A very warm welcome everyone to this call on ADIB results on the third quarter numbers. My name is Olga Veselova. I am the Head of EEMEA Financials Team at Bank of America Equity Research. Please allow me to hand over this call to Lamia Hariz, the Head of Investor Relations, ESG, and Marketing and Communications at ADIB. Lamia, over to you.
Thank you, Olga. Good afternoon and good morning to everyone on the call, and thank you for joining us. I would like to welcome you to this Q3 earning call. Before we get started, just a quick reminder that today's financials and the presentation and all our financial disclosures are already on our website in the IR section and on our Investor Relations app. I have with me on this call Mr. Mohamed Abdelbary, our Group CEO, and Mr. Ahsan Akhtar, our Acting Group CFO. On this occasion, I would like to congratulate Mr. Mohamed for being confirmed as the Group CEO of the bank, effective immediately yesterday. The agenda for today is quite consistent with the last quarter, so we will start by giving a quick highlight on the bank performance. It is followed by a detailed analysis by Ahsan on the financial performance.
We will then conclude with our guidance, and we will open the floor for Q and A. With that, I will now hand it over to Mohamed for a quick introduction on the financial performance.
Thank you, Lamia, and good morning, good afternoon, everyone, and thank you for joining us on today's call. First of all, I am deeply honored by the trust placed in me from the Board of Directors to lead this institution at a time where we are achieving strong momentum and exceptionally strong results. We are also very pleased with our performance for the first half of 2024, all the way into the third quarter of 2024, and we will talk about this in more details on that call. We have delivered AED 4.6 billion of net profit, which is a growth of 24% year-on-year. If we were to adjust that for the tax impact, which was not there last year, we have grown our net profit by 33%.
This has also led us to deliver a return equity of 29%, and I believe that is probably still one of the highest ROEs in the local market. Our franchise also is growing from strength to strength. From a client perspective, we have welcomed 150,000 new clients to ADIB, taking our total now client base to 1.4 million clients. From a revenue perspective, we have grown revenues by 19% again year-on-year. I think the encouraging part is that as we go into details, we will talk a bit more about the components of the revenue growth, which is supported by strong underlying KPIs as well as a good contribution from non-funded income, as we have always been signaling that to be an important part of our strategy. From a cost perspective, you would have seen that our cost to income ratio now has dropped to 29.1%.
For those who have been following ADIB for some time, if you just go back a few years, that number was probably in the 48%, 47%. From that onwards, we have always been signaling that we will be bringing that ratio down to market levels, from a combination of revenue growth, but also strong cost discipline. More importantly, we will be investing through the cycle, and it has definitely been paying off, not only this year, but last year as well. From an asset perspective, we have now reached a total asset base of AED 223 billion. That is a growth of 20% year-on-year, supported by very healthy growth in our customer financing, and also supported by a strong funding base. Again, when we go into details, we will see that the customer financing has been contributed by our two main businesses, retail and the corporate bank.
Retail bank, very steady growth. We are adding between AED 1 billion- AED 1.2 billion of net balance sheet every year. That is the difference between gross sales as well as natural attrition. We are also very happy to see the progress we have seen on the corporate bank side, where we had a very strong half one. Quarter three was on the top line, actually slightly muted. When we go and talk about the details and talk a bit more about some of the significant repayments which happened in that quarter, because actually underlying, it was as strong as the second quarter of the year. We did have some of the expected repayments, particularly from the Dubai business as well. From a credit perspective, again, a KPI which we have also signaled to the market that we will be dealing with that, and that is our NPA ratio.
We are at a 4.4% NPA ratio. That number was a couple of years ago at 8.8%. We started the year at probably 6%, now down to 4.4%, and we are guiding the market that this number will actually be sub 4% by the end of this year. Moving forward, we are on slide five, a bit around our strategic highlights. Again, we are on track in executing all our initiatives. One of the initiatives also we have spoken about recently is the launch of our Vision 2035, and that is quite important for us because we are setting a roadmap for where we want to take ADIB in the next 10 years, and it is split between three phases. Phase number one is clearly what we are seeing in the next 12- 18 months, which is our normal budget cycle.
But then we have a refresh of our corporate plan, which is the five-year plan, and it is a timely launch because our initial plan, which was launched in 2020, is coming to an end in 2025. It is quite time that we re-look at this again and see what has worked well and do more of it, and what needs to be tweaked given the change in the environment. The more important part is, having a 10-year view, because the intention is to take ADIB to a complete different level, supported by particularly gen AI technology and a transformational ADIB Ventures-led strategy, which will capitalize on the latest technologies, but also a lot of fintech and venture partnerships. Let us move forward on this, Lamia. Let us see. Okay.
Okay, with that, I will ask Ahsan to take us through the numbers, starting from slide seven, and then afterwards we will be opening it up for Q and A to take your specific questions. Ahsan, please over to you.
Thank you. Thank you so much, Mohamed. Good afternoon, good morning to everybody on the call. We will just proceed with a quick summary of the results. As Mohamed mentioned, net profit growth was very strong this year, 24% year-on-year. Profit before tax reaching AED 5.2 billion, which represented a growth of 33%. If we incorporate tax, the growth was actually 24%, so very healthy growth. In terms of our key drivers, revenue for the first nine months of 2024 increased by 19%, reaching a record high of AED 8 billion, compared with AED 6.7 billion one year ago. This has been supported by increase in funded income and non-funded income.
The key drivers being the strong growth that we have witnessed this year in terms of our business volumes, stemming across all our business segments, pretty much retail, and wholesale bank delivering strong results, and the continued strength of our fee-based businesses as well. In terms of balance sheet, we have had a remarkable year as well. Balance sheet has grown by 21% to reach AED 223 billion, and we will go into further detail when we do the slide subsequently. This has been aided by growth in financing assets of 19% year-on-year, across both the businesses. We have also increased our investment portfolio by 25%, mainly as Sukuks, which increased by almost AED 6 billion this year. The balance sheet has been adequately funded.
We traditionally fund the balance sheet before we finance, so deposits have actually increased by a healthy 19% this year to reach AED 180 billion. We have maintained a very good, healthy funding mix with CASA growth contributing 10% year-on-year. Moving along on slide eight, we just want to highlight the impact of the U.A.E. Corporate Tax that was introduced at the beginning of this year. Our effective tax rate is 11.4%, and the overall tax charge being AED 588 million. The bank reported a net increase of 33% in net income, pre-tax levels. Moving along as we go into slide nine on the income statement. If you look at the top left chart, we are seeing consistent growth, quarter-on-quarter in our net profits, which increased by 2% versus last quarter as well.
We are very proud to say that we have actually delivered this, including the impact of Corporate Tax. If we exclude the taxes, then we have actually had five steady quarters of healthy growth, and we have managed to deliver our highest quarterly profit in the history at AED 1.6 billion this quarter. Within this revenue increase and the balance sheet increase, funded income has actually increased by 9% year-on-year on the back of the strong growth in the customer assets. Non-funded income has increased by 41%, and this has been on the back of fee and commission income increase of 33%, as well as investment book increase of 41% year-on-year. Non-funded income is now contributing 39% of our balance sheet, and we have actually made a conscious effort in increasing the non-funded income as we move into the rate cycle environment.
Effective cost discipline has resulted in a moderate expense increase of 6%, and from a segmental perspective, regional and wholesale businesses have positively contributed towards the net profits. If we move on to slide 10, on the funded income, as I mentioned, we have now increased this by 9% year-on-year, to reach AED 4.9 billion. In terms of our net profits margin, there has been a slight contraction compared to one year ago where we were at 4.48%, so we are now at 4.46%.
Sequentially, there has been a small decline, and this has really been because of the slightly higher cost of fund that we had in Q3, which we hope that given the fact that we have a very high proportion of time in Wakala deposits, the cost of deposits should start to come down as we factor in the impact of the rate cuts, which have started already.
One important thing that I would like to highlight is the gross margin, and that has continued to increase. This is essentially the gross yield on our financing assets. This has continued to increase, so we are now at 7.5%, compared to 6.1% at the end of last year, nine months last year. It has also increased compared to first half position. That has actually been very good because we operate in a competitive environment, and we have actually taken a very disciplined approach in terms of our pricing, hence preserved the margins on our financing assets as well. On the funding side, I have mentioned about the cost of fund. In terms of our NIM sensitivity, this remains unchanged at AED 120 million for every 50 basis change in our interest rates.
Moving along, on the non-funded side, as I previously mentioned, that had increased by 41%, mainly because of the increase in fee and commission. We've had a record year in terms of acquisition in our card portfolio, and we have seen higher spend and sales volumes. That has been reflected in our cards income increasing 72%, primarily on the fee and commission side. In addition to that, we've had higher processing fee on our assets, retail primarily. On the risk participation fee, this is really wholesale bank, so the fee and commission that we actually receive on the loan portfolio as well as some trade assets as well. On the operating expenses side, as Mohamed had mentioned, there was a time four years ago where our cost to income ratio was as high as 48%.
We've managed to bring it down to 29% through several efficiency initiatives, digitalization being one of them. Our expenses now have grown single digit this year of 6% compared to our revenue growth of 19%. We've actually achieved three times more revenue growth this year compared to our. Which has essentially opened up the jaws in our balance sheet. The increase in expenses have come in primarily two categories. Firstly, investment in our people, which is strategic to the way we operate. Secondly, we've also increased expenses on our variable side. That has really taken the increase, so that's the incentive that we pay on new acquisitions. Second primary reason for the increase in the expenses has been the digital front, an area which is of particular focus to us, to the bank as a whole, as we move forward into the AI world.
Despite all this, our cost to income ratio has been a very healthy 29.1%, which represented a decline of 3.6% compared to 32.6% almost one year ago. Moving along on the impairments, the net. The bank recognized total impairments of AED 448 million during the first nine months of the year, compared to AED 571 million last year. There have been some property-related reversals as well, because of the increased collaterals as well as some sales as well. It is worth mentioning that we have not seen any credit quality pressures in retail or wholesale banking, and the overall credit environment remains benign. We've had very good delinquency levels.
As a result, our cost of risk has been stable at around 49 basis points, which is well within our guidance of 40- 60 basis points, which we have done at the beginning of this year as well. On our non-performing assets, we've actually had a very good story. We've made a conscious effort in terms of reduction of our NPA books, which has actually resulted in non-performing assets reducing by 21%, which is almost AED 1.6 billion from the beginning of last year and AED 1.1 billion compared to the beginning of the year. This has really been driven by legacy portfolio recoveries as well as some write-offs that we've taken. As a result, we are now at a historical low in terms of our non-performing assets ratio of 4.4%, as Mohamed had mentioned.
This compares to a high of, say, approximately 8.8%, almost about 12 -1 8 months ago. We will continue to see the declining trend as we finish 2024, and we are very hopeful of further improvements here. On the coverage, both in terms of cash coverage and cash plus collateral, the ratio, we have actually built up significant provisions this year. So we are now at 78% compared to 70% at the beginning of the year. If we add the effect of collateral, and this is particularly important from an Islamic bank point of view, the coverage is almost twice at 154%. Moving along, as far as the balance sheet is concerned, we have actually crossed AED 220 billion mark to reach AED 223 billion, with an asset growth of 21% year-on-year.
If we exclude the impact of FX that we encountered in our Egyptian subsidiary, the bank actually, the total assets were at AED 233 billion, which was an increase of 21%. The key contributors being customer financing, which increased 21%. As I previously mentioned, we have increased our investment book in a conscious effort to lock in high rate investment grade assets that will help us as we mitigate the impact of the rate impact next year. As we move along on the customer financing side, the bank has added AED 20 billion new financing this year, and this reflects our retail business gaining new market share. We have seen some landmark deals closing in our corporate business. Gross financing assets increased by 16% this year and 20% if we exclude the impact of FX in our Egyptian business.
This growth has been particularly spectacular in both our retail portfolio as well our wholesale business across the GRE space as well as on the corporate business. In our corporate business, we had some repayments as well in quarter three, as Mohamed alluded to. So our growth rate is 4%, but in our government and public sector, we grew 33% and 21% in our retail business. If we dissect retail, which is the bottom right-hand chart, all our flagship products actually had a very decent growth. So we are number one in terms of market share in products such as home finance and personal finance, with home finance increasing by 41% year to date, aided by successful product campaigns and tie-ups with dealers. In our wholesale book, we have had a good mix of wholesale and corporate assets.
This has actually enabled us to enhance credit quality and bring stability to capitals, given the RWA benefits that come with it. There have been strong demand across most industry segments throughout the regions, slightly offset by some de-risk. On slide 16, this is a snapshot of our total investment book, which has increased to reach AED 28.8 billion by the end of September. This represented an increase of 18% since the beginning of the year. The key addition that have been made has been in the investment-grade investments amortized cost. Again, as I previously mentioned, these are fixed-rate assets with longer duration at decent yields, and they will serve as natural heads in a declining rate environment as we move forward. On the customer deposit side, the increase has been 14% and 19% FX adjusted.
Now, essentially we have had a history of increasing customer deposits ahead of the growth that we do in our financing book. We maintain adequate levels of liquidity to ensure we have sufficient fund to support asset growth. If you look at the right-hand side of the chart, the key drivers of the growth have been retail, where growth has been AED 7 billion, primarily all driven by CASA, as you can see in the bottom right-hand chart. So AED 6.4 billion growth in CASA. That is primarily all retail business. But in order to fund the asset growth that we had this year, we increased wholesale deposits as well by AED 10 billion, which has a shorter maturity duration, three to six months.
Some of these go up to 12 months as well, but they started to reprice and that should really help us reduce our cost of funds later in the year. Our CASA ratio stands at a very healthy 62%, and this continues to support a low cost of fund, especially in the U.A.E. business, of approximately 1.7%. Moving along on the capital side, ADIB has maintained a robust capitalization as well as liquidity levels. I am proud to say that despite the fact that the balance sheet has witnessed very strong growth during 2024, capital adequacy levels are at 17.6%. I am particularly happy to say that our CET1 levels, which is at 13.4% today, is at the same level which we were at one year ago, despite all the asset increase.
Clearly we have been optimizing capital as well, and we have been positioning ourselves in the right direction to ensure that the right decision on the dividends can be made in line with the bank trend. On our liquidity front, advances to stable funds ratio have been very stable around the 77% mark. Financing to deposit is at 75%, and our eligible ELAR ratio is still very healthy, increasing to 20% by the end, by the third quarter. In terms of our outlook and guidance, we have seen an increase of 16% in year-to-date increase in our customer financing assets. We continue to take the view that there will be asset growth. So we are expecting greater than 16% as a full-year guidance.
Net profit margin, which was 4.46%, we have actually revised our guidance to say that this will be higher than 4.3%. In terms of cost of risk, we are consistent with what we have been guiding every month. So again, between 40- 60 basis points. We are at 49 basis points today. Our cost to income ratio, which is at 29%, we maintain guidance of less than 30%, which is consistent with what we have been saying all along. Finally, in terms of return on equity, very healthy, 29%, and we still believe that we will be below the 30% mark, operating at 25% for the full-year. As a result of this, I conclude the management presentation, and we open the floor for any questions that you may have.
Thank you for the presentation, Mohamed and Ahsan, and thank you, Lamia. We will now go to the Q and A session. I will press the button and please, participants, unmute yourself. The first question goes to Shabbir Malik from EFG Hermes. Please, Shabbir, over to you.
Hi. Thank you, Olga. Thanks very much for the presentation, Mohamed. Congratulations on the new role. Wish you all the best. I have a couple of questions, please. The first one is regarding your margins. So if you look at your time deposits, what proportion of your time deposits are likely to reprice lower in the fourth quarter? Is it fair to assume that some of the pressure on NIM this quarter has been because of the growth in the investment book, which has been pretty strong this quarter? My second question is around your ADIB 2035 strategy. Would it be possible to share any financial metrics or long-term targets that you're eyeing with this strategy?
My final question is in terms of your, you're currently not a D-SIB. Is there any D-SIB threshold that the Central Bank of the U.A.E. looks at, and where would you stand relative to that? So those are my three questions. Thank you.
Thank you, Shabbir. Thank you again for your kind words. I'm very happy to be entrusted by the board, with that position, and I've been in that role since March, so I think it's for me almost like transition into the role.
Continuation. Yes.
Yes, absolutely, yes. But again, very happy and proud to have been chosen and entrusted with this responsibility. Let me take your question one by one, and please tell me if I am missing anything. I will start with the last one. In terms of D-SIBs, there are no discussions with Central Bank at this stage, whether we will be included or not. Having said that, if we were to be included, actually, we are in good shape because I feel, or the sense I am getting, this is nothing formal, but we are almost being treated as D-SIBs, right? Whether it is from a capital liquidity in all our reviews, we are them, and if there is ever a position where we need to be included in that category, I think we will be in good shape, right?
Even from an internal perspective, we measure us against very specific KPIs, which would be aligned to other D-SIBs as well. But just to confirm, there are no discussions with the Central Bank on whether we should be included or not. The second question on our profit margins. What is the story on profit margins? I think what we have seen consistently over the last nine months is that our gross yields on our financing book has continued to grow, and that is driven by, number one, is that we have been very diligent in our pricing on the retail side, and the corporate bank has also benefited from clearly higher rates because it is predominantly on a floating level, and that is reflected on our gross yields.
Now, what has happened is that because we have grown, I would say at pace, there was a need for us to ensure that we follow the bank's strategy in terms of ensuring that we always run a few steps ahead of our financing book, right? We always fund before we finance, and hence, we have been growing slightly faster in terms of attracting profit-paying deposits. Hence, also you would see that our CASA ratio has dropped to 61%. If I were to bifurcate the 61%, approximately in retail bank, 90% is CASA ratio, so very efficient. There is only 10% of that in profit paying. But on the corporate side, it is the 28%, and that is not unusual, right? Your corporates would demand a specific return and are very price sensitive, and they should be rewarded as such.
And hence, you would see that the compression in net profit margin is not on the asset side, but it is more in our pace in terms of raising deposits, which are profit earning. What will happen in Q4 on the back of that? Just to give you some perspective, we have AED 180 billion of deposit base. If I focus maybe now for a second on the U.A.E. side, approximately AED 100 billion or so is in, sorry, AED 140 billion or so is between CASA and STIs, what we call short-term investment accounts, leaving us with approximately another AED 40 billion in Wakala. Of the AED 40 billion, AED 22 billion are being repriced in Q4, right? Which is a big amount, and that is not by coincidence.
When we positioned our maturities for Wakala, we always anticipated that half two will be an inflection point where rates will turn.
So we came at the beginning of the year, we encouraged nine months booking. Last year was one-year booking. Coming in half one, we encouraged three months booking, right? For the client, we made it more attractive for them, basically. Giving a bit of a sweetener in that maturity bucket. And now we are sitting with AED 22 billion, which is more than half of our Wakala being repriced in that quarter. So hopefully, this will mitigate some of the costs we have, but we are also conscious that it will take time to reflect, and that is why we are guiding the market. We think we are going to still be above 4.3%, but the nature of the book will allow us to hold margins higher for longer. On the 2035 strategy, so we will be sharing in due course some more insights.
But the 10-year strategy, will it have very specific KPIs like a corporate plan? Probably not. You will get numbers for the five-year plan. This is very specific, but the 10-year is a vision. We are almost sitting back and saying, "Where do we want to see ADIB in 10 years' time?" And we have a very clear of where that will be and how we will achieve it. As I said, it is predominantly actually one or two pillars only. It is not going to be five, six pillars. It is one pillar which will filter through the entire ecosystem of the bank, and it is driven by gen AI, technology, fintechs, for one reason, is to make the customer experience as seamless as possible and to be able to provide the bank of the future who goes to the client, not the client comes to us.
So, let me know, Shabbir, if I missed any of your points, and I can elaborate.
No, that has been very helpful. If I may squeeze in one more question. In terms of retail banking growth that you have seen this year, is it a combination of market share gains and growth in the market, or it is primarily driven by growth in the overall market in the U.A.E.?
If I may say, I think we have taken market share, happily so. Because if I compare our growth rate with the market growth, I think we have more than 1.7x of market growth. Where did it come from? It has come from, if you look between the product, main products, home finance, personal finance, and auto. Home finance was our flagship. We have really been very successful on the home finance side. Personal finance, I think we are probably number one in terms of bookings at very attractive rates, I think for us and the client. Auto finance is okay. We know that auto finance, the returns are not big usually, but it is a very important product for us because it is an anchor product. You want to give a holistic value proposition to a client, and auto finance has to be there.
Just to give you some perspective, from a U.A.E. book perspective, if everyone would only look at what is the U.A.E. book across the entire industry, we would be number one in home finance, and we would be number one in personal finance as well. Auto finance, we are probably number three or four at AED 8 billion-AED 9 billion of booking of assets. When it comes to cars, we are probably number one in terms of spend. By far. I would not quote numbers, but we have the numbers. They are, I think, available probably with some of the acquirers, but we are number one by far in terms of monthly spend across every card we issue.
Got it. Thank you.
Thank you. Next question goes to Chiro Ghosh from SICO. Please go ahead.
Hi. Two questions. First one is related to the, I can sense a sense of recovery. A big chunk of a recovery is coming from the other section. Please help me understand if I understood it right. If you can give some clarity. In the financial statement, if I look at it, I think there is, looks like some AED 89 million worth of recovery had come. If you can throw some light on that part of it. Second is, the previous point, did I understand it correctly that, so it is out of the AED 46 billion or the AED 40 billion odd Wakala, AED 22 billion will reprice very soon. I just want to get a sense in a downward trending interest rate cycle, how do you overall see your balance sheet? Basically, I am sure your yields will also come down.
For every 25 basis point drop, where do you stand at this moment? Third one also very quickly, if you can touch upon, so your NPL coverage seems to have improved quite a bit. What would be a comfortable level for that?
Thanks, Chiro. Again, let me start with the last one first. The NPA ratio, currently at 4.4%. We have one more big hit to make, hopefully, in Q4, which will take us below the 4%. This is not, as I said, by chance, it is a strategy we started probably a couple of years ago, very focused on dealing with legacy exposures. It is no help by third parties. That is all internally driven by the banks team. We have gone really focused in terms of not, and this is not write-offs, by the way. This is actually write-offs and recoveries. We have sat at the table, and we have closed out all the legacy exposures, which have been out there for 10 years.
One more left, big to-do, and we're going to be at sub 4%, and I think probably better than market, because I think market average is probably between 4% and 5%. So that's on the NPA side. On the profit margins, as I mentioned, it's AED 40 billion, of which AED 22 billion repriced in Q4. We are doing obviously the best we can to ensure that they are being repriced at the revised curves. I also want to make sure that the audience understand that this is a very competitive market. So it's not a one for one. It's not that because 56 basis points have dropped, I can immediately price my renewal then. They're very important for us. But it is gradual, and it will take time, but will there be a reduction?
100% there will be a reduction in our cost of fund on the back of some of these specific Wakala repricing in Q4 and onwards, because the rest, by the way, the delta of these numbers will also come in Q2. But I think by Q2, the rest of the 2022 will also be up for renewal as well. In terms of the impairment, you mentioned some recovery. Absolutely correct. That's part of the strategy which we have been doing in terms of fixing some of the legacy books. I think you mentioned one specific one.
That's actually part of us realizing or closing out some of the legacy exposures, we were able to write back some of the provisions, but also we did an assessment of collateral evaluation, which has given us some upside in terms of the impairments we had initially been taking on these collaterals, and we were able to realize some money as well. Again, in the bigger context, it's not big because as you said, the whole thing is only AED 80 million between actual recoveries and impairment evaluation. We are reporting headline AED 1.6 billion or AED 5 billion after tax. So that's probably a fraction of it. But I think, yeah, that's something which we wanted just to call out.
Just on the previous one, so at the end, for every 25 basis point rate cut, are you agnostic to it, or it will net-net have a negative impact on your NIM?
No, that will be a negative. Our sensitivity is, for every 50 basis points, there is an AED 120 million impact because at the end of the day, it is a double-edged sword, right? You have a book from the corporate side, which reprices fairly quickly down. I am talking about the financing side. It is linked to a benchmark. Rates come down, immediately rates will come off. But what we have done is that of our AED 140 billion or so gross assets, approximately AED 64 billion are the ones which are shorter-term repricing. The remaining ones are predominantly fixed rate, longer term, beyond nine months to 12 months. So they give us air cover, and hence, as rates go down, yes, there will be the impact I mentioned, but it is probably going to be much more muted than what you will see in the market as well.
Perfect. Thank you very much, and congratulations on your new profile.
Thank you so much. Appreciate it.
Thank you. If anybody wants to ask a question, there is a button, Raise Hand, at the bottom of your screen. We are going to our next question from Abdulaziz Alb awardi from Hassana. Please, Abdulaziz, go ahead.
Yes. Hi. Thank you for taking my question, and congrats on the new role. Wish you best of luck. I just have two quick questions from my side. On the net funding or net fees and commission income, what is the driver of sequential improvement, and how recurring is the number in this quarter? Has there been any also classification, accounting reclassification? On the second question, if we look since the first quarter of 2024, we see the financing book increase 16%, while an interest income or funding income has increased only 8%. Funding cost increased at a much higher rate, which impacted the net funded income. Just can you explain the dynamic there and why we haven't seen a book impact net funding income positively? Thank you.
Thank you very much, Abdulaziz, and thanks for your best wishes. On the first question, net fees and commission is an amalgamation of many things, but I think the two main elements are the fees which we earn on our card business. As I said, I think our ability or the clients spend we have is quite healthy, I would say. It goes back to the type of clients we have. Again, 1.4 million clients, of which 650,000 are U.A.E. nationals, and they tend to be quite healthy in their spending habits. Hence we are earning a lot of good commissions on that. In addition to that, we've also introduced a lot of new product features into our. Particularly, I'm focusing still on cards, is that because the nature of our clients are more, I would say, transactors versus revolvers, right?
Sometimes a good problem to have or not, because if they are transactors, your credit risk is low, but you also earn a bit less on these cards. So what we've introduced is what we call easy installment plans, which are fully digitized. I know it's been in the market out there, but what we have done is we make it absolutely simple on your mobile app, one click, and you immediately are able to defer your payments with a fairly low fee component. Still better than if you leave them at zero because they are transactors, but it did capture a lot of fee income there as well. We've launched it, if only a few months ago, and it's already showing in our fee income, so that's on the card side. The second component of our fee component is the wealth management part.
Wealth management also has done extremely well. We've revamped our entire strategy. We've introduced more products. We launched a few new funds on the back of ADIB Capital, which have helped us really to capture some of the fee income. That's part of our strategy to ensure that we have a good mix between funded and non-funded income. If I move to your next question, I think you've spoken about the components between the profit earned and profit paid on the balance sheet. Again, Abdulaziz, I think the point is that because CASA, by definition, takes time. So despite that, we have a very strong CASA base. We do add, as I said, we've added 150,000 new clients, predominantly, if I would say, a lot of them are U.A.E. nationals, salary transfers. That's all beautiful CASA business for us.
But the pace of us putting on financing has almost put us in a situation where we went slightly more to the costlier funding mix, which is fine, because I would never stop the business because of waiting just for CASA to build up. I would like the CASA to be sticky. It takes its time, and it will stay with us. So we kind of front-loaded the funding base on the Wakala side, which has impacted our funding cost. So if you actually take the two lines separately, look at profit earned versus profit paid, and quarter-on-quarter, you will see a very healthy pickup. But you are absolutely correct. The funding cost in relation to previous quarters has grown faster, which is a conscious decision we made.
But what has happened is that because it was funding long-term fixed assets, it means that as rates come off and we price down our accounts, the money used to fund the financing side will actually stay longer on the financing side. And accordingly, we will have a slightly muted, I would say, soft landing when rates start coming off again.
Thank you. Our next question goes to Naresh Bilandani, JPMorgan.
Yes. Hi, Mohamed, Ahsan, Lamia. It is Naresh Bilandani from JPMorgan. Congrats on the very good set of results. Just two quick questions, please. One, could you please share any thoughts on these new credit provisioning standards that have been promulgated by the Central Bank, and how would these affect your medium-term cost of risk and provisioning, if fully implemented today? I know you are guiding that by the end of this year, you should see a reduction in the NPA ratio dropping to below 4%. Is this drop going to be led by recoveries or write-offs, led by these new provisioning standards? So if you can please shed some light on that, on both the standards as well as how they affect your medium-term credit quality profile, that would be super helpful. That is first.
And second is, I appreciate this, you have to finalize this, but keen to get some early thoughts on how you are expecting the key metrics like volume growth, NIM, and cost of risk to evolve through the course of next year so that we can model this accordingly. Thank you so much.
Sure. Thank you so much for your question. Let me start with the credit standards first. So there were two elements in your question. One is, as you go below 4%, what is driving that? It is predominantly a recovery of a big NPA, which we are working on. We have done good progress on it. We are in execution phase. I think the negotiation, everything is done. It is a matter of time, Inshallah, till we execute. So we are going to go sub 4% by fixing one more big exposure, legacy exposure, 10 + years on our books, which is going to take us below 4%. So it is not a write-off, it is not an accounting write-off, it is a pure settlement of a legacy exposure. That is the first one.
In terms of the credit standards, I think, when we analyze the situation, first of all, the announcement was that it will be implemented one month after it is published in the Gazette. We have not seen the publishing yet, but we are working on the assumption that probably this year it will come into force, and full-year next year. What it means for ADIB specific, I think there are a few categories there which we need to think about. One is the point on the 1.5% on RWAs for stage one and stage two. There is really no impact on this one. We are covered, and I think it shows in our financial statements. If you do the math, we are good on stage one, stage two. The second one was looking at your specific provisions in your reserve on your equity base.
We have approximately AED 190 million there, which as per the new standards, you have to assess how much of it will have to go back into your P&L. Again, we are comfortable because when we actually were slightly proactive in that measure, and we have started to build the almost overlays, in terms of meeting some of that exposure, hence, we do not see a big impact in Q4 of that. The third element was looking at your collateral, the dilution over time for your NPA book. So I think now you can only carry collaterals up to five years, and you will have to dilute the dependence of it year on year. But this is again, a going forward, kind of, standard. So it is not taking the stock, but it is going forward. Are we particularly concerned about it? I would say no.
Because even without that standard, we would have done that. Because by end of year, our provision coverage ratio will probably be above the 80% without collaterals. If you fast-forward that a couple of years ago, I think we would anyway inch towards a full coverage of any of the legacy exposures, which will be more than five years and not resolved yet. We are actually in a good space when it comes to new credit standards. Will there be an impact? Yes, there will be an impact. Will it be significant? I don't think so. We would have a normal course of business anyway, taking some of these provisions as well. Sorry, did I miss any of your points?
Sorry. Volume growth, NIM, and cost of—
Guidelines for next year? We haven't finalized that yet, but what I usually do is, and this is not a statement to be taken, like, hard in stone. You look at your GDP growth. I think the Central Bank of the U.A.E. is guiding towards a 6% growth of GDP next year. I would say 1x-1.5x of that is probably a good proxy for asset growth. So maybe asset growth would be next year at 10%. Accordingly, if you were to look at revenue growth, probably between, again, 1.5x-2x of where you close this year. Again, very soft starting numbers to work with. Then we will take it from there. In terms of cost of risk, I don't think our cost of risk will materially change from where we are today.
We are currently at 49 basis points. We are anyway guiding between 40 and 60. We have not changed our underwriting standards in any significant way, which would suggest that the cost of risk will change. Now, we are, as we said, more open to the expat segment for some time, and we've been very successful in ensuring that we book the right assets from that segment. But just to give you context, from our retail book, which currently sits in the U.A.E. at around AED 70 billion-plus, 82% of it is still financed to U.A.E. nationals. Which means that even as the expat book grows, it will always be the smaller portion of our retail financing book. Again, to answer your question, I don't think the cost of risk will materially change into next year as well.
Thank you so much, Mohamed. That was very clear. I appreciate it.
Our next question is from Murad Ansari from GTN Middle East. Please go ahead.
Yes. Good afternoon. Thank you very much for the call, and congratulations, Mohamed, on the confirmation of the role. So two questions from me. One is on deposits. You have mentioned that you prefer to fund the book before you grow the loan book. We have seen over the past two quarters the mix on the CASA side deteriorating as obviously, you are looking to grow deposits quickly, and that is coming largely through term deposits. Just wanted to get a sense of how you are looking that CASA mix evolving. Are we going to continue to see deposit on the term book growing at a faster pace to keep track with loan growth and meaning that we do see some marginal impact as a result of that? Secondly, also on deposits, is there any seasonality which kind of kicks in in the second half of the year?
Because I was just looking at numbers, and it seems that the second half CASA deposit growth tends to be slightly weaker than what we see in the first half. So your comment on that. On public sector loans, we have seen a sequential decline, and I think you did mention something about early repayment. So just your thoughts on that. Thank you.
Thank you so much. First of all, let me address the point on the CASA for next year as well and the mix. We take these decisions very carefully, particularly at ALCO. It is a very calculated decision because, at the end of the day, whether the CASA ratio is 61, 65, or a different number, it has to make sense at the bank level, right? If we believe that our pace of growing assets is diluting our margins to the extent that it is eating our profitability, we will just not do it, right? We will take it slow.
This year, all along, we have seen that the asset build-up and the momentum justified all the deposits we have taken, and hence, while the net profit margins might seem to be stagnant or slightly inching down in the last quarter, net-net, the bank is still making more money in a very accretive way. Fast-forward the same logic for next year. We will continue to do that assessment. As we look at growing our financing book, our CASA book also is growing at a specific pace. Now we have more initiatives to ensure that maybe we accelerate that a bit, but if it means that we maybe go to the market and raise a few more costlier deposits, we will definitely do so, as long as the sum of the parts is bigger than just halting the finance origination. That is, I think, on the CASA side.
Again, I want to reiterate two important numbers. Retail is still at 90% CASA, right? There is nothing more. I have not seen that before, and I would think quite aggressively, I want this 90% to be higher because there will always be an element of Wakala in the retail book. It is really the corporate side where the sensitivity on pricing is just going to be an element of how much more cash manager business you are able to originate in terms of either escrow accounts or cash management. Because other than that, the corporate will always be wanting a return on his deposit, and hence the low rate. Having said that, next year, I think, the ratio will slightly pick up from where we are just by the fact that rates are also coming off, and the lower the rates, the less sensitive the clients will be.
That is on the net profit margin side. Sorry, the second one was?
Seasonality.
Ah, seasonality. No, we do not see that, because what you might see is that in terms of percentage, the growth in CASA is lower than Wakala. But percentage-wise, because the base is also different. Actually, in terms of absolute amounts, we have grown almost AED 10 billion of CASA in nine months. So that is also unheard of. In this rate environment, still managing to grow AED 10 billion off a base of AED 100 billion, that is big. Yes, we have grown AED 17 billion maybe in Wakala, but the AED 10 billion still came in, and I think this will continue to be the case for this quarter and for next year as well.
Yeah, I agree. I think demand deposit growth has been quite strong. I was just looking at sequential numbers. So if I look at third quarter CASA deposit base versus second quarter, I think this quarter has been about roughly, combined about AED 800 million in growth, just from CASA. So I understand the growth in term deposits, and that obviously is calibrated according to your asset book growth. But just the absolute number, I thought, I look at previous years as well, I think seems like third quarter probably has some seasonality where demand deposit and saving deposit growth, even in absolute terms, is a bit lower than what we see in the first half of the year. So that was what I was referring to.
Yeah, no, I think maybe one point maybe we did have to mention as well is that if you recall in the first and second quarter of this year particularly, we had some very successful campaigns.
Yes.
Where this was, I think, one of the kind in the market. Now, we are happy to see that other banks are doing it as well. That is okay, right? But we have actually done it, and we have managed to grow our customer base quite aggressively. And once we achieved the targets of that campaign, we stopped it. So by just stopping the salary cash campaign, which is almost bring your salary and you get 100% back of your salary if you meet certain criteria, this has boosted our customer bases quite significantly. We stopped it. There is a slowdown expected. But we will have more campaigns coming in as well.
Sure. Thank you. The second question I had on the public sector loans, we saw some decline in absolute numbers. I think about AED 1.6 billion drop in Q3. Is that early repayments or these are scheduled repayments coming through?
Yeah. No, I think it's again, a market dynamic because we've seen some of the government entities quite cash rich and either rescheduling or restructuring their financing or actually a full repayment as well. It has to do with some of the IPOs which happened, and which is okay, right? Our share of that repayment happened in Q3 as well. Other banks have probably seen a similar phenomenon, but I think the good thing is that we've able to cover the repayments and also grown that. That's why while wholesale bank might see flat, it's actually underlying growth quite healthy. Now, Q4, I'm not seeing, at least there's nothing in sight for any scheduled repayment. We only know when the quarter is over, but at least there's nothing scheduled.
Hence, what we have in the pipeline and actually already dispersed in October would suggest that we will have a strong close for the year as well.
Great. Thank you so much and all the best for Q4 next year. Thank you.
We have two minutes for the very last and brief question. Ahmed Kamal, please, over to you.
Hello, good evening. Thank you, Olga, and congratulations, Mohamed, on the new role. Just quickly on the sensitivity that you have mentioned. So AED 120 million cut for every 50 basis points cut in interest rates. Is that on the net income level or net interest income level? Given that we believe that for the interest rate cuts, it should be accompanied by a higher loan growth and more like increasing fee generation. Is that taking into consideration the volume growth or it is not?
Thank you, Ahmed. Thank you, first of all, for your wishes, and I think very good question. The way we do sensitivity, we always base on a bank's as is basis, right? If the balance sheet would be at today's point and you assume a curve shift by that specific basis point, that is your impact. That is why we are running with volume growth and a healthy level to offset some of this as well. But yes, your AED 120 million 50 basis points is based on today's balance sheet.
Thank you.
Thank you everyone for participating in today's call, and thank you ADIB management team for hosting this call today. Thank you.
Thank you, Olga. Thank you, everyone. If you have any further questions, just drop us a line. Thank you.
Thank you all.
Thank you.