So, good morning, good afternoon to everyone. This is Rahul Bajaj from the Citi research team in Dubai. I welcome you all to Abu Dhabi Commercial Bank's first half 2025, second quarter 2025 earnings presentation and call. At this time, without further delay, I would like to pass on the call to Harsh, to take it forward. Over to you, Harsh.
Thank you, Rahul. Good day, ladies and gentlemen. Welcome to this call on ADCB's second quarter 2025 financial results. We will be referring to our earnings presentation, which is available on the investor relations section of our website. I'm joined today by Deepak, Group CFO, Keating, Group CRO, Robert Miller, Group Treasurer, and Dr. Monica Malik, our Chief Economist. We'll walk through the key highlights before opening the floor for questions. I now hand over to Deepak. Begin from slide five.
Thank you, Harsh, and good afternoon, everyone. I'm pleased to report that ADCB delivered an exceptional underlying performance across all core businesses in the second quarter through disciplined execution of our new five-year strategy. The bank is driving meaningful value creation through strong growth in diversified revenue streams, broad-based balance sheet expansion, and substantial efficiency gains. Second quarter profit before tax increased 17% year on year to over AED 3 billion, extending the bank's track record of consecutive quarterly growth to four years. The first half profit before tax rose 18% year on year to AED 5.9 billion. On a post-tax basis, net profit was AED 2.6 billion in the quarter and AED 5 billion in the first half, delivering a return on average equity of 14.9% and 14.1%, respectively.
Please note that the applied tax rate for the first half reflects the 15% domestic minimum top-up tax in the UAE effective 1st of January 2025. However, the group is assessing its eligibility for the initial phase of internal activity exclusion, IAE, which reduced the statutory tax rate to 9%. The group anticipates completing its evaluation of the IAE by quarter ending 30th September 2025, and any resulting adjustments will be reflected in income expense in the period in which the assessment is finalized. The new credit pipeline remains robust, and net loans increased by AED 28 billion, or 8%, during the first half. Meanwhile, AED 42 billion, or 10% year to date, with CASA accounting for half of total net inflows. Across core businesses, the bank is introducing sophisticated product and service offerings to attract new customers, deepen banking relationships, and open up new income streams.
Fee income on assets under management has increased 35% for retail banking and 58% for private banking over the past year. ADCB has also further reinforced its position in regional capital markets, acting as joint lead manager and book runner on several landmark transactions during the second quarter. In this context, non-interest income has become a key driver of growth, increasing 36% year on year for the first half. One of the bank's notable achievements is the delivery of strict cost discipline and digitizing productivity gains while generating a good base of top-line growth. This has improved the cost-to-income ratio to an all-time quarterly low of 26.4% in quarter two, a reduction of 620 basis points year on year. On slide six, you will see that the bank delivered increased profitability in the first half. Operating income increased 15% year on year to AED 10.7 billion.
Costs came broadly in line with the previous year, while the bank continued to invest in new lines of business, products, geographies, and AI technology to drive future growth and efficiencies. This strong core performance was reflected in a year-on-year increase in operating profit to AED 7.8 billion. Turning to slide seven, the income statement shows strong growth momentum in the second quarter. The bank recorded 16 quarters of consecutive growth in profit before tax to reach AED 3 billion in quarter two. Operating profit was up 33% year on year and 19% quarter on quarter at AED 4.2 billion. I would like to address the increase in impairment charges. This rise in second quarter primarily relates to the legacy corporate accounts, and it is not reflective of the broader credit environment or the quality of our loan book.
We maintain full-year and five-year cost of risk guidance at below 60 basis points. We see low formation of new NPLs. Our NPL ratio is at historically low levels, with a strong provision coverage. We're pleased with the recovery and the steady decline of the TOKI portfolio, which now stands at just AED 658 million from a high of AED 4.3 billion five years ago and down from AED 942 million in 2024. The bank maintains a disciplined and proactive approach to risk management that aligns with the UAE Central Bank's enhanced credit risk standards while continuing to maintain high coverage ratios from overall credit metrics. Turning to slide eight, net interest income of AED 3.7 billion in quarter two increased 8% quarter on quarter and 12% year on year, with higher volumes partially offsetting the impact of the three interest rate cuts since September 2024.
Net interest margin was 2.49% in quarter two, in line with the quarter and a 14 basis points year on year due to the lower rate environment. As you can see from the slide, the risk-adjusted NIM decline on a sequential basis. This was primarily driven by the higher impairment charge in quarter two. Turning to slide nine, the bank's growth is characterized by increasingly diversified revenue streams, with non-interest income accounting for 34% of total operating income in the first half, up 29% a year earlier. In the second quarter, non-interest income surged 44% year on year and 28% sequentially to reach AED 2.1 billion. This growth was broad-based. We saw a strong performance during the quarter in net fees and commission income, which was up 13% sequentially and 15% year on year, with a significant rise in card-related and loan processing fees.
Meanwhile, Q2 net trading income saw a particularly sharp rise, up 56% quarter on quarter and 82% year on year, driven by higher gains in the foreign exchange and trading securities. Other operating income increased 14% sequentially and 83% year on year, primarily driven by gains from sale of loans. On slide 10, ADCB is achieving positive jaws with an outstanding improvement in cost-to-income ratio, which came down to an all-time quarterly low of 26.4% in quarter two. The strong momentum in top-line growth, with second quarter operating income up 22% year on year, while operating expenses reduced 1% to AED 1.5 billion. This resulted in a significant decline in the quarter two cost-to-income ratio of 620 basis points year on year and 288 basis points sequentially.
With regard to this efficiency trajectory, we regard the efficiency trajectory as sustainable, as it is driven by a combination of strict cost discipline and productivity gains from our digital and AI transformation program, which will continue to gather pace. Please turn to slide 11. The bank's balance sheet continues to grow steadily amid healthy consumer and business confidence and ample system liquidity. Total assets increased 17% year on year and 10% year to date to reach AED 719 billion at June end. ADCB maintains a strong liquidity position with a liquidity coverage ratio of 135.2%, a liquidity ratio of 33.3%, and a loan-to-deposit ratio of 81.7% as of 30th June 2025. On slide 12, ADCB is achieving broad-based credit growth, supporting diverse sectors of the UAE and regional economy. The bank extended AED 72 billion in new credit during the first half.
Key areas of growth included energy, trade, financial institutions, sport, and communication. Government-related entities comprised 24% of gross loans. Real estate investment represented 13%, while personal loans accounted for 19%. Geographically, our loan book is well diversified, with Abu Dhabi accounting for 51%, Dubai 21%, and other Emirates 5%. Our exposure outside the UAE stood at 23% as the corporate and investment banking group continued to support clients operating across the region and internationally. I will now hand over to Robert to discuss the investment portfolio, customer deposits, and capital position.
Thank you, Deepak. Let's turn to slide number 13. The investment securities stood at 154 billion AED. That's up 16% year on year and 7% year to date, with 99% invested in govs. The growth of the portfolio aligned with balance sheet growth. The securities were 57% accounted for at amortized cost and 43% at fair value through other comprehensive income and marked to market on a daily basis. Portfolio is stable in terms of composition and rate. Moving to slide number 14. As mentioned earlier, ADCB's strong franchise is attracting substantial inflows of customer deposits, which rose by 10%, or 42 billion AED in the first half, to 463 billion AED. Current and savings account deposits, CASA, increased by 11%, or 21 billion AED during the first half, driven by both the retail banking and corporate investment banking businesses.
This CASA growth is supporting the lower cost of funds for the bank. Given our healthy credit pipeline, we continue to expand and diversify the wholesale funding base, leveraging ADCB's strong standing in the international capital markets. In May, we issued our second five-year senior bond of this year, $600 million issuance priced at SOFR less than 100 basis points, which was tighter than our February transaction. The transaction attracted strong demand from Asian investors, with a total order book exceeding $900 million. If you turn to slide number 15, the pace of loan growth reflects the bank's strong franchise and robust demand across a broad range of economic sectors. We are well positioned to support this growth while maintaining capital ratios above regulatory requirements, backed by strong bank earnings and disciplined balance sheet management.
Our standing in international capital markets also provides access to wholesale funding and capital arrangement, as demonstrated by the two successful wholesale issuance this year and issuance of 81 and 22 instruments in 2023 and 2024, respectively. As of 30th June 2025, the bank's Basel III capital adequacy ratio was 15.53%, and the CET1 ratio stood at 12.21%. I will now hand over to Paul to discuss asset quality and security.
Thank you, Robert. Turning to slide 16. The past five years, ADCB has delivered accelerated loan growth of 10% CAGR, underpinned by a disciplined approach to risk management. This has ensured the bank remains resilient and well aligned with the central bank's evolving credit risk management standards. As Deepak highlighted earlier, the bank recorded an impairment charge of AED 1.2 billion in the second quarter that stemmed largely from legacy corporate accounts. While this impacted the quarterly trend, the overall credit profile remained strong and of high quality. The bank maintains its full year and five-year cost of risk guidance at below 60 basis points. The bank's NPL ratio has continued to improve and was 2.02% as of June, down from 3.04% at the end of 2024. The provision ratio rose to 173.1%, up from 110% at December end.
Including collateral held, the coverage ratio stood at 279%, compared to 188% at the end. Moving to slide 17 for updates on Al Hilal and ADCB Egypt. Al Hilal Bank continues to advance its digital-first strategy in 2025, launching new features to drive greater self-service adoption and deepen digital engagement. The bank remains focused on expanding its customer base, growing deposits, and accelerating the transition to a fully digital service model. Turning to ADCB Egypt, the bank delivered another strong performance in the second quarter, underpinned by robust growth across a range of key indicators. Based on IFRS, the net profit for the first half rose 39% year on year to EGP 2.61 billion, delivering a return on equity of 38%.
Net loans increased 24% year to date to EGP 65 billion as of the 30th of June, 2025, while total deposits grew 14% over the same period to EGP 133 billion. ADCB Egypt also continued to expand its digital capabilities, launching new mobile app features and increasing transfer limits to enhance customer convenience and engagement. The bank participated in several major syndicated loan transactions during the quarter, with a focus on the real estate sector. I'll now hand back to Deepak to discuss ESG, digital and AI updates and a closer on presentation.
Thank you, Paul. On slides 19 and 20, we look at how ADCB is delivering growth through the accelerated rollout of digital and AI initiatives to increase the customer base, enhance access to products and services, and build a broad partnership ecosystem. During the quarter, the group onboarded over 68,000 new retail customers, with 62% acquired through digital channels. Meanwhile, automation continues to support scalability of ADCB's offering, with 97% of retail financial transactions conducted via self-service in quarter two. Digital sales of cards reached a record monthly high during the quarter. As an example of how we are incorporating artificial intelligence into our platforms, the bank introduced a new AI engine to the digital credit card journey that personalizes the offering and enables accelerated straight-through processing. For corporate clients, we continue to enhance digital capabilities across cash management and trade finance, which are both key drivers of fee income growth.
The bank has also launched a new digital platform that onboards SMEs within 10 minutes, enabling rapid processing for core services. ADCB was the first bank to be certified on the UAE Central Bank's new Open Finance Platform, launched under the Financial Infrastructure Transformation Program. We have already completed the platform's first transaction and are actively working with fintechs and startups to deliver innovative new solutions. Please refer to Slide 21. ADCB continues to make solid progress on its climate strategy, with the bank's first Net-Zero Banking Alliance targets for key sectors on track to be disclosed later this year. ADCB's Bloomberg ESG score improved significantly during the quarter from 3.25 to 5.91, making us the highest-rated bank in the region. In parallel, recent Bloomberg data shows that ADCB is held by more EU Article 8 and Article 9 funds than any of its major regional peers.
Also in Q2, ADCB Egypt published its latest sustainability and carbon footprint report, showcasing significant progress on its ESG priorities and disclosures. Turning to slide 23 and the operating environment, we remain positive on the UAE's macro fundamentals, which we feel will continue to support positive business and consumer confidence. UAE PMI data remained in strong expansionary territory in 2025, driven by a supportive domestic demand backdrop. Liquidity in the UAE banking system is comfortable, with the expansion in gross deposits continuing to outpace credit growth. The headline loan-to-deposit ratio stood at a very comfortable 76.3% as of March end. ADCB is well positioned to capitalize on growth opportunities in the UAE and wider region while navigating global uncertainty, supported by a strong balance sheet, high-quality loan books, and diversified income streams.
Before we open up questions, I will conclude with some final remarks on slide 24, where you will also see our five-year guidance. New credit momentum remains strong, and the bank is capturing significant growth in non-interest income, expanded suite of products, and services beyond core financing. The marked improvement in our cost-to-income ratio is a key highlight, and we will continue driving efficiencies through our digital and AI-led transformation. We remain focused on sustainable growth through disciplined capital deployment and prudent risk management. As you can see, the bank is delivering strong and consistent underlying performance. Considerable progress ADCB has made over the last year has been reflected in 12-month TSR, total shareholder return of 75%. With market capitalization recently surpassing the AED 100 billion dirham milestone, we remain fully committed to creating significant further value in the coming period and delivering on our five-year guidance.
Thank you again for your continued engagement with ADCB. We will now open the floor to questions.
We will now move into our Q&A session. For those of you who are joining us via Zoom, if you'd like to ask a question at this time, please raise your hand by clicking the raise hand at the bottom of your Zoom window under the reactions button. Once called upon, please unmute your audio and ask your question. If you have joined via a phone line, please press star nine to raise your hand. Thank you. We will now wait for the queue to form. Okay. Our first question will come from Shabir Malik. Please unmute your line and ask your question.
Hi, good afternoon. Can you hear me?
Yes, Shabir.
Great. Thank you very much. Congratulations on a good set of results. I have a couple of questions, please. Can you please quantify any one-offs as such in your second quarter numbers? There are certain items that have been unusually high. For instance, the provisioning number. Do you reckon this is going to be more of a one-off impact? And the other area, especially non-interest income where other income was quite high relative to history. And also on the NII line, where we've seen some expansion in margins this quarter. So I just want to make sure that there are any one-offs those can be identified. My second question is your comments around tax rate. You mentioned you're conducting your study, and based on that, you expect, I guess, a potential change in the tax rate in the coming quarters.
I just want to understand, would that lead to a lower tax rate than what it has been in the first half, or it could mean a potentially similar level of tax rate or potentially higher level going forward? And my third question is on your capital position. I think your CET1 ratio has come down to 12.2%. I just want to get your views or thoughts on how do you feel about your capital position. And is there any countercyclical buffer requirements, which I think I've noticed in one of the other banks that they've said it's going to come through by the end of this year? Are there any countercyclical buffer additions that you're anticipating in the coming period? Thank you.
Thank you, Shabir. In terms, let me take your first question, one-offs. Yeah, there have been a couple of them. Like I mentioned, on the impairment line, we took impairment on certain legacy corporate accounts based on the developments we saw on those accounts. So that is an unusual charge that we took in Q2, and as I also mentioned, we maintain our cost of risk guidance to below 60 basis points, so therefore, the second quarter should be slightly lower than the first half, or the second half should be lower than the first half. On the non-interest income side, in the other operating income, we did have some gains from trading securities and sale of loans. Trading securities is actually not a one-off.
It's a normal line of business, but we have some gains on sale of loans, which are not repeated every quarter, but we would still have those coming through. The quantum and the timing of that is difficult to quantify. So that's the piece on that. Fee and commission income is pretty standard. Net trading income is also standard by its very nature. It is volatile, and depending on market opportunities, you could see some volatility in that line. On the net interest income line, there aren't any one-offs. And on the tax rate, so the tax rate today is 15%, and we have provided for 15% in the first half, Q1 and Q2.
However, in the rules, there is also what is known as the safe harbor, let's say, rules, which grants an exemption for entities that have a presence in less than six countries and a tangible asset of less than EUR 50 million to be at 9%. And so that's the piece of exercise we're completing, and we hope to complete that. And should that be completed, the rate could go down to 9%. This exclusion is available for five years, provided you comply with those requirements for each of those five years. So we will see as we go along. And if we go down to 9%, yes, there will be a reversal of tax charge that we took in the first half, in the second half, and continue at 9%. And on the capital position, yes, it's at 12.2%.
We are looking at various ways to both shore up both leverage capital and on the demand side and maximize the use of RWA. That is something we're working on. On the countercyclical capital buffer, Paul, do you want to comment on that? I think it's something that the central bank is looking at across the industry. It's not specific to ourselves. Obviously, it will vary depending on the nature of the exposure and the nature of your loan book as to inside the UAE and outside the UAE.
Good. So just on a clarification on the tax, so the tax rate can potentially go down to 9% with this exercise, or it's just a certain part of the business which is going to attract 9% tax rate?
No, it'll go down to 9%. Sorry, it'll go down to 9% for the UAE operations. And operations outside the UAE, like Egypt and KSA, etc., will follow their rates of tax. So for the UAE operations, which is a significant portion of our business, it could drop to 9%.
Got it. Thank you.
May I remind participants to keep their questions to two, please, in the interest of time? Or rather, may we go to the next question, please?
Yes. Our next question will come from Aybek Islamov. You may unmute your line and ask your question.
Yeah, sure. Thank you very much for the conference call. And again, congrats with the strong set of numbers. I think, yes. So if I can only ask two questions, then I think the following two I'd like to raise here. The first one, can you broadly comment on your return on equity on your international operations, not just subsidiaries that you have in Egypt and Kazakhstan, but overall international portfolio, how different that is to the ROEs you earn at home in the UAE, right? Can you give some color on that? That will be my first question. And secondly, in the second quarter, there was this general provision charge that was debit from retained earnings. So the question is, is this a one-off charge, or do you expect that to repeat again in the following quarters, right?
And it looks like it's the first time you took this charge as a debit to retained earnings. So these are my two questions. Thank you.
Yeah. So thank you, Aybek. On the international operations ROE, we don't disclose that separately. We disclose overall our ROE for the business as a whole. I think for Egypt only, we did disclose as Paul mentioned ROE, which is about 35% for the Egyptian operations. But for the other businesses, let's say KSA and other lending outside of the UAE, we do not split that out and show that. In terms of the deferred charge to capital account on the provisions, is that the question? Yeah. Yeah. That's basically based on the collective impairment allowance, where the requirement as per the UAE Central Bank standards, which is 1% of credit risk-weighted assets. If that is larger than the IFRS requirements, then you're allowed to take that through the capital account, which is what we have taken.
So the requirements are lower, but we still have to comply with the UAE Central Bank standards on that 1.5%. Yeah. And we took some last quarter as well. So it's not the first time that we've done this.
Thank you.
Our next question comes from Jon Peace. Please unmute your line and ask your question.
Hi, thank you. Well done again on the results. I wonder if you might give us your thoughts on what the probability of getting to the 9% tax rate might be. I know one of your peers in Qatar has said that they think it is quite likely. I wonder whether the fact that you've discussed it already means that you do think it's quite likely you'll be able to apply it. And then I wondered whether your AED 20 billion net profit target for 2029 and the 20% CAGR that you expect to get annually, including this year, is based on the original 15% tax rate, so that if you actually get to apply a 9% tax rate for the next five years, could your profit target and your CAGR be even higher? Thank you.
Thank you, Jon. So on the 10%, we think it's quite probable that, yes, we will end at that number, which is completing a few calculations and making sure that we tie up all the loose ends. So yes, we do think that that is where we should end. Now, the 9%, as I mentioned earlier, will apply for the next five years, provided you fulfill the conditions for each of those five years. So we don't know where we're going to end in each of those five years. Clearly, we would like to maintain that. But I wouldn't raise our estimates, and we would stay with our guidance of the 20 billion over the next five years where we are. But clearly, the 2.5, where we have a greater line of sight, I would say 9% is something that we can look at.
Good. Thank you.
Our next question comes from Edmond Christou. Please unmute your line and ask your question.
Hi. Thanks for the call. Congrats on the great set of results. My first question. Try to limit to two. I can follow up later with the rest. The provisioning, which was a surprise, but I do see that your coverage is to improve. The write-off, we have not seen a significant write-off. So I mean, when we talk about the legacy corporate, my understanding that in Q4 2024, under the new standard from the central bank, most of the banks, they have written off any legacy for five years. So is this legacy that is more than five years that we're there or became within the five-year period and now subject to write-off in the coming quarters? That's why you have taken extra provisioning to fully provision against it so it will have no impact on your cost of risk for the coming quarters.
So quite important to understand this. And the same part of the question is, which has been asked before, is the transfer against the minimum requirement by the central bank against Stage 1 and Stage 2. We've seen in the return earning the number there. For the central bank to ask for a higher capital requirement against IFRS, what type of account or exposure is requiring higher or a tighter capital provisioning requirement against the IFRS 9? So the last question here is, 42% of your new loans sequentially came from overseas. I would expect this is Saudi Arabia. It seemed to me that this could be a possible reason for the RWA capital intensity to be higher than I expected. So how much RWA you are allocating to this lending, what kind of lending will be much appreciated? Apologies for two questions becoming three in a way. Thanks.
Thank you, Edmond. Let me pick up the first question around the provisions. And just to clarify, yes, the credit risk management standards, which came effective in late 2024, basically allow banks a period of five years from that point to affect the full write-off for the stage three exposures. So it doesn't mean that we have to do the write-off now or last year. It's basically just saying by the end of five years going forward, then basically you either write off or the collateral value that is assigned to the exposure also is discounted by letting to that five-year period. So the additional provisions, as we've commented before, are more our review of some legacy accounts in terms of their prognosis and outcomes as opposed to any new flow or the central bank driving the calculations in a different way.
And then the transfer where you reference the Stage 1 and Stage 2 exposures, again, the central bank has applied a percentage across the industry where all banks must have at least a minimum of 1.5% in terms of their provisioning. So it's just a mathematical question where if the model produced a lower number, then you need to top it up to the minimum of 1.5%. And we've chosen in the last couple of quarters to take that through the adjustment to retained earnings.
Okay. This is very clear. And this is coming back to my second question. Credit RWA is rising, and that will drive more provisioning, I guess, because 1.5%. So what's the reason for RWA rising? Is it Saudi? Is it exposure to specific syndicated loans? Cross-border?
No, I don't think it's only Saudi. I mean, we are now lending at 23% outside of the UAE, but it's also the growth in the overall loan book. RWA density overall has kind of remained static over 31st December. So this 1.5% is on the credit risk-weighted asset. So if you are lending to a GRE or a sovereign with a 0% RWA, then obviously the requirement will also be much lower. Or an entity that deserves a 20% RWA, the requirements will be lower. So it depends on the risk-weighted credit risk-weighted assets that you need to provide for.
Okay. Thank you. Thank you. Much appreciated.
Our next question will come from Arunkumar Rajagopalan. Please unmute your line and ask your question. Arunkumar, please go ahead. It seems Arunkumar is having mic issues, so we'll go to our next caller. Our next question will come from Olga Veselova. Please unmute your line and ask your question.
Good day, and thank you for taking my questions. Question number one is on capital. How much would be your management capital buffer above the minimum central bank requirements? And sorry, I didn't capture your answer. Do you expect your minimum goes up from January 2026, and by how much? So this is the first question. My second question is on other income and fees, exceptionally good quarter. Could you quantify for us the gain from sale of loans in the second quarter so that we can separate it from everything else? And shall we assume the level of other income and the level of fees as a new run rate? And if these are the new run rates, then what have you done so differently versus the previous four quarters? Yeah, let me stop on this question. Thank you.
Okay. On the second question, which is the one-off gains on sale of assets, I think that's also in our most financials under other operating income, which is about AED 159 million difference on sale of loans and advances. On the capital, yes, we've seen some really strong growth coming in on capital or sorry, on the balance sheet size. Therefore, we've seen the capital come down to 0.2%. But we are well positioned to support this growth and to maintain capital ratios above our regulatory requirements. The management also maintains a certain buffer over and above the minimum requirements by the central bank. We are also looking at our demand side on managing the RWA going forward. Overall, I think we should be okay till the end of the year and then going forward as well.
In terms of any further buffers, I think it's what's been mentioned on the.
Sorry.
Countercyclical buffer, so that's where we are on the capital.
Okay.
Did you have a third question? Did I miss a second one?
No, no. I had two questions. But on capital, I hear you might be uncomfortable, so just close the management buffer. Can I then check? If you feel you're on the border, so you're very close to your minimum capital management buffer, would you consider cutting dividend, issuing AT1, going for new capital issues? So what would be your range of preferences, if I may ask?
Yeah. So capital depends on a number of things. One is obviously the growth that we expect to see. Our guidance to the market is CET1 ratio greater than 12%. So we are at 12.2%. And as we go along, obviously, we will take a look at what the growth is likely to be in the second half of this year and going forward. We have a very healthy pipeline of deals. Some of them may be drawn in 2025, some in 2026. So in terms of your question that you asked, what is the management's internal buffer is to stay above 12%. And that's what we've guided the market to do. The question was around the issuances. Yeah. Sorry, what was your second question around the issuance, please?
Yeah. So if you feel you're very close to your minimum comfort, what would be your choices or range of preferences, if I may ask? Including cutting dividend.
On the dividend side, we've guided the market to progressively increase and pay out dividends over the next five years, over the five-year period. So we maintain that. And depending on where and how the growth will come, we have a range of options for other instruments as well, either Tier 2 or AT1 instruments as well.
Thank you. I'm sorry for making my question go a bit long. But on capital, if you lend to GE in Saudi, which risk weight would you apply?
GREs in Saudi depends on the rating of the entity.
Okay. Thank you.
Also currency factor as well. A lot of currency in Saudi is differently traded to cross-border.
Okay. For our next question, we'll turn to Arunkumar Rajagopalan again. Please unmute your line and ask your question.
Hello. Hi. Am I audible now?
Yes, we can hear you.
Yeah. Thank you very much. This is Arunkumar Rajagopalan from SICO Bahrain. I have my two questions. The first one is related to the loan composition. So this quarter, what we can see is that you were earlier in previous quarters, you were growing in the government and the sovereign and related line. But this year, there is kind of a contraction. I'm not saying I mean, I just want to know whether this is like a is it like a start of a trend or can we expect resumption of growth going forward? That's my first question. Secondly, on the funding side, what is your expectation going forward? I mean, you managed to grow deposits this year nicely with but most of the deposits retained, a lot of them came from tiny deposits.
So, what is, I mean, how do you look at the source of funding going forward for the rest of the year and next year? Thank you.
So yeah, on the loan composition, the government and GRE lending, they've come down, and that's because of repayment of a few of those counterparties. But the pipeline of deals on both the GRE and sovereign is still very strong. So we expect to see drawdowns happening in the next few quarters as well. So this is not the start of a trend. It's just a matter of timing, but we've seen some repayments come in this quarter. So yeah, that's where we are on the GRE lending.
On the funding side.
On the funding, maybe I can add, Arunkumar. So we continue to be focused on the growth of CASA deposits, especially on the retail side, but also on the CIBG side. I think we had a very successful first six months whereby we saw a good increase in CASA. We have had targeted campaigns. We introduced new products. So we're very active on that front on the retail side. Also, on the time deposits, we have seen a healthy growth, as Deepak alluded to. The liquidity of the market is still ample. So it was relatively easy to attract funding at this point in time.
We continue also in the second half to focus on the growth of CASA, especially again in the retail side where we as Treasury continuously incentivize the business to grow that CASA line even more because, again, in the end, it's the cheapest source of funding we as a bank can attract. So we continue to be focused on that. I have every faith that we will continue to be successful also in the second half on this.
If I can just add to what Robert said, in fact, our CASA growth rate is better than our time deposits. Our CASA grew by 11% year to date and 21% year on year, whereas our time deposits grew by 9% year to date and 18% year on year. CASA deposit growth is outpacing time deposit growth, which is exactly the trend we would like to see to lower our cost of funds as well.
And this is also against the drawback that rates have not come down as people expected earlier. I think going forward, if the Fed starts the rate-cutting cycle, nobody knows when it will happen. I think it will also favor CASA growth vis-à-vis deposits.
All right. Thank you very much.
Our next question comes from Dan Mikhailov. Please unmute your line and ask your question.
Hello. Congratulations on the stellar set of results. I just wanted to follow up on a question asked pretty early on. It seems that loans to government have been or certainly in the UAE have been contracting both sequentially and year on year as the balance sheet figure. And I was wondering how much of that AED 72 billion of new credit that you've extended during this quarter can be attributed to government and GRE loans.
I don't have the breakdown of that exact AED 72 billion, but I think overall the portfolio is likely to maintain the same composition. As I mentioned earlier, we did see some repayments on the government and GRE sector, but that's a timing issue. The pipeline of such deals both on the GRE and government is strong, and we could see further drawdowns in the coming quarters. Paul, do you have any questions?
Yeah. I was just looking back at the time. So as was referenced earlier on, we currently sit at 24%. December 2024 was 27%. December 2023, 25%. So as the overall loan portfolio grows, I think we're maintaining that sort of status quo in the mid-20s for the GRE piece. And I think as a general statement, we've probably seen more deleveraging by the government entities in Dubai and Abu Dhabi over the last sort of 12 months.
But yet, we've seen our loan book grow. So we're not seeing the market demand come down. There are other opportunities that the bank is pursuing as well.
Our next question comes from Rahul Rajan. Please unmute your line and ask your question.
Hi. Good day and congrats on good numbers. A couple of questions from my end. Again, touching back on the earlier question asked on the fee and other income side. Maybe sorry, I didn't get that answer through. Do you think this is the new quarterly run rate that we could see going ahead in terms of the fee and other income side, especially on the trading revenues? And if yes, what's driving this? What's the change that we are seeing? That's number one. Secondly is on the overall. I know you don't give guidance on the NII or on the loan growth, but how do you see that panning out for the rest of this year? Do you see it at a similar pace as we have seen in the first half? Thank you.
Okay. Thank you, Rahul. On the second one, loan growth, we continue to see good momentum in the loan growth. Our order book is pretty strong. Commitments to extend credit is very strong. Depending on the loan drawdown in the next couple of quarters, we expect a similar momentum and a low-teens growth, mid-teens growth for the full year. On the other income, let me take the non-interest income. Of course, there are three line items there: fee and commission, trading income, and other operating income. Fee and commission income, again, is a strong line item. We grew 16% year on year. And for the quarter, we grew 15%. So we've seen growth across all line items. Loan processing fees is up. Asset management is up. Trade finance fee is up. And account-related fees is also up.
In terms of other operating income, as I explained earlier, yes, there was a one-off in terms of sale of loans that we booked in there. And trading income, again, depends on market opportunities. We've always said it's a volatile line item, and we would expect to see ups and downs in that. But I think it's a very strong performance of 43% up. But Robert, if you'd like to add to the question.
Sure. No, I think you've ended it. I think story that we've been telling consistently during these calls and investor updates as well. We have been investing quite heavily in our trading and our sales teams. We have expanded the product suites that we're offering to clients, and I think there's a very high focus also with our relationship managers to focus on ancillary business, and we have been, I think, very successful in doing so, so yes, there is an element of trading in there that will be a little bit more volatile from quarter to quarter, but at the same time, there is a bigger base in terms of the products that we trade, the number of clients that we onboard, and the number of deals that we're executing with clients based on increased capabilities at our end.
So I think there is definitely a deepening of relationships happening at this point in time, which is paying off also in this half. Yeah.
If I may just add to the previous question on the loan growth, our commitments to extend credit, irrevocable commitments to extend it as of June 30th was AED 52.6 billion. Our commitments to extend credit, which are revocable, which is about AED 26 billion. So quite a healthy pipeline of deals that we've got.
Okay. In the interest of time, I think we have just the last participant. I think Rahul Bajaj had kept his questions for the end. Sophie, could you please pass to me.
Thank you very much. Maybe I quickly jump in in the interest of time and ask a couple of questions. The first question, Deepak, this one is on retail segment loan growth and private banking segment loan growth. If I look at the segmental split, yes, the corporate and IB segment has been doing phenomenally well, but growth in the retail segment especially has slowed down quite materially in the last few quarters. Any specific reason for this? Or you think this is kind of a strategy from ADCB side? Or how should we think about this growth trend going forward on the retail side? So that's my first question. The second question is on the margin trajectory. As we move into interest rate cuts over the next few quarters, firstly, was there any one-off in 2 Q?
If not, how should we think about the margin trajectory over the next few quarters and early next year, especially given the fact that we've been able to grow CASA at a very significant run rate? How should we think about your margins going forward? Thank you.
Thank you, Rahul. On the retail banking side, I would say our performance remains aligned with our strategy to open up new income streams to grow our fee income, grow our CASA, and deepen our digital engagement. Retail assets were up 7% year on year in the first half, and CASA deposits increased by 25%. So retail is a key driver of deposits, which are granular deposits or CASA amounts. And this is an area we're focusing on in retail. In the second quarter, the group onboarded over 68,000 new customers, 60% through digital deposits. And we're maintaining a leading position in digital acquisition of cards. We're also seeing strong growth in fee-generating areas, particularly in wealth management, with assets under management rising 35% in retail and 58% in private banking over the past year.
We're getting into various partnerships with players in the marketplace, scaling our wealth and lifestyle propositions to capture market share. The retail proposition continues to remain strong. With the CASA growth that we've seen coming through retail, we're very pleased with that outcome, and we want to see more of that. In terms of the margin trajectory, rate cuts, we would like to maintain margins, of course. It'll have an impact both on the asset side and the liability side. We hope that the retail balances or the CASA balances from retail customers should go up. At a point in time, they were mid-50s%. We are at 45% now. Hopefully, we should see that tick up as well. The idea is to maintain the margins. In terms of the house view on rate cuts, Monica, one way.
We just had one rate cut priced in for December, which, of course, developments in the US over the summer period, vis-à-vis developments in the labor market, pass-through of tariffs, the actual landing point for tariff rates will be critical.
Thank you.
Thank you.
All right. Maybe just final comment from our side, Deepak.
No, I'd just like to thank everybody on the call for the participation. And if there are any remaining unanswered questions that you may have, kindly send them across to Harsh as our Head of Investor Relations, and we'll get back to you very quickly on those. So again, thank you very much for participating on the call.