Ladies and gentlemen, welcome to the Dubai Islamic Bank second quarter 2026 financial results earnings call. Please note to all that 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 will now hand over to your host, Janany Vamadeva from Arqaam Capital. Ms. Janany, please go ahead.
Thank you, Drew. Good morning, good afternoon, everyone, and thank you for joining us today. This is Janany Vamadeva, on behalf of Arqaam Capital, I'm pleased to welcome you to DIB's Q2 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, Kashif Moosa, the Chief Sustainability Officer and investor relations. Without any further delay, I'll now turn the call over to Kashif. Kashif, over to you.
Thank you, Janany. Good afternoon, everyone, and welcome to DIB's second quarter results webcast. This webcast shall be led by Dr. Adnan Chilwan, Group CEO, along with John Macedo, CFO, and myself. Before we start the presentation, I request you to please send your questions through the email address webcast@dib.ae, we shall address as many as possible in the Q&A session post the presentation. With that, let's kick off today's presentation. On slide four, let me start by briefly touching on the global economic environment. The global backdrop remains resilient and more balanced. Growth is normalizing, with GDP expected to moderate to around 3.1% in 2026 before improving slightly in 2027. Emerging markets continue to grow ahead of the global average.
Inflation has eased from the earlier peaks, it has inched up in 2026 due to the impact of geopolitical tensions on oil and gas prices. On rates, we are now in a more stable environment compared to the prior tightening cycle, increasingly the rate cut expectations this year looks highly unlikely. Oil price also remain an important external variable, especially for the GCC. The movement in oil prices during the first half of 2026 highlights the continued influence of geopolitical developments on the markets and end sentiments. Moving to slide five. UAE's economy, as you can see, continues to demonstrate strong resilience supported by robust sovereign ratings, these credit ratings reflect UAE's strong fiscal position and effective policy coordination. From the banking sector perspective, the UAE remains stable and well-capitalized.
In March 2026, the Central Bank of the UAE introduced a comprehensive Financial Institution Resilience Package, enabling banks to retain the strength and flexibility to continue supporting the economic activity. This was further complemented by targeted support from the Dubai government, which launched a financial relief package of AED 2.5 billion to support key sectors such as tourism, trade, et cetera. From an infrastructure perspective, the UAE continues to maintain a strong pipeline of mega projects, both focusing on transit, sustainable energy, and urban expansion. This reinforces the long-term economic view and outlook for the country. Moving to slide six, and looking at the UAE's economy, growth remained resilient in 2025, with the GDP expanding by 6.1% to AED 1.9 trillion, supported by primarily the robust momentum across the non-oil sectors.
In 2026, GDP growth is expected to soften to 3.1%, reflecting the impact of regional tensions on global growth and rate growth. Inflation rate in the UAE is expected to remain below the global average of 3.2%, supported by healthy domestic demand and a resilient business environment. The financial markets in the country rebounded during the second quarter, reflecting the reinstated confidence in the UAE growth story. Now, with that quick intro, I will now hand you over to Dr. Adnan, who will take you through the DIB's financial performance and business performance in detail. Dr. Adnan, please.
Thank you, Kashif. Good afternoon, everyone. As always, I will follow a page turn format for this presentation, highlighting key points on each slide, and then open the call for questions, followed by the last five minutes to wrap up with some key messages. On slide eight, let me walk you briefly through the summary of our financial performance for the first half of the year. From a growth perspective, we continue to expand our market presence, with total assets increasing by 2% year to date to reach AED 423 billion, while net financing assets grew by 7% year to date to reach AED 281 billion, supported by growth across our core businesses. Importantly, our operating performance also remained strong.
Gross revenues increased by 10% year-on-year to reach AED 12.4 billion, while operating profit grew by 6% year-on-year to reach AED 4.8 billion, supported by healthy revenue momentum and disciplined cost management. Asset quality continued to improve, reflecting disciplined underwriting and active portfolio management. The non-performing financing ratio has declined to 2.4%, improving by 25 basis points year to date, while the cost of risk also reduced significantly during the period. These are some of the items that we would see in slides that follow. Capital and liquidity remained strong throughout the first half. The CET1 ratio increased to 13%, and the capital adequacy ratio rose to 16.1%, both improving by around 30 basis points. On the liquidity side, customer deposits increased to AED 327 billion, supported by a stable CASA base.
Overall, the first half of the year reflects disciplined growth, resilient profitability, and continued balance sheet strength. Importantly, this performance was delivered while further improving asset quality, strengthening capital buffers, and maintaining a solid liquidity position. On slide nine, turning to the income statement. DIB delivered a resilient first half performance, which I've already mentioned, and here the gross revenues, as you can see, have grown by 10% year-on-year to reach AED 12.4 billion. This was supported by growth across both gross funded income and non-funded income, which increased by 10% and 7% year-on-year respectively. When you go down further, you can see operating expenses have increased by 9%, reflecting continued investing in the franchise. Disciplined cost management allowed operating profit to grow by 6% year-on-year to end at AED 4.8 billion. Impairment charges were higher in the first half, mainly due to management ECL overlays taken in quarter one.
We've seen a significant reduction in quarter two impairment charges, which has been supported by sequential improvement in profitability. Net profit before tax stood at AED 4.3 billion, while net profit after tax remains stable at AED 3.7 billion. Quarter two profitability has improved quarter-on-quarter, with pre-tax profit up by 4% and after-tax profit up by 8%. Returns remain strong, with pre-tax return on tangible equity at 20% and pre-tax return on assets at 2.1% for the first half of 2026. This demonstrates continued resilience and capital generating capacity of the bank. When we turn the page to slide 10, revenue generation has remained resilient during the first half of the year, supported by both balance sheet growth and diversified income streams.
Net funded income, as you can see, has grown by 6% year-on-year to reach AED 4.6 billion, reflecting continued growth in financing assets and the strength of customer activity across core segments. Importantly, margin performance, and here I refer to net interest margins, has remained stable despite sector-wide increase in cost of funding. Non-funded income continued to provide meaningful diversification, and this is supported by fees and commission, foreign exchange activity, and recurring contributions from properties and associates. As a result, DIB continues to benefit from a balanced and resilient revenue mix, positioning the bank well to navigate changes in the operating environment while continuing to deliver sustainable earnings growth. If you turn the page to slide 11, cost discipline has remained a key strength during the first half of the year. Operating expenses declined sequentially to reach AED 969 million in quarter two, reflecting continued focus on efficiency and productivity improvements.
Our cost-to-income ratio for the first half has remained well controlled at 29%, supported by benefits from ongoing investments in digital infrastructure, automation, and process optimization. As a result, the bank continued to deliver strong operating profitability while operating profit increasing by 6% year-on-year to AED 4.8 billion, demonstrates the resilience of our business model and earnings profile. On slide 12, balance sheet growth has remained healthy during the first half, driven primarily by expansion in our financing book. Net financing assets grew by 7% year-to-date to AED 281 billion, and we will actually look at details of where this financing is coming from and which core segments are contributing to that. This has been supported by more than AED 43 billion of new financing across consumer as well as corporate businesses. This highlights the strength of customer activity and an ability to capture quality growth opportunities across target segments.
During the period, we also continued to rebalance the asset mix, something that we have alluded to at the beginning of the year. This was by reducing our Sukuk investments to stand at AED 85 billion and redeploying that liquidity towards customer financing, where we continue to see attractive risk-adjusted growth opportunities. Total assets has increased to AED 423 billion, and that's the balance sheet footing. While customer deposits grew to AED 327 billion, demonstrating the strength of both our lending and funding franchises. Slide 13 highlights the diversified nature of our balance sheet and financing portfolio. Net financing assets have increased by 4%, in this, we are including also our Sukuk investments. Year-to-date, they stand at AED 366 billion, supported by continued growth across our core businesses.
Our financing portfolio, that you can see in the pie, remains well-diversified across consumer and wholesale segments, with exposures distributed across a broad range of sectors. The pie you can witness is on slide 13, is quite colorful and very well-diversified. Overall, we continue to grow the balance sheet in a balanced and disciplined manner, supported by a diversified asset mix and prudent risk management practices. On slide 14, we look at asset quality. Asset quality continued to strengthen during the first half of the year, with all key metrics moving in the right direction. The non-performing financing ratio improved to 2.4%, that is down by 25 basis points year to date, reflecting disciplined underwriting and continued portfolio quality improvement.
The cumulative cost of risk fell to 28 basis points in Q2 2026, highlighting the underlying quality of the financing portfolio, despite the current operating environment that we witnessed in the first and the second quarter of the year. Provisioning levels remain strong, with cash coverage of 122% and a total coverage of 158%, providing substantial buffers. Slide 15 continues to look at asset quality. The portfolio quality has continued to improve during the first half of the year, with further positive migration across risk stages. Stage one exposures increased to 94.2% of the portfolio, while combined stage two and stage three exposures reduced to 5.7%, compared to 7.5% a year earlier, reflecting continued improvement in overall risk profile of the financing book. Of course, ECL coverage remains stable and prudent. Slide 16, a look at liquidity.
Our position remains strong and well-supported by a stable and diversified funding base. Customer deposits increased to AED 327 billion, out of which CASA balances have remained stable at 34%, reflecting healthy customer engagement and continued confidence in the franchise. Liquidity ratios also remain comfortable above the minimum requirements as well as regulatory requirements, with the LCR ratio at 140% and NSFR at 105%, demonstrating the strength of our funding profile and prudent liquidity management framework. Slide 17 looks at our capital levels, which are quite robust. The bank's capital position remains strong and continues to provide significant capacity to support future business growth. During the first half of the year, regulatory capital strengthened further, supported by strong internal capital generation and disciplined balance sheet management. As a result, CET1 ratio improved by 70 basis points, the CAR ratio improved by 60 basis points, reaching to 13% and 16.1% respectively.
These levels remain comfortably above regulatory requirements and provide substantial buffers to support continued growth across our businesses and maintaining balance sheet resilience. Slide 19, we start looking at our businesses in detail. We first turn to consumer banking. This franchise has continued to perform strongly, supported by healthy financing growth and resilient margins, as well as ongoing customer acquisition. Net financing assets grew by 12% year to date to reach AED 86 billion, driven by approximately AED 20 billion of gross new financing during the first half and broad-based growth across key products like Personal Finance, Home Finance, Auto Finance, and Cards. Revenue has remained strong at AED 985 million in quarter two of 2026, supported by stable yields and continued momentum in funded income.
On the funding side in consumer bank, deposits have increased to AED 91 billion, with CASA balances remaining strong at 44% of the deposit base, reinforcing the franchise's high-quality funding profile. Customer acquisition continued to be at a healthy pace, with approximately 111,000 new customers added during the first half, taking our total customer base to 1.82 million customers. Slide 20 looks at our corporate banking business. The performance remained strong, supported by the breadth and diversification of our client franchise. Net financing assets grew by 5% year to date to reach AED 186 billion, supported by over AED 23 billion of gross new financing in the first half of 2026. Growth remained well distributed across key strategic sectors, reinforcing the resilience of the portfolio. That, again, you can see on slide 20.
When you look at the pie chart, you can see that there is no skew towards any particular sector, it's as colorful as it gets. Revenue has increased by 12% year-on-year to reach AED 844 million in the second quarter of 2026, benefiting from growth across both funded and non-funded businesses while maintaining stable yields. Corporate deposits have reached AED 210 billion, with stable CASA balances of about AED 52 billion, underpinning a high quality and stable funding profile. Slide 21 looks at our new business, a newly created commercial banking business. This business was formally established in the last quarter of 2025 as a part of our strategic effort to strengthen our focus on the SME and mid-corporate customer segments. These customers were previously served across both the consumer bank as well as the corporate bank, have now been brought together under a dedicated commercial banking platform.
The creation of this segment allows us to deliver a more focused customer proposition, enhance relationship management, better capture growth opportunities within these attractive market segments. Commercial banking is a high-quality, high-margin business, this is reflected in its strong and consistent financial performance over recent quarters. In the second quarter of 2026, revenues grew by 10% year-on-year to reach AED 280 million, supported by continued business momentum and deeper customer engagement. When you look at net financing assets within the commercial bank, these have increased by 12% year to date, they are at AED 9 billion, reflecting healthy demand across both the SME and mid-corporate portfolios. Beyond its strong profitability, the segment also contributes a valuable and stable funding franchise.
Total deposits increased by 5% year to date to reach AED 23 billion, while CASA balances reached AED 17 billion, representing an exceptionally strong 74% of the overall deposit book. Overall, the commercial banking segment, as a part of our strategy, is well-positioned to support sustainable growth while contributing attractive margins and a resilient low-cost funding profile to the group. You will only see this segment being focused on and growing from here on as we go towards the second half of 2026. Slide 22 looks at our treasury business. This business has delivered a stable performance during the quarter while continuing to support the bank's broader balance sheet and liquidity objectives. We have consciously reduced our Sukuk investments to AED 85 billion as we continue to optimize the asset mix and redeploy that liquidity into customer financing, where we are seeing attractive risk-adjusted growth opportunities.
This reflects our disciplined approach to capital allocation and focuses on enhancing our overall balance sheet returns. Despite the conscious reduction in portfolio size, the investment book remains conservatively positioned with majority of the holdings invested in high-quality sovereign, quasi-sovereign, and financial institution issuances. This continues to provide strong liquidity, capital preservation, and earnings resilience. On the revenue side in treasury, it has generated AED 567 million of revenue in Q2. Portfolio yields remain healthy at approximately 4.7%, supporting a stable earnings contribution and reinforcing the resilience of the bank's overall revenue profile. Slide 23 quickly looks at our digital aspirations and business. We continue to see strong customer adoption and engagement across our digital channels. Digital registered users have increased by 15% year on year to approximately 1.8 million, while 98% of the customers are now actively using digital channels, with more than 95% of transactions processed digitally.
The digital capabilities are also becoming an increasingly important driver of customer acquisition, and 83% of our new customers onboarded digitally during the first half of the year. At the same time, we continue to enhance customer experience through automation and platform expansion. Today, 55% of all our banking transactions are completed through the alternative mobile application channels, which now offers more than 135 services. Our digital investments continue to strengthen our customer engagement, improve operational efficiency, as well as support scalable growth across the franchise.
Slide 24. Turning to sustainability. We continued to make good progress during the first half of the year, originating more than AED 5 billion in sustainable and sustainability linked finance across a broad range of sectors. We also continue to strengthen our sustainable finance platform through our finance framework, with new categories reflecting evolving decarbonization and resilience priorities across GCC. We are particularly excited about the launch of Green Concierge, an integrated sustainability offering which brings together DIB's advisory capabilities, strategic partnerships, financing solutions, and structuring expertise to help clients navigate their transition journeys.
We also published our 2025 Sustainable Finance Report, which demonstrates the tangible environmental and social impacts delivered through our financing activities. These achievements reinforce DIB's commitment to supporting the UAE sustainability ambitions while creating long-term value for our customers, communities, and shareholders. Slide 26 looks at where our results are vis-a-vis the guidance that we gave at the beginning of the year. You can see across the seven metrics that have been included on the slide, we continue to make progress in the right direction, be it net financing and growth.
When you look at where we are at the end of the first half, we are at 4%, on track to reach to the 10% guidance by the end of the year. Net profit margins, we are slightly better than our annual guidance. We stand at 2.4%. Our cost-to-income ratio is roughly in line with where we want to be at the half of the year, and we should be making progress towards the 28% mark by year-end. ROE and ROAs are in line with our overall guidance. Far, we've reached 20% and 2.1% respectively, and we are very confident that we will achieve the guidance that we have given at the end of the year. When you look at non-performing financing, that's just gaining momentum and growing from strength to strength. We are at 2.4% versus the full year guidance of 2.5%.
We only see this improving from here as the numerator reduces and the denominator increases. Our total coverage is very much in line with the full year guidance, and we stand at 158%. Brings me to the end of my page turn. I am going to take a pause here. We are going to sniff through questions and come back to you in a minute once we have seen which questions are going to be answered in the next 20-odd minutes or so.
Thank you, Dr. Adnan. Gentlemen, please send your questions through the email address that has been provided, webcast@dib.ae, give us a few moments as we sift through them and come back to you with the relevant responses. Thank you.
Thank you, ladies and gentlemen. We can now start the Q&A session. As a reminder, if you wish to ask a question, please send them via webcast@dib.ae. Thank you for holding until we have our first question. I would like to remind you, if you have any questions, please send them to webcast@dib.ae. As a reminder, if you would like to submit for a question today, please send them to webcast@dib.ae. As a reminder, please submit your questions to webcast@dib.ae.
Sorry for the delay, now we're starting with the first set of questions from Janany that has come through. The first question is referring to the deferral program. Has it been extended by the Central Bank ? What percentage of the book is in deferral?
Thank you, Janany, for your questions, as always. Yes, the deferral program has been extended by the Central Bank until the end of Q3, until the end of September 2026. What percentage of our book is in deferral? A very, very small percentage. If you want the accurate number, it is close to about 0.6% of our overall book is in deferral. That's a very, very insignificant portion. Does it have an impact on any NPL formation or cost of risk? None whatsoever. There is no impact of that on our projected cost of risk, or our NPL formation. You also, Janany, ask about any color on lending pipeline. For obvious reasons, on the last call, I did mention that lending would be selective in the second quarter of 2026, which is what we've done. We used the opportunity to also reset our balance sheet mix.
You've seen that we have reduced a bit of the Sukuk book, we are using that liquidity across our consumer franchise and across our corporate banking book. Again, selective. Q3 and Q4, we now have started to see strong pipeline, again, we are going back to where we want to be. Across key sectors, which will be within the sovereign space and the quasi-sovereign space, both within the UAE as well as cross-border. We will be looking at Energy sectors like automobile sectors, like aviation, a bit on utilities, manufacturing. There is a very strong pipeline that we've seen starting in Q3. What we did over Q2 in terms of growth versus Q1, we used the opportunity of the muted environment to try and reset our ambitions, relook at our capital formation, as well as risk-weighted density.
Overall, in Q3, you will see us crystallizing the strong pipeline that we have across many sectors. When you look at the margin, which has been broadly stable, yes, you highlighted that it has been broadly stable when compared to Q1. Deposit pricing in Q2 was higher than what we have seen in Q1, that was understandable because of the liquidity premium was being charged on deposits. Clearly, we were in a geopolitical situation, which is now behind us, fortunately, we have seen deposit pricing across certain sectors starting to ease. We are holding our guidance for net interest margin at 2.3%, clearly, this will also change depending on where the interest rate forecast is for the remaining part of the year.
Deposit pricing, we saw some premiums towards the second quarter, but we will only see them easing as the market has started to rebound.
Okay. A couple of questions from Rahul from Citi. The first one is on the general banking sector trend, including DIB, that has been offering higher term deposit rates over the recent months to accumulate deposit. Is there a liquidity of funding constraint in the market driving this? How are DIB's cost of funds during quarter two versus quarter one? The last question is on the impact of slowdown in Dubai real estate market on the real estate driven revenue lines of the case.
Thank you, Rahul, for your question. Yes, even we have witnessed high time deposit rates in the second quarter, and that was expected, right?
Everybody wanted to ensure, given the uncertainty of how the situation would pan out, everybody wanted to make sure that they are sitting with healthy ratios, whether it is LCR or NSFR or just generally liquidity in general. We did see some cost of deposits rising within the market. Going forward in Q3, I anticipate that this would ease out a little, because the situation is now under control. We are also seeing that reflected on asset yields as well as on general yields within the bond market. Yields have obviously come off. That also on the cost of funding side would help, should there be issuances. Overall, whilst we have seen Q2, the cost of deposits going up, we've tried to maintain our net interest margins and have been successful in doing so. I think that is something that is positive for DIB.
The impact of ongoing slowdown in Dubai real estate market on real estate driven revenue lines. We've not seen a slowdown in the residential mortgages on the consumer side, right? We continue to underwrite very strong residential mortgages, and that appears in our consumer book. The second quarter real estate market that you're talking about a slowdown, that has reflected on the other income where we've not seen any activity of sales of the bank's own portfolio that we have positively sold across many quarters in the last year. We did not see any of that activity, but we will probably see that activity come back to some levels in Q3 as well as going into Q4. Overall, I think we are not really in a desperate situation to make sure that that line continues to contribute to the P&L.
Our core engine, real estate core engine continues to fire, and we've seen very good activity across our mortgage business on the consumer side. This will clearly start to reflect more accurately as the market starts to revive activity across Q3. Remember, it's also a summer period, so generally, year-on-year during this time, real estate activity is generally muted. We are confident that we will see that coming back to its normal levels.
Ladies and gentlemen, I would like to remind you, if you have any further questions, please send them to webcast@dib.ae. I would like to remind you, if you have any further questions, please send them via webcast@dib.ae.
We've got a whole set of questions from Rakesh from Franklin Templeton. The first is on the liquidity, if there's any kind of liquidity pressure, and if there are any thoughts around that, any plans to raise liquidity through capital market issuances, et cetera. The second is around the existing AT1, and the plans on that. The third is on any DIB exposure to Saudi mega project, which could be in suspension, et cetera. Finally, what percentage of loan book currently is deferred or restructured vis-à-vis the conflict at the end of February 2026, and has the bank recorded any additional ECL overlays in quarter two?
Rakesh, thank you for your questions. These cover a lot of topics. It's good because it allows me to skip through probably following questions. Is the bank experiencing any liquidity pressures? Not at all. You can see that our liquidity ratios have been quite strong. Our NSFR ratio was at 105%, and our LCR ratio was at around 140%. No liquidity pressures. You also have referred to our Sukuk liabilities declining. You're right. That shows you there's no liquidity pressure because when our own issuances mature, we've not replaced them so far because we did not require the level of liquidity. Being very liquid, having very strong liquidity ratios also means we have to manage our cost of funding. We have balanced it quite well, and hence we've maintained our net interest margin at 2.4%.
Are there any plans to replace the senior unsecured Sukuk that has matured in January and June? We are a regular issuer, and we will always be opportunistic, and look at the right time and the right market window. An easy answer to that question is yes, we would be looking at tapping the market. The million-dollar question is when. You can look at our patterns, what we do. At least once a year, we tap the senior unsecured space, and we might do that in the latter half of this year when the markets are more conducive and price is in our favor, as well as in favor of investors. We will try to leave something on the table for our investors also. You also ask about our AT1, which is callable in October, and if there are plans to refinance that.
You'll appreciate I can't explicitly tell you that, but you can follow our pattern in all the issuances that have been done in the past. We recently replaced one that we called at the beginning of the year. You can go by that pattern, if that probably answers your question. Our exposure to Saudi mega projects, which are in suspension. I'm consistent in saying that we have not taken any exposure within the real estate market of Saudi. That has never been a part of our strategy. We have diversified our exposure in Saudi across key sectors like utility, telecom, energy, financial institutions. None of the projects that are stalled or suspended or canceled have any exposure on our book. Percentage of loan book currently deferred, I've already answered Janany by saying that it is very insignificant, 0.6% to be precise.
I don't see any risk in any pockets of our loan book. Our asset quality continues to improve. We've seen recoveries as well of things that we had provided for in the past. No new NPL formation, that's very positive for us. Has the bank recorded any additional ECL overlays in quarter two? No. We have assessed the macros again, and we've realized that the AED 186 million that we hold is sufficient for this point in time. Of course, every quarter we will re-look at refreshing our assumptions and looking at where the weightages are. As of now, we carry AED 186 million that we had taken in quarter one, and in quarter two, we did not feel the need to do so.
As a reminder, if you have any further questions, please send them via webcast@dib.ae.
All right. There's a set of questions now from Rahul from BofA. The first question is around the 3.8% QoQ quarter-on-quarter growth in net financing. What has been the driver of that? Consumer banking or corporate banking? The second one is around one-offs. Saying if there are any one-offs in the P&L this quarter. Third is on the low cost of risk in second quarter seems to be supported by recoveries. Is this a single account or what is the nature of that? Finally, on the NIMs, the EIBOR has expanded in second quarter, how has the cost of fund dynamics played out in second quarter, and how do you see liquidity going forward for the rest of the year?
Thank you, Rahul, for asking your questions. We have seen, yes, close to around 4% quarter-on-quarter growth in net financing.
Within the consumer bank, of course, the consumer bank is leading that. This is a conscious strategy that we had articulated at the beginning of the year. We said that we are going to relook at our balance sheet, relook at our risk-weighted assets, and what capital is being consumed by which segment of our business. Consumer banking is something that we have continued to invest in. It allows us to be diversified from a risk perspective, also gives us good returns. That's a good business for us to focus on. We've always been focusing on our corporate business, both domestically and regionally. We will continue to do so because that's a business that allows us to, one, grow our balance sheet, but also create good annuity income and good fee income generating opportunities for us.
In process of supporting these businesses, we continue to look at our Sukuk business, our fixed income book cautiously. Some of the maturities in that book were not replaced, and those were for reasons that were deliberate on our part. It also allows us to relook at our concentration across that book and the sectors that we are holding on within that book. Overall, I think the key drivers of these dynamics has been clearly, one, diversified growth, second is resilient growth, third is a look at capital. I think when you look at these drivers, they are driving certain key decisions across which businesses to focus on, which business are consuming capital, and how are we going to run our balance sheet efficiently. We will continue to grow with discipline. We would continue to diversify our revenues.
We'll continue to make sure that we are maintaining the asset quality. All of these summed up are what you are seeing us do in quarter one, as well as more so in quarter two. We are going to continue this template across quarter three and quarter four. You will definitely see us growing by that 10% for the full year. We will do that selectively across our key businesses. We'll focus on high yield businesses, well diversified businesses, and businesses that consume lesser capital. That's the strategy going forward. You rather ask about one-offs and can we quantify any one-offs in P&L in this quarter, either in revenues or OpEx? There's no one-offs that I can really talk about, whether in revenues or in OpEx. cost of risk in Q2 remains to be low, helped by sizable recoveries. I wouldn't say they are sizable recoveries.
They are modest recoveries. They are not across any one account. They are across multiple accounts. Again, management overlays, we have not taken any in Q2, like I just mentioned to Rakesh's question before this. net interest margin, we continue to hold our guidance for the full year at around 2.3%. We have obviously seen some liquidity premiums being paid that has resulted in cost of deposits being high in quarter two, but I can see that easing. Of course, the bank will continue to try and make sure that the CASA mix continues to be enhanced, which will obviously bring the cost of funding down. As far as net interest margins trends playing out, we are holding our guidance for the full year at 2.3%.
Customary in the past, we used to always in the first half decide whether we want to change our guidance. That should have been something that I should have mentioned at the beginning of the call, whether we want to change our guidance, increase it or decrease it. Happy to say that we are holding on to everything that we have committed at the beginning of the year.
As a further reminder, if you would like to ask a question, please send them via webcast. Please send them via webcast@dib.ae. Thank you.
Question from Chiro from SICO Bank. The asset quality remained resilient during the quarter, and the NPL ratio is also holding steady, and cost of risk is remaining low despite of the challenges. How sustainable do you believe is this level of cost of risk over the coming quarters? Does the management intend to revise the guidance?
Thank you, Chiro, for your question. Your remaining two questions have been answered in one way or the other. I'll just focus on the first question, Chiro, if you allow me. Yes, asset quality has remained resilient, not just during this quarter, but if you actually look at the last 18 months or so, asset quality has only improved. That is not because denominator is decreasing, but because absolute amounts are coming down. That's a great sign. Now, of course, our cost of risk is at 28 basis points, but that reflects recoveries. I've always mentioned to our normalized cost of risk, which should be at around 50 basis points- 60 basis points. Once upon a time, probably three or four years ago, they used to be at 80 basis points- 90 basis points.
Our cost of risk is at about 50 basis points, 60 basis points. When you take the recoveries into account, in quarter two, we are at 28 basis points. In quarter one, we were at 45 basis points, you recollect that we had AED 186 million added to that in terms of overlay. If you strip that out, we were close to about 35 basis points, 38 basis points, right? I think what I'm alluding to is that if you look at DIB's normalized cost of risk, of course, recoveries will always help. Normalized cost of risk should be around 50 basis points-6 0 basis points, right? I see that that trend is manageable and sustainable even as we go forward. Of course, recoveries will only help us.
Year-on-year, when we get recoveries, we end the quarter or the half year or the year at very good levels. I think I probably answered almost all questions. We'll probably take another two minutes to see if there are any unique questions. If not, I'm going to wrap up the call with using the last five minutes to give you some key messages. Let's just see, Kashif, if there are any more new questions.
As a final reminder, if you would like to submit a question, please send them to webcast@dib.ae. Thank you.
Okay, coming back, guys. I think most of the questions that we've seen through now have been answered in some form or the other. I'll just pass back to Dr. Adnan for his final wrap-up.
Thank you. Thank you, everyone, for asking us these questions. If there are any further questions that you feel have not been answered, please reach out to our investor relations team. We'll be happy to take them. Sifting through these questions, we see a repetitive pattern. I've tried to summarize as much as I can and answer as many questions as I can. As promised, the last five minutes are something that I generally use to give you key messages, right? DIB has delivered a very, very strong first half performance in 2026. Now, I say that because when you look at the engine of the bank, the engine of the bank continues to grow selectively. It is in line with the strategy that we articulated at the beginning of the year. We saw that strategy get executed in Q1.
In Q2, because of the macros and because of the geopolitical situation, everyone, including DIB, took a step back, relooked at their business model, and slowed down a bit, if that's the right word. It allowed us to relook at our capital. It allowed us to relook at what businesses are consuming what capital. We decided to make sure that we focus on businesses that are not consuming as much capital as was being consumed and started to focus on businesses that would give us resilience, it would be diversified across our risk appetite, as well as give us good returns.
Keeping that in mind, we continue to invest on our consumer banking business, our commercial banking business, and our corporate banking business, both domestically and regionally, by making sure that we focus on each of these businesses, focus on customers or counterparties that consume as minimum capital as we can. Right? There was a risk and reward that was being reviewed, and that will continue to be reviewed as we go forward. As a result of that, we've made sure that we continue to focus on our core businesses, and wherever possible, exit certain part of our Sukuk book, albeit it was performing as well as giving us good returns, that was obviously consuming part of our capital on a Pillar II basis.
This is a strategy that we have come up with to try and see that where can we grow, which businesses should we grow by making sure that we use our capital diligently. The strong first half performance that I have alluded to is on the premise that gross revenues, which is our core engine, has increased by 10% year-on-year. Our profitability has remained robust. Like I mentioned to one question, there have not been any one-offs. This is all core business profitability. That has been strong. Our balance sheet growth that I've just mentioned was measured and well supported. That would mean that we would continue doing more of what we have done in Q1 and Q2. Asset quality continues to improve. That is a very, very strong point, and that has been the case for the last three or four quarters.
Capital and liquidity remain strong despite this growth. We have organically generated capital, organically generated our capital both in the form of CET1 as well as in the form of CAR. Liquidity ratios remain very strong, right, at 140% LCR and NSFR at 105%. Our priorities for the second half are very clear. We will continue to grow with discipline. We will continue to diversify our revenues and maintain this asset quality, as well as invest in capabilities that improve efficiency as well as customer experience and resilience. Overall, what you would see in the second half is that we are holding on to our guidance. We are not changing them upwards or downwards, and we will continue to be commercially competitive and responsible and make sure that our key core businesses continue to just widen from here on.
With that, I come to the end of this call. Happy to take any questions later on or look forward to seeing you face-to-face on probably one of our non-deal or deal roadshows. Thank you very much.
Thank you, doctor. Thank you, everyone, for joining us on this call, and we look forward to welcoming you again next quarter. Thank you and goodbye.
All right.
This concludes today's conference call. Thank you for your participation.