Abu Dhabi Commercial Bank's First Quarter 2025 Results Call. Please note that this call is for analysts and investors only and not open to the members of the media. Any media personnel who have gained access to the call should disconnect immediately. I will now pass the call on to your host, Mr. Naresh Bilandani from Jefferies.
Thank you. Good day, everyone. It's Naresh Bilandani from Jefferies. Welcome to the first quarter 2025 results call of Abu Dhabi Commercial Bank. Jefferies is very pleased to host. I will pass the floor to Harsh Vardhan , Senior Head of Investor Relations of ADCB, to introduce the management and commence the call now. Thank you.
Thank you, Naresh. Good afternoon, ladies and gentlemen. I would like to welcome you to this call on ADCB's first quarter 2025 financial results. We will be referring to our earnings presentation, which can be found on the Investor Relations page of our website. I am joined today by Deepak Khullar , Group CFO; Paul Keating, Group CRO; Robbert Muller , Group Treasurer; and Monica Malik, our Chief Economist. We will be taking you through key highlights before opening the floor for questions.
I will now hand over to Deepak to begin the presentation from slide 5.
Thank you, Harsh, and good afternoon, everyone. ADCB entered 2025 with solid momentum, embarking on a new board-endorsed five-year strategy to drive long-term sustainable expansion. Q1 saw ADCB record its 15th consecutive quarter of growth in profit before tax, which rose 20% year-on-year to AED 2.9 billion. Net profit after tax was AED 2.4 billion, delivering a return on average equity of 13.7%. Please note that we have provisioned for tax at a rate of 15% based on the domestic minimum top-up tax introduced by the UAE on 1 January, compared to the 9% corporate tax rate applied in 2024. We continue to capitalize on a strong credit pipeline, with net loans increasing AED 41 billion year-on-year, while the bank attracted AED 58 billion in customer deposits.
On slide 6, we focus on key developments in Q1. As mentioned on the previous slide, this includes the launch of an ambitious new five-year strategy in January. The strategy is aimed at doubling net profit to AED 20 billion by 2030, while delivering sustained growth in dividends and return on equity. Additionally, in March, ADCB's long-term credit rating was upgraded to A+ by S&P Global Ratings, placing the bank among its top three highest-rated banks in the MENA region. ADCB was also included in the FTSE4Good Index Series in January 2025, reflecting strong performance across ESG criteria, and more recently, in April, ADCB was named the strongest banking brand in the UAE, with its brand value rising 17% year-on-year.
On slide 7, you will find income statement highlights for the first quarter. Operating income in Q1 increased 9% year-on-year to AED 5 billion, while operating profit before impairment charge was up 12% year-on-year to AED 3.5 billion.
Taking a closer look at the results, please turn to slide 8 for NIMs and net interest income. Net interest income of AED 3.4 billion increased 3% year-on-year on higher volumes and declined 3% sequentially following three interest rate cuts since September. In the context of the declining benchmark rates, net interest margin decreased 22 basis points year-on-year and 10 basis points quarter-on-quarter to 2.48% in Q1. However, risk-adjusted NIM of 2.01% was broadly aligned with Q1 2024, driven by a strategic rebalancing of the loan portfolio towards high-quality, low-risk credit exposures over the past 12 months, and increased 12 basis points quarter-on-quarter on lower impairment charges.
Turning to slide 9, non-interest income of AED 1.6 billion in Q1 was 26% higher year-on-year, which was primarily driven by a 17% increase in net fee and commission income, as well as a 7% increase in net trading income, primarily on account of higher gains from foreign exchange and derivatives. Capital markets advisory, as well as working capital transaction banking and liquidity management propositions, are driving market-leading fee-to-income ratio for CIBG. Other operating income increased year-on-year and decreased sequentially, primarily driven by variance in gains on extinguishment and/or sale of corporate loans.
On slide 10, the bank achieved a strong year-on-year improvement of 170 basis points in its cost-to-income ratio to 29.2% in Q1. This was driven by higher operating income combined with sustained cost discipline. Operating expenses were reduced 6% sequentially to AED 1.47 billion, supported by enhanced efficiencies and greater automation through continued digital transformation and adoption of AI technology.
Please turn to slide 11. ADCB's balance sheet has continued to expand this year, with total assets increasing 14% year-on-year and 4% quarter-on-quarter to reach AED 680 billion at the end of March. Before looking at our assets and liabilities in more detail on the next few slides, I would like to highlight that the bank maintains a robust liquidity position with a liquidity coverage ratio of 138.6%, a liquidity ratio of 33.3%, and a loans-to-deposit ratio of 81.4% as at March end.
On slide 12, we take a closer look at our loan book. The UAE's robust economic fundamentals are supporting our healthy credit pipeline. The bank extended AED 37 billion of new credit during the quarter, while receiving repayments of AED 28 billion. Net loans and advances to customers increased 13% year-on-year and 3% quarter-on-quarter to AED 359 billion at March end. Solid consumer confidence has supported the retail book, with double-digit growth in mortgages and credit card balance over the last 12 months. On the corporate side, loan growth was primarily driven by the financial institutions, energy, and transport and communication sectors in the first three months of the year.
Overall, the portfolio remains well-balanced, with GREs comprising 27% of gross loans, real estate investment representing 13%, financial institutions 11%, and trading 8%. Meanwhile, personal loans accounted for 21% of gross loans. Geographically, our loan book is also well-diversified, with Abu Dhabi accounting for 51%, Dubai 21%, and other Emirates 6%. Our exposure outside the UAE stood at 22%, as the corporate and investment banking group continued to support funds operating across the region and internationally.
I will now hand over to Robbert to discuss the investment portfolio, customer deposits, and the capital position.
Thank you, Deepak, and turning to slide 13, the investment securities stood at AED 150 billion. That's up 13% year-on-year and 5% since the end of December 2024. 99% of our investment securities continue to be invested in bonds. These securities were 60% accounted for at amortized cost and 40% at fair value through other comprehensive income and marked to market on a daily basis. Moving to slide number 14, the bank's strong franchise continued to drive substantial growth in customer deposits, which increased 15% year-on-year and 5% sequentially to AED 442 billion at the end of March. CASA deposits increased by AED 12 billion during the quarter, accounting for 57% of deposit growth, while time deposits were up AED 9 billion. CASA deposits represented 45% of total deposits at March end, up from 44% at December end, supporting a favorable cost outcomes.
If you turn to slide number 15, you will see that ADCB continues to benefit from a strong capital position. The bank's strong earnings growth and efficient capital deployment have further enhanced ADCB's risk-weighted asset profile. The bank's Basel III capital adequacy ratio stood at 16.07% at March end, while its CET1 ratio was 12.59%.
I will now hand over to Paul to discuss asset quality, subsidiaries, and digital transformation.
Thank you, Robbert. And turning to slide 16, notably, asset quality continued to strengthen considerably in quarter one, with the net NPL ratio declining to 2.24% from 3.44% over the prior year. The cost of risk decreased by 18 basis points year-on-year and 23 basis points quarter-on-quarter to 0.49, remaining within our guidance. The provision coverage ratio was 150.1%, compared with 108.5% in March 2024. Including collateral held, the ratio was 260% versus 167% a year earlier. Please turn to slide 17 for updates on Al Hilal Bank and ADCB Egypt. At Al Hilal Bank, Jamal Al Awadhi was appointed as CEO in January to drive growth through a digital-only service model. In Q1, the bank continued to introduce new features and products aimed at improving customer experience, cost efficiency, and service quality. This includes ongoing initiatives to automate key customer journeys, as well as the launch of a Savings Plus Account to reward customers with enhanced returns for consistent savings behavior.
Turning to ADCB Egypt, the bank reported a strong set of financial results with robust loan growth and deposit growth. In Q1, the net profit increased 74% year-on-year to EGP 1.3 billion, representing a return on equity of 40%. Net loans increased 48% year-on-year to EGP 61 billion. Meanwhile, deposits increased 33% year-on-year to EGP 124 billion at the end of March. On slide 19, we look at ADCB's digital transformation, which is having a significant positive impact on our business. Looking at some of our key metrics, the retail banking group added 89,000 new customers in Q1, 71% of which were onboarded digitally.
Digital subscriptions to online and mobile banking are up 20% year-on-year to over 2.1 million customers. We launched a standalone mobile app for our TouchPoints program. This enables customers to easily manage and redeem loyalty rewards, supporting enhanced engagement. We accelerated the adoption of AI tools in the quarter, with targeted initiatives launched to support a bank-wide revenue generation, improved customer experience, and to drive efficiencies.
I'll now hand back to Deepak to discuss ESG and to close the presentation.
Thank you, Paul. Please refer to slide 20. Sustainability continues to be a core part of our new five-year growth strategy, in line with the UAE government's ambitious sustainable development goals, supported by clear policy and regulatory frameworks. The bank is committed to best practice reporting and disclosures, as demonstrated by its newly launched group ESG report. This report includes several firsts. The bank has completed its first double materiality assessment, aligned with GRI and IFRS standards, as well as its first third-party assurance of our customers' Scope 3 financed emissions which make up 99% of the bank's carbon footprint. ADCB's adoption of sustainable business practices is reflected in its consistently strong ratings. In September 2024, MSCI upgraded the bank's rating to AA from A, placing ADCB in the industry leader category.
This upgrade recognized the bank's strong record on sustainable finance, ESG due diligence, data privacy and security, and business ethics. ADCB was also added to the FTSE4Good Index series, which placed the bank above the global financial industry average across all ESG criteria. Our progress is also reflected in the award of the Sustainalytics Regional Top Rated badge. ADCB is one of only six banks in the Middle East and Africa with this recognition, and we are proud of our low-risk score. The bank is also collaborating with UNEP FI and the Net Zero Banking Alliance on strategic reviews and proposed reforms to enhance the credibility and impact of net zero commitments in the financial sector.
Turning to slide 22 and the operating environment, with strong key UAE indicators such as PMI and banking system liquidity, we remain positive on the UAE's economic outlook, despite more muted expectations for global growth. It is important to note that the UAE benefits from a strong fiscal position, and a relatively low budget break-even oil price means the country is well placed to continue with its investment plans. Nonetheless, we remain vigilant and are conscious that the region may yet be impacted by global events in the coming period. We are confident that ADCB remains well equipped to navigate global market and economic uncertainty, given our strong market position, high-quality loan book, and diversified income streams.
Before we open up for questions, I will conclude with some final remarks on slide 23. Our new five-year strategy provides a clear sense of direction for the organization. We are very pleased with the growth momentum coming into 2025, supported by robust UAE economic fundamentals, which point to a sustained ability to increase market share in loans and deposits. ADCB's strong franchise is attracting significant CASA deposits, supporting a favorable cost of funds. And lastly, cost-to-income ratio improved year-over-year on continued cost discipline, while our digital transformation program is also improving productivity significantly.
Thank you. This concludes our presentation. Operator, we will now open the floor for questions.
We will now begin the question and answer session. If you are participating in Q&A and have joined via webinar, please use the raise hand icon, which can be found at the bottom of your webinar application screen. If you are participating in a Q&A and have joined via phone, please press star nine on your keypad to raise your hand. When you are called on, you will be prompted to unmute your line and ask your question. Please note we are allowing one question and one follow-up question per person. We will now take a minute to queue the roster. Our first question comes from Olga Veselova from Bank of America. Please unmute your line and ask your question.
Thank you. Good day. Thank you, Deepak and team, for taking my question. My first question is on 2025 guidance. Can you please update us on all the key lines? And thank you for giving us confidence in five-year outlook, but what about this year? Yeah, this is my question.
Thank you, Olga. We've given our five-year guidance, and we remain committed to that guidance, and this is a growth year-on-year. I think on previous calls, also, we explained that this is not a hockey stick approach where most of the growth is going to come at the end of the five-year period. It's going to be a steady growth across all the metrics that we have mentioned, so in terms of our profitability, we remain committed to doubling the net profit to AED 18.2 billion within five years at a circa 20% annual growth rate. Cost of risk, as you can see, we remain below 60 basis points. And in quarter one, we're well below that number. CET1 ratio to remain above 12%. Still committed to ROE of greater than 15%. And in terms of loan growth, we expect to be in the low double digits for the year.
We expect growth to pick up in the next three quarters of the year.
Okay. So for this year, low double digit loan growth. Could you share with us your outlook on margin and profitability for this year?
On the profitability side, we've given our guidance on ROE, and we remain committed to that ROE guidance, in terms of margins, we're driving the bank to risk-adjusted NIM and not to NIM, so our risk-adjusted NIM remains at 2.01%, which compares favorably with what it was in Q1 2024 of 2.07%. Despite three rate cuts that happened in September of last year and post-September, our risk-adjusted NIM has remained stable, and we expect that to continue to remain stable for the rest of the year.
Okay. Right. So is this a change in approach, or is this how you always were looking at this? So we shouldn't be focusing on that interest margin alone?
No, this is not really so much a change in approach. We've been driving the bank to risk-adjusted NIM for quite some time now, and we've been putting that in our investor presentation as well. And that is why you would see the rebalancing of the book. So we rebalanced the book towards the GRE and the government sector, and that proportion has gone up significantly. Real estate, as you would see, has come down significantly over the last three to four years. So as we lend to high-quality credit, surely the margins are slightly lower, but we expect the cost of risk to be significantly lower as well. And that's why we're driving or running the bank to risk-adjusted NIM. So it's been our philosophy for the last several years.
Right. Okay. Thank you. I will give my other questions. We'll be back to the Q&A. We'll allow others to ask.
Thank you, Olga.
Question comes from Rahul Bajaj from Citi. Please unmute your line and ask your question.
Thank you, Deepak , for taking my question. I have a quick clarification, actually, before we start on the previous answer, previous response that you made. So is it fair to understand that the five-year strategy or five-year guidance you provided, 20% annual growth, more than 15% ROE, and less than 60 basis points of cost of risk, is the guidance for 2025 as well? I'm just re-clarifying this because my understanding was that you were planning to probably provide some specific guidance for 2025 at the end of with the 1Q results. That hasn't come through, so just wanted to clarify that bit, and my question is on the NPL decline, so we see a sizable drop in NPL in 1Q. To what extent is it driven by sale of NPLs or sale of assets? If you could help us quantify that bit. Thank you.
Thank you, Rahul. And your understanding is correct on item one, which is the guidance for the five-year also applies to this year on all of those metrics in terms of 20% growth, and ROE guidance applies to 2025 as well. So yes, you can take that as 2025 guidance as well. In terms of NPL decline, before I hand over to Paul, yes, there have been a number of movements between Stage 2 and Stage 3 and back from Stage 3 to Stage 2. And this is something we expect all the time. There have been some sale of assets even in Q1 this year, but that has not been the primary driver of the decline. But it's basically movements where we've seen improvement in certain loans that have moved up. But Paul, if you wish to add anything.
Thanks, David. But I'll only add that, yeah, the recovery continues to be good and strong. And obviously, we factor in, from a provisioning perspective, the credit risk management standards in terms of requirements for this year that kicked in from December 2024.
But just one quick clarification, Deepak, on the first answer that you provided. I mean, have you given a thought of the impact of lower oil price on your five-year guidance? So at this stage, do you think you need to rethink about any of the elements of your five-year guidance due to lower oil price, or that remains intact and you do not worry about that?
Rahul, I think it's too early to call on that. We just put out our guidance for over the five-year period in January of this year, and we expect there to be developments in the macroeconomic environment globally, not just now, but even going into the next five years, is not going to be stable all across, and there may be sort of short differences in quarterly results, but overall, we're committed to delivering to the strategy numbers that we put out to the market, so we don't think we're necessary at this stage.
Okay. Understood. This is very clear. Thank you, Deepak. Thanks, Paul.
Our next question comes from Shabbir Malik from EFG Hermes. Please unmute your line and ask your question.
Hi. Thank you very much for the presentation. I have two questions. The first one, when I look at your loan growth this quarter, it appears that retail loan growth has been relatively weak. If you can please comment on that, it would be pretty useful. The second question is around your five-year plan. Given that you've indicated that you're eyeing maybe low double-digit loan growth, do you think that over the next five years, you're going to generate sufficient capital internally? So in terms of capital, you will be okay to deliver this growth? Because I think your CET1 target is greater than 12%. You're targeting, I think, mid-teens kind of ROE growth. What kind of RWA growth are you assuming? And I just wanted to understand that you feel that the internal capital generation will be sufficient to kind of meet those growth requirements. Thank you.
Thank you, Shabbir. Yeah, I'll take the second question first. In terms of growth and capital requirements, yes, we feel we will have enough internal capital generation to drive that growth, including the dividend payment guidance that we've also given to the market over the next five years. We've seen our RWA density come down significantly over the last couple of years as we've been lending more to GREs and sovereigns, so the RWA density has come down, and we feel comfortable that internal capital generation should be able to drive that growth. On your first question around retail, yes, the first quarter of this year, retail has been kind of static, but if we look at Q1 2025 versus Q1 2024, we've achieved AED 7 billion growth. We expect that growth to pick up in Q2, Q3, and Q4.
Credit card acquisition and spend continues to see strong growth, and we expect that to materialize into higher ENR growth by the year-end. Mortgage and auto assurance, slightly slower growth due to some margin compression we're seeing there. But overall, I think in the balance of the year and the next three quarters, we expect retail growth to pick up.
Thank you.
Our next question comes from Jon Peace from UBS. Please unmute your line and ask your question.
Hi. Thanks for taking the questions. I think you said at the start of the year that you expected net interest margin to be flattish this year. Just based on your earlier comments, it sounds like if that were to be a little bit lower given the Q1 run rate, it should be offset by a lower cost of risk. I just wanted to check my understanding there. And then second question, please, is are there any one-offs in the numbers that you would highlight? I guess in particular, I'm thinking of the other income and the potential run rate of that going forward, just so we can model it a bit better. Thank you.
Thank you, Jon. In terms of the other income, other operating income, there were one-offs in quarter four of last year. And there were significant one-offs that we highlighted earlier, which have not been repeated in this year to the same level. So this was driven by the gains on extinguishment and sale of corporate loans, which was roughly AED 138 million in quarter one of this year versus AED 729 million in quarter four of last year. So despite that AED 500 million -odd difference, we have shown a growth in overall net profit. So I mean, if you can take those elements out, about AED 138 million in Q1, that should give you a very normalized level of other operating income.
And on the other question on NIM and cost of risk, again, like I mentioned earlier, we're driving the bank to risk-adjusted NIM. So yes, if we've seen a decline in our gross NIM, we're fine with that as long as our risk-adjusted NIM either continues to be stable or improving. But Robbert, if you wish to add anything on that.
No, again, I think going forward for NIMs, that's, I think, a remark we had made during previous investor meetings. We continue to focus on growing our liability base, especially on the CASA front. I think we've shown progress in the first quarter so far, hopefully. And we, as Treasury, continue to incentivize the business lines to increase that CASA line as much as possible. So again, I think also from that perspective, that should be supportive of our NIM going forward.
Thank you.
Our next question comes from Aybek Islamov from HSBC. Please unmute your line and ask your question.
Yes, thank you for the conference call. So a couple of questions from me. On the fee income, I mean, definitely you're making good progress. I can see some improvement in fee to asset ratios. To what extent do you say that your fee income correlates with your market share gains, right, in loans in particular? That would be my first question. Secondly, when you talk about your five-year strategy, to what extent do you think you're going to drive your net income through gains on securities, FX, and derivatives, right? I mean, we've seen one example, First Abu Dhabi Bank is doing it quite actively. Is that also part of your plan, right? And how do you see the contribution of these gains over time as a percentage of your revenue kind of increasing? That would be my second question. Thank you.
Thank you, Aybek. I'll take the first question on the fee income side, and then I'll let Robbert comment on the other piece on trading income, etc. So if you look at the fee and commission income on slide nine, I think your question is, what is correlated to the growth in the asset side of the book? If you look at card-related fees, that is primarily driven by card spend. And because the revolver or the ENR balances drive the interest income there, so that's not so much driven. That doesn't drive the fees. Loan processing fee has a direct correlation to growth in our loan book. Asset management, investment services, not so much. Trade finance commission, insofar as it relates to new clients that we book.
Yes, there's a little bit of correlation there, but on the existing clients, it is a factor of the trade business that they're doing, so not so much dependent on the growth, and similarly, for account-related fees, there is a little bit of correlation, but the existing accounts would drive more than 80%-90% of the fees, so I think in summary, I think the significant portion that is related to our growth factor is the loan processing fees, and the rest is, I would say, quite independent of the loan factor.
Yeah. And then to your second part of the question in terms of our trading revenues, I think that what we are seeing nowadays is that we are gaining market share with loans, but we're also expanding the products that we are able to offer to clients. I mean, if I look a couple of decades back, it was mostly surrounding around FX, but nowadays, we're much more active in the number of products that we're able to offer to clients. I think that's something we have still some way to go. We are introducing literally new products every quarter, and that will, again, deepen the intimacy with clients, and we continue that will continue to drive revenues as well. So relatively bullish on our ability to continue to develop this with our clients.
This sort of kind of brings me back to the question which I think Shabbir had asked around internal capital generation and RWA. A lot of the growth is where we're planning to grow through fee income and other operating income and trading income, which takes up much less capital consumption in certain areas.
Yeah. And maybe to make it a little bit more concrete, so let's, for our own partners, say, take DCM business. A couple of years ago, our franchise was very small. Last year, I think I've mentioned in the past that we were on 49 deals. I stand corrected. I think there were 56. Again, that's something that we weren't present in the past. We're also building up our capabilities on the ECM side. So there are plenty of areas where we as a bank can continue to grow and deepen our relationships with clients. And it also brings us to a position whereby we can be more proactive vis-à-vis our clients and ask for a bigger wallet of their franchise.
Yeah, thank you. I think there was a second part of the question about the -- second question, sorry, about the investment gains, gains on derivatives, effects, etc. How do you see that as a driver of your net income over the next five years?
So the sales of investments is not a big part of our income at this point in time. Yes, we do sometimes sell a portion of our investment book, but it's not very meaningful in terms of the overall numbers. The main growth comes from the items I just explained.
Thank you.
Thank you. Our next question comes from Murad Ansari from GTN Middle East. Please unmute your line and ask your question.
Yes. Good afternoon, and thanks for the presentation. Just to first up, clarification that I just wanted to get an understanding right on NIMs. So you've mentioned the focus on risk-adjusted NIMs and on cost of risk. You're more or less in first quarter where your five-year target or longer-term target is. So fair to assume that on a pre-cost of risk-adjusted basis, NIMs, you would expect them to be broadly stable. And my question on loan growth, so this quarter, I mean, if we split it up a bit over stronger contribution from the international book, how do you see this evolving over the course of this year? And on GRE and low-risk exposure, where would you ideally want to see over the medium term in terms of contribution to the overall loan book? Thank you.
Can I just comment on the cost of risk first, and then Paul will take on the second part of that? So we have guided towards a cost of risk of less than 60 basis points. For the first quarter of this year, we had 49 basis points, well below the guidance. And we hope that we remain within that sort of corridor, well below the 60 basis points. Paul, do you want to take the second part of it?
Sure. Thanks, Murad. And then the line drive, as Deepak mentioned in the walkthrough, the pipeline remains healthy. We're seeing strong drawdowns. We expect that momentum to continue. And this is against a backdrop of strong UAE fundamentals. Obviously, the market we're monitoring in terms of recent volatility in oil prices. But yeah, we expect that loan growth to come in as per our medium-term guidance.
Just to thank you. Just for a few clarifications about NIMs and loan growth. So on NIMs, we've seen an adjustment on asset yields. And obviously, you mentioned in the presentation, talked about it as well. This asset yield decline is coming after three rate cuts last year. Fair to assume that the book has completely repriced for these rate cuts, at least on the loan book side largely, beyond the retail book. And on loan growth, what I wanted to get a sense was growth in GRE, where do you expect that as part of your book over the medium to long term in terms of share and international contribution is a bit stronger this quarter? Just taking from your comments that we expect UAE or domestic growth to be stronger over the remaining three quarters.
Yeah. So Murad, growth in GRE is going to continue to be a major driver of our growth, not just this year, but going into the future as well. And as you've said earlier, we're very positive on the UAE economy and the projects and what is planned over the next decade or so. We're very positive on that, and we expect to participate in that growth in a major way. So that is likely to continue. I'm sorry, there's another question that I - sorry.
International business.
Yeah. International business, we're at 22%, and we expect that to be in that corridor, in that 20%-25% corridor in the medium term. Is there—I think there was another question.
Repriced? Has the book had priced to the book?
Has the book been repriced? Yeah. Sorry. So yes, primarily, the book has repriced since the rate cuts in Q3 of last year. Most of that repricing is now reflected in the book.
Yeah. Maybe also goods maybe for [Garbled] go way . If you look at the overall interest rate risk sensitivity of the bank, then we continue to bring that down. So as per the 31st of March, the effect of a 25 basis point decline in interest rate across the curve, all things being equal, would roughly be AED 112 billion. That is lower than it was at the end of the year, where it was at AED 119 billion. If you compare the two a year back, that was over AED 180 billion. So we have been bringing this consciously back over time. And of course, nobody knows what's going to happen with rates. The market is very volatile. It needs to be seen. But from our end, we continue to technically extend our duration in order to minimize ourselves a little bit to the effects of rate.
Thank you.
Hi, operator. It's Naresh. Can I please just interject with two questions? Deepak, Robbert, thank you so much for the presentations, for the answers until now. I was hoping someone would ask this question on NPLs, but I just wanted to request some more color on the NPL decline that you have seen in this quarter. It's roughly about 25%, so quite eye-popping compared to the trends. I just wanted to get some color. Was the recovery on any of the concentrated exposures that you have on the books, like any of the large-ticket NPL items like NMC or Alam, or were the recoveries broadly diversified? Any further color here would be appreciated just to understand the NPL dynamics better.
And my second question was on the NIMs. Just keen to understand the NIM pressure. You did allude to the asset mix and more public sector. So broadly, it's safe, but lower yield. I'm just keen to understand the difference that you have between your domestic and international NIM. I'm getting a sense that if you expose the balance sheet more to Saudi Arabia, the NIMs there could be relatively under pressure, and that is something also that could be affecting the top line. But that's my thought. I just wanted to get some sense from you on how different is the domestic NIM versus the international NIM. Thank you.
Thanks, Naresh. If I pick up your first one just around the NPLs, I think we don't comment on individual specific names. Earlier in the call, we've made reference to the fact that there has been some movement in terms of Stage 2 to Stage 3 and conversely the other way in terms of going from Stage 3 to Stage 2 as well. There has been some asset sales in terms of NPL sales and some write-offs, but it's a combination of those components. So write-offs, sale, movement, and staging is the net result that you see in terms of the overall reduction. I think it's reflective of the economic backdrop that we've had during the first quarter that has been relatively credit benign in terms of the local trading conditions here.
And in terms of your second question on NIMs, domestic and international, Naresh, we do not break that out by geography or region. We do put out a composite rate for the bank as a whole. The overall shift in lending overseas hasn't increased significantly. It's gone up by 2 percentage points. There is a slight difference between the rates between domestic and internationally, but we don't put out that number separately.
Understood, Deepak. No problem. Just understanding this international growth from a funding perspective, because you still haven't commenced your operations fully, say, for example, in geographies like Saudi Arabia. This is still the funding would be going from the home market into the loans that are being originated in Saudi Arabia would be funded by the liquidity from the UAE. Is that broadly correct, or is there another mechanism that's in play here?
That's true for at least the beginning. So we're in the process of setting up our shop and opening our branch in Saudi. For now, it will be funded out of the UAE, but there's definitely a target for management locally to start raising funding from corporates and then when we open the branch. So over time, I would expect them to be for the large part self-fund.
Got it. Thank you very much.
Thank you so much. Our next question comes from Edmond Christou from Bloomberg Intelligence. Please unmute your line and ask your question.
Hi. Thanks for the call and the set of results. Just want to understand the ROE for this year. It's becoming very difficult to model it. So margin clearly is on downward trajectory given the interest rate cut and the shift to more public sector. The element I want to understand is the cost base. I was expecting higher spending this year given the strategy you are working on. And we have seen cost control. Do you expect more cost control in the rest of the year, or do you expect a pickup in the spending? And that will be very important to understand how the ROE trajectory for the rest of the year. Plus, what is the driver for ROE from your point of view to go higher toward the 14% in the coming quarters? And it's just difficult to understand.
The credit growth has been downgraded, I think, from my point of view. Now we are looking at the low double digit instead of the 14% or 15% I would have assumed initially. What is the positive catalyst for ROE to move toward the 14%? Do you think in the coming quarters we will see a credible ROE? Thank you.
Thank you. In terms of ROE, I think the trajectory for the bank is not linear between Q1, Q2, Q3. So there is a pickup that we expect going forward in the next few quarters. So we expect both loan growth to pick up and non-interest income to also pick up for the balance of the year. Cost base, you're right. There's been a strict control on costs, and you can see that in the numbers. But that does not mean we're not investing in the business. There will be investments going into the business in technology, in AI, but we expect to see the benefits of those investments also coming through. For example, with the launch of new products that is happening, we are hiring people in treasury, in corporate bank, in advisory, debt capital markets. So there is investment going on in the business. But at the same time, we're taking out costs in other parts of the bank through efficiencies.
The thing I would say is that the incremental cost-to-income ratio that we've seen coming in the new business is significantly lower than our existing cost-to-income ratio of 29.2%. And that's how we would like to drive the business. Credit growth, we expect that to pick up in the coming quarters. It will be in the low at this point in time, low double digits. If things improve as we go along, we will upgrade our guidance as well. But we've got a very healthy pipeline of deals. The drawdown of those depends on the client needs, and they won't be drawn down linearly over the next few quarters. You could see a particular quarter go up significantly as well.
So the non-interest income is also likely to be a key driver of the ROE going forward.
Thank you very much.
Thank you. Our next question comes from Alay Patel from Barings. Please unmute your line and ask your question.
Yes. Hi. Good afternoon, Deepak and the team. Can you hear me okay?
Yeah, we can.
Yeah. Just leading on to what you just talked about, Deepak, on the non-interest income side, you expect it to pick up in the next few quarters. I just wanted to get some clarity on a couple of answers, I think, to Jon Peace and Aybek questions earlier. The AED 240 million other operating income, I think you said it has AED 138 million in there, which feels like it's a one-off. The presentation slide 7 calls it a gain on investment properties, but I think it's actually a gain on the extinguishment of loans. Can you just, and you had that in Q4 as well, could you just guide or give some clarity on whether this is recurring? And secondly, on that line item, is there any potential for fair value analysis or assessment of NMC that would come into this line item going forward?
That's the first one on the non-interest income, please.
Thank you for the question. Yes, you're right. We put out the call out on the slide in terms of what that includes. So there have been a number of sales of loans that we've seen coming through. The quantum and timing of these loan sales is very difficult to predict. Will there be some more in the future? Yes, we do expect some more to come through. But which quarter, what quantum, is difficult to quantify. So we are looking at seeing where opportunities are there for us to liquidate these loans or sell these. But I can't honestly. The way timing and quantum of those. Fair value on items that, yeah, that could also come through, positive and negative here. But we haven't seen anything on that front coming through.
Okay. Thanks. So I guess there's no visibility on those two things. Then if we talk about the more recurring components of non-interest income, such as the fee and commission growth, I'm just trying to understand that as you drive more towards being government-related entities, loans on that side where the fees are typically less compared to a retail bank, and this has shown up in your split on the fee and commission line where your loan processing fees are down, and you have some other items where I'm just trying to get an understanding of how much is sustainable of it. So, for example, you have account-related fees up 65%. Of this 65% growth, is this coming from new deposits? Because, of course, deposit growth has been strong. Or is it your existing customer base, or is it a combination?
Because that seems to be the main driver, of course, trade finance and asset management to a smaller extent. But if you can just, yeah, shed some color on that, please.
Sure. On the account-related fees, this is also re-benchmarking our fees compared to the competition. So there may have been certain areas where we have increased the fees. So part of that is coming. So a large portion of that is from the existing customer base. Card-related fees, while you see, are stable. But as the spend increases, we expect that to go up as well. Now, loan processing fees, probably a slight decline in the first quarter. But with loan growth, that is going to pick up in the coming quarter. So there is a direct correlation with the loan-related fees and lending growth. So we expect, I mean, overall, we've seen a 17% year-on-year growth. We expect fee income to continue to grow and the momentum to continue.
But the other aspect of this is also the trading income, which is where, again, it's not a linear sort of growth pattern quarter on quarter. This line item is prone to volatility, but it could be quite positive in a quarter and not quite so positive in another quarter. But probably, Robbert, if you want to add a few.
No, I think I've mentioned it before. The only thing that I would add to this is that we are expanding up. So that, I think, makes the volatility a little bit less going forward. It's not only FX that we're trading. We're getting a wide range of products. And like I said before, every quarter, new products come online that we can offer to clients. So we do see meaningful flow. And in the end, of course, it's our goal also towards the five-year plan to have a line item that is also largely depending on focus and it's not necessarily on pricey trading fees.
Okay. So maybe I can just add one last thing. So you're saying that the loan processing fee component would pick up with loan growth despite it being down against the 13% year-on-year growth we did this year, i.e., it would still improve if retail remains subdued?
Yes, we expect loan processing fees to pick up the balance of the year as we go forward.
Okay.
Retail, we would expect retail growth to start coming in Q2, Q3, and Q4.
Okay. Thank you.
Thank you.
All right. We might have time for one last question, and then we'll call it a close. And if there's any follow-up questions that we haven't gotten to, we'd be very happy to take them offline.
Perfect. Thank you. I have our final question from Olga Veselova from Bank of America. Please unmute your line and ask your question.
Thank you for taking my follow-up question. Just to clarify, given the low visibility on any sale or liquidation of loans and no clarity on a gain from NMC, may we conclude that the 20% profit growth guidance for this year is not based on any one-offs? Or does it take into account any provision releases or anything that would help close the gap between your guidance and what consensus anticipates for the full year in growth and ROE? Thank you.
So, Olga, yeah, we do expect recoveries to come through, which, again, are not typically built in. We're looking at a number of opportunities. We see a pipeline of recoveries coming through, either through the cost of risk line or another operating income depending on whether the client settles directly or we sell the loan to a third party. So there could be some items coming in there as well in the balance. But again, can't quantify timing and quantum on this call.
Okay. Understood. Thank you.
This concludes our Q&A portion of the webcast. I will now turn the call back over for closing remarks. Thank you.
I'd just like to close the call with thanks to everyone for participating in this. Should there be any follow-up questions, please feel free to write into Harsh Vardhan, Head of Investor Relations, and we will get back to you with the questions' answers. Thank you very much for your time today.