Hello. Good afternoon. Good morning, everyone. This is Rahul Bajaj from Citi Research in Dubai. We are very delighted to have with us Abu Dhabi Commercial Bank Management Team to present their first half 2024, second quarter 2024 earnings conference call. Representing the ADCB Management Team, we have Deepak Khullar, the Group Chief Financial Officer, Robbert Muller, the Group Treasurer, Paul Keating, Group Chief Risk Officer, and Harsh Vardhan, Senior Head of Investor Relations. Without further ado, I'll pass on the call to Harsh to take the call for me. Harsh, over to you.
Thank you, Rahul. Good day, ladies and gentlemen. I would like to welcome you to ADCB's second quarter 2024 financial results call. We will be referring to our earnings presentation, which can be found on the Investor Relations page of our website. As Rahul said, I'm joined by Deepak Khullar, Group CFO, Robbert Muller, Group Treasurer, Paul Keating, Group Chief Risk Officer, and Monica Malik, our Chief Economist. We will be taking you through key highlights from the quarter and half-year period before opening the floor for questions. I will now hand over to Deepak to begin the presentation from slide five.
Thank you, Harsh, and welcome everyone to our quarter two earnings call. I'm pleased to report that our strategy for accelerated growth is driving strong momentum in the bank's operational and financial performance. ADCB has continued to reinforce its strong market position through broad-based credit growth in the context of favorable economic fundamentals in the UAE. Net profit before tax grew 30% year-on-year to AED 2.59 billion in quarter two and rose 28% to AED 5.02 billion for the first half. On a post-tax basis, net profit was AED 2.32 billion for quarter two and AED 4.46 billion in the first half, representing a return on average tangible equity of 16.5% and 15%, respectively. The broad-based nature of this growth has maintained good equilibrium across our businesses. The retail banking group, RBG, continues to leverage digital platforms to expand customer reach.
Meanwhile, the corporate and investment banking group, CIBG, is capitalizing on rising levels of corporate investment and capital markets activity. ADCB is proud to be playing a central role in the region's economic expansion. Our assets have expanded at 14% CAGR over the last three years to cross the AED 600 billion mark at June end. In the first six months, we recorded AED 30 billion in net loan growth, driven by solid demand from corporates and individual customers. The bank is strategically prioritizing high-quality, low-risk credit counterparties, with GREs accounting for 51% of gross loan growth in half one. Given this strong performance and our healthy credit pipeline, we are updating our full year 2024 guidance for net loan growth to approximately 15% from the previous range of 8%-10%. ADCB's strong franchise continues to attract significant customer deposits, which were up 23% year-on-year and 7% year-to-date.
Amid the high-rate environment, the funding mix has naturally tilted towards term deposits. Yet, the bank has successfully attracted inflows of CASA deposits, which have increased 14% over the last 12 months. There has been a significant improvement in cost of risk, which stood at 58 basis points for half one, well within our guidance. On slides six and seven, you will see the income statement highlights. We're pleased to report the record half-yearly net profit before tax, with quarterly pre-tax net profit growing steadily over the last 12 quarters to reach a record AED 2.59 billion. The bank is moving at good pace, recording double-digit year-on-year growth in both net interest income and non-interest income, with half one operating income exceeding AED 9 billion. Significantly, revenue generation remains well-diversified across core business segments.
Turning to slide eight, the bank has capitalized on a strong credit pipeline over the last 12 months amid rising benchmark rates. In line with our strategy to rebalance the lending portfolio, loans to GREs have increased considerably over the last two years and now account for just over half of the year-to-date growth. In parallel, the higher rate environment has resulted in greater representation of time deposits in the funding mix. In this context, net interest income in Q2 increased 12% year-on-year to AED 3.28 billion and declined marginally on a quarterly basis. For the six-month period, net interest income was 14% higher at AED 6.58 billion. Risk-adjusted NIM in Q2 improved due to the rebalancing of the loan portfolio towards GRE, up nine basis points on a quarterly and an annual basis at 2.16%.
For half one, risk-adjusted NIM improved 6 basis points over the prior year to 2.11%, supported by a 15 basis point improvement in cost of risk. Meanwhile, NIM declined 11 basis points year-on-year and 7 basis points sequentially to 2.63 in quarter two. Cost of funds rose 70 basis points year-on-year to 4.25% in half one, given the context of rising rates and increase in time deposits. Turning to slide nine, a key aspect of the bank's growth is the enhanced diversification of the bank's revenue streams, with non-interest income representing 29.3% of the total operating income in the first half, compared to 27.5% a year earlier. This is a direct result of deeper customer relationships and a sophisticated offering across all core businesses. In the first half, non-interest income increased 24% year-on-year to AED 2.72 billion, with strong performing stream across the board.
H1 fee and commission income was up 20% year-on-year to AED 1.51 billion. Notably, the card business continues to perform well, issuing more than 64,000 new cards in quarter two, while credit card acquisitions were up 22% year-on-year. Meanwhile, CIBG's strong advisory offering and product suite continues to drive a market-leading fee-to-income ratio. H1 net trading income of over AED 1 billion was up 20% year-on-year, mainly on higher gains in financial assets that fair value to P&L. Other operating income in H1 was AED 208 million compared to AED 95 million a year earlier. This was primarily driven by higher gains on non-trading securities, which were partially offset by lower property management income following a divestment of an 80% stake in Abu Dhabi Commercial Properties in Q4 2023.
Turning to slide 10, we continue to invest significantly to drive scalable expansion of the business, particularly in areas such as digitization and sales initiatives, while maintaining discipline management of our long-term cost trajectory. Operating expenses in the quarter were therefore 16% higher year-on-year and up 8% sequentially at AED 1.53 billion. This included costs related to the establishment of the new branch in Saudi Arabia and other growth opportunities, as well as the timing of variable pay accruals and payments. Importantly, for the first half, cost-to-income ratio improved 30 basis points year-on-year to 31.7%, with cost investments and revenue-generating initiatives yielding a 17% income growth. On slide 11, you will see that our balance sheet remains strong, with total assets increasing 8% year-to-date and 17% year-on-year, exceeding the AED 600 billion mark, a key milestone for the bank.
ADCB's liquidity position is robust, with a liquidity coverage ratio of 129.9%, a liquidity ratio of 30.7%, and a loan-to-deposit ratio of 85.2%. Please turn to slide 12 for a closer look at our loan book. ADCB is playing an increasingly central role in the region's economic dynamism. The bank is driving strong loan growth in both retail and corporate, and the businesses are benefiting from a robust credit pipeline. The bank extended AED 73 billion in new credit in the first half, with repayments of AED 41 billion. This robust growth has been marked by an increased exposure to GREs, which comprised 27% of gross loans, up from 25% at December end, while exposure to real estate further reduced to 15% from 17% in 2023. The bank also increased lending to diverse segments, including financial institutions, trading, transport, and communications, as well as retail customers.
As mentioned at the start of this call, following robust credit expansion in half one, ADCB has updated its full year loan growth guidance to approximately 15% from the previous range of 8%-10%. I will now hand over to Robbert to discuss the investment portfolio and funding mix.
Thank you, Deepak. Please refer to slide 13. The investment securities stood at AED 133 billion at June end, up 3% year-to-date and 9% year-on-year. As we stated before, the portfolio is growing in line with balance sheet growth. 74% of the portfolio is accounted for at annualized cost and 26% at fair value to other comprehensive income and mark-to-market in a daily basis. Moving to slide number 14, you will see that ADCB has maintained a well-diversified funding mix and has continued to attract strong deposit inflows. In a high-rate environment, time deposits have increased 12% year-to-date and 32% year-on-year to AED 280 billion. The bank also continues to attract significant CASA deposits, up 13%, 14% over the last 12 months to reach AED 172 billion. CASA deposits accounted for a healthy 44% of total deposits. On slide 15, you will see details of our capital position.
The bank's capital adequacy and CET1 ratios have further strengthened to 16.42% and 13.17% respectively. This improvement was driven by strong retained earnings and the bank's enhanced risk profile, with risk-weighted assets only increasing by AED 6 billion in the first half, while net loans grew by AED 30 billion. I will now hand over to Paul to discuss asset strategy.
Thank you, Robbert. And turning to slide 16. As you have already seen, impairments have significantly reduced this year. As a result, cost of risk was 48 basis points in Q2 and 58 basis points in the first half, well within the guidance of less than 80 basis points. The NPL ratio was 3.59% as of June end, declining from 3.73% as of December end and 5.1% a year earlier. The provision coverage ratio was 95%, and including collateral held, it was 146%. Please turn to slide 17 for updates on Al Hilal Bank. The Al Hilal Super App continues to attract more users, with over 43,000 new banking customers onboarded in Q2. This brings the total number of banking customers joining the app to over 348,000 since its launch two years ago.
In quarter two, the bank signed an agreement with Abu Dhabi Securities Exchange, the ADX, to enable instant search through the Sharia-compliant IPOs through the app. Moving on to our operations in Egypt, which is covered in slide 18, ADCB Egypt delivered a very strong financial performance driven by robust loan growth despite a backdrop of macroeconomic challenges. The net profit in the first half increased 142% year-on-year to AED 188 billion, representing a return on equity of 39%. Net loans increased 37% year-on-year to AED 42 billion, with total deposits up 34% to AED 99 billion. I'll now hand back to Deepak.
Thank you, Paul. On slide 20, you provide an update on digital transformation, which continues to be instrumental in ADCB's success in gaining market share. ADCB Group's UAE operations, including Al Hilal Bank, welcomed approximately 192,000 new customers in quarter two, with 85% onboarded digitally. Furthermore, ADCB's onboarding app welcomed its highest numbers of new customers in a month, with 44,000 registered in May. As of June end, subscribers to digital banking, which includes internet and mobile banking, were up 34% year-on-year, with active users up 38%. The bank has achieved its highest ever level of digital engagement, with 90% of customers now registered for internet and mobile banking. Self-service retail financial transactions represented 97% of all customer transactions in quarter two. On the corporate side, the bank also improved the customer experience on its Escrow Platform and upgraded its liquidity management solution for CIBG clients.
Turning to ESG on slide 21, as part of the Net Zero Banking Alliance (NZBA), ADCB continues to implement its roadmap for setting targets for carbon-intense sectors by May 2025. The bank is also monitoring progress on its commitment to extend AED 125 billion of sustainable finance by 2030. On this slide, you will see a number of select sustainable finance deals and transactions facilitated by ADCB. We've also conducted a number of workshops to develop internal capabilities in preparation for the adoption of IFRS S1 and S2. Turning to slide 23 and the operating environment, the macroeconomic fundamentals of the UAE remain robust, with consumer confidence and investment momentum. PMI data remains strong in the context of domestic demand. The external-facing service sectors are also performing well as the global economic outlook remains steady, with softening inflation leading to expectations of rate cuts in the second half.
To summarize, the bank is performing well and continues to make good progress against full year and medium-term guidance. To reiterate, the bank has revised its full year net loan growth guidance to approximately 15%. Our strategy continues to focus on the UAE market and banking relationships across regional economic corridors, while retail growth momentum is supported by UAE's strong economic fundamentals. Loan growth has been steered by strategic targeting of high-quality, low-risk credit counterparties. At the same time, rising fee income is enhancing the diversification of the bank's revenue streams. We are very pleased with this growth trajectory and look forward to a positive second half of this year. Thank you. This concludes our presentation. Operator, you may now open the floor for questions.
Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Once your name has been announced, you can ask a question. If you want to withdraw your question, please lower your hand using the raise hand function in the Zoom app. Our first question comes from Shabir Malik. Please unmute your line to ask your question.
Hi, good evening. Can you hear me?
Yes, we can. Hi, Shabir.
Hi. Hope all is well. Just a couple of questions from my side. When I look at your NIM guidance for full year and compare it to your first half NIM, there is a bit on the website there. So I think first half, your NIM is 2.66, your full year target is 2.7. Considering that NIM in the 2Q was actually a bit lower compared to the first quarter, and I think you've explained that your growth in GREs is part of the reason for this lower asset yield. What confidence do you have that you'll achieve your full year target of NIM? And what drivers do you think are going to take you there? So that's my first question. The second question is around fee income. So fee income trend has been very good in the second quarter.
As we head into the summer season, do you expect a slowdown in fees, or do you still think that the drivers that were at play in Q2 continue into the third quarter? And finally, on asset quality and provisioning, on the cost of risk side, there was a bit of surprise. If you can please give more details on what caused that. And how does it tie up with the credit quality metrics, which showed a bit of a deterioration this quarter? So NPL ratio seems to have gone up a bit. And so if you can please comment on those credit quality metrics as well. Thank you.
Thank you, Shabir. So yes, on the NIM, we've seen a decline in second quarter and overall 2.66%. We've guided to around 2.7%. NIM still remains quite challenging because of the intense competition in the marketplace, and because of our increased deposit mix and return deposits, we hope that the CASA deposit mix should go up in the second half, and that's what we're aiming for. Also, the reserve requirements of the UAE Central Bank have now been implemented. So it moved from 7%- 11% last year and then now 11%- 14%. So that's come in. So that's also been baked into our forecast, but I think it's more around the profit, sorry, the deposit mix. And also the growth in the second half that we see coming through. We probably see more higher yielding assets coming in the second half.
Fee income growth, I think, will remain the same. We expect strong fee income growth to continue in the second half as well, as we've seen in the first half. So I don't think as a result of the summer months, we'll see much slowdown. On asset quality and cost of risk, the overall asset quality has improved with NPL ratios coming down. Cost of risk has also come down significantly down to about 56 basis points or 58 basis points. Yeah. So we've seen that come down. The reason for the coverage ratio coming down a bit is because it's an in-and-out movement. Certain accounts that were fully provided for were written off during this quarter, as we do regularly every quarter. Certain Stage 2 and Stage 3 accounts moved into Stage 3 accounts.
So that's the reason for the provision coverage ratio. But I also ask all people to comment if you want to add anything.
Thanks, Deepak. Yeah, I think I would say some of the June movement that you're looking at, the non-performing loans in terms of absolute dirham amount, I think it's more a timing perspective because looking at the overall NPL ratio, December 2023 was 3.73%, and it's landed at 3.59%. So still heading down from that context, even though it was slightly up from the March period. So I think to be back to point, it's more timing perspective than anything else.
Can I come in? Maybe just one more thing on the new development. I think you mentioned it on the previous call in the first quarter. It's also about the composition of our term deposits. We did see a higher inflow of all the deposits as well.
Sorry, can you speak up a bit? Sorry, I can't hear you very clearly. The last.
Sorry.
Sorry.
So much while we move on the microphone. Can you hear me now?
Yes, yes, better.
Is that my voice? Sorry, I was just making sure.
Yes, I can.
As we have said during the first quarter call, that we did see an inflow of longer-term deposits at the end of last year, as well as a higher inflow of smaller deposits, and that's something we're trying now to actively manage, and that should help us steer towards the target of 2.70.
Deepak mentioned something about CASA growth. So is there any specific initiatives that you think is going to provide that CASA growth in the second half?
The special initiatives are basically driving that with a focus to bringing higher CASA deposits from the retail segment and the corporate segment to drive through our cash management proposition, which is extremely strong. We're making further enhancements to the cash management platform, which we believe will be well received by our corporate clients and help us drive the CASA element with the corporate clients as well. So it's a very active focus on getting more CASA deposits from both corporate and retail customers.
Yeah, and this is actively being incentivized by Treasury. And we're also controlling very much the external pricing towards our clients. And so we hope to control the deposit pricing going forward.
All right. Thank you very much.
Our next question comes from Aybek Islamov. Please unmute yourself to ask your question.
Yes, thank you for the conference call. This is Aybek Islamov from HSBC. Well, three questions, please. Yeah. So the first one, what's your thought process about your international lending, the fact that your loan mix is shifting more towards international over time? If you fast forward by three to five years, how is this going to impact your decision-making on your provisioning expenses, on your cost of risk? What kind of cost of risk do you see in the longer term? That's my one question. The second one is, when you look at your fee income and you're quite aware of the economic conditions that they're cyclically strong, what's your sense of how above the trend line is the fee income today? That's another thing I would like to know.
I think, thirdly, on your NPL ratio, let's say you're in a situation where you have to write off your NPLs which are older than five years. What would happen to your NPL ratio in that case? What kind of decline in NPL ratio you would see if you have to write off these older NPLs? Thank you.
Yeah, so on the international lending, so yes, that has been, as Deepak mentioned during his commentary, that we have been building our corridor. So looking at the corridors between the UAE and KSA, UAE and Egypt, and also between ourselves in the UAE and Kazakhstan. So that's a deliberate part of the strategy. You said then has that fed into our thinking in terms of cost of risk? Maybe in terms of balance, which is on slide 24, still has it going out 24 to 26 at less than 80 basis points. So at this stage, that's not changing in terms of the profile. On your question on NPL, so I think you're driving at the change that may be coming from the credit risk management standards that the central bank is going to issue. We obviously have been aware of that for a period of time.
The standards also allow pass-through write-offs. So banks over this period have taken the opportunity to do full write-offs or pass-through write-offs. The five-year mark starts from now. So it's non-existent to my eye, we would need to act on anything that's longer dated in the book. And therefore, it tends to come down to a case-by-case analysis, depending on the cash flows, the collateral, the cooperation of the customer, etc., and through actions on the write-offs and impact on the NPLs. So nothing specific in terms of guidance on the NPLs at this stage.
And fee income?
Yeah, fee income, I think we still expect to see double-digit growth into the second half of the year. It's been strong first half, and we expect that trend and that momentum to continue into the second half as well.
Okay. Thank you.
Thank you, Aybek.
Our next question comes from Naresh Bilandani. Please unmute yourself and ask your question. They have now lowered their hand. As a reminder, if you would like to ask a question, please use the raise hand feature. Once you've been invited to ask your question, please unmute and ask your question. There are no further questions on the line. Our next question is from Alay Patel. Please unmute yourself and ask your question.
Hi guys. Sorry, can you hear me okay?
We can't hear you if somebody's there. Yes, now we can. Sorry, we've lost you again. We can't hear you. Operator, we cannot hear the question.
Alay Patel, if you could please unmute yourself and ask your question.
Sorry, can you hear me now?
Yes, we can hear you.
Now we can, yes.
Thank you. Sorry for that. Hi guys, congratulations on a good set of numbers. I just had a few questions. The first is on OpEx. OpEx has been the OpEx growth has been quite high, double-digit now for quite a few years. I appreciate going back to 2022, there was investment in digital tech investment, but now we're still sort of at that 16% growth in OpEx for the first half of 2024. Just wondering when this might taper off and what's the sort of key drivers other than any digital investment there. The second question is on NMC. So we had some news flow that this entity might be listed. Just any thoughts on what this could bring about by way of recovery for you, if any?
And the third question is on your credit growth in Saudi or participation in Saudi, what you assign by way of risk weightings to any syndicated loans that you participate in in Saudi. I noticed that risk-weighted asset density has come down quite a lot. Thank you.
Thank you. Yeah, let me take the question on OpEx first, and then credit growth in Saudi Arabia we'll probably all answer that. OpEx, yes, we said we will continue to invest in revenue-generating operations, which is the cost growth is primarily coming to drive sales and income growth. So this is not investment in back office or processing units of the bank or risk management, etc. These are frontline relationship managers driven new dealers in Treasury, etc. So these are directly related to the revenue-generating opportunities. So while we see 16% growth in cost, we see a 17% growth in income. And as a result, our cost-to-income ratio year on year for the first half has declined by 30 basis points. So the bank will continue to make those investments. We are a growing bank. We're now over AED 600 billion.
So from an absolute cost perspective, we obviously don't expect to remain static. We will continue to invest in the business. New operations in Saudi, that's an investment that's going in in people, systems, processes, real estate, etc. in Saudi. The revenues from that will probably come later on in this year and next year. So there's a little bit of front-end of the cost before the revenues can come in and other opportunities as well where we're investing, whether it's digital or formulating other strategies of growth. So some of those investments are happening there. But I think we're still quite pleased that the growth in cost is going towards revenue-generating costs. These are people-related and directly related to income. On NMC, yes, there is progress being made by that company in terms of coming on a better footing in terms of its profitability, etc.
The timing of when it comes to market will be decided by NMC, but we expect that to be sooner than later. Once they're ready, obviously they will announce when they come to the market. I cannot tell you what the recovery amount would be, but we stand to gain if the enterprise value of the company is higher than when we invested in the notes. Any upside on that, the noteholders will share in the proportion of notes that they hold. That will depend on what the realization of that company would be. Credit growth in Saudi, probably four, fifth, sixth.
To clarify, we've participated in Saudi syndicated loans for a period of time. Yes, we've got approvals from SAMA in terms of opening a branch, but that branch will be operational towards the end of the year.
So I think the risk-weighted density that you're seeing on a total bank-wide piece is more driven by the early comments that the growth in the GRE within the UAE has had a lower risk-weighted impact on the bank. So part of that growth or a large portion of the growth in our loan book has been through that GRE sector in the last half.
Okay, great. That's very clear. Thank you. Just one follow-up to the final answer. If you find that your capital ratios start to improve as a reflection of lower risk weightings, would you still keep your dividend payout ratio the same on a post-tax basis, the 40%-50% payout that you do despite a higher capital ratio?
So our guidance still remains 40%-50% cash payout ratio at the end of the year. And the capital density, we will see what comes in the second half. We've been very focused on management of scarce resources of capital, which has come out really well with strong capital ratios. But our guidance on dividends remains the same, which is 40%-50%.
Thank you, Deepak. Just if I may.
So I just want to add that comment. Obviously, the capital ratios, we're mindful of the services as well, which are ever-increasing in terms of climate risk, for example, we've now been set in. There's other cyber risk over and above the traditional intersecting banking book and credit concentrations, etc. So investments that are on the back side. So for the two capitals, we need to maintain above the floor as well that we're obviously mindful of in terms of considerations as to revenue.
Okay, thank you. And just a final one. Sorry, are you looking at any? I know you've not mentioned anything on M&A or any potential targets. Could we just have an update, please, on M&A strategy?
So M&A strategy remains what it was earlier. We look for both organic and inorganic opportunities, primarily in the UAE. And the last one we did was in 2019, which is UNB and Al Hilal. Post that, we also acquired the mortgage book of Abu Dhabi Finance. So if there is an opportunity here within the country which fits in or complements our business, we will absolutely look at that. But outside of the UAE, we're not looking at any M&A activity at this stage.
Great. Thank you for your time. Thanks a lot.
Thank you.
Our next question comes from Naresh Bilandani. Please unmute yourself and ask your question.
Excellent. Hi. Can you hear me this time?
Yes, we can hear you.
Yes, we can. Hi, Naresh.
Hey, Deepak. Hi. It says, "I hope you're well." Sorry for the technical issue previously. Deepak, a bunch of questions have already been answered. I just had a few follow-ups. One is, and I know the international segment continues to be the key driver of your volume growth. Could you kindly explain how much is Saudi in this entire mix? I would assume the majority of this is Saudi, but just keen to hear from you how much of this Saudi is within the international mix. How should we think of this mix evolving, say, three years out? Where would you see this as a portion of the total loans?
Clearly, because there's a significant amount of investor focus on NIMS in Saudi Arabia, which are under pressure due to funding costs and competition, just keen to understand from you, even if in very broad terms, what is the level and what's the range of high-grade pricing that is currently extended in the Saudi market, especially in the segments that you are currently present in? So any color that you can throw on Saudi pricing and the mix and how much is it currently in the book, that will be very helpful. That's the first question. Second is, how much further growth potential are you seeing in the cards origination? I know this business has been extremely strong for you over the past four to six quarters.
Do you think we are kind of close to the peak, or at least on the new origination side, or do you reckon there's further momentum to go from here? That's the second question, and my third and final question is with regards to the tax rate, and pardon me, I joined the call late, so I don't know if you've already discussed this, but has there been any further discussion with the regulators on increase in the tax rate to 15% compared to the 9% that is there currently? Thank you.
Thank you, Naresh. Let me take the last one first. Tax rate, no, we haven't heard anything further. From nine to 15%, still remains 9%. That will be up to the government to decide when and if they move to 15%. But I think it is dependent on a number of countries moving in that direction, not the UAE alone. That is my view. So there's no change to that 9% piece. The growth that we've seen is not primarily driven by overseas growth. In fact, we've seen very significant growth coming from within the UAE. Yes, there is a proportion coming from outside the UAE as well. But if you look at our loan exposure outside the UAE, sort of just moved between 18%- 20%. But most of the growth has come from GREs' government infrastructure development projects within the UAE.
And these are some of them are 0% risk-weighted, either to sovereigns or fully collateralized loans as well. So that's one thing. On Saudi, we do not give a breakout of each individual country, which is Saudi, etc. Pricing is competitive because of the counterparties as well. And I can't tell you what the pricing is, but yes, it is very competitive. But still, from a risk-reward perspective, it still makes sense for us. Your other question was three years out, what would be the proportion of this? Lending outside of the UAE, I would say probably marginally grow from 20-odd% to a little bit more, 25-odd%. So as the overall size of the book also grows, we will continue to seek opportunities in Saudi.
That is the reason why we're also setting up our branch, which will be fully operational, hopefully, by the end of the year or early next year. So we intend to participate in deals in Saudi in the coming future. So we'll see a larger proportion coming from Saudi as well.
Got it.
Paul, anything to add from your end?
No, just to say, if you also have a look on slide 12, just on the bottom right there, you also see the retail portfolio across all the different products increasing. If you look at the balances from June 2024 versus June 2022, it's all double digits. So again, it's not just one particular segment that's growing. We're getting growth from both the wholesale and the retail sectors.
Understood. Thank you very much. Just the follow-up question on cards business, please. And where do you see this business going through in the medium term?
Cards is a very sort of active growth area for us. We've seen growth in the cards issued. We've seen in spend. And so if you look at our percentage increase in acquisitions, quarter four from quarter two 2024 to quarter two 2023, that's gone up 22% in acquisitions. In terms of portfolio balances, it's up 16%. Card spend is also going up. And I explained earlier the reason for card fee income being down is because of one-offs that we got last year, which are not repeated annually, but could happen next year. We'll see that move up as well. So overall, cards is a very profitable business for the bank. We think we'll continue to grow in this area. And there's a lot of focus to making it grow. We've done a number of partnerships with third-party providers, especially Talabat, which is performing really well.
We launched a 365 Card, which is again doing very well. And we recently relaunched our Traveller Card with much higher benefits. And we hope that that will take off too well. That just got launched a couple of days ago. So a lot of activity in that area, and we expect growth to come through in the cards business as we move forward.
Understood. Thank you very much, Deepak.
There are no further requests. So I will now hand back to Rahul Bajaj for any questions on the speaker line.
Hi, Deepak. This is Rahul from Citi. I just have one follow-up question, if I may, please. This one is on provisioning. I know you have a medium-term cost of risk guidance of less than 80 basis points. But as the business sort of evolves towards the GREs, less than 80 basis points is a very wide range. So you think there is room for cost of risk to be much lower than the less than 80 basis points number that you've given out? Directionally, you should be probably heading towards much lower cost of risk, or do you think that's not going to change in the medium term?
Your line wasn't very clear, so let me just try and read back to you what we heard. So you're talking about provisioning, that our guidance is less than 80 basis points, whereas our actuals are much below that. And it's a very wide guidance for what I caught there. And going forward, would it still be below 80 basis points significantly or more? Is that the question, or did I get it wrong?
Yes, yes, Deepak. I mean, I was thinking more in terms of the change in business mix. So as you do more GREs, now GREs are 27% of your loan book. As that percentage of GREs grow, shouldn't that cost of risk sort of number be maybe less than 60 or less than, I don't know, less than 70 and not less than 80? I mean, your medium-term guidance, shouldn't that be revised down as business mix changes quite materially?
Actually, what you're seeing right now, the cost of risk is coming down, absolutely. And we've seen that in Q2. We've seen that overall first half. But also on the horizon is the new credit risk management standards, which Paul alluded to, which I don't know when they'll come into play, but maybe in the second half of this year. And so that may also be more prescriptive in terms of how provisioning needs to be done. But I'll let Paul comment more on that.
Yeah, I think the other dimension to this is I still think there's a lot of uncertainty in the market in terms of geopolitical in the Middle East itself, but also obviously the U.S. elections, etc., and the outcomes of that in terms of the global stage produces uncertainty in terms of growth rates, what's going to happen with interest rates, etc.
I guess we're mindful of that as well as what Deepak mentioned that the credit risk management standards that are to issue do have some potential changes for the industry around collateral handouts that need to be applied, more rigorous requirements around staging and kind of staging movement. So at this stage, until they're released and until we get certainty around the macroeconomic sort of longer-term global environment, we've left the medium-term guidance at the 80 basis points or less than the 80 basis points.
But we certainly consider that as we move in our journey over the second half of this year and early into 2025, if we need to revise that, obviously, like we've done with loan goals, we'll do that revision as well as we see the trend evolving.
Understood. Understood, Deepak. All clear. That's all from my side. Operator, are there any further questions on the line?
There are no further questions. So this concludes the Q&A session, and I will now hand back to Rahul for closing remarks.
Thanks. Harsh, would you want to take the floor to introduce the market?
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