Good afternoon, everyone. Thank you for joining us today to review FAB's financial performance for the first quarter of 2023. As usual, all our financial disclosures are available on the dedicated IR section of our corporate website, as well as on the IR mobile app. Today's call is hosted by our senior management team, represented by Karim Karoui, Group Head of Mergers and Acquisitions and Interim Group CFO, Pradeep Rana, Group Chief Risk Officer, and Rajesh Deshpande, Acting Group Chief Credit Officer. They will be here to answer all your questions at the end of this short presentation. Without further ado, I'll pass it on to Karim for the financial review. Over to you, Karim.
Thank you, Sofia. Good afternoon, good afternoon, everyone. Thank you for joining today's call. I will quickly run through some key financial and strategic highlights before opening for Q&A. Turning to slide three of our earnings call presentation. FAB had a strong start to the year. The group produced first quarter net profit of AED 3.9 billion, up 60% quarter-on-quarter and up 70% year-on-year when excluding the gains on sale of a majority stake in Magnati, which were booked in the prior year period, Q1 2022. These results translate to a return on tangible equity of 18.5% versus an adjusted ROTE of 11.3% in Q1 2022, which is a significant improvement.
On an underlying basis, when adjusting for the Magnati stake, sale, this is the highest quarterly net profit achieved by the bank and the clear indication of the progress we are making on several aspects. Firstly, that we deliver on our growth strategy. Secondly, that we are consolidating our status as a regional banking powerhouse. Thirdly, that our long-term client focus and commitment to deliver superior and sustainable shareholder returns is paying off. These results continue to be supported by a favorable macroeconomic backdrop in the region with strong fiscal surpluses and then the real GDP growth expected to average around 4% for the year 2023. Sustained momentum across all business segments and products, which help drive strong uptake in operating income to AED 6.7 billion.
That's a 51% growth year-on-year, with double-digit growth in both net interest and non-interest income. This strong revenue momentum, coupled with disciplined cost management despite ongoing investments, led to improvements in the cost-to-income ratio, while cost of risk remained contained and then well within guidance at 62 basis points. During the period, we continued to help our clients drive their growth and investment plans, facilitating their cross-border banking flows through our market-leading capabilities and expertise. This resulted in strong deal pipeline execution across several areas and a sustained lending momentum with a 3% sequential growth in gross loans and advances to AED 494 billion.
More notably, customer deposits grew 11% or + AED 80 billion to over AED 780 billion, underlining the depth of our relationships and our superior credit rating of AA- or equivalent as one of the safest banks worldwide. We end the first quarter of 2023 with sound balance sheet fundamentals, with March end 2023 LCR at 151%, NSFR about 100%, and CET1 strengthening by 57 basis points quarter on quarter to 13.2%. Overall, we are pleased with this strong set of results. The group is in a unique position to continue to drive sustainable and superior shareholder returns while shaping the future of banking in the UAE and beyond. Turning to the next slide.
As communicated in the previous earnings call, one of our long-term aspirations as a group is to consolidate our status as a regional banking powerhouse, driving sustainable growth and economic diversification. During the first quarter, we continued to deliver against our strategic priorities to stimulate growth, catalyze change, and enhance connectivity through: One, the acceleration of business momentum across segments and product lines. Two, further income diversification with a strength in fee-based business, the deepening of client relationships and enhanced cross-sell, particularly in Global Markets. Through innovative solutions, leveraging digital capabilities and new strategic partnerships to unlock customer benefits. Ongoing investment in talent and technology in order to support business growth. Key management hires to help drive strategic execution. We also made significant progress in our ESG strategy.
FAB was the first MENA bank to set the carbon emissions reduction targets for high emitting sectors within the bank's loan portfolio. We facilitate over $5 billion of sustainable financing in Q1 2023, making good progress against our group target of $75 billion in 2030. Also, election of three board members, including FAB's first female board member. Next slide. Going back to financial results and turning to the next slide. The net profit bridge year-on-year and quarter-on-quarter. The group recorded high double-digit earnings growth driven by sustained business activity and commercial momentum, benefits from higher interest rates, and enhanced income generation across our diversified franchise. Starting with year-on-year trend, Q1 2023 net profit was AED 3.9 billion, up 70% year-on-year.
That's +AED 1.6 billion after excluding the AED 2.8 billion gain on the sale of a majority stake in Magnati booked in Q1 2022. As you can see on the next profit bridge, the year-on-year performance was driven by a strong uptick in operating income from strong net interest income, increasing 41% year-on-year or +AED 1.3 billion, helped by healthy volumes and then higher interest rates. Around AED 1 billion growth in non-interest income, that's +74% year-on-year, driven by higher fees and commissions, a strong sales and trading performance, and sizable FX gains. This was partly offset by higher operating costs by continued investment, impairment charges, and slightly higher taxes.
Sequentially versus Q4 2022, Q1 2023 net profit is 60% up sequentially, and you can see here that this result was driven by a market improvement across each and every single line of the P&L, which is reflecting business growth, benefits from higher interest rates, as well as the prudent measures we took in the fourth quarter. Turning to the next slide, the group delivered a strong operating performance across business segments and product lines. During the first quarter, we saw positive momentum across all business segments. Investment banking revenue grew 49% to AED 2.7 billion with solid momentum across all major products, be it group corporate finance, GTB or Global Markets.
This was driven by healthy volumes, higher interest rates, strong deal pipeline execution in Global Corporate Finance across several areas, including M&A, ECM and DCM, as well as robust sales and trading performance. Loans and deposits were up 2% and 14% respectively, underlying a healthy liquidity position and a loan to deposit ratio of 41%. Corporate and commercial banking revenue grew 66% year on year to AED 1.7 billion, primarily driven by strong growth in net interest income in Global Transaction Banking, benefiting from increased business volumes and higher interest rates. Sequentially, the business saw solid growth in non-interest income on the back of higher fee generation, new cash management mandates, and strong FX and derivative sales.
In consumer banking, despite lower revenue year-on-year, commercial momentum was very strong with customer-initiated digital sales of credit cards and CASA increasing more than 140% year-on-year. Co-branded card sales growing 86% on the back of successful product launches and strategic partnerships and continued productivity and efficiency gains on the back of increased digitization. In global private banking, net flows were positive despite volatile market conditions, the business grew revenue by 15% to AED 274 million on the back of higher fee income and the strong momentum in IPOs, which saw record client participation in a few local listings.
In head office, the strong uptick in revenue of AED 0.8 billion was primarily driven by strong performance in FABMISR, which is still showing under the head office but will be reclassified under the various business segments in the next few quarters. Turning to the next slide, the group presents a robust balance sheet foundation supported by strong liquidity position and healthy loan growth. Group total assets grew 7% sequentially to AED 1.2 trillion. One of the key highlights of the quarter was the significant growth in the deposit base by AED 80 billion, including AED 19 billion of additional CASA balances. Nearly half of the new inflows during Q1 were gathered from our international franchise, underlining the group's unique role as an aggregator of regional and international liquidity.
by counterparty, corporate and private sector deposits were primarily the drivers, so plus AED 72 billion, including the money market funds, followed by government, plus AED 11 billion, and individuals, plus AED 4 billion. On the asset side, cash and balances with central banks, mainly Fed placements, grew AED 76 billion, loans and advances plus AED 13 billion, and investments to plus AED 4 billion through our continuous focus on efficient balance sheet deployment in order to maximize returns. Loan growth of 3% quarter-on-quarter, so it's plus AED 13 billion, was primarily driven by short-term FI trade loans, corporates slash private sector and government lending, reflecting sustained momentum in the UAE.
FAB's liability profile remains very strong with a liquidity coverage ratio of one at 151% LCR, and a net stable funding ratio of over 100%. Turning to the next slide, which is covering net interest income and margin trends. NII growth was helped by strong business volumes and then higher interest rates. NII was 5% sequentially and +41% year-on-year to AED 4.4 billion, reflecting volume growth and significant benefits from rate hikes. You can see from the quarterly NIM trend on the bottom of the slide that NIM has improved 11 basis points year-on-year and 2 basis points quarter-on-quarter, driven by higher interest rates.
Which is partly offset by the dilutive impact of higher placements with central banks as a result of the sizable deposit inflows during the period. Our asset mix, shown in the bottom middle part of the slide, shows the mix of average interest earning assets and average interest-bearing deposits, where due from central bank, central bank and banks now represent 38% of interest earning assets versus 27% the prior year period, which has an impact on the overall mathematical calculation of NIM. We will continue to manage the balance sheet dynamically in light of the evolving interest rate outlook, we do expect NIM to further improve by year-end, provided there are no significant balance sheet movements.
discussing the next slide, discussing the non-interest income in slide nine, made up of fees, FX gains and sales and the trading income. Overall, non-interest income grew 74% year-on-year and 35% quarter-on-quarter. On a quarter-on-quarter basis, this was primarily driven by a jump in FX and investment income, mainly on the back of increased client flow activity, significantly higher FX gains, and overall a strong sales and trading performance in Global Markets amidst highly volatile market conditions. While most of this revenue stream is sustainable and underlines enhanced cross-sell, 20%-25% of the FX and investment income in Q1 2023 could be considered as non-recurring.
This was coupled with a 15% growth in fees and commissions from strong deal execution in GCF then higher cash management and the trade-related fees. Other non-interest income was at AED 67 million and is higher quarter-on-quarter as Q4 2022 included MTM losses on investment properties in Q4 2022. In Q1 2023, non-interest income represented 34% of group operating income versus 30% in the prior year period. Turning to the next slide, showing the quarter-on-quarter trend in OpEx and cost-to-income ratio. Operating efficiency improved considerably, both sequentially and year-on-year. Q1 '23 OpEx of AED 1.7 billion was 16% lower compared to Q4 2022, reflecting legacy system write-offs in the previous quarter, as well as cost discipline.
Year-on-year, OpEx grew 11%, reflecting ongoing investment in talent, technology and strategic initiatives to drive business growth. These investments are expected to deliver productivity and efficiency gains over the medium term, helped by revenue growth. Q1 2023 cost-to-income ratio improved to a market leading level of 25.1% for the quarter, compared to 32.2% in Q1 2022, adjusted for the gains on sale of stake in Magnati. Overall, group operating efficiency is very strong, particularly for a banking institution of our size, and group cost-to-income ratio is expected to remain below the 30% threshold by year-end, despite ongoing investments. Turning to slide number 11, looking at asset quality, the group continues to present strong metrics as of March end 2023, demonstrating a high quality portfolio and a prudent risk approach.
NPLs were stable quarter-on-quarter at AED 18.5 billion, with subdued NPL formation overall, implying a group NPL ratio at 3.8%. Impairment charges stood at AED 798 million and were 28% lower sequentially and 74% higher year-on-year, translating to an adequate provision coverage of 101%. Result, cost of risk was contained at 62 basis points for the quarter, well below full year guidance of below 80 basis points. Turning to the next slide, capital generation was strong during the period. The group ended the quarter with a CET1 of 13.2%. That's a 50 basis points improvement from December 2022 level post dividend. This was driven by higher retained earnings, plus 69 basis points impact, coupled with risk discipline and ongoing risk weighted assets optimization.
That's plus 9 basis points impact, partly offset by adverse movements in reserves and the Tier I interest payments. That's minus 21 basis points. Despite the strong balance sheet growth with total assets up 21% year-on-year, risk-weighted assets were less by 2.5% year-on-year to AED 568 billion, implying a return on risk-weighted assets of 2.8%, up from 1.6% the prior year period. Turning to slide 13 and to wrap up, FAB had a very strong start to the year, delivering high double-digit growth in revenue and net profit, capitalizing on a sustained momentum across all business segments and benefits from higher interest rates. The group operates on a robust balance sheet foundation across liquidity and funding, asset quality and capital, supported by strong earnings generation capacity.
As we continue to deliver against our growth strategy, we see for the time being more tailwinds than headwinds. We believe we are uniquely positioned to continue to drive sustainable growth in profitability and returns for all our stakeholders. With regards to the full year 23 financial guidance, you can see on the right-hand side that we are either very well on track or ahead on the various metrics. At this stage, in light of a volatile global backdrop, we have decided to reiterate our financial guidance. We may revise a few of these metrics at the half year period as per our usual practice. With this, I would like to hand over to the operator and then open the floor to Q&A.
Lauren, you may open the Q&A session. Thank you.
Thank you. If you would like to ask a question, please press Star followed by one on your telephone keypad and remember to unmute locally. If you change your mind, please press Star followed by two. For those of you who have joined us online, you can type your question into the Q&A box. As a reminder to ask a question that is Star followed by one, or if you've joined online, you can type your question into the Q&A box. Our first question comes from Nadia Iqbal from Morgan Stanley. Nadia, please go ahead.
Hi. Thank you very much for the presentation. This is Nida Iqbal from Morgan Stanley. My first question is on the deposit side. Deposit growth has clearly been very impressive this quarter. International up 27% quarter-on-quarter. It would be great to get some color on, you know, exactly where this is coming from, which countries are contributing to this. On the other hand, your CASA share has decreased from 52% a year ago to 40% now. This is a faster shift away from CASA versus some of the other peers. Just wanted to get a better understanding of what are the reasons for this. Linked to this, if you could please comment on your NIM expectations from here.
Do you think NIMs have peaked or is there further upside? My last question is, as you mentioned, about 38% of the interest earning assets are now placements with the central bank and due from banks. How should we think about the deployment of excess liquidity for FAB going forward? Thank you.
On the, sorry. Thank you, Nida. On the first one. Deposits, I mean, given the given what's happening all over the world, being let's say, a flight to quality area, we saw a lot of deposits flowing into FAB's balance sheet. Approximately like 50% of these deposits are coming internationally from mainly from U.S. The remaining is coming from from the UAE. These are there is a mix of government deposits and corporate and private sector deposits. It's it's it's a mix. It's, it's balanced.
We are happy that our international locations are contributing to this increase in the deposits. On the CASA side, it keeps on growing from in terms of absolute figures from one quarter to another. Overall, this will continue. Maybe the first quarter, the movements in deposits in general were quite high. Overall, this is the kind of percentage which we are looking at in the future. The efforts will always continue for us to bring the CASA in such an environment. For us, the efforts will continue, you can see this in the future quarters to continue on increasing.
On the net interest margin, I think we are doing a lot of efforts internally to improve our NIMs. You expect, it's not like we reached, we reached plateau or we reached, but definitely we will continue on doing the efforts to improve on the NIMs. What you saw as increase in the NIMs of 11% in from Q1 - Q1 of last year could be a good guidance for you, could be a good guide in basis points. It could be a good guidance for you, for the increase in the NIMs in 2023. On the excess of liquidity deployment, that's our profile.
One is that the very short-term liquidity, excess liquidity we deployed in US dollars with the Fed. Other ways, other avenues for deploying this is the short-term FI, FIs. That would help us improve on the returns regarding the very short-term liquidity which comes to our balance sheet.
Thank you very much.
Thank you. Our next question comes from Rahul Bajaj from Citibank. Rahul, please go ahead.
Yeah. Hi, this is Rahul from Citi. Two quick questions from my side. I want to revisit the margin question asked earlier. Just to clarify, you said that Q1 - Q1, NIMs expanded by about 11-12 basis points, and we should expect a similar expansion for 2023 Y- on- Y. Is that kind of my understanding correct or you were alluding to something else? That's my first question. The second question is, if I look at your segmental disclosures, especially the Excel file, which you very kindly shared, it seems like a bulk of loans and assets have moved from the consumer segment to the headquarters segment. Just wanted to understand what's going on there, why you have moved things between consumer and headquarters. Those are my two questions. Thank you.
Yes. On the net interest margin, I confirm your understanding. A 10 basis points increase in the NIMs would not be a big surprise. This is given the size of our balance sheet, we find that this could be reasonable. Quarter-on-quarter, there was an increase of 2 basis points. From every quarter, basically, all this is reflecting that we are very focused on increasing the NIMs within the deployment of within the asset management of our balance sheet. On the segmental note which you made.
Basically this is the classification of the on the national loans which we moved from the consumer bank to the head office because it's a portfolio which we actually are exiting because it's very regulated, it's very regulated by the central bank, where the yields are capped. For us, it's just a reclassification because effectively it's not managed 100% by the consumer bank. This is we are just following the regulation and the rules. We are on in a cycle of exiting this portfolio, which was legacy from the ex-banks.
Understood. Great deal. Thank you so much.
Thank you. Our next question comes from Waleed Mohsin from Goldman Sachs. Waleed, please go ahead.
Thank you much for the presentation and congrats on a solid set of results. Three questions please from my side. Karim, you've clarified that some part of the FX income could be classified as or considered as non-recurring. You said, I think 20%-25%. When I look at the fee income line as well, there's a component which is other fee income which increased significantly on a sequential basis. My question was, if you could clarify what part of that is non-recurring. Linked to this, you know, you reported a return on tangible equity on your calculations of 18.5%.
When we adjust for some of these one-offs, whether it's on the investment income side or the fee income side, what would be the comparable underlying return tangible equity, which is, which we should consider as recurring? That's the first question. Secondly, you've done some RWA optimization. Despite the credit growth, we're seeing a reduction in risk weight assets, and it's not only coming from credit risk. Any clarification on that would be helpful. If this is gonna change significantly as banks transition to Basel IV. My third and last question is on cost of funding. Despite a very liquid balance sheet, I mean, you've got probably one of the most liquid balance sheets across the Middle East.
When I do a simplistic calculation in terms of your cost of time deposits, it appears you're still paying a premium on 12-month Emirates Interbank Rate. Given the, you know, the liquidity of the balance sheet, one would expect a significant amount of, I'd say, bargaining power for the bank. Why is it that the cost of funding or cost of deposit for especially the cost of time deposit, turns out to be something like 5.5% or so? Is there something which we're missing on that calculation? Thank you.
Thank you, Waleed Mohsin, for the questions. Regarding the first one, which is the FX income mainly. This is mainly coming. The increase came this quarter, mainly from FAB Muscat because we are holding our capital in US dollars. Overall, the impact was AED 444 million impact positively on our balance sheet. I think if you see further devaluations in EGP, you would expect some positive impact on our FX income. On the other fee income, Waleed Mohsin, which one you mean exactly, you asked about?
Overall, I don't see any other material ones in our FX, in our fee income.
Karim, slide nine, there is a component which has grown from AED 117 million - AED 205 million. That's almost doubled during the quarter. It's called other fee income in your slide number nine.
I'll get back to that one. I jump on the third one. When you talked about the on the cost of funding. This is exactly what I meant when we talked that, when we mentioned that we are doing a lot of efforts now on our cost of funds and then on the asset side of the deployment of the balance sheet in order to improve the NIMs. Basically, we are looking at both sides of the balance sheet. I take your point, and then sometimes you see on the cost of funding that, the rates look higher.
You should link that also with the maturity profile. Some deposits are of longer term. This is pushing a bit up our cost of funding. Regarding the risk weight optimization, I will get some help from my colleagues in the room.
Hi. Good afternoon, Rahul. This is Rajesh. You know, one of the reasons why you see that is if you see our growth in assets, you know, you will see that we have, you know, increased exposure to short-term FI assets, and these are, you know, highly rated trade assets. That is one of the reasons which has resulted in the lower RTP. Thank you.
Got it. Understood. Thank you. Just, Karim, just to follow up on the return on tangible equity point. In your view, what would be the underlying return tangible equity for this quarter, which is recurring?
I think, if we take, I see something between 16% and 17% because of the one item which I look, which I think should be considered in your calculations is the effects on the FAB Muscat. That's the only one which I see as which way you could, you have to forecast it in the future. On the other question on the fees, we have higher fees because of the IPO cycle. Over the quarters that increase the fees on IPOs. What else is left? I guess we answered the one on risk-weighted assets, on the cost of funding. Are you okay?
Okay. Yeah. Thank you so much, Karim.
Very good. Thank you.
Very helpful as always. Thank you.
Thank you.
Thank you. Our next question comes from Shabbir Malik from EFG Hermes. Shabbir, please go ahead.
Hi. Thank you very much. Karim, a couple questions. I think you mentioned that in terms of the new deposit inflows, you saw, I think, around 50% coming from the U.S. Is it because of maybe flight to safety given what we've seen in the U.S. is would you attribute that increase due to the concern that maybe around U.S. banking which contributed to this increase or is this client specific? My second question is on if I look at your non-interest income line, it tends, there tends to be a bit more volatility, so certain items such as other income can be difficult to forecast.
Based on your comments, it looks like non-funded income of about AED 2 billion a quarter looks quite sustainable. Would that be a fair assumption for the rest of this year? Finally, if I look at your cost base, the increase that we've seen this year in Q1 2023, if I then compare it to some of the other banks, it seems a bit low. I would like to understand how are you managing the inflation pressures and other cost pressures and also at the same time not compromising on, you know, future growth. Maybe finally, in terms of a longer term sustainable ROE post corporate tax, what would be a level that you'll be looking at? Thank you.
Thank you, Shabbir. On the first one related to the deposits coming mainly from the U.S. These are mainly the money market funds which are maybe for sure creating products and leverage products for their clients. It's not like we did not see something. Of course, there must be an element of flight to safety here maybe for them. Maybe some of these deposits which were in the placed in the US. As in this current high interest rate environment. We saw these deposits flowing into FAB. We see some of them are sustainable. We see the trend maybe will continue within the current context.
On the non-interest income line, in general, there is, it's function of the trading activities. There are quarters where we have the Global Markets doing well. Sometimes it is less well than the previous one. The numbers which you, I mean, what you have in mind. I mean, there would always be volatility, and then we always position ourselves to take advantage of the movements in the markets than in the trading. That's. There is, I mean, then we are showing in our numbers that some of these activities are coming, some of these revenues are coming from the client-related activities, plus the positioning of our balance sheet, et cetera.
In general, except the element related to Egypt, the EGP devaluation, and then how we just accept that, I see that it's normal to have these kind of numbers every quarter. On the cost side, definitely we are doing. We are very conscious of, and then we want to protect our profitability, so, we are watching very, very closely our expenses. We are doing some savings. We are taking some drastic decisions on in terms of investments. What may be, what was the trend in the past three, four years, like every new technology, everything you go, you invest in a project. Now it is on a need basis. It's based on the impactful investments. We think twice now before we just invest in something.
We invest also in the things which will really make the difference for us. This area, I mean, we expect. It's a prudent management of our expenses. We continue on investing in our people and the technology platforms. As, I mean, with an eye of saving on the costs in the future. Overall big picture regarding your last question. Big picture for us, each time and then as long as we exceed the 15% hurdle into return on equity, we are fine. We have to adapt. Be it, if the tax will come into the picture, we have to change our models.
We have to look at the corners within the balance sheet, and then look at our pricing to ensure that we continue on delivering on the, on the 15% on the long-term basis.
Thank you. That's very useful.
Thanks.
Thanks.
Thank you. Our next question comes from Olga Veselova from Bank of America. Olga, please go ahead.
Good day, and thank you for taking my questions. I have two today. What part of securities do you revalue through capital? What is your sensitivity of CET1 to blended bond yields? I appreciate it's difficult to say what is blended bond yield, but maybe you have made such analysis for your book. Second question is, in which type of securities portfolio do you hold your sovereign exposure to Egypt, if I'm not mistaken, BB rated? Thank you.
Yeah. Hi. I think if you, if you go to our presentation, you go to the appendices. Slide 17 gives you there all the breakdown of our, securities by investment type, investment by geography, the, breakdown by rating. The, the one which is very relevant to your question, where you have the breakdown by sovereign, GREs, covered bonds, et cetera, corporate, private sector, and then supranational. This is, all the breakdown is there.
Thank you. Have you made sensitivity of CET1 ratio to changes in the blended bond yields?
In the presentation, we've been showing like, the impact was 29 basis points in terms of. Yeah, 29 it is.
Twenty-one.
21 basis points. That was the impact on the CET.
Sorry, from what exactly?
If you go to slide 12.
If you go to slide 12 of our investor presentation, Olga, you will see the bridge-.
The last one. You see minus 20 basis points. That's the.
Right.
That's for example the impact in Q1 on the adverse movement in the foreign currency translation reserve, the Tier 1 and the Tier 1 dividend payment. Approximately, but the exact figure, I think we can go back to you over the email. We will take the question offline. We will respond to you by email on this one, if you don't mind.
Right. Perfect. Thank you so much. Thank you.
Thank you.
Thank you. Our next question comes from Naresh Bilandani from JP Morgan. Naresh, please go ahead.
Yes. Thank you. Hi, Karim, Sofia. Thank you very much for your time on the call today. Just three very quick questions from me. Could you please refresh us on the rate sensitivity based on the current balance sheet, profile, with the significant amount of deposit inflow that you've had, how should we be thinking of the rate trajectory? Now, also Karim, you mentioned during the call that you still have a relatively positive outlook on the NIM for the rest of this year. In this context, I'm just keen to understand what is the maturity profile of the liquidity that you have received? My understanding from the money market funds, related liquidity that you got from the U.S., this is very high beta liquidity, so it could...
I'm inclined to believe that this is not gonna be very long-term sitting on your balance sheet. Any rough guidance there, that would be super helpful. On the rate sensitivity, on the maturity profile of the liquidity. Third and final question. Karim, you mentioned that you're still trying to achieve a cost-to-income ratio. Did I hear you right of slightly below 30%? Is that a fair way to think of for the franchise for the rest of this year? Thank you.
Thank you. Thank you, Naresh. On the rate sensitivity, for us, based on the current balance sheet positioning, any increase, any rate hike of 25 basis points would have a plus of AED 300 million dirhams impact. Any reduction in the rate by 25 basis points would mean, in the current context, minus AED 365 million dirham. Of course, I mean, we do, we are still seeing that maybe expecting our economists are forecasting maybe potentially another rate hike than a period of plateau for the remaining part of the year.
We will continue on watching it closely and then see and then prepare ourselves, reposition the balance sheet, as and when required to ensure that we minimize the negative impact, and then we continue on benefiting from the positive impact in the high interest rate environment. This is what we have in mind regarding the NIMs and the impact. On the cost-to-income ratio, yes, our best guidance is that to keep it below 30% for this year.
You understood from the previous comments which we made previously and the questions that we are, I mean, we are doing efforts to maintain the costs at acceptable levels. More importantly, it is on the revenue side that we are making, well, that's what we're making the efforts. This is where we are seeing the opportunities to maintain the cost to income at below 30% as a best estimate guidance. Thank you.
Got it. Karim, one pending question on the maturity profile of the new liquidity that has come through.
Yes. Yeah, I missed that. It's mixed. It's mixed, but on the ones which we talked about, the ones coming from the money market funds, et cetera. I saw that those funds are still with us. It is on our balance sheet. It's not like hot money coming in and out in a very short term and then coming into the end of the quarter. We expect that this will continue. There are. I mean, we have the that may be your best way of measuring it.
You have the CASA, which are the accounts, but at the same time, we have the fixed deposits. We will always aim at increasing the CASA so that. Overall, to put your question in the context, I don't see, I didn't see a major impact or big movements in the maturity profile of our balance sheet for the time being, and then same over the next few quarters. Looks like it is stable, and then based on the historical data, I think, you won't expect any negative or positive surprise there.
Okay. All right. Thank you very much, Karim. Appreciate it.
Thank you. Our next question comes from Chanzal Kamal from Arqaam Capital. Chanzal, please go ahead.
Hi, everyone. Thank you for taking my question, and congratulations on a strong set of results. My question is regarding cost. Operating expenses are down during this quarter despite growth in core business. Can you please provide insights into how the bank has been able to maintain cost efficiency despite rising inflation and interest rates? Whether there were any specific cost saving measures that contributed this decline in operating expense during this quarter?
I think, the first-
How much. If you can provide guidance for year-on-year growth, full year growth in operating expenses for 2023.
Yes. So the first element of answering the question is maybe referring to some one-offs which were done during the Q4 of last year, where we've written off some systems which are unused anymore. We took the hit. That was AED 260 million. That was... That's why maybe showing, well, that was one of the reasons showing that Q1 was less. Continuously, because we are investing in the technologies, because we are digitizing, et cetera. We are seeing some of the benefits happening already. On the IT cost, on the number of people which we are using, et cetera. We are doing the savings there.
We will continue. As we said, previously, that we are investing on need basis. We are investing more into what makes the difference for FAB in terms of improving the products, in terms of improving the customer experience. When it come also to the regulatory and then when investing in risk solutions, the compliance solutions, it's a no-brainer for us. That's how we are managing the expenses. I think the best guidance is that we continue on this trend. A high single-digit, low double-digit growth in our expenses for the year could be a good forecast in your model.
Okay. Regarding cost of risk, the cost of risk declined in first quarter to 62 basis points. Should we expect the same kind of cost of risk going forward in the upcoming quarters?
Yes. Hi. From our perspective, yes. Obviously, you know, we are seeing a lot of green shoots out there. We do see scope for a upgrade going forward with respect to our cost of risk. As per our usual practice, we'll be looking at this in the next quarter.
Okay. Okay. Thank you so much.
Thank you. Our next question is a follow-up question from Rahul Bajaj from Citibank. Rahul, please go ahead.
Hi. Just a quick one, follow-up from my side. Just to clarify, you mentioned earlier the Egyptian pound devaluation impact on non-interest revenue, was close to AED 450 million, if I got you correctly. Is this the same number as the other 20%-25% of FX and investment income, which you said was, non-recurring? Are, are these two pointing to the same, element, or we're talking about two different elements here? Just clarifying. Thank you.
Yeah. Thank you, Rahul. Yes, I confirm your understanding. The exact number, how it was calculated was AED 444 million impact. For us, this comes within that range. Overall, we are looking at the big picture. We are seeing the trading activities in Global Markets, in everything. Our best estimate is that to have a kind of 20%-25% of our non-interest income to be non-recurring. Of course, then we will continue on maximizing, optimizing this area because it's a good contribution for the bottom line. 20%-25%-
Thank you.
is our best estimate at this stage. Thank you.
Understood. All clear. Thank you.
Thank you. That is now the end of the Q&A session. I'll now hand you back over to Sofia El Boury for closing remarks.
Hi, Lauren. Thank you very much. Thank you to all of those attending. I know we have a few questions on the chat, but we'll come back to you as an IR team to respond to each and every one of your queries. Thank you very much for your time. Thank you to our senior management team. Have a great day ahead. Thank you.