to grow, there is certainly capacity, whether one is liquidity, the other one is capital adequacy. You must have heard in the news thot the regulator come up with countercgclicol addition to the CAR of 1OO basis points. So, thot mog hove a bit of slower growth, but I don't think the growth will be going down to single digits in the industry. I think we'll see multiple gears of still double digits in terms of

loan growth, the demand is strong, and thot's the core business for banks. And despite mogbe lower NIMs, the fact thot gou're adding volume. When gou look at cost of funding for banks, because the fact that theg hove significant CASA balances in their books, their true cost of funding is not actually SIBOR. It's below. So in our case, I think it's below 3% in terms of cost of funding. So, when gou learn thot SIBOR, the 1OO to 9O basis points still odds portlg to the bottom line. Yes, it mog have contractual bit contractual on NIMs, but the volume impact should be more than offset that.

On the CET1, we don't reollg hove a specific targeted level. I think we see the level currently is comfortable. Will it decline further? Certainly there's a possibility. But as I mentioned, we certainly wont to see this double digits. We wont to make sure it never goes to single digits. But it does not mean that our target is 1O%. It could be obviously higher, but we'll see. What I said on this periodically, we don't hove a specific target, or the credit cord changes, Adel?

Adel

Noresh

Adel Noresh Shobbir

Murad

I can take the credit cord port, so the recent regulation, as gou know, come to impact recently, and as gou mogbe hove seen the news public actually thot specified some of the fees for banks, what theg can charge as on issuer. We did the assessment, and we think the impact is immaterial, especially when gou think about the advantage from the point of view thot also it might increase the acquiring port. So, the lower fees could also trigger more utilization for the acquiring business. So, we did the assessment. It's not reollg material. And some of the fees actually just put there for banks, just to specify the rote, because it will not be led to banks to charge more or less, right, just to be unified among banks. But ges, we did the assessment and it's not reollg material.

Thank gou so much. I appreciate it. Just one final, small follow up. Could gou just clarify what is the level of CET1 for the second quarter?

13.2%.

Thank gou so much.

Thank gou. We'll now move to the next question. This is from the line of Murad Ansari. Murad, gour line should be open. Please go ahead.

Yes. Heg everyone, thanks for the presentation. So, on the asset quality, gou've mode significant improvement on stage three coverage in particular. I just wanted to get a sense of has there been a reduction in gour stage three loan balances we sow a pick up in the lost quarter? So, I wanted to get a bit more insight on how it's evolved over the last quarter.

Secondly, on NIMS, just on the rate cuts that hove come through, is the book largely now reflecting those rote cuts? Do gou see further repricing possibility, downward repricing possibility over there?

And third is on loan growth. So gou've had a good first half, BO/ gear to date, gour guidance is for about a mid-teen, so about a 15%, 16% growth would mean on additional about 16 billion to 17 billion growth in absolute terms, which is similar to what gour first half absolute expansion has been in the loan book. But Mr. Abdullah, eorlg on the call, gou said gou're expecting second half to be much stronger, so just wanted to get a sense is there on upside risk on thot loan growth guidance to being higher teens?

And lostlg, on fee income, a good quarter. Are there ong kind of one-offs over there? Just some insight on what ore the keg drivers for this pickup thot we've seen in the free income. Thank gou.

Adel

I con take magbe the two questions on stage three, and also mogbe the fees. So, on the fees, the growth in 02 was strong on a sequential basis, thot 27%. So, the 22% growth from O1 actually was moinlg on the banking services fees. We have seen 3B% growth in the other income thot is port of the Non-YeiId. So, if we look at the fees from banking services for 02, we hove seen improvement across mong metrics.

We hove seen the improvement on the point of sole business. We hove seen a pickup versus what gou hove seen in O1 and even 04 where there was a drop from

03. And also, we have seen a good improvement on the level of fees we are getting as port of the assets management thot is being done bg our Alinmo Capitol, which is our investment arm.

We have seen also slight drop in the cords related expenses, but also there was a big improvement coming from the cords business thot would be linked in one bar to the improvement thot we hove done in the operating model with some of the international schemes that provides the credit card services, but also the utilization of cords, which resulted in more interchange income. So collectively, this translated into the 02 result.

And also on the other income, not specifically the fees from banking services, we also hove seen a pickup from O1 of 6O/ growth in our tax income given the volume thot has been transacted. And also, we have seen a decent growth in gains and dividends from those investments thot ore held at fair value for income statement. We have seen also some growth in dividends for some investments and for fair value through other comprehensive income. Also there was small increase on the overall other income as well.

But magbe back to stage three, stage three as a movement, we haven't seen ang significant movement in stage three during the quarter, as for as certain accounts thot bg model will be usually get staged into stage three. And clearly, there will be stage two before. I think what is more meaningful to us, look at the stage coverage itself, which has improved significantly from the previous quarter, coverage was around 55%. As I mentioned in mg slides, we ore now at 75%, which is slightly higher than what gou would see at the rise in the market.

Abdullah

Murad

Shobbir

Mehmet Shobbir Mehmet

And also on the NIMs, as I said, everg time we do the reforecosting which accelerates the forward gield curve from the markets, we don't build our own gield curve, we just take whatever the markets at thot time believes, so that's already token to consideration. Now the loan growth we had a slow start on compare gear-on-gear growth on project finance. But recently, there hove been significant amounts of projects being approved, and we're going to see stronger growth and project finance in the second half. As mentioned bg Adel, 33% of the total portfolio is actually project finance. You con imagine thot the growth rote accelerated as a percentage has a bigger impact on the overall portfolio growth. And we're going to continue to grow strongly in the areas of SME, mid corporotes, as well as good growth, verg strong growth on the retail side.

Thank gou so much.

Thank gou, Murad. The next question is from the line of Mehmet. Mehmet, gour line should be open. Please go ahead.

Good evening. Thanks verg much for taking mg question. I have just two follow up questions on capital, please, if I mog. So firstly, gou had executed some RWA optimization measures in the first quarter, and back then it was, I think, on the back of eligible collateral. I'm just wondering if gou've token ong specific measures this quarter, in the second quarter, and if there are ang other pockets of optimization possible going forward?

And secondly, just the clarification on the increase in the countercgclical buffer requirement bg SAMA, I remember from our previous conversations thot there were still some clarifications needed, whether it be CET1 or total capital in terms of the increase in the requirement. So, could gou please clarify whether this will be filled through CET1 or is it seen from a total capital perspective? Thanks verg much.

Would gou mind repeating gour question again, please?

Oh, ges, absolutely. I was just wondering if there ore ong RWA optimization measures that gou took in the second quarter similar to the first one? And if there ore ong other pockets of optimization thot gou see thot gou con take going forward?

Adel Mehmet

Shobbir

Rohul Adel

Oh, now clear. As gou rightly said, during O1 the risk density is positively impacted. The optimization is actually on ongoing exercise. So, during O1 like gou mentioned, we mentioned before that there was certain liquidity legible collateral thot we started now to take into account. Nothing reollg specific to 02; however, the overall optimization process, the risk weighted assets, is on ongoing exercise. But I wouldn't sob thot it's something purelg specific for 02.

On the CTYB, the countercgclicol buffer, the circular thot come out from the regulator, which I believe is public, thot thecountercgclicol buffer will be moved from zero to 1%, so from zero to 1OO basis points, and thot, as mentioned in the circular itself, thot it's going to be of the total risk weighted assets, so thot will be the requirements all and above the overall capital requirements.

Okog, thot's verg clear. Thank gou verg much, Adel. I appreciate it.

We'll move to the next question. This is from the line of Rohul. Rohul, gour line should be open. Please go ahead.

Thank gou for the presentation. A couple of questions from mg end. Firstly, on the NIM guidance, gou hove sort of downgraded the NIM guidance. We ore minus 1B basis points gear to dote and the guidance of 10 to 20 basis points implies thot gou either see a flat NIM through the gear end or on improvement in the NIM. So, what is driving this NIM? Like how mong rote cuts do gou factor in, number one? And assuming no rate cuts further from gou, how do gou see NIM panning out? Thot is number one.

And secondly, on the cost of risk perspective, again given gour coverage ratio has increased while net gour NPL hasn't increased, ore gou expecting the coverage to increase further from here, or do gou expect NPLs to go up? Thot would be helpful.

And sorrg, one last question. On the loan growth perspective, the lost three quarters we hove seen thot Alinma sort of grew either at the market or slightly slower than the market, whereas this quarter, again, gou've started to grow foster. So, gou mentioned project finance, but apart from that, could gou odd more color on thot, or is it thot gou would be clearly focusing on growth over profitability? Thank gou.

So I'll take the first point on the NIMs. So as mentioned bg our CEO earlier on, on the answer to the previous question, everg quarter we reollg take the portfolio composition and the profile of the liabilities along with the expected growth on the assets, and also the latest gield curve thot we hove with the assumptions of the CASA growth as well. And we do thot actively and also before ong call, we olwogs

run our forecast for the full gear, given also how the NIMs hove performed in the last previous quarters.

So, looking into the gield curve in the market now, the assumptions ore two rote cuts; one end of the gear, other will be magbe a cut somewhere in December. Todag, there is a meeting with probability thot mogbe thot gield curve thot we hove used, thot there might be no cuts. So, I think if we keep rates flat, and where the NIMs will move, that would again be reallg heavily reliant on where the also elevated liquidity cost will be from now until the end. And we have seen thot in the first half.

Mogbe in the other port related cost of risk is because the risk was increased, even though NPLs is not reollg clear theg increased at least on a sequential basis. I hove seen on improvement on the coverage ratio itself, and this was a driver also from what I mentioned on our prudence to olwogs hove stage two coverage viewed in the market, and also to hove a better stage three coverage thot has also dropped in the lost two quarters as gou con see. As we mentioned, we'll alwags be hoppg to be around 15O% on coverage ratio. We'll never lose its if thot goes above, but thot's also port of the prudence managing the coverage ratio itself.

Abdullah Mehmet Shobbir Mozomil Abdullah Mozomil

I think in the long run, gou mentioned thot it's true thot we had this problem of growth in the second quarter versus first quarter. I keep mentioning thot slow gear-on-gear growth on the project finance wise, we had strong project growth on SME, on retail, on mid corporotes and large corporotes. I forgot to mention large corporotes, we had good growth in the second quarter. These ore the main drivers for the growth thot we've seen in the second quarter.

Thank gou.

Thank gou. We'll move to the next audio question in the queue. This is from the line of Mozomil. Please go ahead. Mozomil, con gou hear us?

Okog, so this is Mozomil from Axios Research. I hove just one question. Con gou tell me what are the spreads gou ore making on gour corporate loan portfolio, combined with SME portfolio? And if theg ore already low, what will be the strategy thot gou will offer the loan to the customers, given the rates are already verg competitive? Thank gou.

Honestly, I didn't get the question. Con gou repeat thot? Please?

Sure. I was soging that gour spreads on the corporate loan portfolio combined with SME portfolio, what ore these spreads? And if theg ore low, then what will be the bank's strategy to catch a customer from the market which was already getting lower rates on the financing? Thank gou.

Abdullah Mozomil

Shobbir

Tolol Abdullah Tolol Shobbir Adel

Okog, obviously I did mention in the beginning, I think it was a question about loan growth. Certainly, we've seen some aggressive pricing for certain customers. We had to compete, but we don't go aggressive on pricing. But then if gou don't compete, gou lose significant market share, so we did adjust some pricing lower, but not to the level thot we heard some clients ore getting outside. We let go of some clients if the rate is reollg uncompetitive for us to participate to that level.

We're focusing on project finance, mid corporotes, SME, retail provides good rates, and we're verg selective in large corporate, but we're verg successful second quarter in terms of growing large corporotes. Thot's whg I think over the lost few gears thot's the first time we've seen our loan growth was below the industry average, and then the first half this gear. We do wont to be aggressive on loan pricing.

Okog, thank gou. Thot was just a question from mg side.

Thank gou. I'll move to the next question in the queue. This is from Tolol. Tolol, please go ahead. Your line is open now.

Thank gou, management, for the presentation. Just one question from mg end, regarding asset gields. Just if gou con elaborate a little bit about the segments or from where gou see a sharp decline in the asset gield? During this quarter, we have seen some banks expanded their asset gield. Con gou sob what sector or segment hove been ong decrease in Third quarter? Thank gou.

I think thot in terms of the segments that gou see in terms of top compensation, in terms of pricing, has been the large corporotes. We start feeling it in project finance to a certain extent, but mid corporotes also facing some aggressive pricing, but not to the level thot gou see in large corporotes.

Thot's clear. Thank gou.

Okog, we don't have ang audio questions, so mogbe I'll move to one of the questions in the chat box. The nome is not clear to me, but it basically asks for gour NIM sensitivity of 25 basis points cut in US rates.

So on the NIM sensitivity, again, the latest sensitivity we hove did not gain move much. We've seen this in O1 which we communicated thot around 1.6 to 1.7 basis points drop for everg 25 basis points cuts. But as usual, Shobbir decides to be olwogs qualified thot this is reollg a point in time sensitivity, because this is subject to mong factors and remains theoretical as gou move one dog ahead, and then he changes to the overall balance sheets composition, or other than gour growth assumptions this could alwags change, but did not change as a sensitivity from

what was communicated back somewhere in O1. It just was like port of the basis points drop, which remains almost the some.

Shobbir Abdullah Adel

Great. Mogbe I can add a couple of questions here. First one is on gour deposit growth. I think about 5% quarter over quarter ahead of the sector growth, should we see this as basically building liquidity anticipation of stronger loan growth in the second half of this gear? Thot's number one.

Number two, I know gou've discussed this point earlier in some of the questions, but when we talk about the countercgclicol buffer of 1OO basis points, is this going to be applied uniformly across all the banks, or it will be dependent on the growth outlook or the historical growth rates? And related to thot, it wasn't immediately clear to me based on gour answer if additional tier one capital and tier two capital con also be used to cover for this additional countercgclicol buffer?

And mg third question on the capital side, gou were quite clear thot in 20 there was no RWA optimization as such. But I was wondering if there are other pockets of opportunities for gou in terms of asset soles, etc., which could help gou generate some extra capital thot can be used for these capital requirements? So those questions, please. Thank gou.

Thank gou. I'll cover the first point, and leave the others to Adel. In terms of deposit growth, as I mentioned, and it's known in the market thot liquidity is a bit tight in the market. The future growth in loans is strong. The demand in loans is strong. So, we do all our efforts to basically bring up whatever liquidity thot we con find at a reasonable price. We've been verg successful in growing our CASA. We're successful in on boarding new relationships, whether in government, corporotes, affluent, privates, and also new segments and large segments and so on. So, this is all helping whatever department we see reasonable rates, we take it.

Certainly, I mentioned I expect stronger growth on second half on project five and continue our strong growth on other sectors. So certainly, thot's going to help us maintain thot level of growth.

On the question relating to the CGYB and the countercgclicol buffer, this circular is already public and con still find it in this regulator website. It's basically zero to 100, zero to 1% which, as I mentioned, 1OO% of total risk weighted assets. So thot suggests thot it's both for the total capital, as I mentioned, including Tier 2 sukuk.

Is this unified for all banks? Our understanding is this circular was sent to all banks and not specific to certain banks.

On the risk weighted assets, as I mentioned, the optimization is on ongoing exercise, honestly. Was there anything specific this quarter versus last quarter? Not reollg.

However, going forward, as I mentioned, this is an exercise thot there is alwags tools. One of them gou directly mentioned could be the sole of certain mortgages to SRC. We would be also active going forward to optimize the risks weighted assets, of course, in order to aim to reduce the risk density for the overall.

Shobbir

Arwo

Shobbir Abdullah Shobbir Adel

Shobbir

Arwo

Shobbir

Great. Mogbe a last question from our side. [Talking in the background] There was some news around, Is it better now?

Yes, it's clear. Go ahead.

Just one question from mg side. There has been some news about, for instance, the most recent one is about the PIF reevoluoting some of the NEOM projects. And it's interesting thot gou mentioned that gou've seen a good pipeline going into the second half. So, it's verg encouraging to see thot the pipeline is still looking good. But I think in terms of gour industry focus, in terms of gour project focus, what is thot pipeline being driven bg? And has these reprioritization activities not affected gou?

We're still getting this interference from another line.

In terms of project five, there has been multiple focus. One of the strong areas of growth for us has been the renewables, significant amounts of solar stations been awarded and needed finance, as well as other projects in the country, moinlg in the infrastructure. And, of course, all the companies thot been set up bg PIF is also in the market for finance.

Got it. There's one question from Fatima AlDoseri in the chat box. "What led to the increase in NPL loans? Ang specific sector or industry?"

So, the increase in NPL did not happen this quarter. If gou go back to the last two, three quarters, this is where we started to see the pickup. If gou recall, we did sizable write offs actually in the first half of lost gear. It was even higher than the historical averages of the write-offs. And, of course, the accounting write offs thot we do directly impact delivery of NPL's as on amount in the books, and also hove a reflection on the NPL as a percentage, so it's not reallg growing as mogbe the base was low, if gou compare it to the 02 or mogbe a O1 or end of lost gear.

Thank gou. We hove one audio question. Do gou hove a few minutes to take thot

question, please?

Thot's okog. Shobbir.

This question is from the line of Yosir. Yasir, gour line should be open. Please go

ahead.

Yosir

Adel Yosir Adel

Yosir

Shobbir Arwo Shobbir

This is Yosir [indiscernible 59:OO] Company. I hove one question regarding the asset gield and cost of funding. If we ore taking the previous data thot gou shared in the first half in 2024, the asset gield stood around 6.9. If we odd six basis point, we ore talking about approximately 70/ in the asset gield side. In terms of the cost of rate or funding side, 3.2 up to 3.5 we ore talking about 2B basis points and come up with a NIM of 3.5. So mg question is, do gou have ang plan to increase CASA ratio through the remainder of the gear?

I mean, of course, CASA is olwogs a focus for the bank. If gou look back at the history, we hove reollg seen strong growth in CASA specifically. If gou see this quarter now 1% drop, it's onlg six months, and we already hove seen a 7% growth in CASA. It's also compared to double digit growth that we hove seen lost gear and the gear before. So ges, it will continue to be a focus. And, of course, it's not onlg the current accounts, but also even the saving accounts we ore seeing a growth there, and also what goes into that at other accounts. So, of course, given when we ore on the environment and the elevated liquidity cost and the cost of funding, it's actually more important than ever, so it's the focus. Of course it's the focus going forward.

Okog, so could gou please give us a guidance in terms of how do gou see the cost of funding in the full gear?

I'm afraid we don't reollg guide on regarding the cost of funding itself specifically, or mogbe the growth gield itself. However, as we mentioned, our NIM guidance is for the full gear. If gou recall, it was 3.7% for the full gear. Now we just provide the guidance to be minus 1O basis points to minus 2O basis points.

Okog, clear. Thank gou.

All right, I think that concludes the ODA section of the call. I'll now hand it back to the management for ong concluding remarks.

Thank gou, Shobbir, for hosting the call, and thank gou everyone for gour time. If gou hove ong follow-up questions, please contact us as at our email and have a great dog.

Thank gou everyone for joining the call. Have a nice evening.