Ladies and gentlemen, welcome to the Dubai Islamic Bank Q1 2026 Financial Results Earning Call. Please note to all those who are listening to us via the webcast link to kindly refresh their browser link in case of experiencing any intermittent audio issues. As a reminder, please ask your questions by submitting them via email to webcast@dib.ae. I hand over to your host, Janany Vamadeva from Arqaam Capital. Please go ahead.
Thank you, Alex. Good morning, 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 Q1 2026 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 Rajanala, 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.
Janany, thank you. Good afternoon, everyone, and welcome to DIB's Q1 2026 results webcast. This webcast shall be led by Dr. Adnan Chilwan, Group Chief Executive Officer of DIB, and Mr. John Macedo, Chief Financial Officer of DIB. Before we start the presentation, can I again remind everyone to send in your questions to webcast@dib.ae, and we'll address as many questions as possible in the Q&A session post our presentation. With that, let's kick off today's presentation. I'm going to jump to slide four. Let me start by briefly touching upon the operating environment in the UAE. Since 28 February 2026 , conditions in the UAE have remained stable with very limited disruption to economic activity. The authorities have maintained a proactive stance, closely monitoring supply chains and price stability while ensuring clear and timely communication. This has helped sustain both business and consumer confidence.
From an infrastructure point of view, critical services, including energy, healthcare, transport, and telecommunications, continued operating normally. In addition, flexible work arrangements across sectors and well-established digital government platforms supported business continuity and operational efficiency. Taken together, all these factors have contributed to a stable and predictable operating environment despite ongoing regional developments. Moving on to the next slide. This resilience that I touched upon is also reflected in the recent sovereign rating actions. Moody's has reaffirmed UAE sovereign rating of Aa2 with stable outlook. The rating continues to be supported by high income levels, substantial fiscal buffers, and ongoing diversification across non-oil sectors. Most importantly, the stable outlook already incorporates the current regional context, so underscoring confidence in the UAE's ability to manage during periods of stress. Moving on to the banking sector.
From a banking system perspective, the UAE remains well-positioned. Central Bank of the UAE introduced a comprehensive financial system resilience package, it covers various aspects including liquidity, capital, monetary policy, and support to the broader economy. These measures were designed to ensure that the banking system retains both its strength as well as flexibility, enabling banks to continue supporting economic activity as required. Overall, the framework reinforces confidence in the stability, resilience, and the growth outlook of the UAE banking sector. Moving on to the DIB's response. Against this backdrop, DIB has remained fully operational throughout the period and forward. The bank systems, branches, contact centers have continued to function without disruption, supported by strong digital capabilities and robust business continuity frameworks. Customer activity across businesses and segments has remained healthy, reflecting continued confidence in the franchise.
Now, the bank's capital and liquidity position remains sound, and these will be covered in greater detail by our Group CEO in the next section. With that, I'll hand over to Dr. Adnan. Dr. Adnan, over to you.
Thank you, Naveen. Good afternoon, everyone, and thank you for dialing in. I will run the presentation in the standard page turn format and then open the call for a Q&A, and then wrap the call with the next last five minutes to summarize and keep the focus on key messages that we would be touching upon throughout this hour. My first slide is slide nine. Now, before we turn to our financial performance for the quarter, it is useful to briefly step back and frame the results in the context of the environment in which they were delivered. Of course, Naveen has touched upon certain aspects of that, but please allow me to delve into greater detail.
The economy, like we've said, continues to demonstrate resilience and stability, of course, supported by strong fiscal fundamentals and a robust regulatory framework. The economic momentum remains broad-based, while confidence across households and corporates continues to be underpinned by a stable operating backdrop. From a banking sector perspective, the system remains well capitalized and highly liquid. Balance sheets across the sector are resilient, and asset quality continues to be well supported even as financial conditions evolve. It is within this environment of economic resilience and sector stability that our Q1 performance should be viewed. With that context in mind, let me walk you through a summary of our financial performance for the quarter, predominantly structured around five key pillars of the bank's scorecard. Firstly, from a growth perspective, we continued to gain market share during the quarter.
I say that because total assets increased to AED 420 billion, while net financing and Sukuk investments grew to AED 364 billion, representing a 3% increase year to date. The operating performance remained strong, with operating revenues growing by 13% year-on-year, and they stand at AED 3.5 billion. This 12% year-on-year growth in operating profit reflects not just revenue momentum, but also benefits of our highly efficient operating model, where disciplined cost control continues to enhance operating profitability. Asset quality continues to strengthen as we move forward quarter-on-quarter, reflecting disciplined underwriting and portfolio management. The Non-Performing Financing ratio has declined further and stands at 2.5%, improving by 14 basis points year to date.
Fourthly, the capital buffers strengthened further during the quarter, with CET1 ratio increasing to 12.6% and capital adequacy ratio rising to 15.8%. Both of them are up by around 30 basis points. Lastly, liquidity remained strong, supported by stable access to funding. The bank maintained a balanced liquidity position with an LCR ratio of 121% and an NSFR ratio of 106%, underscoring the strength of our funding structure. Overall, the quarter reflects disciplined growth, resilient profitability, a strong balance sheet underpinned by improving asset quality, robust capital buffers and balanced liquidity.
If we move on to slide 10 that looks at our income statement, here you can see that operating revenues grew by 13% year-on-year to stand at AED 3.5 billion, supported by a 5% increase in funded income and a 30% increase in non-funded income. The bank continued to demonstrate strong cost discipline, maintaining a low cost to income ratio of 28.2%, even as we continued to invest in technology and infrastructure to support future growth. On the same slide, you can also see impairment charges have increased to AED 420 million during the quarter. Now, this includes a prudent decision to add a ECL overlay in light of the current operating environment. Excluding this overlay, the underlying quarterly impairment run rate remains broadly in line with historical levels.
It's important to understand that this AED 420 million that has been charged to the P&L for the quarter includes a prudent ECL overlay. Despite this, the bank has delivered a net profit before tax of AED 2.1 billion, with pre-tax return on tangible equity maintained at a healthy 21%. Moving on to slide 11, where we look at a detailed look at the revenues. Here you can see that funded income has remained stable during the quarter, growing by 5% year-on-year, to be at AED 2.3 billion, supported by balance sheet growth, as can be seen in the top left chart.
A margin pressure from a declining rate environment, and it's a declining rate environment thus far, was mitigated by a reduction in cost of funds, resulting in broadly stable profit margins as seen in the top right chart. Non-funded income continued to be supported by healthy fees, commissions, and FX income, alongside contributions from properties and associates, reinforcing the diversification of the bank's revenue base. On slide 12, a look at operating expenses in greater detail.
The bank continues to be among the most efficient banks in the region, with a cost to income ratio of 28.2%. You can see the consistency of this efficiency in the top left chart, where the cost to income ratio has stayed in the 28% area over the past five quarters. From a cost perspective, our focus remains firmly on discipline and scalability.
This allows us to absorb ongoing investments in people, technology and digital infrastructure while keeping absolute cost growth tightly controlled. This disciplined approach to cost management continues to enhance the operating leverage and reinforces the strength of our earnings profile, as seen in the 12% year-on-year growth in the Bank's operating profit. Slide 13 looks at our balance sheet. What's encouraging is that even against a more challenging backdrop, we saw continued balance sheet growth reflecting the healthy underlying momentum across our key businesses. Net financing assets expanded by 3% year-to-date. They stand at AED 271 billion, supported by more than AED 24 billion of gross new financing during the Q1 of 2026, and that comes across both our consumer as well as our wholesale businesses.
The Sukuk investment portfolio also continued to grow, increasing by 3% year to date. It stands at AED 93 billion, supported by over AED 5 billion of new Sukuk investments during the quarter. Of course, it's a reflection of the capital markets. Since the first two months, we've seen some muted activity in the primary market within the capital market space. Overall, the net financing and Sukuk investments reached to AED 364 billion, reflecting disciplined balance sheet growth and continued business momentum. Slide 14 looks at our asset buildup. This slide gives a good sense of how the balance sheet is evolving on the asset side.
When we look at financing, we saw strong growth with net financing assets up by 22% year on year and 3% year to date, while our Sukuk portfolio also continued to grow steadily, up by 11% year on year and 3% year to date. Importantly, this growth remains well diversified. Consumer financing makes up around 31% of the book, and our corporate exposures are spread across sectors with no concentration risks emerging from the portfolio. This balance and diversification across sectors and customer segments continue to support earnings resilience and help maintain the bank's asset quality as the balance sheet grows. Slide 15 looks at asset quality. We saw continued improvement across the key metrics during Q1 of 2026, and this is also the continuation that we had witnessed throughout 2025.
The Non-Performing Financing ratio reduced further from year-end levels to 2.5% at the end of Q1, reflecting disciplined underwriting standards and the ongoing improvement in portfolio quality. Cost of Risk for the quarter stood at 45 basis points, and I've already alluded to this. This includes a prudent ECL overlay taken proactively given the current operating environment. Excluding this overlay, impairment charges remain broadly in line with our normal quarterly event rate. The coverage levels also remain a clear strength. Cash coverage ratios strengthened further to 122%, improving by 200 basis points year to date, providing a strong buffer as the balance sheet continues to grow. Slide 16 looks at portfolio staging.
Continuing the positive trends in the bank's asset quality, DIB's portfolio mix also continued to improve with stage one exposures proportion increasing, while stage two and stage three exposure proportions declining further. Stage one exposures now account for 94.3% of the portfolio, while stage two and stage three combined are down to only 5.7% of the portfolio. ECL provision coverage continues to be stable. All these things taken together, these trends reinforce the strength and resilience of the bank's asset quality profile. Slide 17 looks at liquidity. We remain in a strong balance position. Deposits have grown by 22% year-on-year to stand at AED 322 billion. In the Q1 of 2026, our CASA balances are up by 6% year-to-date, reflecting strong customer confidence and engagement.
Customer deposits make up 77% of our funding base, which gives us very stable and well-diversified platform. Liquidity ratios, like I've mentioned before, remain comfortable above regulatory requirements, with the LCR ratio standing at 121% and the NSFR ratio standing at 106%. Slide 18. Our capital position strengthened further during the quarter, and this is driven by strong internal capital generation, which is clearly visible in the top two charts on this slide. Both the CET1 ratio and the CAR ratio have increased by around 30 basis points year to date. This leaves us in a very strong position with healthy capital buffers that support future growth throughout the year, while also providing resilience and flexibility in the current operating environment. We move on very quickly to look at our businesses. On slide 20 is our consumer banking franchise.
The business continued to show momentum in Q1 2026, and we carried forward the momentum that we had seen in the entire 2025. That we've also witnessed in the Q1 of 2026. This has supported steady asset growth, resilient margins, and a continued buildup of high-quality liabilities or deposits. Revenues for the quarter reached around AED 1.1 billion, driven by healthy growth in funded income and stable fee income, reflecting disciplined pricing and consistent asset yields. On the asset side within consumer banking, the consumer financing portfolio grew by 6% year to date to stand at AED 83 billion, supported by strong origination momentum with gross new financing of around AED 11 billion during the quarter.
That has been the trend that I'll also cover in some of our other businesses, where the momentum of gross underwriting has been very strong in the Q1 of 2026. Growth remains well diversified across our core products within the consumer bank, with home finance, personal finance, auto finance, and cards all contributing, as shown in the top right chart. On funding, the consumer deposits increased to AED 106 billion, with further strengthening in CASA balances, supporting a more efficient funding mix and continued optimization of our cost of funds. This was also supported by our continued franchise expansion, with more than 77,000 new customers onboarded during the quarter, taking our total customer base within the UAE to stand at 1.7 million customers. Slide 21 looks at our corporate banking business.
Looking at our local as well as cross-border corporate business, momentum has remained steady and well balanced throughout this quarter. Again, we are carrying the momentum that we saw in the last two quarters of 2025, and that has also been witnessed in the Q1 of 2026. Net financing assets increased by 2% year to date to stand at AED 188 billion, supported by over AED 13 billion of new financing, reflecting continued engagement with our corporate clients. Importantly, growth continues to be well spread across key sectors with no concentration risks emerging. Now, within our corporate business, revenue performance was particularly strong, with a 23% year-on-year increase, to stand at AED 904 million, supported by stable yields and good traction across funded and non-funded income.
From a funding perspective, corporate deposits rose to AED 213 billion, with CASA balances up by 6% year to date to stand at AED 58 billion, supporting a stable and efficient funding profile. A quick look at our last business, which is treasury. Here the business has delivered a stable performance during the quarter. The Sukuk investment portfolio grew by 3% year to date to stand at AED 93 billion, supported by continued investment activity, including more than AED 5 billion of new Sukuk investments during the Q1 of 2026. These have predominantly been in the first two months of the year. The portfolio remains largely invested in high-quality government and financial institution papers, reflecting our conservative and disciplined investment approach.
On the revenue side, treasury revenues increased by 5% year-on-year to stand at AED 645 million, with yields remaining healthy at around 4.7%, supporting overall income resilience. Quickly moving on to our digital aspirations on slide 23. Our digital adoption continues to be a key enabler of growth and efficiency across the bank. Digital registered users have increased by 16% year-on-year, to approximately 1.77 million customers, with 98% of our customer base now using digital channels and over 97% of the transactions processed digitally. Pretty much our entire customer base has been onboarded across our digital channels. Digital channels have also played a central role in customer acquisition, with 84% of our new customers onboarded digitally during the quarter.
The 77,000 customers that I alluded to in the Q1 of 2026, close to around 84% of those have been onboarded digitally. That's a good sign of our digital strategy working across the various quarters that we've seen, you know, throughout the last year. We continue to enhance customer experience through automation and platform expansion, including the digitalization of 46 branch services, and which now serves close to around 330,000 customers. These initiatives reflect our continued investment in scalable digital infrastructure as well as data-driven capabilities. Slide 24 looks at sustainability. Given where we are in the year, we felt it would be more useful to step back and highlight our broader sustainability progress rather than focus on incremental quarterly movements.
Our total sustainable finance has reached approximately AED 19.5 billion, representing over 100% year-on-year growth, while DIB continued to play a leading role in the sustainable Sukuk market through both facilitation as well as balance sheet participation. Alongside financing, we continue to make progress across environmental efficiency, social inclusion, including improvements in energy efficiency, training, diversity, and ESG ratings. These outcomes reinforce sustainability as an integral part of how the bank operates and how we position ourselves for a longer term value creation. Slide 26 looks at our guidance vis-a-vis the Q1 results. On this slide, you can look at seven key metrics. We had given this guidance to the market at the beginning of the year. We are measuring ourselves against this guidance at the end of this quarter.
You can see that across all but one metric, which is very close to the year-end guidance, we are on track to meet the full year guidance, be it the net financing and Sukuk growth, the net profit margin, cost to income ratio, non-performing financing, total coverage, or for that matter, return on tangible equity, or last but not least, return on assets. When we look at all the metrics and the performance of the bank in Q1 , it's only fair to highlight that the bank has done well across all its metrics, and we carry a good momentum from Q1 into the remaining part of the year as well.
I pause here, and we'll skim through some questions that we can see on screen and, we come back after a momentary pause to answer all your questions.
Alex, you can take over the slides.
Thank you. Ladies and gentlemen, we'll now start the Q&A session. As a reminder, if you wish to ask a question, please send them via email to webcast@dib.ae. Again, to ask a question, please send them via email to webcast@dib.ae. We will now hold for any questions. As a reminder to ask a question, please send them via email to webcast@dib.ae.
I will start with questions from Rahul, Citibank. The first question he's asking is on the details of the overlays as a part of Cost of Risk. He's asking us on quantification of the overlay and if there are any further expected overlays in the next few quarters. Next is on the direct exposure to hospitality, aviation and hotel industry and any indirect exposure to employees in this industry. The third question is on the interest rate assumption for the NIM guidance, how many rate cuts, and if interest rates do not go down, is it fair to expect upside risk? I'll hand over to Adnan to answer.
Thank you. Thank you, Naveen. Wonderful questions from Rahul. Thank you, Rahul. That just sets context. You know, when we've been skimming through questions, we realized that most of our colleagues today on the call have a similar query. It allows me to probably just, you know, address all of those queries at once. Overlays as a part of Cost of Risk in Q1 2026. I've already mentioned that our Cost of Risk for the quarter stood at around 45 basis points, which included a prudent ECL overlay taken proactively, let me say, given the current operating environment. If I have to quantify that, it is close to about AED 186 million. That's the amount of overlay that we've taken.
I think your leading question is, do you also expect to take further overlays in the next few quarters? Of course, you will appreciate that when you want to plan an overlay, you look at, you know, you extrapolate that for the entire 12 months. We have a decent idea of, should the situation not improve, and we see the macroeconomic indicators, you know, changing to the worst, and thus the weightages that every bank should be accounting for. By weightages I mean, you know, the base case, the optimistic case, as well as the pessimistic weightages. Should those weightages change, there would be a number that would be charged to the P&L on an annualized basis.
What we've done is we've taken a portion of that and front-loaded it. Will there be any more ECL overlays? Of course, there will be. If the situation does not improve, then definitely there will be more ECL overlays that would be charged for each quarter. Having said that, also let's understand that should the situation improve, then this ECL overlay would be then coming back within the PNL. For this quarter, we've taken circa close to around AED 200 million, and that's why the Cost of Risk for the quarter stands at around 45 basis points. If you actually strip that ECL prudent overlay out, then we are at normalized Cost of Risk levels that we've seen in the last so many quarters. Your second question was around direct exposure to hospitality, aviation and hotels.
You know, on slide 21 within the pack, we have broken down our exposure by sectors. You can see that aviation, which is a very strong sector for us, constitutes about 8% of our book. This is a sector that has done well in the past, a very resilient sector. Even through this geopolitical crisis, we have seen that this has been unaffected. That's predominantly because each of these names on our book are strong, have strong balance sheets, have adequate cash flows, and we have seen no change in their repayment profile. The aviation sector as of now, is not actually challenged and hence their repayment profile with us has not been recast. The hospitality sector, which is going through a momentum challenge, for us, that exposure is very insignificant.
It is less than 1% of our total balance sheet or total exposure on our financing side. And even that sector, we have not seen our clients in that sector approach the bank for any recasting of repayment schedule. We are definitely monitoring these sectors and we'll continue to do so. As of now, I can assure you that one, the hospitality sector is very insignificant for us, and the aviation sector we have seen no early warning signs. Your third question is around interest rate assumptions for our NIM guidance. Our NIM guidance for the year, at the beginning of the year, was at around 2.5%. We had looked at two interest rate cuts. Q1 has already gone by. We've got three quarters to go by.
You're talking about expected upside risk. Too early for us to comment on that. As you would appreciate, let's look at how the Fed, you know, reacts in this quarter. If there is an interest rate hike, you know, there is a Fed meeting and that has probably the consensus is that, you know, rates might be held. If that happens, then we have to wait for the next Fed, and that would be towards the end of Q2 . Let's just wait for the H1 , and if we have to revise our NIM guidance, we'll do so.
As of now, we are holding on to our NIM guidance of 2.5%, and we feel that we can manage that by, one, maintaining our asset yields and the pickup there, as well as, you know, repricing our cost of deposits, you know, downwards. We've done that well. We've enhanced our CASA mix. We have, you know, let go of some expensive deposits. You can see that reflected in our LCR ratio also. Right? All of those point towards us managing our cost of funding. Let's just wait for, you know, a couple of Fed meetings, which would take us probably towards the end of Q2 as well.
As a reminder, if you'd like to register a question, please send them via email to webcast@dib.ae.
Move on to questions from Janany Vamadeva, Arqaam Capital. She has laid out five questions. The first one is to give color on April's trends in terms of lending on deposits deferral requests. The second is on the quantification of forward layer, which Dr. Adnan Chilwan's already addressed. The third question is on the strong growth momentum in retail segment and what's driving that. The fourth question is on the margin guidance of 2.3% versus 2.5% in Q1. Again, Dr. Adnan Chilwan answered that in the previous question. Lastly, color on non-payment of AT1 coupon in this quarter.
Thank you. Thank you, Janany. I think I'll take the last question because that's very easy to answer. It's not non-payment of the Tier 1 coupon. Actually, Janany, the coupon is not due. It is only due in the next quarter. It's not non-payment of any coupon in this quarter. Anyway, that just clarifies that question. Your first question on color of April trends and have we seen so far in terms of lending demand, deferral request. Basically, like every quarter I mentioned about the next quarters and the strong pipeline that we have in each of these quarters. Q2 for us looks strong in terms of pipeline. That is across all our key business segments.
You have touched upon the retail segment, and I will give you some color on that. But when we look at all our businesses, be it the consumer bank, be it the corporate bank, we have a very strong pipeline and we will continue to do so, whilst, you know, underwriting credit prudently. You know, because as you would appreciate, liquidity is extremely important at this stage. You know, Q1 has ended well for DIB, both across our asset book buildup as well as our liability mobilization exercises. I think we've done that well. I see Q2 to be no different. There are levers in our hand that we can always maneuver to fasten the pace if required or to also slow down, should there be any economic headwinds.
Right now, we have a very strong pipeline across our key businesses, and we are very confident that if this economic backdrop continues to improve, then definitely we've got the required ammunition to end Q2 also on a very strong note. When we talk about the retail segment and it has gained momentum, you can also see that if you look at the last three or four quarters of the year gone by, retail banking has continued to, you know, grow from strength to strength. That's just in line with the strategy that we have put for ourselves across our consumer franchise. We've realized that, you know, we have to diversify our risk across our balance sheet, and consumer banking always allows you to do that. The risk is spread across a large number of customers.
The consumer franchise also consumes lesser capital. It gives us better yields. You know, our cost of funding on our consumer banking franchise is good. All those things put together, we had articulated a very focused consumer banking strategy for 2025, and that is the same strategy that we are building upon for 2026 also. Where is this consumer banking growth coming from? When you look at, for example, the liability side of our book, more payroll accounts coming in, more new-to-bank customers being onboarded, both digitally as well as across our network. We are looking at our wealth management segment actually doing very well. That's on the liability side of our consumer banking franchise. On the asset side, you know, the same products that we've been speaking about, right?
We are market leaders when it comes to home finance and auto finance. We do very well across our personal finance products also. You know, our cards product require a little bit more focus. We continue to do what exactly we have planned for ourselves in 2025, and we are carrying that momentum even in 2026. Q1 of 2026, we have seen some very good results across our retail banking franchise. I've already covered the margin guidance and which is for the year stands at 2.3. Now, this you would appreciate and recall includes two rate cuts that we had anticipated when we gave the guidance to the market.
I mentioned that briefly on the previous question, that was asked by Rahul that should the interest rate environment change and if there are interest rate hikes, then we will have to readjust our margins accordingly. For now, we are holding this margin guidance at around 2.3%, and we will probably look at this maybe closer to the end of Q2 2026.
As a reminder, if you'd like to ask a question, please submit them via email to webcast@dib.ae.
Looking at question from Chiro Ghosh, SICO Bank. Couple of his questions are already answered, so we will cover. His first question is: What is included in the other income in this quarter, and has the items remained same as last quarter? Why were they high then too?
Thank you, Chiro Ghosh. I think a few of your colleagues have posed this question, I think it's important that I just give color. You would see across many quarters consistently, this is an item that always has a few additions and deletions. For example, what would we include in other income? Some of our investments when they do well, you know, that would necessitate a reclassification. In this quarter particularly, we had a very legacy written off financing, there was recovery against that has been added in this line. There's no consistent, you know, items that you will see from quarter to quarter. There are some new things that happen during the quarter.
Historically you will see that, you know, we are pretty much consistent in terms of, you know, AED 300, 350 million that we keep seeing in this line. Again, there is nothing that is out of the ordinary. Like for this quarter, a portion of that other income is coming from some recoveries that was for a written off account. Because the account was written off, you'll appreciate that the only line that that recovery can be made is in other income. Then of course, you know, a smaller amount of an investment that we had on our book for a very long time, we've reclassified that and hence the PNL has benefited from that reclassification.
Hopefully, you know, this would give color to similar questions that some of your other colleagues have asked. Let's also focus on, you know, when you look at the absolute amount of this other income line, it is not significant when compared to, you know, our fee income or our income from subsidiaries and associates or our income from our core banking businesses, you know, which is more significant and that continues to grow quarter on quarter in the right direction.
The next question that we're looking at is from Fatima, SICO Bank. Her first question is: The loan growth was solid with higher exposure to utilities and FIs. Her question is to give a little bit of color on the lending strategy going forward.
Thank you. Thank you, Fatima, for your question. I think we have witnessed good growth, you know, within the Q1 of 2026. That is also at the back of the momentum that we saw in Q3 2025 and in Q4 2025. You would appreciate, Fatima, that we have to build a strong pipeline. Whatever we see translating to numbers in a particular quarter is as a result and culmination of the efforts that we put in the prior quarters. Towards the end of 2025, we had built a strong momentum and a strong pipeline for the Q1 . That pipeline is strong enough for us to also see some names materializing in Q2 of 2026. That gives you some color on our lending strategy.
Our lending strategy is no different from what I had mentioned in the past. We are going to focus on our consumer banking franchise, as well as our corporate banking franchise. When I say corporate banking franchise, you will see a mix of local corporates within the UAE, as well as some of our regional names cross-border. Within that corporate franchise, we would look at typically utilities, financial institutions, energy, you know, automotive business, partly aviation, telecom, healthcare, education. A lot of that pie is colorful. Of course, on the consumer banking side, we will look at, you know, each of our products, be it home finance business, personal finance business. Some of these businesses can be cyclical. The auto finance business in Q1 can be a little less than in Q2.
The personal finance business in Q2 can be a little more than Q1 and so on. I think our strategy is long term, and that long-term strategy is articulated at the beginning of every period. In 2026, if you recollect the first call that I had, whilst discussing the 2025 results, we chalked out a very clear strategy for 2026. I'm happy to say that Q1 is just, you know, the result of those efforts that we have put in the last couple of quarters, and we will continue to do so even in the next three quarters of 2026. We probably have time for one more question, Naveen, and if you can just skim through the questions and then let's try and take some unique ones.
I want the last five minutes of the hour to summarize the call
Next question is coming from Murad Ansari, GTN. A lot of these questions have been answered. I'll pose two of the questions that are outstanding. First one is, current deposit growth was strong in Q1. Was that retail or corporate driven? His next question is, there has been a decline in stage two and stage three loans, he wants an explanation on the drivers of this movement.
Thank you, Murad, for your question, and they are different, so I think it gives us an opportunity to answer them. The deposit growth, like you rightly pointed out, has been strong. Happy to say that the deposit growth has come from both our retail franchise as well as our corporate franchise. Retail franchise, because I mentioned that we have also managed to onboard new customers. They come with their liability mix, and they become long-term customers for us, so they add to our retail liabilities. The existing retail customers that we have, and you will appreciate that we have a very captive base of about 1.7 million customers. We've seen that in the last quarter they have increased their balances with the bank.
The bank also, the consumer banking team has focused campaigns that are driving the liability growth across the consumer banking franchise. Definitely the retail banking book on the liability side has grown. Our corporate banking teams have also worked very hard to mobilize new-to-bank customers and also enhance the existing liability base that they have with their existing corporate customers. We have penetrated deeper into our corporate relationships. We have seen that in the liabilities, both on the retail side and the corporate side, our CASA mix has improved. We have managed to bring in operating accounts on the corporate side, payroll account on the retail side.
All in all, I think we've had a strong deposit growth in Q1 , and we are confident that we can also demonstrate that in the subsequent quarters. Your last question is on asset quality, there's a decline in stage two and stage three loans, correctly, you know, observed by you. The drivers are quite simple. We've always boasted of our strong asset quality. It's not only reflected in the non-performing loans, which are at the lows of 2.5%. We started the year at 2.65%, there have been about 15 basis points of reduction in our non-performing loans, they stand at 2.5%. Against those non-performing loans also, very quickly, it's important to understand the coverage ratios.
They stand healthy at 122% when looked at cash coverage, and more than 160% when looked at total collateral coverage. Importantly, stage two and stage three have declined because on stage three we've seen some recoveries, so that has reduced the numerator. On stage two, we have seen repayments as well as movement from stage two to stage one. All in all, I think we are very happy with our asset quality, and we feel that we will end the year with very strong asset quality. Like I mentioned, it brings us to the end of this call.
We have five minutes, and I quickly want to recap this call because it's extremely important for me to use the last five minutes judiciously to summarize and keep the focus of, you know, this call on five key messages. One is that our core business engine continues to grow in line with the strategy. This is a strategy that we've articulated in the last few years but more importantly at the beginning of this year. The growth is in line with that strategy across all our business segments while maintaining profitability and quality. I think we've not compromised profitability, and we've not compromised quality.
Both of these numbers can be validated in the form of our portfolio increasing, the quality of the portfolio increasing, the asset quality being very strong, Non-Performing Financing coming down, and also revenues going up in the right direction. Secondly, the strong growth for the year or the strong start for the year can be validated through new underwriting across all our businesses, which has reached around AED 29 billion, and this is higher when compared to the Q1 of 2025. This results in the net portfolio increase of around AED 11 billion. When you look at our core business engine continuing to perform. The second point focuses on the gross underwriting and the new underwriting across all our business segments.
That shows you that we've had a very good start to Q1 . Thirdly, this has resulted in a 14% year-on-year increase in gross revenues and a 12% year-on-year increase in the operating profits. Not just that we are capturing market share and growing our balance sheet across all our business segments, across all our sectors and making the pie colorful and bringing in good new-to-bank customers across our consumer franchise or across our corporate franchise. Not just that, it is also resulting in very good underwriting. That all adds up to the double-digit year-on-year increase in gross revenues as well as operating profits. Asset quality continues to be robust with Non-Performing Financing ratio standing at the lowest at 2.5%.
The additional prudence that we have demonstrated by the ECL overlay, which I have now, you know, quantified to AED 186 million in Q1 , is to only manage economic headwinds, if any. The last point is that we are now on track to carry this positive momentum into the Q2 of 2025. All of this is in line with the metrics that we had guided to the market at the beginning of 2026. This brings me to the end of the hour. Happy to take more questions offline.
Our investor relations team will give you more color if required, and more importantly, will also clarify to some of you who have raised the questions on the non-payment of our Tier 1 coupon, which I said that the only Tier 1 perpetual that is outstanding, the coupon for that is due in Q2 . I think what you probably are relating to, because you have in the last five years seen us making a coupon payment, but that was for an instrument that we've already called in November 2025. That does not stand outstanding.
Probably, maybe, there's an oversight in from some of our colleagues, who feel that there was a coupon payment that has not been made, but that coupon payment was for an instrument that has been called in November 2025. That is not outstanding anymore. The only instrument that is outstanding today is the coupon payment for that is due in the Q2 . With that, I come to the end of the call. The teams can be reached, and if there is anything that requires my attention, I'll be more than happy to get on a call with you or might meet you in one of the non-deal road shows that we probably have planned for the remaining part of the year. Thank you and God bless.
This concludes today's conference call. Thank you all for joining. You may now disconnect your lines