Hello, and welcome to the First Abu Dhabi Bank Q3 2026 Earnings Call. If you would like to register a question during the presentation on Teams, you may use the raise hand function, and if you have joined us via the telephone lines today, you may press star followed by one on your telephone keypad. I will now hand it over to Sofia El Boury, Head of Investor Relations to begin. Please go ahead.
Thank you, Alex. Good afternoon, everyone. Thank you for joining us today to review FAB's financial performance for the third quarter and first nine months of 2026. Today's call is hosted by our senior management team, represented by our Group Chief Financial Officer, Lars Kramer, and our Group Chief Risk Officer, Chris Jaques. They will be answering your questions at the end of this short presentation. With that, I will hand over to Lars for the presentation.
Thanks, Sofia. Good afternoon, everyone. I will take you through the third quarter results and the first nine months. Let us look at the key highlights and drivers of our performance, and we will also take a look at the outlook and before opening the call to questions. Starting with slide four and our key highlights. FAB delivered record nine-month results, with group net profit reaching AED 16.46 billion, and this is up 3% year-on-year. Our performance was underpinned by diversified revenue growth, margin expansion, and continued cost and risk discipline. Return on tangible equity stood at 18.6%, and this is well above our medium-term guidance of over 16%. Our balance sheet grew to AED 1.47 trillion, and this is up 7% year-to-date and supported by double-digit loan growth, as well as healthy deposit inflows.
Importantly, we have maintained strong fundamentals across asset quality, liquidity, and capital, as well as being supported by our AA- or equivalent credit ratings. Our Group CET1 strengthened further during the quarter to 14%. We enter the final quarter with strong momentum and remain on track to deliver our full-year guidance. Turning to slide five, which demonstrates progress against our strategic priorities. We are sustaining strong momentum in support of the U.A.E.'s growth, investment, and economic diversification agenda. Our loans grew by AED 64 billion or 10% year-to-date, with broad-based deployment across key economic sectors and continued focus on disciplined and efficient capital deployment to enhance our returns. Our franchise continues to demonstrate clear market leadership, retaining top rankings across IB league tables, including number one positions in MENA Bonds and Sukuk, as well as Loan Agency.
We also delivered strong growth across key segments, with Islamic financing up 14%, retail deposits up 10%, and assets under management increasing 11% year to date. This is all supported by strategic partnerships that are strengthening our wealth proposition, as well as broadening investment opportunities for our clients. Across the group, we continue to see strong client flows reflecting deeper relationships and the continued expansion of our product capabilities. Our international franchise continues to build strong momentum and is an increasingly important strategic contributor to the group, providing greater diversification across both revenue as well as liquidity. The international revenue grew 31% year-on-year and now contributes 22% of group revenue, while international deposits grew 8% sequentially.
We continue to expand activity across key international corridors, connecting clients to financing, liquidity, and cross-border opportunities while progressing plans to establish a presence in select new markets, including Kazakhstan and Beijing. Turning to technology and innovation, we continue to scale AI adoption across the group with over 6,000 employee-developed agents now in use. Our progress continues to earn external recognition as well, most recently through Gartner's 2026 Enterprise AI Breakthrough of the Year award. This reflects progress that we are making in embedding AI across our business as well as our operating model. We also continue to advance our digital asset capabilities, becoming the first bank in the Middle East and Africa to complete live U.S. dollar transactions with Citi through the Swift Ledger using tokenized deposits. This represents an important step towards faster, more programmable, and ultimately 24/7 cross-border payments for our clients.
Finally, a sustained finance remains embedded in our strategy and in how we support our clients. To date, we facilitated AED 417 billion of sustainable and transition financing, and this represents 83% of our AED 500 billion 2030 target. During the quarter as well, FAB became the first bank in MENA to sign the UN Sustainable Blue Economy Finance Principles and established a AED 100 billion blue finance target through to 2035. This effectively builds on our existing sustainable finance commitment and extends our ambition beyond 2030. Turning now to slide seven, summarizing our financial performance for the third quarter and the first nine months. Operating income grew 7% year-on-year to AED 29.7 billion, driven by double-digit growth in net interest income from strong business volumes and margin expansion, while non-funded income increased 3%. Operating profit grew 8% year-on-year to AED 23.3 billion, as sustained revenue momentum continued to outpace cost growth.
In Q3, operating income and operating profit were up 9% and 11% year-on-year respectively. Net impairment charges were higher year-on-year, primarily reflecting overlays, while underlying asset quality remained solid. The nine months profit before tax grew 5% year-on-year, crossing AED 20 billion, while group net profit reached AED 16.46 billion, which is up 3% year-on-year. This primarily reflects an increase in taxes driven by the higher contribution from our international franchise. In the third quarter, net profits increased 6% year-on-year to AED 5.74 billion, marking a new quarterly record. On slide eight, we continue to see broad-based momentum across the franchise, with all three businesses delivering revenue growth alongside sustained growth in client activity, loans, as well as deposits. Investment banking and markets revenue grew 4% to AED 9.33 billion, with particularly strong lending momentum, with loans up 22% year to date.
Wholesale banking revenue increased 13% to AED 5.14 billion, with loans up 14%. Personal, Business, Wealth and Privileged Client Banking Group delivered 4% revenue growth to AED 10 billion, while deposits grew 10%, driven by strong client acquisition as well as digitalized onboarding. Importantly, our earnings mix continues to strengthen, with international operations contributing 22% of group revenue, while our non-funded income now represents 43% of the top line. This combination of franchise momentum, earnings diversification, and disciplined capital deployment continues to underpin FAB's ability to deliver sustainable capital-efficient returns. Looking at slide nine, the net interest income grew 11% year-on-year to AED 16.98 billion. Group net interest margin was at 1.93% over the nine months of 2026, and this is 5 basis points higher year-on-year, supported by targeted repricing across both assets and liabilities, as well as active treasury and balance sheet management and efficient liquidity deployment.
The Q3 NIM was at 1.85%, moderating from a particularly strong second quarter, and in the second quarter, we benefited from higher interest in suspense recoveries. We also saw a modest impact from increased wholesale funding as we continue to proactively strengthen liquidity resilience and diversify our funding base. Importantly, against a widening EIBOR SOFR differential, higher loan yields actually more than offset the increase in deposit costs during the quarter, and this provides support to our margins. This demonstrates continued pricing discipline supported by a strong global deposit franchise and broad market access and our AA credit rating. A 25-basis-point parallel move in rates now represents approximately a AED 200 million-AED 250 million sensitivity, and this is before management actions.
This compares to the AED 200 million previously, and importantly, we continue to actively manage our balance sheet positioning, our funding mix, and pricing to optimize our outcomes, especially as the rate environment is evolving. Looking ahead to Q4, we expect NIMs to remain resilient with potential for actually some modest expansion. Given our strong year-to-date performance, we continue to expect full-year NIM towards the top end of our 180-190 previous guidance. On slide 10, the non-interest income grew by 3% year-on-year to AED 12.73 billion, representing 43% of the group's operating income and reflecting continued momentum across our diversified revenue streams. Fees and commissions were up 19% year-on-year, supported by strong loan origination and deal execution, alongside resilient trade-related fees.
FX and other investment income increased 1% year-on-year and 17% sequentially, reflecting strong client flows, particularly across FX and derivatives, as well as a robust performance in our investment portfolios. You can see from this quarter, we are simplifying the presentation of FX and investment income, bringing together trading, investments, and other income to better reflect how these activities collectively contribute to the franchise. Importantly, the economics of our global markets business are fundamentally client-led, and the scale and diversity of flows generated through global market sales support market-making activity and provide a strong foundation for broader trading as well as investment income. Overall, our non-interest income performance continues to demonstrate the strength and diversification of our earnings base with fee growth, client-led markets activity, and investment performance providing complementary sources of income across market cycles. Turning to the next slide.
Operating expenses increased 5% year-on-year to AED 6.4 billion in the first nine months, reflecting ongoing investments in the capabilities that support our long-term growth ambitions, which includes talent as well as technology. Importantly, at the same time, we maintain strong cost discipline and continue to drive efficiency and productivity gains with our cost-to-income ratio remaining at an industry-leading level of 21.5%. On slide 12, we delivered strong and well-diversified lending growth in the nine months of 2026, with gross loans increasing 10% year to date or AED 64 billion to AED 697 billion. Sequentially, loan balances grew 3% or AED 18 billion, reflecting broad-based growth across key segments as well as sectors. Personal and retail lending maintained strong momentum, surpassing the AED 100 billion milestone, demonstrating the continued progress we are making in scaling this franchise.
Our loan book remains well diversified across all key sectors as well as geographies with a strong pipeline aligned to the UAE's accelerating investment and infrastructure agenda and supporting continued growth and revenue momentum. On the deposit front on slide 13, our customer deposits grew 5% year to date or AED 44 billion to AED 885 billion. The group maintained a robust liquidity position with an LCR of 140% as of September 2026, which is comfortably above regulatory requirements. In the last quarter, deposits grew 4% or AED 32 billion, and this is driven by public sector and corporate inflows alongside continued growth in retail. Momentum across our international franchise was particularly strong, with AED 15 billion of inflows during the quarter.
On the wholesale funding side, the group raised AED 24.5 billion or $6.7 billion equivalent year to date at very competitive pricing, and it included multiple benchmark issuances across currencies, demonstrating the breadth and strength of our market access. In October as well, we successfully issued and settled AED 1 billion of three-year digitally native green notes. This marks the first digital green bond issuance for the MENA region and is a further broadening of our funding capabilities in line with our focus on financial innovation. We remain committed to maintaining a well-balanced mix of stable and cost-efficient funding to support sustainable asset growth and leveraging our strong credit profile and one of the region's most diversified funding platforms. Looking at slide 14 and at our asset quality.
Overall, the group's asset quality remains resilient, and this is underpinned by prudent underwriting, a high-quality portfolio mix, as well as strong coverage levels. Group NPL ratio was 2.1% as at September end, and this improved 42 basis points year on year with a healthy 114% provision coverage ratio, which strengthens to over 167% if we include collaterals. Impairment charges were higher year on year, primarily reflecting prudent overlays. Sequentially, Q3 charges increased largely due to lower recoveries compared with the previous quarter. During the quarter, we refreshed the macroeconomic assumptions underpinning our ECL models, and this resulted in a recalibration of overlays to AED 350 million for the nine months of 2026. This reflects our latest assessment of the risk environment and continued prudence, despite resilient underlying credit conditions.
The cost of risk for the nine-month period was 62 basis points, and this is well below our guidance for the year of less than 70 basis points. Turning to capital on slide 15. The Group CET1 strengthened by 28 basis points during the quarter to 14%, and this is supported by strong organic capital generation. In the third quarter, our earnings added 73 basis points to CET1, which comfortably absorbed the impact of RWA growth from normal business activity, as well as other movements mainly being related to OCI through capital and foreign currency translation. Looking ahead, the continued runoff of trade loans through year-end is expected to provide some further capital benefits while we also expect loan growth momentum to continue. Turning to slide 16. We are reaffirming our full-year guidance with strong execution across all key metrics.
Most importantly, we continue to translate growth into stronger returns and with our ROTE now standing at 18.6%, tracking well ahead of our full year 2026 guidance while loan growth remains on track towards the upper end of our low- to mid-teens range. The macroeconomic backdrop remains supportive. We have maintained our U.A.E. real GDP growth forecast at around 3% for the rest of this year and now expect an acceleration to approximately 5.8% in 2027, supporting continued investment, client activity, as well as a healthy growth pipeline. Our latest assumptions also incorporate one further rate hike by year-end, while we have raised our 2026 oil price forecast to $88 per barrel. To conclude, we remain confident in the significant opportunity ahead.
Structural growth across the U.A.E., combined with expanding opportunities along key economic corridors, align strongly with FAB's capabilities and our positions, and it positions us well to capture the next phase of growth. As part of our ongoing budgeting and strategic planning for 2027 as well as beyond, we are assessing these opportunities through the lens of disciplined capital deployment, sustainable risk-adjusted returns, and long-term shareholder value creation. We remain focused on supporting our clients, enabling the U.A.E.'s ambitious growth and diversification agenda, and deploying our capabilities where we can have the greatest impact. Against this backdrop, our record nine-month performance gives us confidence in the resilience of our diversified business model and our ability to continue delivering attractive returns throughout the cycle. On that note, I think we can open up for questions, Sofia.
Thank you. We will now begin the Q&A session. As a reminder, if you would like to ask a question on Teams, you may use the raise hand function. If you have joined us via the telephone lines today, you may press star followed by one on your telephone keypad. We will begin with questions from the telephone lines. Our first one is from Jon Peace of UBS. Your line is now open. Please go ahead.
Yes. Thanks for taking the questions. The first one, please, is on the NIM, and thanks for the updated sensitivity. Is that sensitivity symmetrical, i.e., the same number applies to higher rates versus lower rates? Hopefully, given a tailwind for NIM into Q4 and with higher rates, would you expect the 2027 NIM to be broadly in the same range? Second question, please, is on the non-interest income. Obviously, there is always some volatility in there. If I look at the divisional breakout, it looks like a lot of the strength came in the head office rather than in investment bank or wholesale. Just wondered if you could give us a bit more color on what was driving that and maybe the sustainability. Lastly, sorry, I missed your point on the overlays.
Was there a small release of overlays within the quarter, and how do you feel about the outlook in terms of potentially further overlay releases in Q4? Thank you.
Hi, Jon. The NIM sensitivity is symmetrical, so that has been the case pretty much for the last few years that we have seen the same sort of effect up or down. We are not really giving any sort of direct guidance at this point on 2027, but certainly for Q4, as I said, I think in my preamble, we do expect support and resilience in our NIM, maybe even a small uptick. Yes, the rate cycle, at least going into next year, should be supportive of NIM as well. So, I think that gives you some sense of the resilience. I think the other thing you can also look at us in terms of our NIM is really, I think in terms of our funding cost has pretty much stayed materially flat pre-war to post-war.
I think this talks a lot to also the resilience of not only the franchise locally, but also the franchise internationally, and also our access to professional markets, and really the prices that we are able to achieve there. So, all of that is also fundamentally supportive to at least the cost of funding part of the NIM. Then we have seen, or I would say we have been pretty successful in being able to reprice our lending as well, in terms of, in fact, I would say our loan repricing has outpaced our deposit cost increases. So that has been particularly pleasing. In terms of the non-funded income. Look, I mean, this non-funded income really is what I personally look at is, how stable is it overall and stability versus growth.
I think structurally we've been able to grow this every year with a good structural step change upwards. It really has many, many levers, and I think those levers at different points in the cycle or at different points in the year, the different levers contribute. Where we stand at the moment, I would say you're seeing, for example, this quarter on the lending fees, I think those were down a bit, but you saw trading fees up. We saw our global markets franchise, despite the pressure in the capital markets, despite the still being cross-border pressure, you're seeing that hold up. What we've seen, particularly in this quarter, has been our investment portfolios have held up very nicely, be that in our fixed income or in our equity. But this is something where again, we look at repeatability.
I think I always get asked about repeatability in that area of the FX and the investments. We really do look at a 60%-65% repeatability. That's been the case now for a number of years as well, and I think we have, in a way, outperformed that. But if you want to get some sort of floor indication, that's what I would say we have in the non-funds. On the overlays, maybe Chris, you can give some insight.
Thanks, Lars. Jon, thank you for the question. Yes, in terms of the overlays, there was a reduction in our overlays in the quarter, specifically as we updated all the MEVs, as Lars explained a bit earlier, in the models. So that was something that we hadn't done. We announced that obviously in Q1. So those, all the MEVs have now been updated, and so those are now into the model, and hence we released some of the overlay. I think from an outlook perspective on the rest of the overlays, then honestly, I think we'll continue to take a straightforward approach and prudent approach for this at this point. As we speak, geopolitical uncertainty still remains high. So, it doesn't really feel at this point that we would uptake any stance other than just being conservative right now.
That's great. Thank you.
Thank you. Our next question comes from Naresh Bilandani of Jefferies. Your line is now open. Please go ahead.
Thank you. It's Naresh from Jefferies. Thank you for the presentation. My first question is on the rates and liquidity. Lars, would you please be able to offer some views about the liquidity trend in the system as we are approaching the year-end? I'm specifically asking because there's been a spike in the monetary base, and usually when there is volatility on liquidity within the U.A.E. system, and especially on the higher side, this typically tends to land on FAB's balance sheet. Specifically, would you be able to offer some guidance if there has been a boost to your deposit growth in the month of October, and if that can be supportive into your NIM as you go into the year-end?
I know you did allude to the NIM sort of even improving slightly as we go into Q4, but I'm just trying to understand how Q4 has begun, especially from the liquidity side. So that's the first question. My second question is, where would you see yourself having been in the market share for the FCNR business in the U.A.E. in the third quarter? Did you do more or less of this business as compared to your peers? If it would be possible to offer any contribution from this within your P&L for Q3, that would be super helpful. My third and final question is on the non-interest revenues. While you clarified this in the previous reply, please specifically if I take a look at the FX line, I think that loss has increased as compared to the previous quarter.
I'm just trying to understand if there's any indicator that we should follow from a direction perspective to model this as we go into the future quarters. Equally, is there any particular reason that you have changed the reporting between GM trading and treasury and other lines which you used to provide in the previous quarters? Thank you very much.
Hey, Naresh. Yes, so you are right, there has been a spike in the system. We saw quite a nice uptick, which has followed a number of months of sort of downward trending. I would not go as far as to say it immediately translates into an equivalent type of uptick in FAB. There are a lot of things happening in the economy at the moment. Also, actually in terms of FAB, we do have seasonality in terms of our flows as well. Generally, I would expect the fourth quarter to have better underpinnings for deposits than maybe we have seen for the last couple of quarters. But again, we have to watch a little bit what happens. There is money that leaves the country. There is a lot of extra expense going into supply chains. There is money being spent on various infrastructure things offshore as well.
We should benefit, but one month also does not make the entire quarter, right? There tends to be quite a lot of movement in especially the last month of the year as well. So we will have to watch that seasonality. When I say that, I am talking also about what happens in our U.S. flows. On the NIM front, look, I would say I do not think I can give you much more on the NIM than I have said, that we are expecting to end up at the higher end of that range and that resilience will continue also into next year. On the funding front, if we do see this additional liquidity coming through, yeah, clearly it will take some of the pressure off the market, the local market especially.
You do see this EIBOR versus SOFR spread, which has been structurally it is higher than it has been in the past. Now, that may be something that relieves some of the cost-of-funding pressure in the local market, but we tend to be hedged at the short end. So really, I do not expect too much impact there to come through in just one quarter's view. On these foreign currency non-resident deposits, look, we did some of that, but I would say it is not a major part of our business. If I see some of the numbers that have been talked about by our peers, we are generally lower than those numbers. So, for us, this was not really that meaningful. It maybe manifested itself more in terms of the growth in personal loans this quarter, because obviously some of this stuff was leveraged. So that is the more interesting part.
Then on the non-fund side I am not sure where you are looking at the FX losses, but if you are picking it up in terms of our accounting notes, and I think we have said this in the past, that really what we should be looking at when you look at the FX loss line, you actually have to look at it in combination with the derivatives line. Because really, in terms of accounting, these things get bifurcated, but actually in terms of substance, they need to be read in one and the same. I think if you then look at it on a net basis, you actually see a profit.
I don't think there's any particular underlying sort of trend that you can model or seasonality that you can model or trigger because a lot of this has to do with, well, one, the underlying flow in the commercial businesses, but actually also in terms of our dynamic hedging of the balance sheet. Then you were asking on the change in the presentation. Look, I think for us, this is just to try and make things a bit more meaningful because for me, what we always looked at, the only real change we've made is that we've grouped the global markets trading activity with the rest of the investment portfolio, whether that's the equities or the fixed income portfolio. And that's actually substantively where that belongs.
Why we were in the past breaking it out, and I think it's worthwhile noting that this particular component, the trading component of global markets, does actually also depend on the franchise flows of global market sales. So we were trying to make that a little bit more visible, but over time, I think it'll prove more meaningful if we just look at our entire investment portfolio and that whole FX bucket together. The trading itself, if you were to say quarter-on-quarter from last quarter, it's remained materially stable. So it's not as if there's been a big shift over there.
Sorry, Lars. Thank you so much. Very clear.
Thank you. Our next question comes from Rahul Bajaj of Citi. Your line is now open. Please go ahead.
Hi. Hi, Lars. Thanks for taking my question. Rahul Bajaj from Citi here. Two key questions from my side. The first one is on margin again. I think you alluded to elevated levels of interest in suspense reversals in the second quarter, which drove the sequential margin decline in 3Q. If you were to look at NIMs on an underlying basis, excluding those interest in suspense reversals, is it fair to say third quarter NIMs were broadly flat compared to 2Q, or the underlying NIMs were also lower on a sequential basis? Just trying to understand that. That is my first question. My second question is on India, actually. There has been some press reports recently linking FAB to Bandhan Bank. I know you will not comment on any press reports, so I am not going that way.
If I just take a step back and try to understand your India strategy, how big picture are you approaching India? Are you like one of your peers in the market who have taken a major share in a big bank in India? Are you willing to go that route, or is that something part of your strategy in the medium to long term? Or you are happy with your current presence in India, which I assume is a few branches to cater to your trade traffic. How do you think about the India strategy? That is my question. Thank you.
Hi, Rahul. Look, on the margins, I would say if you strip out the interest in suspense quarter on quarter, yes, you are right. I would say broadly we are flat. So that sort of underpins the resilience, and that is also how we sort of see it projecting through into next quarter. Maybe, as I said earlier, a bit of an uptick. On the India strategy, we very much see India as a growth market. But generally, our own strategy bank overall, we are still very much an organically led strategy. Yes, of course, we look at opportunities. I think I have said this before a number of times. Pretty much we will assess opportunities, be they organic or inorganic, through our returns lens. We have a very disciplined returns lens, and that ties into this ROTE of 16%.
So that remains our, let us say, our strongest filter as well as threshold. What you can see in India, we have already this year. So it is not just branches onshore. We actually opened up a GIFT City presence as well, and that will enable us to do a lot more of the offshore Indian business as well, which is dollar denominated. We get a tax advantage off the back of that as well. So, there is plenty of organic business to be done. Strategically, when it comes to inorganic, we will assess opportunistically, but through a very, very strict returns threshold.
Understood. That's very clear, Lars. Thank you.
Thank you. We'll now come to the questions on Teams. Our first question comes from Shabbir Malik of Morgan Stanley. Please unmute locally and proceed with your question.
Sorry about that. Can you hear me now?
Yes, we can.
Yes, thank you very much. I just have a couple of questions, please. The first one is around government deposits, government and public sector deposits. Is there a way of predicting these government and public sector deposits? In the past, they have tended to flow into FAB's balance sheet in the third quarter. I guess the question is, with all these projects and activities that are taking place, do you think that we are going to see more of these deposits going forward, and maybe they are stickier now than they used to be in the past? Just your thoughts on that would be very helpful. My other question is around your capital position and dividends. You ended this quarter at 14% CET1, which looks pretty good relative to your targets of greater than 13.5% CET1 ratio. How should we think about your dividend payout going forward?
Is it safe to assume it to be in line with what we saw in 2025, or you are going to progressively reduce payout, but maybe keep dividend per share constant or growing? Those are the two questions, please. Thank you.
Hey, Shabbir. Look, I would love to say these deposits get more sticky, because obviously that would be very good from a franchise perspective. We have done a lot of work to, in a way, manage the balance sheet for exactly these big inflows and outflows that do come from governments and from the public sector entities. Over time, it has allowed us to improve our loan-to-deposit ratio. I think as our sophistication and maturity evolves, I can see that we are able to stretch the duration over time, and that we get more comfortable with being able to do that. Obviously that is then supportive of better NIMs and better NII. But can we say in the middle of a geopolitical situation that we are in that suddenly these things are going to turn stickier? I would say not. You are right, we did see strong inflows again this quarter.
Overall for the year, what I am actually more pleased about is that we have seen a very big corporate and private sector growth in our deposits. That, if you are going to talk about stickiness, is actually something which creates even more stability in our funding base. It is that piece as well as seeing the growth in deposits in our personal banking or in our consumer and SME, because these really traditionally have been the stable or the sticky funding sources and pools, and those are really where I would like to see us continue to grow. We have been growing. Strategically, we are on track. The public sector, as I say, both government and public sector, we do look more and more at what is that core base that we can rely on as being there as a sort of call it floor level.
That's where our models are becoming more sophisticated. To just say overall these things are more stable, I don't think that's necessarily the case. What we do benefit from, obviously, is as the liquidity in the system increases, as I said earlier to Naresh, then we should disproportionately benefit from the inflows onto our balance sheet as well. Now you ask about capital and dividends. Again, this is exactly the window of the year where we are doing all of our planning in general, but really the outlook for the next 12 - 18 months is a key part of that in terms of growth. What you've seen, both in our own guidance or what we talked about earlier in terms of GDP expectations for next year, we see a strong snapback relative to where we're going to finish this year. So 5.8% versus 3%.
That's our own view. I've seen much stronger numbers being talked about by the IMF, for example. They talk about 7.7%. Of course, they talk about a lower level this year. But generally, that talks to a snapback next year. It also talks to what we've seen a lot are all the announcements that have been made about building the resilience, building the redundancy, building more infrastructure strength across various dimensions, supply lines, storage facilities, railway lines. There's just so much that's been announced. Here again, I see for FAB, the stars aligning very neatly because the sponsors of these big infrastructure multi-year projects, and we're talking three-year type projects here or longer, these are our key customers. In fact, a number of these are the PSE and the government that you've been talking about on the deposit side.
Also, the capability that's going to be required to structure this financing, to syndicate it, to lead arrange it, to advise on it, this is exactly our bread and butter. So again, here, if we talk about non-funded income, this is something where I expect us to get a disproportionate share of any fee that's available. Please, guys, can you go on mute? Because we're hearing a little bit of back chat. All of that, together with the international network, of course, that we have that can help with the distribution or any offshore infrastructure projects. That really talks to a very nice growth cycle for next year. So in our planning, that's exactly if you want to talk about capital, if you want to talk about dividends, that's what we are now assessing.
Really it talks into, yes, for sure, what amount of the current year earnings do we retain? For growth of the future, what do we need from a capital perspective of the various parts of the capital stack? We're assessing all of that at the moment. So we don't ever give, at this point of the year, a clear indication, but generally, you can rest assured, we have in the past five years, paid about AED 40 billion-AED 44 billion of cash dividends. So we are very, very sensitive to the fact that this is a market that enjoys cash dividends, and we will continue to look at being a very solid payer of cash dividends going forward.
Got it. Thanks.
Thank you. Our next question comes from Aybek Islamov of HSBC. Please unmute locally and proceed with your question.
Yeah. Thank you very much for taking my questions, and thank you for your answers so far. I guess I'd like to ask three questions, please. One is, you mentioned about blockchain, that you're going to be doing the 24/7 payments, which is great news. Can you comment a little bit to what extent the adoption of blockchain technologies supports funding FAB as well as market share and corporate payments, FX, cash management? What is your-
Sorry, I may interrupt because we don't hear you very well. It's cutting a little bit. I don't know if it's maybe from your line.
Well, it could be my Is it better now or the same?
No, I think it is slightly better. Yeah.
Better. Okay.
We got a part of your question, but not everything.
Understood. Let me be very quick and short here. The first question is blockchain. You mentioned briefly about blockchain payments, 24/7 payments. Where does the blockchain tech sit on the board's priority list, and how do you think about this blockchain accelerated introduction within FAB's ecosystem as a way to support the payments network, FX, cash management, implications for the market share? I want to hear your strategic vision on this. That's number one. Number two, when we listen to developed market banks, everyone's talking about agentic AI disrupting deposit flows and driving deposit rates higher. Do you see a similar kind of impact on your international deposit growth and pricing? I would be curious to hear your thoughts. That's the second question. Thirdly, let's talk about the GCC, Saudi market.
How do you see the Saudi lending risk return profile at present, and has there been a change in FAB's appetite for Saudi loans? That's my third question. Thank you.
Aybek, hi there. Just in terms of digital technologies in general and AI, maybe more specifically, I think we all know that the U.A.E. really is very, very focused as a country on digitalization. You see that in the government services. They are very focused in terms of being in the leading edge of AI, at least AI usage and deployment, and whether that is, again, it's right through the economy. So that pretty much informs also FAB's strategy and therefore is very high on the priority of the board. Now, there are so many potential areas of development and sort of positive outcomes here.
The main buckets that we sort of group any of our initiatives into are, firstly, a lot of it is around customer experience, and improving that customer-facing side of things, improving turnaround to customers, having better response to queries, being able to do things faster, even to the point of giving better and stronger advice. So that's certainly a bucket that we are very active in, and we already have quite a number of initiatives live in production. The other area is clearly when it comes to productivity and efficiency. Here as well, every single use case that I see actually surprises me on the up in terms of how much it can do and how fast it can actually do it. So we are very focused on process automation here.
Over the next two years or so, there is going to be a. We already have the strategic initiative on the go, is to really, in a way, agentify a large number of our significant processes in the bank. That is a key focus area. Look, on this productivity efficiency front, it is not as if we have not been automating and trying to be as productive and efficient as possible. You see that in our cost income ratios. You see that in our cost growth relative to our revenue growth. This is basically just a continuation of a theme, but it is a very powerful tool that we will continue to use. The other area that we are certainly focused on is in the area of, in a way, managing our asset quality and understanding our underlying portfolios and pricing of those portfolios, risk assessing those portfolios.
With all the data that we have available to us, this is a clear area where we are already making quite a lot of progress. That will manifest itself in time in terms of just better quality pricing and also it should, in time, also feed into lower cost of risk, right, and better selection of the customers that we do business with. The last sort of area, which is always the holy grail, is are we able to find additional revenue opportunities. I think here maybe that goes into your question on sort of deposit and pricing, because this is certainly what we would use it for, is to find ways maybe of identifying new deposit pools, of being smarter in terms of segmented pricing of deposits. That could very much be an area.
What we have not seen is that, oh, the agentic AI has had any direct impact as we sit here today on deposit pricing or deposit volumes. But it is certainly, as I say, we are deploying it all over in all domains in the bank, so I would not be surprised if at some point we get benefit from this rather than that we see pressure from this. On KSA. Look, KSA, I have been talking for the last few years that KSA is our number two or number three foreign location when it comes to our international network, depending on how you cut it. So it is an important part of our business. It certainly is a country where we are trying to grow our franchise. We have a full universal setup in the country, all the way from retail through mid-corps, large corps, capital markets, even an investment advisory license.
It is definitely a focus franchise for us. But what we have also seen and said over the last few years is that the returns, are not necessarily giving the margins, put it that way, that we are getting are not necessarily living up to the returns that we expect. So we have been very focused on looking at our other income opportunities, and we have been quite successful in that. Also looking at maybe other sectors of the customer base to target in terms of more, maybe larger to midsize corporates rather than just the big names in Saudi. That has been the focus, and that has enabled us to improve our returns. But just generally, the market is now under, I think, more funding pressure. So I would expect that to translate into better loan pricing. But as we sit here today, I have not yet seen it.
Oh, thank you, Lars.
Thank you. Our next question comes from Jitendra Singh of Al Ramz. Your line is now open. Please go ahead.
Hello, can you hear me? Hello?
Yes.
Hi. Thank you for taking my question. A lot has already been covered, so perhaps a very quick follow-up from my end. Maybe on the credit quality, I was looking at note 26 in the financial statement, particularly unfunded exposure. I know this is very small, but here when I look at the impairment charges on these exposure, that has increased to AED 363 million in 3Q. When I look at the stage three unfunded exposure, that has also increased. Can you just help me understand what was that increase? Are you seeing any kind of stress or deterioration in these exposures? Overall, if you can just talk about any pressure on asset quality in any other segment. That will be my question. Thank you.
Jitendra, thank you for the question. It's Chris. In terms of the unfunded, and you're right in terms of the provisioning, the drivers behind that are a couple of cases, a couple of corporate cases really where we see the probability of a call increase, and hence we stepped up the provisioning accordingly. Both of those cases are very actively managed by ourselves, in terms of trying to mitigate the risks. But those are the drivers there, in terms of the unfunded and the change in provisioning. Overall, though, I think as we've commented earlier on the call, that generally we see a very resilient portfolio and a resilient economy. What we're not seeing is any trends in the portfolio, whether it be across sectors, whether it be wholesale or retail. We're seeing a strong, resilient portfolio at this point in time.
Actually, I think as well if you look into some of the detail around things that you'd be looking at in a retail portfolio, then the obvious dips in some of those indicators that you saw in March and April have definitely reversed over the summer. You're seeing some better signs from the economy in some of those areas.
Thank you. Our next question comes from Murad Ansari of GTN Middle East. Please unmute locally and proceed with your question.
Yes. Good afternoon. Thank you. Just two questions. First on loan growth, it's been a very decent quarter in terms of how we've seen the diverse contribution from different sectors. On the whole, I think that there was contribution from three sectors, which was quite outsized. You've talked about personal loans, where probably the foreign currency product had some kind of an impact. I just wanted to get some thoughts around what's happened on the real estate and contracting segment. Is it more shorter term kind of lending, working capital kind of finance, or is it more longer term? Then on moving forward, you've mentioned about the investment cycle picking up. Have you seen that impact come through on your loan numbers already? How do you see that momentum build up over the next, let's say, 3-12 months?
And then, just wanted to understand on the NIM outlook that you've shared, that you expect some possibly uptick in fourth quarter on the margins. Just wanted to confirm, is that more driven by the asset yield uptick? Because you did mention that you've got the shorter end of the curve or short end largely hedged on the funding side. So just wanted to understand what are the drivers of that NIM uptick that you're expecting in the fourth quarter. Thank you.
Murad, hi. So yeah, maybe just talking about the NIM first, because we've talked about that quite a bit. I would say this is, yes, funding costs remaining, I think, stable, maybe benefiting a bit from less liquidity pressure. But materially, I would say this is probably the repricing, the rate increase that we saw last quarter starting to feed through into asset pricing. Because you've got to realize a large part, I'd say it's about, what, 80% of our loan book is actually floating. So this reprices over a reasonably short period of time. So I think that benefit will come through. That may also feed through on our investment portfolio, that we'll get some pickup there as well. So it's primarily asset-led because we've already got a very resilient funding base. The loan growth, you're right, it is across sectors.
I think the one sector that it isn't, and that we already saw in Q3, is the banks, which we signaled very early in the year where we built up the trade loans and we expected to see those pull back. We saw that pull back quite strongly in Q3, and we expect another pull back in Q4. In terms of if you were to look at things like construction and real estate, this really is already the beginnings of what I would say what you're referring to as this CapEx super cycle. And these are all high-quality infrastructure projects. So how do I expect to see this evolve? Certainly, I expect to see a stronger Q4, and then very much tied to that GDP snapback that we were talking about earlier. We expect a really strong 2027. And as we know, these are multi-year projects.
For me, the message on all these infrastructure projects is that actually we come out stronger out of this geopolitical crisis than we went into it when it comes to the underpinnings of our GDP expectations over the next few years. Because we have a lot of announced projects now that actually underpin any GDP growth expectations, which directly informs our loan growth expectations as well, right? Because our loan growth expectations every year are effectively a multiple of the GDP.
Thank you. At this time, I will now hand it back to Sofia El Boury for any further remarks.
Yes, thank you. I think we hit the 60-minute mark, so just want to thank everyone for joining this call. If you have any follow-up questions, please don't hesitate to reach out to the IR team. You know that all our IR collaterals for the quarter are available on the website as well as on the app. So thank you very much for your attendance today, and have a great rest of the day.
This concludes today's presentation. Thank you all for joining. You may now disconnect your line.