Ladies and gentlemen, welcome to Emirates NBD Results Call and Webcast for the first quarter of 2026. Today's call is being recorded. Please note that this call is open to analysts and investors only. Any media personnel should disconnect now. I'll now pass the call over to our host, Mr. Shayne Nelson, Group CEO of Emirates NBD.
Thank you, Elliot, and welcome to our results call for the first quarter of 2026. I know you all have a busy schedule with a couple of our competitors after this call, so we'll try to keep it brief and allow plenty of time for questions for you. Before we go through the results, I'd like to take this opportunity to acknowledge how incredibly grateful and proud we are of the U.A.E.'s leadership and their tireless efforts in safeguarding the nation during these challenging times. I'd also like to express my heartfelt appreciation to the entire ENBD family for the swift and coordinated efforts across the bank to ensure the safety of our people and the continuity of our operations. Against the backdrop of heightened geopolitical conflict, Emirates NBD's priorities were clear, first ensuring uninterrupted services to all of our customers.
Over the years, we invested in building state-of-the-art IT infrastructure, which has enabled us to remain fully operational and serving our customers with no disruption across systems and channels. Secondly, we focused on proactively engaging with customers who were directly or indirectly impacted by the current situation. In fact, we have launched various tailored support packages and solutions for SMEs, retail, and our corporate clients. Third, maintaining our strong capital and liquidity position, we entered this period from a position of real strength with market-leading capital ratios, strong liquidity, and a diversified funding base. To further strengthen our liquidity, at the end of March, we successfully closed a $2.25 billion in long-term syndicate financing from leading global financial institutions. Strong oversubscription, together with best ever pricing, reflects continued market confidence in Emirates NBD's leading credit profile and the strength of the wider U.A.E. financial sector.
Lastly, we continue to closely monitor our lending portfolio to ensure that we take prudent measures wherever required to maintain our conservative staging approach and market-leading coverage ratios. The first quarter of 2026 was composed of a record January and February performances, coupled with a quite resilient March, which enabled the group to deliver strong Q1 results. We had a record total income in the first quarter of AED 14.4 billion, representing a 21% increase year-over-year, fueled by record asset growth, resilient margins, and record non-funded income growth. Our profit before tax jumped 28% over the preceding quarter and 6% year-over-year to AED 8.2 billion. The balance sheet continues its incredible expansion, surpassing AED 1.2 trillion. Supported by an impressive growth in lending of AED 45 billion in the first quarter, driven by strong demand across most sectors and geographies.
Deposits increased AED 44 billion on a growing customer base across all segments. In fact, our customer deposits have continued to grow since the end of February and through April. Emirates Islamic delivered a AED 1 billion profit before tax in the first quarter of 2026, highlighting its position as a leading Islamic bank in the U.A.E. We also continue to be the dominant retail bank in the U.A.E., with our retail credit card spend market share continuing to grow, reaching above 36%. We remain committed to our strategic priorities, with one of the key pillars being increasing the group's market share of international revenues from our identified core markets. On this front, we've made good progress on the RBL transaction, receiving approvals from both central banks in the U.A.E. and India, and remain on track for completion in Q2.
Emirates NBD entered this period of heightened geopolitical uncertainties from a position of strength with strong capital, robust liquidity, and a well-diversified business model that continues to drive strong financial performance. Our financial strength enables us to continue providing support to our customers across segments. Such continuity is essential for the people and businesses in the U.A.E. and for the country's broader stability and economic functioning. The bank and the management team have navigated prior periods of regional and global stress with resilience. We remain confident in the U.A.E.'s leadership, the underlying strength of the U.A.E. economy, and our ability at Emirates NBD to continue delivering our strong performance for our shareholders and our customers. I'll now hand you over to Patrick to go through the results in more detail. Patrick.
Thank you, Shayne, and good afternoon, everyone. We've delivered a remarkably strong and resilient set of results in Q1. This demonstrates the strength of our balance sheet and diversified business model, which is further supported by the U.A.E.'s economic strength and its leadership's swift actions in navigating the current environment. I'll briefly walk you through the main highlights and hopefully leave more time for questions. Let me start with the overall Q1 performance on slide three. Record total income of AED 14.4 billion, up 21% year-over-year and 13% on the preceding quarter. Within that, net interest income grew 12% year-over-year, driven by strong balance sheet growth and excellent margins. We also saw very strong growth momentum in non-funded income, which surged 42% year-over-year.
Strong growth across all segments and geographies. Our cost-to-income ratio came in at 29.2%, comfortably below our longstanding guidance of below 33%, reflecting continued cost discipline and strong income momentum. All of this flowed through to operating profit, which was up 24% year-on-year and 16% quarter-on-quarter. Profit before tax is up 6% year-on-year and an impressive 28% on the previous quarter, d espite the higher non-cash hyperinflation charge. In the bottom table, you can see the balance sheet metrics are all in really great shape, with gross lending up 7%, total assets surpassing AED 1.2 trillion, capital liquidity and credit quality metrics all remain extremely healthy. Let's turn to a bit more detail by component, starting with net interest margins on slide four. The overall margin at 3.35% in Q1 is tracking nicely towards the full year guidance of 3.1%-3.3%.
Within that, ENBD, ex- Deniz NIMs, resilient at 2.7%, declining at 10 basis points quarter-on-quarter as the Fed rate cuts in the second half of 2025 flowed through. DenizBank delivered a strong NIM of 7.12% in Q1. In March, funding costs in Türkiye increased following the central bank's increase in overnight rates. As a result, we would expect some pressure on margins in Q2 for DenizBank, similar to what we saw in Q2 last year. That said, we continue to expect the full year margin to be around or over 7%. We remain comfortable with our guidance, with potential upside in the ENBD margins from expected fewer Fed rate cuts, offsetting a potentially higher for longer rate environment in Türkiye. Moving to slide five.
Strong growth momentum in non-funded income continued this quarter, with net fee and commission income up 27% year-on-year and 21% quarter-on-quarter. Driven by fees connected to robust asset growth and continued investment across capital markets businesses, including wealth management and investment banking. Bottom left chart shows good consistent progress in gross fee income with limited impact from the events in March. The chart at the bottom right shows that total other non-funded income is up 61% year-on-year, and saw a nice bump of AED 1 billion in client flow income in Q1 from Q4. Mainly from client structured products and FX and derivative income. As I mentioned in the year-end call, Q4 is typically a quieter time for the business to focus on building pipeline for the new year. As usual, during periods of volatility, we tend to see an increase in trading activity and related income.
On slide six, we see that the gross lending is up 7%, with strong momentum from last year carrying through into the first quarter of 2026. Retail is up 5%, adding AED 20 billion of new origination, with growth coming across our diversified product suite as we continue to leverage our digital capabilities to enhance origination efficiency and customer journeys. Corporate is up 9%, with an impressive AED 44 billion of new lending in the first quarter of 2026. We saw a healthy demand across most sectors in our core markets, with growth predominantly coming in the U.A.E. This brings me to the loan growth guidance we shared last quarter of mid-teens. While it's still early to fully assess the impact of the current environment, we remain on a pretty healthy path towards that guidance with such a strong start of 7%, which is more than double Q1 last year.
In fact, we're seeing lending demand across both retail and corporate remain healthy during March and early April. On the liability side, total deposits continued on the growth trajectory, increasing by a further AED 44 billion during the quarter. Within that, we saw some customer migration into time deposits, which added funding duration and supported liquidity resilience, and we see this as a strong vote of confidence in the bank. Nonetheless, ENBD ex- Deniz CASA ratio is strong at 60%, maintaining our strong low-cost funding base, which remains a key strength of the group. As Shayne mentioned, deposit growth has continued from the end of February and into April. On slide seven, we see the NPL ratio improved to 2.3% in the first quarter, well within our guidance of circa 2.5%. Overall coverage is extremely strong at 157%, with Stage 3 coverage of 86%.
In Q1, we had AED 0.8 billion net impairment allowance, primarily driven by prudent provisioning across both DenizBank and Emirates NBD, partially offset by recoveries in the beginning of the year. In light of the current environment, management has taken a conservative approach to update the ECL macroeconomic scenario assessment for the U.A.E., with downside ratings of 100% for Retail and 80% for Corporate, adding AED 865 million of additional ECL charge in the first quarter, essentially an overlay. That's really a first step, and as we enter Q2, we'll be updating the ECLs and the models, which will give us better visibility to reassess our full year cost and risk guidance of 30 basis points-50 basis points. It will take some time to assess the longer-term impact of current events, i.e., the potential flow of Stage 3 NPLs. We will update guidance in Q2 if required.
On slide eight, the cost-to-income ratio is at 29.2% for Q1, comfortably within our long-term guidance of less than 33%. Our strategic investments in product suite enhancements, digital and gen AI initiatives, and the international network continue to drive strong business growth, with the I in cost-to-income being our core focus. That said, we continue to demonstrate cost discipline and benefit from our digital investments. The 6% quarter-on-quarter increase in staff costs was mainly driven by inflationary salary adjustments in Türkiye and is fully absorbed within our strong income growth, keeping the cost-to-income ratio well within guidance. Moving to slide nine, the group maintains very strong liquidity with an AD ratio of 82% and an LCR of 141%.
ENBD issued AED 16.3 billion of term debt and Sukuk in Q1, with healthy fundraising activity continuing into April, further reinforcing the market's appetite for quality credit names like ours. This included, at the end of March, as Shayne mentioned, the $2.25 billion long-term syndicate financing at our best ever prices. We also successfully called in early April a $750 million AT 1 note, further highlighting the strength of our liquidity and, for that matter, capital. Speaking of capital, slide 10 shows our super strong capital position with a CET1 ratio of 14.2%, which is well above regulatory minima. Our strong capital base is a pillar of strength that allows us to continue healthy growth and support customers despite the current environment. Slide 11 contains divisional highlights. Just to mention a few of these, Retail delivered record operating profit of AED 3.8 billion in Q1.
As I mentioned earlier, strong loan growth of 5% with AED 20 billion of new originations and an impressive CASA ratio of 75%. C&IB continued its outstanding performance with profit before tax up 15% year-on-year, continued growth momentum in lending with 9%, and strong new originations of AED 44 billion, and a strong deposit growth of 10% year- to- date. Global Markets and Treasury delivered very strong results, generating over AED 770 million of income benefiting from volatile market conditions and ongoing strategic investments in enhancing product offerings. DenizBank delivered AED 1.6 billion profit before tax and non-cash hyperinflation adjustments in Q1 2026, up 4% year-on-year. We do have a couple of extra slides in the appendix containing more granular detail and a dollar convenience translation. With that, we can open up the call for questions.
Thank you, Patrick. We will now begin the question and answer session. If you wish to ask a question, please press one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press two. To participate in our written Q&A, just type your question into the Ask a Question text area, then click the Submit button. Once again, press one on your telephone if you wish to ask a question. First question comes from Jon Peace with UBS. Your line is open. Please go ahead.
Thank you, and congratulations on the resilience of the results. I just wondered if you could talk a little bit more about trends in March and April. I think you said deposit growth stayed positive, but just wondering what the run rates we're looking at in loan and deposit and also non-interest income growth in March and April versus the rest of the quarter.? Then secondly, how did your overlay split between the U.A.E. and DenizBank? I think you said you were going to review your targets at the half-year stage. Should we anticipate some more overlay, some more provision builds, or do you think you could still stay inside that 50 basis points target? Thanks.
Thanks, Jon. Thanks for joining the call. Actually, just on that, I'll take that second one first, maybe. The overlay is entirely the U.A.E. for the balance sheet and models there. We have simply dropped that down to the worst-case scenario or the downside scenario it's called, pending the update of the macroeconomic variables. It's something we did in Q1 2020 when you don't have all the most recent data because the variables have to be updated. About 2/3 of that would relate to the corporate book and 1/3 relates to the retail book. When you look at the macroeconomic variables, there potentially are. You just don't know what that's actually going to be. When you look at some like GDP, we had originally 5.8% growth for this year, and the IMF itself has revised that to just around 3%.
It's not just about the current year, it's also the next four or five years that go into the model. Until you actually get that data and see how that's settling, you really can't make a fully reliable assessment of that. When we did that in Q1 2020, we got that just about right, actually. It worked very well. Actually, it also means that when we look at the portfolios and we're looking for more vulnerable parts of the portfolio, it gives us that comfort that we've got some of that coverage already. Obviously, on the NPL side, we'll have to wait and see how that pans out through the latter part of the year based on our experience when we went through the COVID pandemic. Just on the March or April references to loans, deposits, non-funded income.
When it comes to non-funded income, yes, for the first week or two, volumes will have dropped off. As things adapted, we did see volumes come back. Actually, that's also going for the loan book as well. Maybe there were a couple of weeks where there will have been a dip, and then we started to see the recovery. When we look at the first couple of weeks with the April data, we've actually seen really quite a strong recovery, with some of those volumes being similar to what we saw in the first couple of months of the yea. And even in the fourth quarter last year. It's a good start. We have to see whether that remains consistent through the rest of the quarter.
That's one of the key reasons we felt we didn't need to update loan guidance to revise that down, given we've already done 70%. We've got that momentum to carry us through.
I'll just add that if I look at card volumes, the spend is good. New applications are good. Personal loans are strong. The one area that is a little bit down is car loans, which you would expect given that getting stock in is not that easy. I did go and see one of our big car clients the other day and they'll be now bringing their stock via Jeddah. For all those supply chain niggles that they are having, they are finding ways around it when it comes to getting that supply in. The Corporate space. I've been to see a lot of corporate clients over the last month. We're not seeing any great demand for I need a block for cash flow. The only ones I've seen are that I've got a new venture I'd like to invest in and trying to take an opportunity.
I'm not seeing from the clients that I've seen a lot of cash flow pressure. Any decent company that went into this war had very big buffers already built because the economy's been performing so well for quite a few years that their profitability and their cash build-up has been quite phenomenal. I've been to see property developers. I've been to see cars and airlines. Even the airlines, what I'd say is that what surprised me was that while they obviously have lost passenger numbers when it comes to flying, they're making up for a lot of that loss of passenger numbers with freight. The cash flow impact for them is nowhere near what I thought it would be. It's actually far, far better.
I think overall, I think the demand is there, and I think you saw today there was an announcement about a $10 billion new rail announced, a new Gold Line. I would expect to see additional infrastructure projects announced by both Dubai and the U.A.E. as a whole, and Abu Dhabi in particular as well.
Great. Thank you.
Thanks.
We now turn to Rahul Bajaj with Citi. Your line is open. Please go ahead.
Hi. Thank you for taking my question. Very strong set of results indeed. Congratulations for that. Three quick questions from my side. The first one is on margins. If I understand correctly, there was some loan deferrals announced by Emirates NBD for specific customers over the last few weeks. Just wanted to understand to what extent the NIM that you have reported makes any impact on those deferrals, and are there more such deferrals expected in 2Q? That's my first question. My second question is on the hospitality sector. Could you give us an idea of the size of your hospitality sector exposure, both direct and indirect, and also maybe retail customers that Emirates NBD has, which are linked to hospitality sector?
If you could provide a ballpark view of how you think the hospitality sector is doing and what kind of exposure you have, that would be useful. My third and final question, fee and commission expense. We see a sharp drop in 1Q on a sequential basis in fee and commission expense. Not the drop in fee and commission income, but the expense only. What is happening there? If you could please help me understand. Thank you.
Sure, Rahul. Thanks for joining. Just on that NIM one first. Look, the announcements we're making are around the availability of support and deferrals for customers if they need it. Doesn't mean they have taken it. In fact, we're seeing relatively little uptake of the need for that.
Very small.
Yeah. At this point in time.
Surprisingly small.
There's something that we observed during the pandemic as well, that deferrals and having that availability and supporting your customers avoids a lot of impairment further down the road. It was highly effective. When it comes to the NIMs, because no one's actually availed themselves of it to any material extent. There is no NPL. There's sort of no NIMs or interest income impact for that. I think we found when we went through the pandemic, even then, the deferrals, because interest was still payable, it wasn't a rent-free or interest-free period, it was still payable. It didn't really make that much of an impact. Just on hospitality and splitting, we have split out the assets in the notes, the account, in more detail. We've got a sort of an aggregated version in the deck, but there's more detail in note six.
You can see hotels and restaurants is about AED 13 billion in total. That's about 2% of the book. What we haven't split out for you is retail customers that work in those industries. That's not something that we're going to do for you. What we do do when we go through the credit review is obviously look at any industry that's more affected, if it is hospitality, for example, and we look very carefully at how we can support our customers, and then also what that means for any modeled or actual impairment allowances we make on that.
I'll just add on that one. If I look at our hotel sector in particular, the majority of our exposures is to GREs in that sector. Most of them, not most of them, all of them came into this war extremely healthy with cash balances, et cetera. Some of them are using, obviously, this period of low occupancy to refurbish a lot of the hotels. Which makes a lot of sense, because when they're full, it's pretty hard to refurb them. That is certainly occurring. Do we have a couple of standalone hotels that client is dependent on the cashflow of those hotels? Yes, but it's a tiny percentage of our book. Am I worried about them? No, I'm not.
Their loan-to-value ratios are low in any case, so it'll be a matter of restructuring their payments until the sector comes back to better occupancy than it currently is. I think, have we looked at it upside down, back to front? Absolutely. Am I worried about that sector, given where our exposure is? No, I'm not.
Rahul, you had a third question on fees and commissions and expenses. Why is the expense gone down 16% when the income itself is relatively flat from the prior quarter? Actually, it's a function of indexing in Türkiye and DenizBank that accumulates through the hyperinflation adjustment that essentially increases that cost as it accumulates through last year. The fourth quarter is hyperinflated more than the first quarter. It obviously then gets adjusted out back through that hyperinflation adjustment of AED 1.1 billion in the current year or the current quarter. If we unpick that and looked at the underlying, the cost is broadly flat. Then if you say, well, the same could go for the income, that's true.
It just means that fee and commission income has actually net-net really grown more than 2% if I took out the grossing up indexing effect of Q4 last year. Sorry about that. It's inflation accounting again.
Understood.
What might be a little bit more helpful for you then is to look at the appendix where we do split out ENBD and Deniz so you can sort of see a more like for like approach.
Understood. Thank you.
Thanks, Rahul.
We now turn to Shabbir Malik with Morgan Stanley. Your line is open. Please go ahead.
Hi. Thank you very much. A couple of questions from my side. Can you please talk about the customer profile? So you've talked about deposit and the sequential deposit growth this quarter. Can you touch on the customer profile? Is it corporate, GREs, retail, high net worth? What's the composition? If you could shed some light on that. Secondly, I just want to see how your thinking has changed or evolved over the last few months in terms of cross-border lending, so lending into Saudi Arabia, other markets outside of the U.A.E. Do you expect that to still be an important growth area this year, or will you be more focused on the infrastructure opportunity that you talked about within the UAE? And finally, I guess maybe in terms of your mortgage book, can you give us a sense of the loan-to-value ratios? How frequently are these loan-to-value ratios evaluated?
Yeah, I think those are the three main questions for you. Thank you.
Hi, Shabbir. Welcome. Just on the customer profile, I think you were referring to loans and deposit growth or just the deposit growth?
Focus on deposits, but if, yeah. Both would be helpful, actually.
Deposits. Okay. Sorry. Yeah. No, the line there is a bit interrupted. Look, the growth, it's coming. I think corporate has been particularly strong in Q1, and you can actually see that we provide what those inc deltas are. Retail year-on-year is up 12%, whereas the Corporate deposits are up 32%. A good part of that is the escrow accounts, where we accumulate the deposits that people have put down for apartments, and we hold those in escrow till they are released, which actually, by the way, is one of the really good strong mitigants. That is something that's different this time compared with the pandemic when there was a far smaller escrow balance with us. Remember, escrow is extremely sticky, right? Unless they meet their construction timetable, they can't draw on those escrow balances.
With some delays in supply for construction, we expect that, in fact, those escrow to be more sticky than what historically.
Shayne also mentioned earlier that a lot of the corporate customers through the last couple of years have been building up some quite nice cash buffers. I think that's helped as well, not just on the credit side, but also we've become a beneficiary on the cash handling and deposit side of that. Then sort of through the latter part of March, and into April, we did see very strong deposit growth coming in from the corporate side. Yes, the retail side, the growth rate has been slower than it was in the first couple of months, but I don't think that would come as a surprise. The good news is net-net, retail is up for the quarter. Even into April, the balances are around or even better than where going into the sort of 28th of February or so.
Our deposits in April are surprisingly strong. If we cut all our ratios now, you'd be surprised how much stronger they've actually got in the month. We continue to attract a substantial amount of deposits, both retail and in corporate.
Yeah. Shayne, since you mentioned that the LCR ratio that was 141% has gone back up to where it was before the conflict started now with that funding that's come back in. There was a third one. Sorry, the second one. I think it was. Sorry, the line was a bit.
Cross-border lending.
Yeah. The cross-border, well, is it international or lending across? Or cross-border.
Yeah. Yes, in terms of international lending, is your appetite still the same as it was previously? Has it changed, and you focus more on the domestic opportunity as you talked about infrastructure projects?
I think the answer to that is no. Every one of our operations, as you're aware, is still funded. We continue to grow, whether it be Turkey or Egypt or Saudi Arabia, hopefully shortly, [Non-English content] India. From our perspective, no change to the strategy of going offshore. Our strategy has always been to increase the contribution from offshore versus onshore as it could be counter-cyclical. We continue to push on that growth in international.
Your third question there, Shabbir, was around the mortgage book and the loan- to- value. On the retail side, we see the loan- to- value of the book around 60%-61%. I think last year it was around 65%, so it has improved further. Valuations are done through the year. It's not just a once a year type thing as assets come on and also observing market prices, et cetera. We do track that very carefully. That's a 40% valuation buffer on the mortgage book.
I think that I've been through many cycles, including the Asian financial crisis, et cetera, the global financial crisis. The majority of our mortgage book in retail is owner-occupied. The effect on that book, even in terms of crisis, you go back and look in history, we expect very, very low default rates in owner-occupied. People need to live somewhere. Certainly from a population perspective, you live here, so you know the actual population has not dropped much. Certainly tourists have come down, but the actual core population has increased markedly over the last few years, right? We've gone from about 2 million- 4 million people. The stock of people for those owner-occupied has increased substantially, and I don't expect to see owner-occupied increasing in their defaults.
Our booking, as Patrick said, is quite conservative on the LTVs in many cases.
Perfect. Thank you so much.
Thanks, Shabbir. Shabbir, welcome to Morgan Stanley.
We now turn to Naresh Bilandani with Jefferies. Your line is open. Please go ahead.
Thank you very much. It's Naresh Bilandani from Jefferies. Three questions, please. First, could you please share what trends that you saw in your corporate loan book? You recorded a very strong growth. I'm just trying to understand if you've seen any insights or trends emerge in a pre-war versus a post-war scenario. I'm just trying to understand the type of growth. Was this growth more working capital-driven? Was it precautionary drawdown of facilities, or was it any other type, if you can please share? That's the first question. My second question is on asset quality. We've seen an 18% growth in the second quarter on Stage 2 loans. Would you please be able to share what is the segment concentration of this Stage 2 book? Also, would you be targeting a provisions to loans ratio that can help us form a medium-term view on the core cost of risk?
The current level is 3.5% compared to 4.9% 12 months ago. Still a healthy level, but I'm just trying to understand what's the level you're going to sustain, segments of the book that drove the 18% quarter-on-quarter growth in Stage 2 loans and your medium-term provisions to loans ratio. My third and final question is on the trend that you've seen in the FX and derivatives line. Would you please be able to provide some insight into the product and the client level that is driving the strength in this quarter? I'm just keen to understand if there are any factors specific to the volatility that we've seen in Q1 that is driving this extraordinary strength and the extent to which this could be sustainable in the second and third quarter going forward. Thank you so much. I'm sorry, I'm not getting any audio on the line here.
Ladies and gentlemen, we're experiencing some technical difficulties with the speaker line. Thank you for your patience as we reconnect them.
Hopefully we are back. Naresh, I've got all your questions. I just got off, it seems. Just on, are you saying on the Corporate trend side, in the notes, you can see we've had strong growth across pretty much every sector. Post conflict, it seems to be the same. Shayne referred to what he's seeing out in the market. Also while, the tourism industry is a bit quieter, a lot of hotels and parts of the industry are taking the opportunity to do some of the refurbishments and refresh. We're seeing strong demand to be able to assist with that as well. It's not one particular sector that we're seeing the demand post conflict coming through from. The corporate book has quite a strong pipeline, but it's not really just in one industry or sector.
I can't think of one deal that I've done since the start of the war that is, I need cash because I've got a problem. I have been out to see a lot of clients and to be fair, we were expecting some clients to need cash to buffer them through. At this stage, I have not seen any requests for it. If we do get those requests, obviously part of our job is to be here to support our clients through difficult times. We absolutely will support. I have to say, at this stage, I'm just not seeing it. I'm not seeing the requests coming through to bolster working capital or whatever. Just not seeing it at the moment. Now, it may flow as we go further through the cycle, but at the moment, I'm just not seeing it.
Just on your question on Stage 2, I think you're looking in the notes to the accounts, and you can see around AED 9 billion, just from memory, migrating from Stage 1 to Stage 2. That is all pre-conflict. It is part of our BAU. It's not because there's been a surge from a weakening of credit quality since the 28th of February. You know us, when it comes to running both stricter models and assessments of credit, we don't hold back. It's also a combination of ENBD and DenizBank. About 2/3 of that is U.A.E., and 1/3 is Deniz. So what they have seen is continued pressure in retail, credit cards, and agri. The agri sector and those flows have been coming in. That's why they also had something more of a heightened cost of risk in the first quarter as well.
When you actually look at that AED 9 billion in proportion to the book, the book is much bigger than it was this time last year. It equates to about 1.5% of Stage 1 book, whereas last year, I think it was about AED 4 billion or AED 6 billion that migrated. It worked out at about 1.2%. The actual magnitude's not that much difference in that sense. On your third one, the trends in FX derivatives and NFI, and I think you're looking specifically at page five of the deck where we show the quarterly trend, where we did have that nice AED 1 billion step up. What I want to say about that is that that is across a number of products that we have been developing. They started to come online probably with some scale Q1 last year.
We've been building a team and our global markets team around structured products, repos to maturity, building up our derivative capability. Because we have seen the client demand for that. It's also. There's nothing particularly lumpy in there. It is across a wide range of customers and a wide range of product capability that we have been building. As to your question as to whether it's sustainable at that level, I think I referred to earlier Q4 being a little bit quieter, because you saw when it was AED 1.5 billion, down from AED 1.9 billion in Q3 last year. That is where the book is building for the next year. A little bit of it is that pent-up demand that comes through in the first quarter. I've seen that happen in quite a number of other countries, actually.
It's also depending on when the client demand comes through. Q1 is typically the strongest quarter, so I would expect some moderation.
I'm sorry, Patrick, we lost your audio again.
Ladies and gentlemen, thank you for your patience as we reconnect the speaker line.
Naresh, hi. Sorry, we're back. Where did I get up to when you said?
No, you were just pointing out to the sustainability of the revenues from the markets business and the fact that you've built up capabilities in this business.
Yeah.
Which would offer some momentum going into the future quarters?
Yeah. Look, I think if you look at some of the past trends we have seen, the capabilities being built, it's not going to be as high as AED 2.5 billion in the next quarter. I would see some moderation of that, but we don't give you specific guidance as to exactly how much that is. We also have to see whether recent events has any impact on demand as well. What you often find in this environment, it can actually increase demand. It's pretty seasonal for the first quarter, and we'll update that in Q2. Otherwise, you can see a pretty good growth trend in previous quarters other than that fourth one.
Understood. Thanks, Patrick.
Thanks, Naresh.
We now turn to Olga Veselova with Bank of America. Your line is open. Please go ahead.
Thank you for hosting this call and for comprehensive Q&A. I have several remaining questions. One is the bigger picture. What do you think might change in Emirates NBD post-conflict versus before the conflict? Maybe rising LDR, maybe more careful selection of borrowers in construction real estate, maybe less loan repayments by Dubai. Any thoughts on what will be different in future versus history? That will be very helpful. My question number two is on provisioning in Turkey. We had very high cost of risk for the past two quarters, and I think this cost of risk was well ahead of the competitors. Do you feel this cost of risk will move down in the next several quarters? And what would be your guess, I know it's difficult to say, but best guess now for the full year in Turkey?
Question number three is on the central bank measures, which allow banks not to reclassify problem borrowers. Would you be open to use these measures, or you would rather rely on internal models given that measures have limited timing? Thank you.
Thanks, Olga. Maybe I can just take those ones backwards. Start with the Central Bank guidance and the categorization for any relief measures I think you're referring to there. What that's trying to get at is that when it comes to forbearance in the accounting, if you have a Stage 1 customer that needs a deferral, it's basically saying just because they've asked for a deferral doesn't mean they automatically trigger the downgrade to Stage 2. If, however, a customer was having difficulty before the conflict started and it hits a trigger, yes, you should downgrade that. That's something we just haven't seen much of anyway from our customers. If there was a downgrade or someone needed a deferral but was already having difficulty before the conflict, yes, then that would probably be part of the downgrade.
What it's trying to get at is don't automatically downgrade someone just because they asked for a deferral, because what we actually know is the deferrals are hugely helpful, A, for the customers to get through a difficult time when it comes to cash flow. As we saw during the pandemic, most of our customers came out the other end and prospered afterwards, and it saved us a lot on the impairment line. It's just don't unnecessarily downgrade it on a technicality, but also don't hold back the grading where there actually is a genuine credit and recoverable issue. That's really what that is trying to do, and we'll have to see whether there's any volume of deferrals as we go through the second quarter, much like we were back in 2020. Provisions, the line was a little bit muffled.
It was cost of risk Turkey.
Yeah.
For the last couple.
Yeah. Look, Turkey cost of risk has been increasing. We actually disclosed the cost of risk in the appendix there, so you can see what that is. They were 320-odd basis points in Q1. That was down from 326 basis points or pretty flat to Q4. That really is, as we've been saying before, the retail sector credit cards and agri, and mostly as a function of the high interest rates. Also when it translates back into our group numbers, there's less FX depreciation offsetting that. That gives some sort of magnitude. You may recall back in 2020, for the first year both of pandemic and post-acquisition, the cost of risk in Turkey was getting close to, in some quarters over 400 basis points. This magnitude is not quite at that level.
As interest rates come down, we would be looking for some sort of moderation of their cost of risk and factor that into any update and guidance if required in the second quarter. Then on your first question, big picture, what might have changed post-conflict? Shayne, any thoughts on that?
Well, I think there's a pretty good chance of infrastructure spend. You're already seeing Dubai announce the Gold Line today. It's about $10 billion. It's far be it for me to predict what the government of U.A.E. is going to do. It's not my decision. Strategically, they've been very well prepared historically, and you probably would expect them to be more prepared in the future, with more fiscal travel on the Fujairah side versus the Gulf side. I think there will be opportunities. There is some infrastructure repair that is necessary for some companies. We see some opportunities there. Do I see that the financial position of the U.A.E. or Dubai will change considerably? Dubai went into this conflict in an unbelievably strong position, and I would doubt that debt to GDP in Dubai itself is even 20%.
That's pretty apparent by we've gone down from the government lending went down from its peak of AED 160.5 billion down to, was it AED 96.34 billion at the moment. That's come off massively in the last few years. That means that Dubai as an Emirate has got lots of fiscal buffers now that it didn't have before. It's because it's been aggressively paying down debt for quite a few years now. I think the fiscal position for Dubai is very strong at the moment, and it has lots of capacity to borrow, if required, as we go forward. Our exposure to the Dubai government now is quite small. Against our balance sheet, it's tiny. From our perspective, we'd like more opportunities for the whole of the country, whether it be Fujairah versus Dubai versus Abu Dhabi.
Thank you. Thank you very much.
We haven't got much time left. Do you want to?
We'll quickly do some written questions. Thank you very much. One question keeps on coming, Patrick and Shayne, is on the hyperinflation charge. It's gone up in Q1. Has our outlook for the inflation charge in Turkey changed, and when do we foresee this charge?
Unfortunately, the uptick in hyperinflation is reflective of the strength and performance in lira. That's one of the, sort of good and bad. I'm sure you've all been reading Bloomberg when the finance minister spoke, and I think we saw interest rates yesterday remain on hold. Albeit that the bank borrowing rate has basically gone from 37%- 40% because of the way that the buckets are used, and that happened in the meeting before. I think given where oil prices are and how much Turkey imports energy, I think the track that we were hoping for, I think, will be delayed a bit. It could mean that hyperinflation accounting doesn't come off until early 2028, rather than what we were hoping for in the second half of 2027. That's a possibility.
Really, I suppose, it very much depends on how high will energy prices remain at their current peak as to, because that feeds through a significant amount of inflation into Türkiye. I think it really depends. We'd love to see it off early, obviously, given the reduction.
We should remind everyone, it's a non-cash accounting adjustment. It's at a P&L credit capital, so it's not in capital. Also we've got some more detail on page 15 that'll show. Look, in Q1, you often get a wee spike in inflation because that's when they raise the minimum wage. There was 10% inflation Q1. It was 10% or 11% Q1 last year. Year-on-year, it's flattish. It's just up from Q4, where Q4 inflation was just under 4%.
Thank you, Shayne and Patrick. With that, Shayne, over to you for the closing remarks.
Thank you. I'd like to thank you all for participating in today's call. Despite the current geopolitical and market challenges, we continued our growth momentum, supported by our strong capital, robust liquidity, and well-diversified businesses that continue to deliver very strong performance. Looking ahead, we are highly confident in the U.A.E.'s leadership, the enduring strength of the economy, and the ability at Emirates NBD to navigate uncertainty, capture growth opportunities to continue delivering value for our customers and shareholders. With that, I'd like to hand you back to Elliot to provide you details in case you have any follow-up questions and to close the call. Thank you, Elliot. Good luck.
Thank you. For any further questions, please contact our investor relations department, whose contact details can be found on the Emirates NBD website and on the results press release. A replay of this call and webcast will also be available on the Emirates NBD website next week. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation.