Hello, everyone. Welcome to the DIB second quarter 2025 financial results earnings call. Please note all those listening to us via the webcast to kindly refresh your browser in case you're experiencing any intermittent audio issues. As a reminder, please ask your questions by submitting them via email to webcast@dib.ai. I will now hand over to your host, Janany Vamadeva, from Arqaam Capital. Please go ahead.
Thank you, sir. Good evening, everyone, and thank you for joining us today. This is Janany Vamadeva, and on behalf of Arqaam Capital, I'm pleased to welcome you to DIB's Q2 2025 earnings conference call. I have with me here today from DIB Management, Dr. Adnan Chilwan, the Group Chief Executive Officer, John Macedo, the Chief Financial Officer, and Naveen Raja, the Head of Investor Relations. Without any further delay, I'll now turn the call over to the Head of Investor Relations. Naveen, over to you.
Thank you very much, Janany. A very warm welcome, ladies and gentlemen, to DIB's first half 2025 results webcast. This webcast shall be led by Dr. Adnan Chilwan, Group CEO of DIB, along with Mr. John Macedo, CFO of DIB, and myself. Can I please ask everyone to send in your questions to the email address webcast@dib.ai, and we shall address these questions at the end of the presentation. With that, let's kick off today's presentation. Let's start with slide four. The global macroeconomic environment in 2025 has seen a lot of volatility, and this was largely due to trade-related uncertainties. But we're now starting to see resolution of some of these uncertainties as the U.S. enters into trade agreements with various economies. The tariff situation, along with recent geopolitical tensions, have caused volatility in the oil prices this year.
Now, despite the oil price weakness, the GCC economies are expected to demonstrate strong growth this year. One of the key factors for the expected growth rate is the long-term diversification plan put in place by these countries over the past few years, moving away from reliance on the hydrocarbon sector. Now, various GCC governments have announced their intention to implement expansionary budgets with a focus on healthcare, education, and infrastructure. Now, this is best reflected in some of the recently announced measures, such as the Unified GCC Tourism Visa, expected new property law in Saudi Arabia. Now, these measures shall attract new investments in these sectors, thereby driving upstream and downstream economic activities. Lastly, the GCC economy's long-term strength is well reflected by some of the key macro indicators shown on this slide, such as low debt-to-GDP ratios and expected fiscal budget surplus.
With that, let's move to the next slide, where we'll take a closer look at the UAE economy. Now, the UAE's economy has progressed quite a bit in terms of its economic diversification into non-oil sectors, and this fact is very well known, and there's been a lot of progress in its diversification journey over the last decade or so. Non-oil sectors contributed 75% to the country's GDP in 2024, so the UAE economy grew by 4% in 2024, and this year, the economy is expected to grow even higher at 4.4%. Now, let's shift our focus to some of the key growth drivers of Dubai's economy. Dubai's population has been rising consistently over the last few years, and this growth has been driving demand, especially in sectors such as retail, construction, and financial services, to name a few.
The other two key indicators for Dubai's economy are real estate activities and tourism numbers. Both of these continue to trend positively, boosting other sectors such as travel, hospitality, construction, etc. Moving on to the next slide. The UAE economy is underpinned by a strong and well-regulated banking sector. The banks in the UAE continue to demonstrate strong balance sheet expansion, robust capital position, healthy liquidity levels, improving asset quality, and rising profitability. Now, the charts, the various charts on this slide, show consistent growth and improvement across key metrics for the sector, and this is also reiterated by the recent results by most UAE banks. For DIB too, it's been yet another healthy quarter, and this shall be discussed in detail by our Group CEO over the next few slides. With that, I shall hand over to Dr.
Adnan Chilwan to take you through the financial results and business updates for the first half of 2025. Dr. Adnan, over to you, sir.
Thank you, Naveen. As always, I will do a quick page turn to take you through the bank's key achievements in the first half of 2025, and then open the session for a question and answer, and finally use the last few minutes of the hour to summarize the call. I start by drawing your attention to slide eight. We see that the GCC region's growth momentum continues to be strong, with large economies continuing their diversification efforts, and these efforts continue to stay on track despite short-term volatility that we've seen caused by geopolitical events. The UAE's economy has had a robust 2024, and our expectation is for a stronger growth in 2025. Rising population, tourism numbers, and demand for real estate, which we've seen in the earlier slides, confirm these positive economic trends.
Specifically, on slide six, we've seen that the banking sector in the UAE remains strong, with most of the key indicators trending in the right direction. Liquidity, credit growth, capitalization all point towards a sector ready to take on demands of one of the fastest-growing countries globally. At DIB, as we look at the first half of the year, the bank has delivered more than $60 billion in gross new underwriting, with 18% year-on-year growth in credit, supported by 21% year-on-year growth in liabilities. The bank's balance sheet has crossed $100 billion, another historic milestone for the first time. This positive momentum has resulted in a robust first-half profitability, as pre-tax profits reached $4.3 billion, a 16% jump compared to the same period last year.
Important to note that it is the core business that has supported the growth, including customer-driven fees and commissions, which has seen a strong performance in the net funded income line, which I will showcase in the next slide. On slide nine, we can see that the bank's operating revenue grew by 5% year-on-year to end at $6.4 billion in the first half of 2025. Now, it's important to note that the funded income remained stable despite the lower rate environment compared to the same period last year, now clearly highlighting our ability to manage the cost of funding to minimize impact on net interest margins. Quality underwriting, coupled with strong economic performance across all sectors, led to the continued downward trend in impairment charges, with a 61% year-on-year drop to end at $256 million.
The bank's profitability, as I said, has come in strong, with a 16% year-on-year growth in net profit before tax, and it has ended at $4.3 billion, supported by a steady increase in funded income and a 16% jump in non-funded income. The bank continues to generate healthy returns for its shareholders, with return on tangible equity at 21% and return on assets at 2.4%, in line with the guidance for the year. The consistency of the bank's profitability growth and the returns generated on a quarterly basis over the last 18 months is well exemplified by the bottom-left chart on page nine. But moving on, page 10, let's look at our revenue drivers. The bank's funded income levels continue to be stable despite a slight decline in margins.
Obviously, recalibration due to lower rates has impacted the income line, and by lower rates, I mean lower rates compared period to period. But we have managed to largely compensate with a reduction in deposit rates over the same period, thereby minimizing the impact. Non-Funded Income showcased strong growth of 16% year-on-year, with improved contributions across the various components, consistently as the economic environment continues to progress on positive momentum witnessed over the years. Important to note that the majority of the Non-Funded Income has come in from recurring sources such as foreign exchange fees and commissions, investments in properties and associates, and similar line items. Slide 11. As discussed in the past, the bank has been investing in its people, technology upgrades, and digital transformation plans, and our expense growth is primarily driven by these investments.
Hence, in the first half of 2025, our expenses have grown by 7% to reach $1.8 billion, when compared to $1.7 billion in the first half of 2024. The bank's cost-to-income ratio continues to be low at 28.4%, reflecting an efficient franchise. The bank's operating profit, as you can see on this slide, for the first half of 2025 has increased by 4% year-on-year to reach $4.6 billion. On slide 12, a look at the balance sheet. The bank's balance sheet has grown this year so far, and it has been impressive, growing by 8%, crossing the $100 billion mark. This has been supported by a 14% growth in customer deposits and an impressive deployment in net financing assets by around 12%. Financing growth is on the back of gross new underwriting of close to $49 billion across our retail and corporate banking businesses.
And when you add the Sukuk portfolio, which has grown by about $11 billion, our total gross underwriting for the first half of 2025 has reached $60 billion across all our businesses. On the other hand, the bank's non-performing financing ratio has improved by 36 basis points and is now down to 3.36% as of the first half of 2025, on the back of settlements, repayments, recoveries, as well as a very buoyant market. Slide 13. We see our total assets. The top two charts demonstrate how DIB has consistently grown its financing assets and its Sukuk portfolio over the last 18 months. As you can see, the bank continues to have a well-diversified portfolio, as reflected in the bottom-right pie chart.
The bank's consumer financing portfolio, as you can see in that pie chart, constitutes about 30% of our financing book, with all product lines showing solid growth, with a significant jump in our cards portfolio, and we'll look at this in greater detail on subsequent slides. The wholesale financing portfolio, on the other hand, continues to be well-diversified, with large contributors to new financing this year being sovereigns, GREs, utility companies, aviation, manufacturing, to name a few. Real estate exposure is now down to 11% of the bank's total financing book. The next two slides look at asset quality. On slide 14, we continue to see sustained improvements over the past few quarters, with the bank's non-performing financing ratio now falling to 3.36%, its lowest levels in the last decade or so. On a year-on-year basis, the non-performing financing ratio has fallen by 163 basis points.
The drop in non-performing financing balances this year to the tune of $850 million is primarily driven by recoveries across various segments, as the economic environment remains positive. Cost of risk also remains extremely low, and for the first half, we've seen a cost of risk of around 16 basis points, reflecting the quality of our book, especially the new facilities underwritten over the last few years. On the other hand, the bank's coverage ratio continues to strengthen. Cash coverage ratio has increased by 8 percentage points. It stands at 103%, and total coverage, which includes collateral values, has increased by 18 percentage points and stands at around 145%. A granular look at asset quality on slide 15. The bank's asset quality improvement story is well-rounded, and this is further reflected by the decline in Stage 2 and Stage 3 exposures, which fell by 410 basis points.
They stand at around 7.5% of the bank's gross financing assets over the last 12 months. Specifically, Stage 2 exposures fell by 23% year-on-year. They stand at $10 billion, while Stage 3 exposures declined by 27% year-on-year, and that stands at around $8 billion. On the other hand, coverage for Stage 3 improved to 60.2%, with a stable ECL coverage level of 6.8% for Stage 2. Both asset quality in terms of absolute amounts, they've been trending downwards within each of our stages, and our coverage for each of the stages has been trending upwards. Slide 16 looks at our liquidity. Our liquidity profile continues to be stable and healthy. The customer deposit balances have grown by 14% year-to-date, and they stand at $284 billion. You can see that a substantial portion of our balance sheet has been funded by customer deposits.
Our CASA balances have also grown by 8% year-to-date to cross the $100 billion mark, and our CASA as a percentage of total deposits continues to be stable at 36%. In terms of regulatory liquidity ratios, these are maintained well above the regulatory requirement, whether it is the LCR ratio or the net stable funding ratio. Slide 17 highlights our capital levels. Despite the strong balance sheet growth in the first half of the year, DIB continues to maintain solid capital ratios well above the required minimum regulatory levels. At these levels, there is enough room for us to further support the growth agenda that we have for the remaining part of 2025. CET1 ratio, to be specific, stood at 13% as of the first half, implying a healthy buffer of 300 basis points over the minimum capital required CET1 ratio.
On a total capital adequacy basis, the bank remains strong at 16.7%. The next few slides are going to demonstrate our businesses in detail. Slide 19, we look at our consumer banking business. The growth momentum that we witnessed in the consumer banking business has been extremely healthy, as assets have grown by 13% year-to-date to end at $71 billion. When you look at quarter-on-quarter growth, second quarter, we've seen higher growth than the first quarter. On a year-to-date basis, we've seen a 13% uptick in our consumer banking franchise. Growth has been led by good performance across all our key products, with home finance growing by 12%, our auto finance book growing by 13%, our cards business growing by 33%, and our personal finance book growing by 9%, underscoring the strength of our retail franchise.
When you look at gross new underwriting across the consumer banking business, we've seen record levels at close to $18 billion in the first half. Now, this is a strong 46% growth year-on-year compared to the first half of 2024. Now, customer deposits within the consumer bank have also grown by a healthy 7%. They stand at around $98 billion. And the CASA mix of our consumer banking book is very stable at around 52%. As we move on, slide 20, we look at our corporate banking business. And this is both our domestic corporate banking business and our cross-border corporate banking business. The local and cross-border corporate business has seen very strong first-half results, and the assets have grown by 11% year-to-date. These stand at about $166 billion.
The growth driven by this new gross underwriting of around $31 billion in the corporate bank as compared to $17.3 billion in the first half of 2024, so an exceptional first half within our corporate banking book, and that constitutes a year-on-year growth of around 78%, so that has clearly underpinned very strong performance when you look at all our businesses. Growth was particularly strong across various sectors, but some sectors, if we had to name, would include aviation, utilities, telecommunications, financial institutions, and this is both domestically as well as regionally. Our wholesale deposits have been robust, and these have increased by 32% year-on-year, and these stand at around $186 billion, so it's important to note that in terms of funding our corporate banking growth, we've also seen an uptick in our corporate banking deposits, so that's a great story for us.
Our cross-border business continues to be very active in capital markets. In the first half of this year, we have participated in a lot of syndicated deals as well as net capital market transactions for large corporates, financial institutions, as well as GREs. Now, this is both within the UAE as well as the wider GCC region. Slide 21 is an important slide as well because it looks at the third business of ours, which is our treasury book. The bank's sukuk portfolio now stands at around $89 billion, and that has grown at a pace of 9% year-to-date. The growth in the portfolio was largely driven by financial institutions and the services sector, typically the ones that have done capital market issuances in the first six months.
The Sukuk portfolio continues to be of high quality, with sovereigns comprising 65% of the total portfolio and well-rated financial institutions forming around 13% of the portfolio. Now, when you look at revenue contributions from the treasury book, you can see a 9% year-on-year growth, and that book has contributed about $1.4 billion. Slide 22 let's very quickly summarize our digital strategy. As a part of our digital strategy, we've always been focused on increasing digital channel adoption among our customers, driving customer acquisition digitally while adding new features and capabilities to make our customers' lives easier. This focus has resulted in consistent growth in registered user numbers across the digital channels, as well as higher digital transactions, both in terms of numbers as well as volumes. For example, the new onboarding model for, let's say, our SME and business banking customers has contributed to pickup in new-to-bank customer acquisition.
Now, such tactical enhancements continue to strengthen customer onboarding journeys across our retail franchise as well as our business banking franchise. Slide 23 is yet another important slide because it highlights our sustainability efforts. In 2025, we've been laser-focused on expanding our sustainable finance capabilities. This has yielded around $2.7 billion in gross new sustainable finance since the beginning of the year, with exciting transactions to follow in the pipeline. Now, a major enabler of this growth has been the publishing of the Sustainability-Linked Financing Framework, which we did towards the end of last year, beginning this year, which has opened a realm of new global financing opportunities in industries critical to the global clean energy transition, such as aviation, telecom, agriculture, and so on. Alongside this, our existing sustainable finance products continue to thrive, with over 1,800 electric vehicles financed in the first half of 2025.
These add to our sustainability finance numbers and allow us to grow our portfolio, moving in the right direction. DIB is firmly committed to advancing sustainability, evidenced by our sustainability-related financing portfolio, now growing to approximately $16 billion in the first half, as well as we have facilitated sustainable sukuk issuances globally to the tune of around $14 billion. So clearly, a sustainability agenda has been set two or three years ago, and we are making great progress to make sure our own issuances as well as our financing book continues to grow in a very judicious and sustainable manner. Slide 24, or slide 25 rather, looks at our first-half performance in terms of our guidance. Now, you can see that our net financing and sukuk book, which is our growth engine, has grown by 11% in the first half, very, very close to the full-year guidance of around 15%.
Net profit margins slightly under pressure, and I can see a lot of questions on that, so I'm going to answer that the moment we open our Q&A session. Our net profit margin guidance for the year was 2.8 to 3%, and we have seen that in the first half of 2025, we are at around 2.7%, slightly below the guidance. Our cost-to-income ratio is at around 28%. We are confident that we should be meeting the year-end guidance at the end of 2025. Return on tangible equity and return on assets has come in at guidance levels. Non-performing financing is very strong. Our full-year guidance was at 3.5%. We've done exceptionally well there, and we stand at 3.36%. And our coverage ratio is also better than our guidance, which was at 140%, but we've come in at 145%.
I pause here and open the floor for Q&A sessions, and I see that there are a lot of questions. We are going to take a couple of minutes and try and gather as many similar questions as we can, and then we'll open the floor and try and answer them, and then, as promised, I'll use the last five minutes of my call to summarize the performance of the bank in the first half of 2025.
Thank you. As a reminder, if you would like to ask a question, please send them via email to webcast@dib.ai. Thank you for holding until we are prepared for the first question.
Hi. We have the first question from Olga, Bank of America. Let me read out the question, and Dr. Adnan will answer them. What makes DIB expect such a strong and NIM recovery in H2 2025, as suggested by FY25 guidance? If there are any negative one-offs in non-interest income in second quarter, if they can be quantified and explain if they are recurring or non-recurring. And the next question is on real estate gains and if they can be modeled for the next quarters. The next question is on the effective tax rate for 2025 and 2026. And lastly, the question is on NPF ratio and why there was a drop in provision charge if the NPF ratio target has been met.
Okay. Thank you, Naveen. I'll take these questions in the order that they've been raised. I can see that on subsequent questions as well, there is a recurring theme on net interest margin. So let me try and answer this in a very detailed manner. While Olga and Rahul are talking about the guidance for NIM, which is at 2.8%-3% now, mind you, we had given this guidance at the beginning of the year. And at that time, we had anticipated that there would be roughly around four interest rate cuts. Now, if there are interest rate cuts, and if you recollect what I had mentioned, that in the event that there are interest rate cuts, DIB is uniquely positioned to its peers because a major portion of our liabilities, and to be specific, let's just say 64% of our liabilities are fixed deposits in nature.
When interest rates go down, a large portion of our liabilities are going to be repriced to our advantage. Now, on the other side of our balance sheet, our assets, which continue to grow, our financing assets, which continue to grow, have to a large portion been already locked. By that, I mean our fixed-rate financing in terms of our consumer book or our fixed-income sukuk book. The rates on our asset side are locked. Should the interest rates go down, our rates on that large portion of our liability book would be repriced. Now, that delta would then mean that our net interest margins would have been at the levels of 2.8%-3%. However, having said that, the first half of 2025, we've not seen any interest rate cuts.
So if you recollect when we were anticipating rate cuts, four rate cuts for the year, everybody was being opportunistic and suggesting that there would probably be one rate cut every quarter. That has not happened in the first half. And hence, you see there is a pressure on our net interest margins because we've done well on our asset side by booking new volumes or locking fixed-rate financing. However, on the liability side, a large portion of our liabilities continue to be fixed deposits and are priced higher than where we would want them to be priced at.
So having said that, in the second half of 2025, should the interest rate start to come down, and there is a possibility that now, starting September, there would be interest rate movements, we would be at an advantage given the structure of our balance sheet and of our liability book because a large portion of our liabilities would be repriced downwards. I hope I have clarified this and I've cleared the NIM-related query because that continues to appear on almost all the questions.
Probably maybe towards the end of the call, I might also summarize this more succinctly, but it is important for everyone to understand that the NIM pressure, the net profit margin pressure that we have seen, is not on account of our asset yields, but it is on account of our liability or our deposit pricing, just clearly because the interest rates have not moved in the expected direction, which was anticipated at the beginning of the year. Your second question, Olga and Rahul, is around negative one-offs in net interest income in Q2. There have been no negative one-offs in net interest income, so I don't need to quantify them or explain any further. How shall we think about modeling DIB's gains from real estate? Over the last 18 months, the UAE's real estate market, specifically in Dubai and the Northern Emirates, has been very, very buoyant.
And like I've mentioned on all the calls, we've been very opportunistic trying to unlock value out of our legacy real estate investment book. And by that, we mean certain assets that we've carried on book value for a very long time. So this is a great time for us to unlock that. Unfortunately, that cannot be modeled, and we cannot anticipate what would be the gains in Q3 or in Q4. But rest assured, the objective of the bank is to run down that investment book and benefit from the market that we see today. There are pipeline transactions for Q3 as well as Q4. We are working on them. Probably too early for us to get ahead of ourselves and quantify them, but I can assure you there will be gains in Q3 as well as in Q4.
Effective tax rate for the second half of 2025, our effective tax rate for the whole of 2025 is 15%. But having said that, we are also working on ways to see if this effective tax rate can be reduced, and that can be definitely crystallized if everything goes in the right direction towards the early part of 2026. Again.
Unfortunately, we have lost connection with the speaker line. Please stand by whilst we revert to the backup.
Okay. This is probably the rate that we are going to go back to 3.5%. Asset quality is only going to trend downward, so the 3.36%, if anything, is going to go down further on account of better recoveries as well as the growing denominator. Let's take some other questions.
The next set of questions are from Rahul from Citi. He's separately asking about the two large transactions which will be announced in the third quarter and then the Pakistan and India part of Q2 numbers or the like. NIM complexion we've talked about, so we'll skip that. There are no one-offs in the non-interest income, so we'll skip that as well. The question on what is the normalized cost of risk for DIB, and if this number is going to go up or down based on what we've guided in the past, and tax rates will be covered. So potential cost of risk and the large ticket number.
Sure. Sure. We've had a fantastic first half of the year, and we value it to the fact that our wholesale book has grown. The transactions that you're talking about, specifically, there have been some very large transactions which you have not highlighted in the first half of 2025. But giving you some color on Turkish Airlines transactions which were announced that have not been included in the first half, the Pakistan transaction has already been included in the first half. So one of them has not been included, and one of them has been included. But more importantly, I think there are so many transactions which you are unaware of, which have not yet been announced, which are in the pipeline. So you'll see a very healthy Q3 as well as a Q4.
We are looking at a positive momentum in our financing growth engine across all our businesses. So Q3 is going to be yet another very strong quarter, as well as Q4 pipeline looks very, very strong. In terms of cost of risk, we should look, like I've always mentioned, a normalized cost of risk is at around 60 basis points. Of course, the first half of 2025, given the recoveries, we are at around 16 basis points, but that is not normalized cost of risk. Normalized cost of risk, one should factor at 60 basis points. Of course, we cannot anticipate recoveries. So whenever recoveries happen, they just enhance our P&L, right? So we've seen that happening in 2024 with some of the large names and recoveries, and we've seen also that happening in the first half of 2025.
Having said that, I can also tell you there are some recoveries planned in Q3 and Q4. So asset quality is going to be a very strong point for the bank in the remaining part of the year as well.
Now, looking at questions from Naveen from Arqaam Capital. We covered all but some questions. The questions that are remaining are, which sectors are driving the growth in the second quarter, and should we expect outside of this 15% growth rate?
I was expecting Janany to ask me a question on guidance, so let me answer that possibly in the best manner that I can. Janany's question on NIM is already answered. On cost of risk has just been answered, and on tax, an effective rate of tax has already been answered, so I think it's a very good question. The sectors I've mentioned briefly, but the sectors that have driven loan growth, let's just understand that we've witnessed loan growth across all our key businesses, so when you look at our consumer banking franchise, we've seen very strong home finance growth. We've seen strong personal loan growth, credit cards growth, as well as auto finance, so all those products on the consumer banking side have grown significantly, and we've already articulated that on the consumer banking page.
When you look at our corporate banking business, and by that, I mean both domestic as well as regional business, sectors that have driven that growth are aviation, telecommunications, utilities, typically the sovereign as well as the GREs space. We've also seen some private sector credits that have seen strong demand, and that would be probably in the education sector, also within the healthcare space. So we have seen growth across all our businesses, across all our sectors. So when we talk about a loan growth of about 11% in the first six months, that is on account of all our businesses contributing: consumer banking, corporate banking business, as well as our treasury book. Now, you talk about upside risk to 15%, I think that's a happy problem to have. We have given a year-end guidance of 15%. We've already reached 11%. Now, we've got six more months to go.
I would like to play this in a very balanced manner. So you can expect us to target our 15% loan growth guidance, not for 12 months, but for nine months. So the 15% guidance is not being changed. However, we are now saying that we will probably end up at 15% in Q3 this year versus year-end. So I want to take one quarter at a time. So it's only, I think, prudent to start talking about Q3. We have a pipeline in our sight, so we know where we are heading. A part of that pipeline has already been materialized in our July numbers. Part would be in our August and September numbers. So we are very confident that we should be revising our guidance to 15% for the first nine months of 2025 as opposed to the full year 2025 guidance.
So hopefully, Janany, that gives you some color. You are always free to extrapolate that, but we are very confident that we will meet the 15% by Q3 2025.
The next question is now from Chiro Ghosh, SICO Bank. His first question is, please shed some light on the impact on associates while they are contributing. And the third question is, and the next question is on NIM guidance, which has seen strong improvement in H2.
Our income from associates has been contributing significantly well over the last year, year and a half, right? And that's also a sign of a very matured franchise that we have. This would be our income from our franchise in Khartoum, our franchise in some of the investments that we hold in Deyaar. As you know, Deyaar is a subsidiary, but there are certain investments in Deyaar that fall within the associate income on an accounting basis. So those are the ones that are contributing. We also have some investments in some real estate associate companies within the UAE. So all of that put together, the income from associates, as you can see in the last few quarters, has been consistent, and those have contributed. So for the first half of 2025, or specifically Q2 2025, they've come in as well as they did in the last few quarters.
Will we be able to meet net interest margin guidance, suggesting strong improvement in the second half of 2025? From all that we know, if interest rates start to go down as early as September, that would mean that we have around an interest rate environment, a lower interest rate environment in the last quarter. With the kind of growth that we have seen on our asset side, paired with the kind of repricing that we will do on our liability side, we feel that we should be able to meet our net interest margin guidance. Having said that, if interest rates do not go down, and that can happen as well, interest rates do not go down in the same quantum that we are anticipating or as frequently as we are anticipating, this net interest margin will be under pressure.
But eventually, like I said, we will benefit from a lower interest rate environment eventually because that is going to happen, if not now, in the next six months or so. And when that happens, I think DIB is uniquely positioned when compared to all its peers to benefit from that, given that we have a substantial fixed deposit base within our liability book. So if it does not happen in the short term, you can rest assured. And I've said this over and over again, and we've demonstrated that with the structure of our balance sheet. It's just a matter of time we will be able to benefit from a lower interest rate environment and reprice our book to our favor. And of course, the asset side and the growth that we've seen in the asset side will only contribute to that enhancement of our net interest margin.
The next question we have is from Shabbir Malik with EFG Hermes. He has four questions. First one is outlook for tax rates and would DIB be eligible for IAE? On net interest margin, what is the outlook for margin and non-interest income for the rest of the year? What is the NIM and his last question is on expectations for cost of risk considering the growing strong trade quality index?
We've answered all the questions that Shabbir has asked, so it will only be wrong for us not to call him out. So I think he covers us well. So Shabbir, tax rate, I've already mentioned, and I hope that I've answered your question. Effective tax rate for 2025 is around 15%, but we are working to make sure that we have some exemptions in that tax rate if possible. So we have a plan. The team is working on it, and hopefully, if everything goes well, that should be witnessed in the first quarter of 2026. Net interest margin outlook, again, I just have explained that our guidance is at 2.8%-3%. We are slightly under pressure at 2.7%, but hopefully, interest rates will go down, and if that happens, we should be able to end the year with our net interest margin guidance.
But that, again, has factors that are beyond our control. One thing is that we have grown our financing assets quite well. Those have been locked wherever possible, so they compensate for the loss of income on the asset side because of a lower interest rate environment whenever that happens. Sensitivity to rate cuts, that is also mentioned in our financial statements, about 100 basis points rate cut has a AED 200 million swing upwards or downwards. But remember, that's on a static balance sheet. As the balance sheet grows, it will be very difficult to kind of calculate that. But on a static balance sheet, 100 basis points upwards or downwards has a AED 200 million impact. Provisioning, our cost of risk has been 18 basis points. You see, it's about 16 basis points in the first half of 2025.
Expectations for the rest of the year, if you look at our credit quality, is very strong, right? So I think we don't see any new NPL formation. When you look at our normalized cost of risk, we always guide you to around 60 basis points. The first half has been great for us because of recoveries. Even 2024, we've seen similar cost of risk. But on a normalized basis, it is 60 basis points, and if we see recoveries, we are anticipating recoveries at the end of this year as well. So if that happens, you will only see us operating at these levels in terms of cost of risk. But again, let's look at normalized levels because we don't factor windfalls from recoveries.
As a reminder, please send your questions via email to webcast@dib.ai.
Next question we have is from Dong Tran from CreditSights. We have a question. The first one is, can you see the drop in net income quarter on quarter and the update on the income from joint venture and other income in 2025? Anything real estate allocation reached outcomes with expected profit reduction? Besides talking margin-wise, what are expectations besides the last four or six quarters in its net comparison and projections? And then next question is on the client's credit on CET1 ratio.
Fine. I think we've answered most of these questions that Tran has asked, but I'll try to summarize each of them, specifically drop in Funded Income quarter on quarter. When you look at our Funded Income components, there are two parts to it. One is income from our core businesses. So that is volume-driven. The more we underwrite, the more we make. So that's the pure Funded Income line. And then there is a non-funded income line also, which is our income from real estate gains, income from JVs and associates and all of that. That has come in well. It continues to be in line with the previous quarters also.
I just answered on one of the previous questions that that has done well for us in the last 12-18 months, and we anticipate that in the remaining part of Q2 as well, that income line will continue at similar levels. Real estate allocation reaching its bottom. Like I mentioned, the market is quite buoyant. We've got our real estate inventory, which we try to de-risk from the bank's balance sheet, i.e., divest and sell. We are opportunistic there. There is no pressure on us to reduce this. However, given that we see gains in that book, we try and materialize those as much as we can. So if that happens, then of course, our real estate book will go down further. Economic outlook is positive. Where do we see the risks in the bank's business lie?
I think economic outlook looks positive, so we do not see any asset quality challenges as such. If anything, obviously, we've got to make sure that we can maintain this momentum going forward. I've already mentioned and answered one of Janani's questions where we have revised our guidance in a way that we are holding on to 15% guidance, but that is now for the first nine months of the year. So I do not see any risk as such other than things that can be beyond our control, which would be geopolitical in nature. But again, when that happens, UAE is wonderfully placed to take benefit of that. The economic activity in the country continues to grow. You have probably also seen the GDP forecast of the country that has been announced.
So I think 2025 is going to be another very strong year for the country and all the financial institutions that are operating in the country. Any revision to the cost of risk? Still within the 60-70 basis point range. I would say that the cost of risk for this year should be within 50 to 60 basis points on a normalized basis. It's been a very good year. You've seen that in the first half, net of recoveries, we are at 16 basis points, but the normalized level is, I would say, for this year, easily is around 50 to 60 basis points. Now, that brings me to the end of a Q&A session. I can see that there are a few more sessions, but please get in touch with Naveen and Hashim in our investor relations team if you have any queries.
I am going to use the last five minutes of my call to summarize the performance of the bank in the first six months. Now, as I have mentioned, we've seen some robust growth in the first half of 2025, right? And that has also prompted us to revise our guidance. 15% is our guidance for the first nine months of 2025 versus 15% for the full year of 2025. Now, this robust growth that I have spoken about has been witnessed across all our businesses. I've mentioned that we have underwritten. Our gross underwriting has been AED 60 billion across all our businesses. This has been the highest underwriting in more than a decade in the first six months. So when you compare period to period, you can see that the bank has done exceptionally well.
We always thought that the first half of 2024 was great, but we've been positively surprised with the first half of 2025. Now, how do you see that going forward? The next six months, there's a very strong pipeline, and that has only enticed us to revise our guidance upwards. We are taking one quarter at a time. So at the end of quarter three, we are optimistic that we should be probably at 15% year-to-date financing growth. While talking about net financing and the sukuk growth, we've also seen that our return on tangible equity and our return on assets has been in line with the guidance that we've given to the market at 21% and 2.4%. Of course, the increase in OPEX is something that we have anticipated and guided to the market. We are still holding on to our cost-to-income ratio guidance, which is at around 26%.
So hopefully, by the end of the year, with better income and costs at these levels, we should be at that cost-to-income guidance. We have spoken a lot about our net interest margins or our net profit margins. Slightly under pressure, given the higher interest rate environment still persists. Having said that, if interest rates start to fall down, we are uniquely positioned and would benefit from that better than some of our peers. Clearly, because 64% of our liability book is fixed deposit in nature, we have continued to see our uptick in our digital numbers. Our digital numbers continue to go down. So while business is going in the right direction, we have seen northbound trajectory for our business growth. Our asset quality has continued to improve.
That was one of the negatives that used to be held against the bank in the years that have gone by. In the last couple of years, the bank has done exceptionally well to improve its asset quality, not just by reducing absolute numbers, but also using the strength of its P&L to continue making stronger coverage ratios, both in terms of cash as well as in terms of collateral. As we stand, in the first half, you can see that our non-performing financing ratio stands at 3.36%. I would only suggest that this ratio is going to go down in the next six months, and the coverage ratio will go up in the next six months. Overall, fantastic results in the 50th year of the bank. As you know, we have celebrated our Golden Jubilee.
This 50th year also brings to the fore the strength of our franchise. We have now become a global powerhouse. We stand at an asset size of around $100 billion. It has taken us 50 years to reach here, and I think that's an achievement in itself. The bank has done exceptionally well across all its P&L lines, whether it is in terms of income or in terms of managing its costs to the best of its abilities. The next half of 2025, we put our foot forward very positively. Growth aspirations continue to be held. If anything, we are only going to surpass those. And we anticipate that Q3 is going to be yet another strong quarter in terms of growth as well as in terms of profitability. We see no surprises on the horizon.
And until the next time we meet, either on a webcast call or physically when we are on non-deal roadshows, you will see we'll keep apprising you of the wonderful performance of the bank. Until then, if there are any other follow-up questions, please feel free to get in touch with the team.
This concludes today's conference call. Thank you all very much for your participation. You may now disconnect.