Good morning. Good afternoon, everyone. Welcome to Abu Dhabi Islamic Bank's first quarter 2026 results call. My name is Shabbir Malik. I cover MENA Banks for Morgan Stanley. Please note that today's call is not for the media. Please also note that this call is being recorded. I will now hand the call over to Lamia Hariz, who is Head of Corporate Communications, Marketing, and Investor Relations at Abu Dhabi Islamic Bank. Lamia, over to you.
Thank you, Shabbir. Good afternoon to everyone on the call, and thank you for joining us. I would like to welcome you to ADIB Q1 2026 financial results call. Before we get started, just a quick reminder that today's presentation and all our financial disclosures are currently available on our corporate website as well and our IR app. With me on the call, we have Mr. Mohamed Abdelbary, our Group CEO, and Mr. Ahsan Akhtar, our Acting Group CFO. In line with the last quarters, we will begin with the key highlights of the quarter, including the guidance for the rest of the year. This will be followed by a deep dive into the financial performance for the first quarter, which Ahsan will take us through in detail. As always, we will end the session with a Q&A. Thank you, and Mohamed, over to you.
Thank you, Lamia, and good morning, good afternoon, everyone, and thank you for joining us on today's call. We will be taking you through the slides as usual, and then at the end, obviously, looking forward to some engaging Q&A. A few highlights. We had a strong start for the year, and we have delivered a net profit before tax of AED 2.1 billion, which is 8% up year-on-year. We have also seen our revenue growing by 12%. As we will see later in the slide, if one were to normalize for the 12% growth for the impact of rates, that is probably closer to a 19% growth year-on-year. From a client perspective, we welcomed around 66,000 new clients for the quarter, which I think is a continuation of our trajectory we have seen in previous quarters.
Balance sheet perspective, we are now reporting a balance sheet of AED 287 billion, which is around 18% year-on-year growth, but financing has grown 28% year-on-year. We will talk about why there is a bit of disparity between the financing growth and the total asset growth, and that is predominantly due to us utilizing some of the reserve requirements we had with the Central Bank. From a liability perspective, a very healthy growth on deposits. Again, very happy to see that our trajectory in terms of originating CASA balances has remained strong. We have added around AED 15 billion or so in terms of CASA year-on-year. Again, our return on equity stood at 27%, way above our full-year guidance of 25%. If we move to the next slide, again, on performance and not performance, the outlook. What happened?
The last.
Okay, good. Again, full-year guidance, nothing has materially changed. We are reconfirming our guidance for 2026. During this period, again, the UAE has demonstrated resilience, supported by strong fundamentals, a stable financial system, and we are very happy to see the proactive intervention by the Central Bank of the UAE. I am sure we are going to talk about this later on the call as well. The confidence in the system has remained strong, and the quarter has also delivered accordingly. During this period, in the first quarter, particularly in March when the situation was a bit fluid, we are very happy to report that ADIB remained fully operational. All our digital channels were up and running, and all our ATMs were functional. Also, our IT infrastructure has demonstrated resilience, whereby we had 100% uptime during that period.
Talking again about gross financing for the year, 28% year-on-year, and our guidance remains to be unchanged at 12%-14%. Our net financing margin at 3.9% today. Full year guidance remains as reported before, anywhere between 3.8%-4%. I think we have also seen that the outlook on rates, it has been moving, but now from probably no cuts to also we are seeing some consensus for possible rate hikes. Let us see how this goes. As we stand, we are very comfortable where our margins are and where they will head for the rest of the year. Cost of risk, we reported 48 basis points. Well within our guidance. We maintain our guidance between 40 to 60 basis points. Cost-to-income ratio at 29.6%. Sub 30% remains to be our guidance for the year.
Our 27% ROE, again, above the 25%, remains to be unchanged. Okay, this slide just to summarize some of our key pillars. It is a good story to tell. We are starting first by our unique position, summarizing between capital, liquidity, performance, controls. They are all heading in the right direction. Our capital and liquidity has remained very healthy and robust, and I think it has been tested very heavily in quarter one, and the resilience of the franchise has been visible. Business momentum is strong. Asset quality on track. We have been signaling this now for the last two years, that we will be continuously enhancing our asset quality ratios. Now we are reporting a 2.6% non-performing asset ratio. Our coverage ratio from a cash perspective, not including now reaching towards 100% and continues to improve quarter-on-quarter.
Okay, before we move into detailed financials, let me just quickly talk about our Vision 2035, because that is important. What we see today are situations where there is volatility, there are changes in the market, but we keep our eyes on the medium to long-term view, and hence our Vision 2035 pillars remain intact. Just to summarize, we continue to scale our UAE franchise. We maintain our leadership in the Emirati segment and continue to also expand selectively in the expat segment as well. We are reinforcing our differentiating position as a leading Islamic bank. On the wholesale bank side, we have seen growth quarter-on-quarter, re-emphasizing our position as the go-to bank for now most of the GREs and select local corporates. More importantly, we have always been saying that we are leading with technology and AI. We have done lots of strides.
We are very happy to report our leading position in being the first bank to offer Open Finance. We are the first bank to have the TPP license in place, and we continue to lead the market in terms of our technology and AI infrastructure. With that, now I am going to hand over to Ahsan to take us through the financials, and then at the end, we will open up for Q&A. Ahsan, over to you.
Thank you, Mohamed. Good morning and good afternoon to everybody on the call. As the CEO mentioned, we have witnessed a very strong performance momentum coming from last year, and it has continued in Q1 2026 as ADIB delivered another record quarter as we achieved profit before tax of AED 2.1 billion, up 8% year-on-year, and profit after tax of AED 1.8 billion, up 7% year-on-year, while at the same time delivering a strong ROE of 27%. This growth has been on the back of continued top-line performance as revenue grew to reach AED 3.2 billion, higher compared to last year by 12%.
This has been supported by healthy customer activity and robust balance sheet growth as total assets have now reached AED 287 billion, primarily driven by both sides of the balance sheet, as core gross customer financing are now inching towards the AED 200 billion mark at AED 198 billion, higher compared to last year by 28%. While at the same time, our funding on the deposit side increased to reach AED 239 billion, higher by 20% year-on-year. Importantly, our CASA performance during the same time was very good, and we grew by 11%, supported by our funding mix, which has helped us to manage the funding cost.
Please note that we have used a tax rate of 9% in the UAE, while the effective tax rate for the Group as a whole continues to be around the 13% mark, which was in line with our expectations and the guidance previously provided. Turning on to our income statement, on slide 10, you can see on the left-hand side that we have delivered the highest quarterly performance in our history of a net profit before tax of AED 2.1 billion. This chart also shows that net income has continued to grow over the last five quarters, quarter-on-quarter exceeding the AED 2 billion mark, reflecting sustained business momentum in the Group. The key drivers of this performance have been growth in our funded income, which grew by 17% year-on-year, supported by expansion of our balance sheet and resilient margins.
Non-funded income at the same time also increased by 4% and is now contributing a healthy 36% of total income, reflecting a diversified business model, revenue streams across all the businesses. If you combine these two, then together our total revenue increased 12%, with growth across all major business segments. In terms of expenses, these increased 1% sequentially, and 14% year-on-year as we continue to invest in people and technology as well. While at the same time, payments were higher by 50% year-on-year in line with our financing growth of 29%, reflecting a more prudent provisioning approach while asset quality indicators continue to remain sound as well. Now turning towards the funding income in terms of the key drivers. As you can see, our net profit margins have remained resilient at 3.91%.
This represents a nominal sequential decline of only 2 basis points compared to the last quarter where we ended Q4 at 3.93%. But in comparison to last year, same time in March, we are lower by about 40 basis points. The decline is essentially as a result of the gross margin coming down over the years as the impact of the 2025 rate cuts is now fully reflected in the margin, while this still remains healthy at 6.8%. The impact has been mitigated through effective cost of fund management by growing our CASA portfolio, it increased by AED 15 billion and optimal pricing across our Wakala Deposit portfolio.
As a result, our cost of funding has remained well under control at 2.5% for the Group, while if you look at our UAE business, it is now at 1.7%, reflecting a diversified model and predominantly cost and driven deposit base. The funding income growth was broad-based, with retail contributing 22% increase, while wholesale contributed an increase of 16%, reflecting growth in core client segments in government and public sector. Moving on towards our non-funded income. In the first quarter, we recorded an increase of 4% to reach AED 1.16 billion, and this now contributes 36% of our total income. Growth was primarily driven by investment income, which increased by around 10% year-on-year. This was also complemented by a modest contribution in our foreign exchange income, reflecting steady client activity, which was partially impacted by the ongoing situation and some reduced trade flows.
Fees and commission income declined by 5% year-on-year, mainly due to lower card and trade-related fees. However, this was partially offset by strong performance in our wholesale banking business related to transaction fees. If we now go on towards expenses, while the overall increase was 14% year-on-year, it does reflect disciplined investment in certain growth initiatives. The key driver of this increase was primarily employee cost by 16%, which reflects continued investment in critical areas of the bank, such as the frontline capacity, revenue-related activities, technology, risk, and regulatory readiness. Other than that, general and administrative expenses increased by 16%, largely linked to technology spend and business enablement initiatives. Our overall cost-to-income ratio, while it declined sequentially to reach 29.6%, on a year-on-year basis, it increased by 74 basis points.
The overall cost growth is targeted and aligned with our strategic priorities, all money well spent driving benefits for the organization as a whole. Moving forward to slide 14, in terms of our provisions, while as I said previously, while the portfolio has increased by 29%, our provisions increased by 58% to reach AED 158 million. The increase in provisions, as you can see, is primarily driven by our wholesale portfolio, reflecting a normalization from the very low levels last year. While at the same time in our retail business, the increase has been relatively modest and has remained aligned with our portfolio growth and stable underlying performance. As a result, our cost of risk continues to track within our through-the-cycle guidance. As mentioned, it is 48 basis points. But importantly, our asset quality indicators remain relatively stable.
If we move on to our non-performing assets, our asset quality improved year-on-year with our non-performing assets declining by 9% to reach AED 5.24 billion. This has been as a result of reductions across both the individual as well as in our wholesale business portfolio. Our non-performing assets now is at our lowest level recorded ever at 2.6%, down from 3.7% a year ago, underscoring the strengthening quality of the book, despite a more cautious macro and geopolitical backdrop. More importantly, our coverage ratio has further improved to inch towards the 100% mark. While if you were to include the impact of the collateral, this is at a relatively high level at 178%. Turning on towards our balance sheet. While total assets, as previously mentioned, increased by AED 44 billion to inch towards the AED 287 billion. This represents 18% growth.
This increase has been primarily driven by strong expansion in our customer financing portfolio of 29%, supported by robust and diversified funding position. It also reflects continued momentum across both our core businesses, wholesale as well as our retail businesses, and this has been supported by disciplined underwriting and selective growth in priority segments. On the funding side of the balance sheet, the asset growth has been supported by a strong customer deposit growth of 20% year-on-year, essentially matching the asset growth underlying our funding stability and supporting balance sheet expansion. In terms of our customer financing, our portfolio remains resilient, with net customer financing increasing by AED 12 billion in the first quarter of the year and a growth rate of approximately 5%, reflecting broad-based growth across diverse sectors and client segments also.
On a year-on-year basis, as previously mentioned, this increase is 28%, driven by retail, government, and our public sector. Within the retail space, the portfolio grew 25% or AED 20 billion. We are very happy to say that we have now hit the AED 100 billion mark as far as our total retail portfolio is concerned, and this has been supported by sustained demand across all our core products. The growth has been led by home finance, reflecting continuing momentum in our residential financing, alongside solid growth in our personal finance and auto finance portfolio as well. Within our wholesale business, our overall growth has been 33%, reflecting strong contribution from the government public sector entities, which grew 50%, reflecting participation in priority and low-risk areas.
In terms of our investments, the portfolio has increased by 11% year on year to approximately AED 35.5 billion, reflecting a measured approach as we build portfolio, ensuring strong liquidity and income diversification. This portfolio remains conservatively positioned with approximately 84% held as amortized cost, underscoring our focus on stability, predictable income, and limited earnings volatility. In terms of our deposits as we move forward, while deposits increased by 20% year on year, this reflected strong franchise momentum and continued success in attracting low-cost, stable funding. More importantly, our current and saving deposits increased by AED 15.5 billion, reinforcing a healthy and improving funding mix. As a result, our total CASA deposits now represents AED 160 billion, which is 67% of our total deposits, essentially supporting our funding stability and helping offset pricing pressure in a low environment.
Lastly, in terms of capital and liquidity, ADIB continues to maintain robust fundamentals across our key capital and liquidity metrics, with ratios comfortably above our regulatory requirements, supporting both growth and resilience. As a result, our Common Equity Tier 1 now stands at 12%, while total capital adequacy is at 15.5%. Our focused deployment of capital and continued efficiencies have ensured that our risk-weight assets increased by 15% year on year compared to our financing assets growth of almost 28%. Liquidity remains strong and continues to improve the advances to finance funding ratio at 87%, while our funding to deposit ratio further improved to reach 81%, reflecting a healthy funding structure and strong deposit source. With that, we conclude the financial side of the presentation, and we open the floor to questions.
Thank you very much to the management team for this presentation. If you allow me to start the Q&A section by asking a question from my side, and then we will open the floor to the audience. My first question is around liquidity. What has your experience been with regards to liquidity in this quarter, especially in March? Considering that you have seen a pretty good growth in loans and investments, even though deposit growth has been pretty good, it has not kept pace with loans and financing and investment growth. So what has your strategy been, considering the geopolitical backdrop? My second question is around fee income. Your comments and your presentation suggests that cards and trade finance, fees from those sources were a bit weak, potentially because of the situation. Can you give us any color on what we should expect in terms of in the second quarter?
The first quarter, two of the three months were business as usual. Could there be further weakness that can be expected in the second quarter in the fee income line? Finally, I guess my question is around NIM. Your NIM guidance, you are currently sitting in the middle of your NIM guidance for 2026. I just want to understand what your expectation for rate cuts is for 2026 and how do you see NIM playing out for the rest of the year. Thank you.
Okay, thanks, Shabbir. I will cover your three points and let you know if any follow-up is required. Let me start with the liquidity question. I think what we have seen in March is that the movement in liquidity was offset by some of the Central Bank interventions which we have seen. I think the proactive approach taken by the regulator was very welcome. The most impactful one, in my view, is the action on the reserve requirement. That almost released AED 80 billion -AED 90 billion into the system.
For us, because the reserve requirement is a function of 14% on current accounts and 1% on contractual deposits, and given that our huge size of current accounts, we had a huge amount with the Central Bank in terms of reserve of the 14%, effectively almost 4% of that was released back to us immediately, which translates to almost AED 6 billion- AED 7 billion. Hence, even some of the outflows which we have seen and which were expected given the situation, were offset by that inflow. What also we have is that we have in our balance sheet, what we call structural cushions. These are instruments where we can easily engage and create additional buffers.
We have these instruments with other FIs and happy to share more details from them later on, is that whereby we can call on some of these instruments, against some of our Sukuk, and hence we have also created almost AED 45 billion additional liquidity at very attractive rates. Answering your question, has there been liquidity pressure in the market? Probably yes, given the situation. For us in ADIB, we were able to mitigate some of these, and hence all our liquidity ratios for quarter one have been resilient, whether it is from an LCR, NSFR or even AD ratio. That was good. In fact, in such times, still able to grow your CASA accounts is again, a demonstration of how ADIB is able to leverage on its client base and the wallet we have with the clients. That is on liquidity. On the fee income, you are absolutely correct.
January and February is one story, March is a complete different story. That is natural because what happened in March is that, number one, as you mentioned, the card fee income was impacted. The reason that is coming from international spend. A lot of fees come from cards transaction, particularly when used internationally. Given the situation where international travels was pretty much shut down, there was no international spend and hence our card income was negatively impacted, and that's what you see in the quarter. For us, it's quite sizable because we do have, I wouldn't say one of the largest, but the largest spend on our cards in the UAE. When a complete channel is almost closed, that's what you see immediately translating into our numbers.
Early days, in quarter two, but, we have seen a really good ramp-up again coming back into the system with the opening up of travel. Hence, I believe that the situation will now start normalizing in Q2 again. So that's on the fee side. Your comment on net profit margin, we are sitting at 3.9%. Our guidance is anywhere within that range. The reason why we are comfortable still with that outlook is that our gross yields on assets is likely to come up any further because the biggest fee pricing usually happens on the corporate side. This is now fully absorbed, given the rate cuts which happened. So that's already built in. In terms of the retail side, we have not priced up when rates were high, so the downside pricing will also not be there as well.
If you look at it, on average, our personal finance, home finance, or even auto finance are priced very competitively in high rates and low rates. Hence, the gross yield on assets will probably stay where it is. In terms of our cost of funding, I think we've seen the highs now. We are actually expecting to see it moderating, but again, the situation is the situation and there's no going away from it. It's that the liquidity cost has gone up in March. So two points. We have options for liquidity, but liquidity cost also was high. Hence, going forward, for the next few months, I don't expect the cost of funding to be inching up any further from where we are today.
Having said that, we will observe and remain closely watching the situation because it all depends whether how far the situation, from a geopolitical perspective, is going to be normalized and we go back to business as usual. It's a matter of when, not if, but the when is very important because it will also dictate how the future will look like from a performance perspective. So, Shabbir, did I miss any of your three points? You want me to address the other one?
No, that was very comprehensive. Thank you very much. We now move to the participants. The first question is ... Give me one minute, please. The first question is from the line of Murad Ansari. Murad, your line should be open. Please go ahead.
Yes. Good afternoon, and thank you for the presentation. Congratulations on a good set of results. I have three questions. One is more of a clarification, which is on the cost of risk. Just to confirm that you haven't taken any ECL overlays in this quarter, and if that's the case, I just wanted to get a view from you as to how you've considered the current environment in terms of ECL models. Would you consider building in any further ECL overlays in second quarter? Is that something that's an ongoing discussion? My second question is on the capital ratios. The first quarter growth was, if you look at the split, half of it was public sector and GRE lending. But when we look at your RWA density, it seems to have moved up, although I think fourth quarter was a low number on RWA density.
Just wanted to understand that sequential improvement from fourth quarter to first quarter in view of the fact that majority of the growth was from GRE and public sector. My third question is, I think maybe you've touched upon this, but maybe for my clarification, the note 42 in the financial statements where you've talked about the Central Bank measures that are put in place and you've mentioned that there were relaxation of the minimum reserve requirements which the bank is utilizing. Is there anything else that you've of those relief measures that you've utilized? Because I've looked at other banks, and I think majority of the banks that I've seen this note on haven't really have mentioned that they haven't used any facilities till 31st March. Just wanted to understand how to view this message. Thank you so much.
Sure. Thanks, Murad. I'll start with the last point first. Relief measures. There were a lot of them offered by the Central Bank. We've only utilized the reserve requirement. We have not used any of the CLIs or any other measures. It's always good to know that they exist. They are there, and they will give a lot of relief at very short notice. But at this stage, we have not used them. Having said that, the relief measures were not only directed to the banks, but also for the clients. We did offer a lot of support to clients who have requested deferrals. On the corporate side, they were less than a handful, to be honest. It's been quite pleasantly surprising that not many have come asking for deferral.
The ones which are asked for are predominantly in the retail and hospitality side. Not a surprise there as well. In terms of other initiatives we have taken, we have launched also a campaign called Sanadna, and that is something from our side where we supported frontliners across many, providing deferrals and fee waivers, which I think we felt is important for us and important for the community, and it is just a small thank you for the support being provided. That is on the relief measures. On the cost of risk in Q1, while we have not taken any overlays, we did do a full stress testing, and we have reclassified accounts where we saw it necessary to be done. The 48 basis point cost of risk is a reflection of where we are today and also taking into consideration the external environment.
We do not believe that there will be a significant change to the effective cost of risk for us. That is why we also have kept the guidance stable. I would also advise the audience to probably use that guidance for the rest of the year as well, barring anything happening. I think our portfolio is very willing. We did a very thorough stress testing, and actually, we are quite comfortable with the situation we are sitting at this stage. Capital ratios.
We have continued to create internal equity, and I think this is something which sometimes is not given the due credit, but the bank has been growing in 20%+ over the past two, three years in terms of asset growth, in terms of investment and financing, has continued to pay 50% of its dividend, has increased the effective dividend per share to now almost 27 fils and still maintain these capital ratios. I think that is the reflection of prudent originating and balancing between a capital light transaction, but also a transaction which gives you the income because you can not have it both ways. Hence, you see that capital density for us being monitored very carefully. We are currently sitting at 12%.
If one would look at even without the support from Central Bank, our capital buffers are at least 2% above our minimum requirements, which is very healthy. We continue to monitor the situation, but I think if you take it all in one bucket, financial performance is strong in terms of creating almost 8% growth with a strong balance sheet momentum while preserving capital and ensuring that our liquidity situation is catering even for the future pipeline, not where we are today. Very happy with the situation where we stand today.
Great. Thank you so much. Just to confirm then, ECLs are not overlays, are not something that you are considering in the second quarter, or is that something that more stress testing could blow up over the course of the year? Just the increase in the RWA density, is that more of a calculation timing issue or something that has led to that?
No, that is not the case. It is just the mix we have. Because we are creating-- When we originate assets, it is a mix between the capitalized and also some of the more capital heavier transactions. But the density we are in today are quite comfortable at this point.
Okay. All right. Okay. Thank you so much.
Thank you.
Thank you. We will move to the next question. This is from the line of Jon Peace. Jon, your line should be open. John, please go ahead. Okay, we will move to the next person. This is from the line of [Waruna]. [Waruna], your line should be open.
Hi, good afternoon. Am I audible?
Yes, you are. Please go ahead.
Hi. Thank you, Shabbir. Thank you to management. I have three questions. The first one is related to the public sector, the loan growth that the previous question is related to. I want to ask, given the fact that there are a lot of infrastructure projects now in Abu Dhabi, I just want to understand what is the pipeline like. Could we expect more deals from this segment? Secondly, related to that is, traditionally, the yields on these public sector loans tend to be low. Will that be a reason for the margins to compress a bit further sequentially? Then the third question is on the retail business. I just want to understand, you had decent growth in retail, but if you break it down into months, did it happen mostly in January?
I just want to understand what is your experience in March and April in terms of retail growth? The last one, if I can squeeze in one more question. What is the split between your retail portfolio? What is the split between expatriates and UAE nationals, if you can provide that? Thank you very much.
Yeah, sure. Thank you. Let me start with the first question, your question regarding public sector financing and the pipeline. We have been very close, clearly, as always, to our clients, but especially even more in the first quarter. I can assure you that everyone is open for business. I have not seen any change in the pipeline. Maybe some entities are recalibrating the phasing or pace of some of them. But I have not seen any, I would call them strategic transactions, which have been either reconsidered or there is second thoughts about them. I think the word we keep on using, open for business for us and for the clients, and I think you will see that in the balance sheet growth even in Q1, but also I believe Q2 will continue to be at the same pace, particularly in that space.
No change in pipeline for public sector financing. Yields, yes, of course. It is all about a return discussion, right? Clearly, if you have the lower path to consumption, yields will be lower, credit risk is lower, and accordingly, gross yields will be also impacted as such. But I would not think that our gross yields are coming down because of compression on the mix, but it is just for the function of that, the base rate is also coming off, right? It is almost because you are pricing base and margin. The margin has not changed, right? The margin is the margin, but the base has come off. Very happy to see that actually that specific sector is going ahead and the mix is continuing as such. Nothing has changed on this front.
Another fact, the repricing of the portfolio in terms of lower rates in the corporate book happens very quickly. It is usually on a short-term repricing. Given that rates cuts which happened last year have happened now all and have flown in, what you see today is the repriced model for the gross yields. For retail, yes, March was slow as expected. We are big on home finance, so we have seen some slowdown in transaction executed. You also make a valid point. Some of the March transaction could be flow over from January and February because it does take time to close. But the good thing is that, now looking into April, the pipeline is building up. Sentiment is coming back. I always keep using the word very important, sentiment. The client sentiment is what drives your performance.
We are starting to see more and more that the positive sentiment is coming back. I would say too early to judge, but we are hopeful that this will come back. Let us not forget, the summer months, sometimes it could be slightly slower in terms of transaction. Early April signs are extremely encouraging for us to see where the transactions are coming back. I think your last point was-
Expat and UAE.
Expat and UAE. Yeah. Our book, while half of our clients are UAE nationals because we have around 1.7 million clients, I would say 800,000 or so are UAE nationals, but the financing side is almost 80% UAE national and 20% expat. This mix has not changed. While the expat segment has maybe grown a bit faster than the UAE nationals by this share of the population size, in terms of financing amount, it is still an 80/20 mix towards UAE nationals.
All right. Thank you very much, and wish you all the best.
Thanks.
Thank you. We'll move to the next question. This is from the line of [Olga]. [Olga], your line should be open.
Thank you very much for hosting this call today. I have several questions. One is on your business mix. We see growing role of government and public sector on both sides of the balance sheet, and it's a significant increase in the first quarter. Do you think this will continue? If yes, do you think that long term this is a risk for your net interest margin over the next quarters or years? Number two is your funding. There was a very nice inflow of funding from public sector GRE. What was the nature of this funding? For how long this money came in? Is it three months, six months, 12 months? How shall we think about cost of this money? Does this existing funding or does this EIBOR, just any color on the nature of this inflows would be very useful.
Finally, on cost growth, it was not very high quarter-over-quarter, but in annual terms, it is a relatively high figure, higher than revenue growth. If we assume that there is a bigger focus on government business, and maybe a bit smaller focus on retail business, shall we think that cost growth will slow down? By how much would you think cost growth can slow in the next maybe 12, 24 months? Thank you.
Sure. Thanks, [Olga]. Again, let me start maybe with the last question first on the cost. Having a revenue cost, the way I think about cost is very simple, is that it is important that an institution takes a medium to long-term view in terms of its strategic initiatives, right? I always say you have to invest through the cycle. If you think a start-stop approach whereby you have outlined clearly what are your strategic investments you have to make to take the bank to the next level, and then a short-term volatility comes and maybe shows a bit of the distortion between your operating leverage, and then you pull the brakes, I think that's a very bad strategy for the bank, medium to long-term. My answer is that we will continue to invest in our strategic investments.
When I say strategic, it means in our digital proposition, in our AI agenda, in terms of in our channels, customer proposition, and just end-to-end value proposition. This is not going to change. Also, some of the cost growth has always been linked to revenue initiatives, right? So when you make more money and you are predominantly a retail bank, your incentives also are being, I would say, not impacted, but it is good money to spend. This is usually normalizing with the top line growth. So I think our cost trajectory is possibly going to not show the 14% you see here, but we are not going to take our foot off the pedal in terms of ensuring our investments happen. Now, the answer is the revenue has to come back again. This is, for me, more important. It is productivity.
We are at 12% today, underlying probably more to 18%- 19%. I think that once the situation normalizes, client sentiment comes back, clients transact, retail particularly start to travel again, this number will look very differently, and I would rather have a higher revenue number than pulling back on strategic costs. Having said that, there are a lot of initiatives which are in flight, which will create capacity for us to continue investing. That has always been my philosophy. You have to earn the right to invest, and this will come in naturally as your value proposition in terms of digital adoption comes in naturally and hence create this capacity for spending. So that is on the cost. Second question was on the funding and GREs. The funding from GREs has always been a very important part for us.
They are not only Wakala, but there is a good mix between Wakala and non-Wakala or non-profit paying deposits. You asked about the tenor. The tenor can vary between three to six months. This has not changed pre or post-conflict, and it is usually on a rolling basis. These are important for us because they do give us leverage, stability, and also the forward-looking view in terms of ensuring that our funding mix is a good structure between retail deposits, who are. It might be quite sticky, even when you say CASA. For me, CASA is a retail dealing, almost like a long-term financing opportunity, but also you need some of these GREs and profit deposits. From a cost perspective, our effective cost on profit paying Wakala, it actually comes down quarter over quarter, and they are probably now at its lowest point even where we see the conflict.
We price for market, but we usually have not seen a situation where we have to price up to get deposits at this stage. Your first question was, I think, the mix between government and local in terms of our business mix. We are very careful to balance between our ability to grow our financing book without putting undue pressure on capital, while still creating a strong asset quality mix, but also make money. So we are in the business of making money. So that all put together is the model you are seeing today.
We are slightly heavy on GREs and public sector, which I think is working for us, because for us, while the margins on that front might not be very high, but because it is a complete value proposition, you get the cross-sell in, you get the escrow accounts, you get also the cash management, GTS, FX. At a relationship level, it works very well for us, and we are happy with that mix. I think proof and time in this situation has helped us very well, because even in a stress test scenario, and you stress some of these names, you find out that we are very comfortable with the situation we are in today.
Mm-hmm. Thank you. Just to double-check, you said you want to accelerate revenue growth to 18% from 12% today. Did I get this correctly?
No, what I said is that our 12% is actually underlying 18% if you adjust for the rate impact we have seen year-on-year, almost 18%, 19%. For me, I want to get it up again from the 12% we have today, for me to earn the right to invest. Because if my cost is going to be at 14%, and I think these are good costs to spend, I would like to see my revenue outpacing it as well. That is where we are trying to inch in the next few quarters.
Mm-hmm. Thank you very much.
Thank you. We'll now move to the next question. This is from the line of Rahul. Rahul, your line should be open.
Oh, hi. This is Rahul Bajaj from Citi. Thanks for taking my questions. I have three mainly. The first one is on loan growth. You've done 7% year-to-date loan growth, during the first quarter, but you haven't changed your guidance, which looks quite easily achievable if I believe the kind of commentary around April trends. Is it just being conservative and you would probably take a fresh look at your guidance after 2Q, or do you expect some major repayments to occur, in the foreseeable future, which would get that full year loan growth in that range, 12%-14%? That's my first question. My second question is on the capital ratios or capital requirements. As I understand, the countercyclical buffer requirement has been pushed or kind of delayed by the Central Bank.
Just wanted to understand, have you had, at the same time, any discussions around D-SIB requirements that might apply for ADIB? If you had any discussion, how are you thinking about any potential rights issue in the future? Is that something on your table at some point in 2026? That's my second question. My third and final question, just wanted to understand, while I see the grade quality has remained pretty resilient, if I kind of focus on the mortgage portfolio, could you please provide us some color on the kind of mix of this mortgage portfolio especially, how much is Dubai versus Abu Dhabi, and what is the average LTV of this portfolio? Thank you.
Sure. Thanks, Rahul. First question, financing growth. You are right. I think we had a fantastic quarter one. Can't complain. It's been really good. Even on retail side, despite all what I've said, I think we're just being a bit modest, but also retail had a fantastic growth as well as corporate. Question, is our guidelines conservative? I think, we've given this guideline even before the year started, so that we have not changed that. I think, we will probably achieve to overachieve maybe that number. But let us maybe revise it in Q2. I would say I'm cautiously optimistic that this number, you're right, is achievable. The pipeline we have is taking us there. Probably we'll do a bit more, but we'll give you an update on this probably in Q2. But yeah, the number is definitely within sight.
From a capital perspective, you had a few points there. Any discussion on D-SIB, the answer is no. We have absolutely no discussion with Central Bank, whether formal or informal, on a D-SIB situation. Hence, leading to a rights issue discussion. As I said also last year, and even before the situation we had in Q1, I have always said capital is an enabler, right? So, if ever I see that there is a need for us to do any capital action for us to ensure that this positive momentum remains, I think ADIB is very well positioned to think about rights issue. It will be accretive to the bank and to the shareholders. At this stage, we are not thinking about it given the capital ratios you have seen in front of you.
But, for me, as I stated also last year, definitely always on the table, can be discussed, will be assessed at that point in time and to ensure that the momentum is never being held hostage or pulled back because of a capital situation. I think the opposite is much better for shareholders and investors, that we think about how we make capital available to continue creating this return, these ROEs, which we have seen at 27%. Even if we were to do any action on the capital, we will ensure that it will never be dilutive to the ROEs we have seen guiding at least to above 25%. So the amount also you can take into consideration will never be as big as ever diluting that return metrics. Your last point on mortgages or home finance, it is currently 60% Abu Dhabi, 40% Dubai.
That is the split we have. I think it is performing extremely well. I think our underwriting standards, the collateral we have taken, have been very, very sound. It is one of our best performing books. It is collateralized, it is strong, and it has been really a driving force for the business for us in the past few years. It will continue to be our flagship product, in my view. It gives us this good underlying secured product and overlaying it with personal finance and auto finance gives us additional yield as well. So it is a very good mix to have.
Thank you so much, Mohamed. Just one small point to clarify. Could you provide the LTV of the mortgage portfolio?
55%. Yes, it is on 55%, [audio distortion]. As you say, 55%.
Okay. Thank you. Thanks so much.
Thank you. We will move to the next question. This is from the line of Mehmet. Mehmet, your line should be open.
Yes. Good afternoon. Thanks very much for your time. Thank you also for all the comments on liquidity earlier, which I think was very helpful. If I may follow up on there, can I please ask where you saw these outflows from specifically? I am asking particularly, obviously, because of your very comfortable local resident-driven deposit base. Maybe could you clarify which lines you have seen outflows specifically from? Looking into April, have all these come back so far? Basically, how is the situation evolving in your view? My second question is, new customer additions were still pretty strong in the first quarter. How is this evolving in April so far? Last question, if I may, thanks again for the disclosures on asset quality and overlays.
The framework you are using currently in your IFRS 9 models, specifically, what are the weightings you apply to your portfolio for the different macro scenarios? That would be helpful to understand. Thank you.
Thanks, Mehmet. First question on the liquidity, where we have seen the outflows and have they come back. I think, April, we are very pleasantly surprised how things have normalized. Despite that, we know that the situation has not been resolved yet, but clients, I think, are starting to come to terms with the situation. Hence, we are seeing more and more money coming back. Outflows, if I be very honest, I think that, which is surprising, the cash was one of the biggest outflows we have seen. People have been using the ATM quite heavily. We have 600 ATMs in the country, so you can imagine the work we have been doing to ensure they are all stacked up. But this cash was taken out and has come back again, and I think it is natural.
People would be wanting to have some cash on hand when things are a bit uncertain. But this has come back. In terms of the corporates have been utilizing some of their cash as well, because they offer to fund their operating requirements day to day, especially when the revenue or the-- Let us put it this way. People are not traveling, people are not using hospitality, so some cash was used. But most of that has also come back. That is why you see the year to date, actually, the products have grown, even from December. What we have probably lost in March, we have more than recovered by April and even before March end. Liquidity is comfortable. We have not changed our approach at ADIB. We always fund before we finance, and this will continue.
We will always make sure that we have ample liquidity before even thinking about putting the pattern on the financing growth as well. Client acquisition, yes, very strong as well, and I think this has helped us, that our digital channels are doing most of the heavy lifting. Again, happy to the mix as well. Most of them have been in the UAE national space. Most of them actually are even salary clients, salary-based clients. That is a huge boost for us in terms of deposits but also asset origination. Last point on ECLs. We have done a stress testing separately across our entire portfolio. We have stress test most of the master economic variables, but model change has not happened, and this is across the industry. Model change will not happen before probably June even. These are very clear guidelines. We have separately done our stress testing.
We made sure that we have enough ECLs, hence the 48 basis points, but model changes will not happen at this stage. That is, as I mentioned, that is industry-wide. It is not only ADIB specific.
That is great. Thanks very much.
Thank you. Just want to check, because we have a few people in the queue. Can we let one more person ask a question?
Yes, sure, Shabbir. Sure, Shabbir. Go ahead.
Okay. The next question is from the line of Naresh. Naresh, your line should be open.
Yes. Hi. Thank you very much. It's Naresh Bilandani from Jefferies. Just two questions, please. Could I please confirm, just to reiterate the point, if you have chosen to employ the pillar four of the relief package offered by the Central Bank on 17th March and not yet classified any credit exposures into stage two or stage three. Because if I'm taking a look at the asset quality metrics, these almost look pristine, and reflect no signs of the conflict at all. I think the early impact seems to have only come through on liquidity. So I'm just keen to understand whether this is a delayed reclassification of stage two or stage three exposures. That's the first question. My second question is on the loan growth. There's been a very strong 31% over the quarter loan growth in the FI segment.
We've seen the same in your larger peers. Could you please reconfirm the nature of this growth and what has driven the strength? My third and final question is, could you please reconfirm again, what is the composition of Saudi Arabia within your loan book and how that has grown quarter-on-quarter and year-on-year? Thank you so much.
Sure. Thanks, Naresh. I think two elements to your first question. Delay classification, I would say no. Despite that, this option was on the table. This financial package was giving us the option that we delay classification, but the good thing is that when we actually scan or look at our entire book, whether it's on the corporate side, retail side, even business banking, we were very pleased to see that we actually did not need to classify. In fact, we did classify a couple of names, but because we felt in natural circumstances, we have classified them anyway. They were not big, but I just want to tell you that we are not having any delayed classification at this stage in our books, even if we had the option to do so. So that was a good outcome for us.
In terms of financing growth, you talked about the FI segment. We did not have that much, but this is our usual transaction which we had, and these are mainly nice also transactions are close, and quarter one would have been in the making for a few months before and hence you would see them completed. Nothing specific related to the March event that we had to do more FI, but it is just part of the pipeline conversion, which was even in the making before March came about. The last point you had in terms of--
Saudi exposure.
How is Saudi exposure? Ahsan, do you have the number?
We have approximately AED 13 billion, which is about 7.5%. Which is within the financing assets.
Yeah.
Approximately 7% of-
7%. So that's the number, 7% for Saudi exposure.
Yeah.
That's very kind of you. How has that grown over the quarter, if I may please just check?
Saudi hasn't grown that much. No. Maybe there was a couple of Sukuks we've done. So maybe you've seen in the investment book, in our treasury book, because we participated in some of the Saudi Sukuks, but financing directly, nothing specific, no.
Understood. Thank you so much. That is very helpful.
Thank you very much. Just wanted to check again. There are a couple of questions in the queue. If you would like me to, I can put them through.
Okay, Naresh. Sorry. Go ahead, Shabbir.
Sure. The next question is from the line of [Aaron]. [Aaron], your line is open. Please go ahead.
Yes, hi. Thank you. It's [Aaron from Ashmore] here. Can you talk a little bit more about the scenarios, the ECL, and what's changed on the provision cost side? Your NPA ratio has touched all-time lows, but provision costs are materially higher this quarter, particularly on the wholesale side, they are much higher. You can talk about what kind of underpins that. You mentioned no changes in your models, and that's an industry-wide initiative. Can you talk a little bit more about that, please? Would you ideally have made a few changes, but you need to keep it standardized for whatever reason, to align with the rest of the industry, overall picture of what's going on and what you're thinking and what's driving your decisions on the provisions that you put through the P&L?
Sure. Thank you. I think on NPA, actually we're now at 2.6% ECL, or the cost of it is around that 48 basis points. The increase you have seen in the last-
Sorry, guys. We need to mute. Go on.
Yeah. Okay. I think, the increase you have seen is a natural change, and because if you compare particularly year on year, most of them have been also stage one provisions, which are naturally as the portfolio grows. Nothing specifically on macroeconomics. Again, when I mention industry-wide, it's that we're not jumping into changing macroeconomics because it's way too early to do any assessment on that. Having said that, we did all, or let's talk about ADIB, we did a full stress testing using some of the more stressed macroeconomic environment, and hence we decided that there was no need for us to take any overlays. But we are very comfortable, I think, where the NPAs are now, 18 months distance today.
Yeah, I think-
Shabbir, that's-
Yeah.
Yeah.
Okay. Yes, that's excellent. Thank you. Then one, I guess, very kind of high-level question. If you just talk about which areas of the book have you seen the biggest change? If you compare, say, March and April versus January and February, because Q1 numbers are kind of a mix of both scenarios that we've been in. But comparing March and April versus January and February, have you seen a significant change on the retail side or perhaps more specifically on the expat retail side or corporate and SMEs? Where are the changes in sentiment, as you mentioned a number of times? Where are things kind of showing up?
I think the biggest change in sentiment has been probably March in retail side, which is normal, right? At times of uncertainty, people just take a pause, take a breather, and reassess their priorities. But I still don't think that this will last us for too long because people have normalized to the situation, and hence when we look at April, very strong start. I think we are very close to hopefully pre-COVID levels. But at least the trajectory is definitely moving in the right direction.
Shabbir, unfortunately, we have to hard stop now.
Sure.
We are available for any follow-up later on, so we can schedule one to one later on.
Sure. I think there are a few questions in the text box as well. You can reach out to the Investor Relations team at Abu Dhabi Islamic Bank if any of your questions have been left unanswered. I will hand it over to ADIB's management for any concluding remarks before we close the call.
No, thank you. Thank you all for attending the call. As Shabbir said, if you have any follow-up questions, please do write for us or call us anytime. We are available to answer them. Thank you all.
Thank you. Have a nice day, everyone.