Hello and good afternoon and good morning, ladies and gentlemen. My name is Muhammad Faisal Potrik, and on behalf of Riyad Capital, it's my pleasure to welcome you to Riyad Bank's first quarter 2024 earnings call. I'll now hand over the call to Mr. Ryan Alshuaibi, Head of IR and Market Intelligence. Ryan, please go ahead.
Thank you, Potrik. Good day, everyone, and thank you for joining the call. With us in the call today, our CEO, Nadir Al-Koraya; and CFO, Abdullah Al-Oraini. As always, CEO will start with the performance highlight and then strategy update, followed by our CFO to cover the financial performance in more details. Before we start, I would like to remind you that, today's presentation is available on our website. With that, I'll hand over to our CEO, Nadir, to start the presentation. Thank you.
Thank you, Ryan. Good afternoon, ladies and gentlemen. Thank you for joining us for the first quarter of 2024 earnings call. Happy to share our performance for the quarter, highlighting our achievements, as well as covering the strategy progress update. As always, I will try to be quick in covering the strategy update and performance highlights, and my colleague, Abdullah Al-Oraini, our CFO, will shed some light on the detailed financial performance to allow more time for the Q&A session. So now, let's move to the performance highlight for the first quarter. In this slide, we'll start with our balance sheet side. We are very happy to share with you the strong growth delivered in a quarter driven by both loans and investment. Our loan portfolio recorded 3% growth year to date, mainly driven by growth in corporate and SMEs.
We have seen a good credit demand in the market in corporate and SME with a healthy pipeline, driven by strong economic activities in Saudi as a result of Vision 2030 initiatives and projects. However, on the retail side, we continue to see a pressure on credit demand due to high interest rate environment, especially in consumer and mortgage lending. We continue our focus on private and affluent segment by improving our value proposition through our partnership and enhanced products offering, which will help us in increasing our profitability. Additionally, the investment portfolio recorded growth of 4%. That's year to date, which is helping us in diversifying our special commission income as well as supporting our liquidity position.
On the net income side, although margins dropped in the first quarter, which was mainly due to higher cost of funding, we were able to deliver a 3% year-on-year growth in net income. So as a result, we delivered healthy ROE for the quarter, standing at 15.5%, which is in line with our expectations. The growth recorded in the quarter came with a very healthy and resilient financial position with our NPL improved by almost 33 basis points year-on-year, standing now at 1.19%, and our NPL coverage increased by 23% compared to the same period last year, standing at 141%. Also, we continue to maintain a strong capital base with a healthy capital adequacy ratio of 19.3% and a comfortable liquidity position with SAMA-weighted LDR at around 82.7%, well within SAMA limit.
In terms of high-level strategic progress, we continue to execute our strategic initiatives and on track to achieve majority of KPIs across corporate, retail, and treasury, also in digital banking. Now, I will move on to cover our strategic update on the following slides. Our ambition is to be the best bank in KSA. We continue to implement the initiatives under our strategy. As you know, the goal for Riyad Bank by 2025 is to be the best bank in the Kingdom, which we define by our four key pillars, which you are familiar with. So the first pillar, we want to be the most profitable bank. Our focus to deliver a sustainable profit growth and return to our shareholders, driven by the balanced growth approach. I would also like to highlight a couple of metrics that we track under this pillar: ROE and profit growth.
On ROE, as mentioned, we delivered 15.5% for the quarter. In the second pillar, we wanted to be the most efficient bank. Under this pillar, we are focusing on cost efficiency and productivity. What we want to achieve here is the highest return in our spending, which will help us in improving our operational efficiencies. In the third pillar, we want to be the bank of choice. Our goal is to be the top choice for our customer, our employees, and our community by delivering superior customer service, enhancing employee engagement, and implementing best ESG practices. Lastly, on the fourth pillar, we want to be the most innovative and digitally enabled bank. This is a very important pillar in our strategy. We have a lot of initiatives under this pillar to drive our innovation and digital activities.
On the digital side, we are developing a best-in-class mobile application that will help in better serving our existing customer, attracting a new customer, and supporting our sales activities. Reflecting on the first quarter results, our key focus areas in the last three months is accelerating growth on the asset side, including corporate and retail, coupled with increasing cross-sell activities within the bank, including also Riyad Capital. Additionally, elevating the execution of our high-impact efficiency initiatives. This includes cost optimization as well as operational efficiencies. With that, I'm concluding the strategy part. But before I hand it over to Abdullah, I would like to touch on a recent announcement that the bank has made regarding a possible IPO of Riyad Capital on the 4th of April.
Riyad Bank announced that its board of directors has issued its resolution to start the assessment and preparation of a possible IPO and listing of Riyad Capital on the Main Market of the Saudi Exchange. The assessment and the preparation will include determining the size, structure, and the other relevant details of the IPO. If a decision is made to proceed with the IPO, then the IPO will also be subject to the relevant regulatory approvals. Driven by the development that's happening in the Saudi capital market, our aim is to unlock some of the value of Riyad Capital, given that it's the second-largest asset manager in the Kingdom, the leading local provider of custody services, among the top in brokerage and active in providing investment banking services. Finally, any material development in this regard will be announced in due course and in accordance with the applicable regulations.
Thank you for your attention, and I will now pass the word to Abdullah to proceed with detailed breakdown of our financial results and our future outlook. To you, Abdullah.
Thank you, Nadir. And again, good morning and good afternoon, ladies and gentlemen. Continuing or delving a little bit into the overall financial performance, I think the decent growth in profitability and across other key metrics have been supported by both the fee and other income and the improvements on the balance sheet, largely in the loans and investments. But more importantly, I think it reflects the momentum that has started in Q1 compared to Q4 last year. In the expansion mode, I think the overall theme of the balance sheet, the funding, was primarily driven by the interest-bearing deposits, which has fairly reflected the market dynamics that we have seen since the hiking interest rate cycles started, and continuing.
Our NPLs, as well as, it has highlighted to be one of the key areas of focus of our intentions, and we continue to progress towards that, albeit I think as we continue to see marginal deteriorations. However, I think the overall revenue has continued to grow on incremental basis, but I think has been partially offset by rising cost of funds as well as slightly lower net special commission income stream. I think that has all impacted the overall net special commission income margins for the quarter. That has also reflected or filtered through higher cost-to-income ratio compared to the previous quarter as well as the first quarter last year.
Overall, I think efficiency, as highlighted by Nadir, has been accelerated in terms of initiatives, and particularly since the beginning of the year, we continue to derive this and realize some sort of cost savings. That has been an ongoing consideration for the bank, but with an accelerated pace to further support our strategic ambitions when it comes to the digital and infrastructure spends. So, compared to first quarter 2023, our operating expenses has risen by 16%, reflecting or driven largely by an increased staff cost as well as some other general and administrative expenses. I think asset quality ratios generally have been stable. I think the NPL ratio has seen a further decline this quarter as we have reviewed also key portfolios, and we have also increased some level of provisioning.
But also, we have reviewed the eligible write-off exposures, and we have exercised partial components of it. Cost of risk is 62 basis points for the quarter, pretty much in line with our expectations, while, as highlighted by Nadir, all liquidity and funding, including capitalizations, have remained sufficient and strong at strong levels where it is in line with our funding and capital plans, but more importantly is continue to support our growth plans for this year and the medium-term horizon. Going into the next slide. The expansion of the bank's footing, primarily or largely driven by our commercial nature, which are the loans and advances, particularly here highlighting the continuing growth of our corporate banking activities, including the SMEs. And we continue to foresee, you know, this is to be the major driver of loan growth towards end of this year.
We continue to incrementally and opportunistically to increase our investments portfolio for the, the same reasons highlighted by Nadir, to have the diversification, but more important to continue to manage interest rate, risk, and liquidity while providing a yield enhancement to the overall bank. As you can see, in the right, upper sides on the loans and advances split, we continue to see increases on particularly the corporate and the SMEs. Overall, I think we are, more or less towards a 70% corporate and SMEs and 30% retail, driven largely by, higher incremental growth of, the corporate areas. It's worth to mention that, our year-to-date first quarter, progress on the overall SME has been very strong and promising, and we continue to double down on this very strategic segments, on 2024 as well as in the medium horizon. That segments continue to, witness, a very promising, potential.
On the funding side, as you can see from the waterfall chart, I think deposits have continued to be largely funding the overall growth of the balance sheet, in both formats on a year-to-year basis as well as compared to last quarter. We have mentioned in our previous earnings calls for the full year 2023 that we are expecting some maturities to take place, and that maturities have already taken place. You see a rise in the customer deposits and replacing some of the maturities due to banks, as a result of the previous programs that was extended during the COVID period. Overall message from this slide is reconfirming our positions on our readiness to continue to capture growth in the loans while at the same time continue to incrementally and opportunistically increase our investments allocations.
It's worth mentioning that the slight drop in the net special commission income is highly driven by the shift on the deposit mixing towards the funding cost as a theme, but also referring to my previous points of the maturities, we have also replaced some maturities with a more current market rates, which are far expensive than the previous ones. So that has impacted our net special commission income. It's worth mentioning also another reasons that took place this quarter, as part of our portfolio review of certain segments. We have elected to prudently cover and partially write off some of these exposures based on subjective evidence of recoverability. So that has impacted some or resulted in suspending some interest income, which has contributed to the decrease in the net special commission income.
It's worth highlighting that the marginal drop on the net special commission margin as well as the asset yield has also continued to witness some pressures for largely two reasons. One is the continued competitive pricing, particularly on the corporate segments. Second is the mix within the corporate segments across its key segments ranging from the project finance all the way to the SMEs portfolio has slightly shifted. So that has put some weight on the assets yield as well. The lower right charts just to highlight these dynamics in terms of the compositions of both average earning assets as well as the average earning liabilities.
While fee and other income witness a very strong growth driven by our or reflecting nicely from our corporate activities as well as the other lending and banking services activities, I think this continue to remain a key areas of focus for us across the board, including also the trade finance activities, which showed a very good level of growth this quarter, and it is expected to continue, as well as highlighting the capital market activities and asset management-related fees also picked up compared to similar quarter last year. We continue to focus on the cross-selling because I think this is, as highlighted by Nadir, is part of accelerating sales and cross-selling activities and initiatives related, and that is also one of our complementary or ancillary business that we always focus on, particularly when it comes to the corporate banking transactions.
On the right-hand side, just highlighting the fact or the recent 5-quarter trends of the fee and other income, which clearly stands out in terms of the performance. With respect to the OpEx or operating expenses, I think the same message continue to be in place that our continued investments, particularly in the digital capabilities as well as in our strategic initiatives and its related projects and programs, will continue to have some pressures in the cost sides. But I think we are in the right positions on monetizing these investments in the future to come, reflecting a higher revenue capture, and that will entail into a decelerating cost-to-income ratios in the future. Quarterly impairments, it shows an uptick or SAR 70 million increase over the last quarter, Q4 2023, but an increase of SAR 180 million compared to similar quarter last year.
As I mentioned, it's largely driven by expanded capacity and capabilities that we have been building over the past 5 quarters and so on. Cost of risk, you know, I briefly touched on that subject. I think, as you can see, that the NPL movement by sector has decelerated or decreased by 12%. And there is, the commercial is led by commercial loans, which comprises all the non-retail loans. And that has reflected also a part of the write-off that I mentioned. Impairment ratios continue to descend down while maintaining our coverage ratio above 140%. Impairment charges and recoveries, more or less as we would expect them. We continue to focus on expediting certain key corporate recoveries during 2024.
We are partially optimistic that there is a good level of estimated recovery that we are progressing towards, and we will continue to update the investor community on anything that is coming on that front on a quarterly basis. As I highlighted, cost of risk has descended by 8 basis points to reach 60-62 basis points for this quarter. Just to have another reflection on our key movements of the net income components, we see that the impairments has been less than a year ago for the aforementioned reason. But also, we are seeing a nice pickup in the fee and other income that have supported to register the 3% that we have recorded for the first quarter.
Return on equity has continued to be as per our expectations, while we continue to focus on having the return on assets above the 2%. It’s slightly decreased compared to the full-year levels, but currently this is as per our expectations for the quarter. On this slide, just to highlight the dynamics of capital demand and supply, I think it’s fair to say that the overall growth on the risk-weighted assets has continued to support the balance sheet expansion. While at the same time, our regulatory capital supply continues to grow, albeit at a slower rate, but keeping in mind also that we have continued to maintain our progressive sustainable dividend principles and also historic payments. Capital ratios continue to be of a very strong positions across all key ratios from Tier 1, or CET1, as well as the total CAR.
With all of that, I think overall, I think in terms of guidance and the progress in Q1, very strong loans against our guidance. And I think this is something that we continue to maintain, and there are no change to that guidance. In terms of net special commission margin, we continue to be cautious about it. I think we have seen Q1 overall stability on rates is positive, but we are also cautiously optimistic about it. But we have expanded the range of the revised guidance from 10-20 basis points instead of 15 as contractions on the back of Q1 factors, as well as to cater for any potential change in liquidity dynamics in the systems and any unforeseen pressures on the cost of fund for the next quarters.
Cost-to-income ratio is above our guidance, but we continue towards executing our plan. At this stage, we are comfortable to keep the guidance unchanged given the oversights on the overall cost pipelines that we are anticipating. Cost of risk is unchanged, although our Q1 is slightly below the low end of the guidance. But we are cautious that Q1 might not be the best quarter to represent the full year for 2024. However, I think so far we have been strengthening our asset quality that we started since the beginning of 2023, while at the same time revising and dynamically manage our problem exposures as well as the stock of our NPLs. Common Equity Tier 1 continues to be on target largely. I think that the first quarter here has been impacted by the one is definitely the dividend payments.
But more importantly, I think we have been focusing on accelerating sales as well as the front-loading the deals and enhancing the drawdowns at the beginning of the year so that the full year impact is more favorable to the balance sheet as well as to the P&L. ROE, we continue to remain operating above the guidance. With that, I will hand it back to Faisal for Q&A.
Thank you, gentlemen, for the presentation. We now move to the Q&A session. As a reminder, if you have a question, please use the raise hand button on your screen. We'll move to the first question. First question comes from Nida Iqbal. Please go ahead, Nida.
Hi. Thank you for the presentation. I have two questions, please. My first question is on margins.
So we saw in the first quarter asset yields down sequentially combined with an increase in the cost of funding. You mentioned the reasons for the decline in asset yields. Just wanted to get a sense, should we expect a continued compression in asset yields as we look forward? If you can talk about some of the spread compression that you're seeing, please. And then on the cost of funding side, your term deposit share actually declined sequentially. So do you think the term deposit share has peaked for Riyad Bank? And with rates remaining high, what do you expect for cost of funding from here? Do you expect it to increase or remain stable? And then the 3.4% NIM this quarter is on the lower end of the 10-20 basis points revised guidance.
So to achieve the upper end of that guidance, you would need margins to improve from the first quarter levels. If you can talk about the factors that could drive this, please. Maybe I'll stop there before I ask my question on loans.
Thanks, Nida. With respect to margins, first, I think the assets yield. I mentioned some factors. These factors, some of them like the interest suspending interest. I don't think this is something that we can assume that it's recurring in nature. While other factors like the competitive pricing is something that is market-driven, and we will continue to navigate through this.
I think it's very important to highlight here, I think, part of our management actions and overall process, actually, that we are running is the asset allocations that we continue to focus and want to increase our SMEs, although we have done a very good progress and growth in Q1. So this is an area where partially and potentially would have set this competitive nature and also to continue to drive growth, albeit at smaller scale, but it's gaining very strong traction on some of the retail products like the auto lease, credit cards, and selectively with mortgage and consumer finance. We have seen that these are the main mitigants that we have been assuming and early signs see or provide good level of optimism around it.
That's with respect to the assets yields and not also forgetting the incremental investments book that we are also undertaking. So these factors will continue to be there. But as I mentioned, the first factors that I mentioned, suspending interest, someone else, I think, won't be repeating. So that's why I think from that point we're continue to uphold on our margin as a target. However, I think the cost of fund; we have seen a very good level of liquidity coming down in Q1. We have seen a good growth in the system in both sides, on the asset sides as well as on the total deposit sides. I think we have done a good job, but this is not enough ever for us. We increased our NIBs in Q1 very nicely, and this will continue and remain as long as this high rates staying long theme is continuing.
So that's an area of a continuous focus. But I think the downside risks than the cost of funds, I don't think it's the policy rates as much as the liquidity pools and the level of LDRs in the systems, which in Q1 we have seen good improvement from the year-end position. But that will continue to be a downside risk that the bank will continue to navigate and manage and mitigate, of course. That's my response to the NIM.
Thank you. We'll now move on to the next question. Naresh Bilandani, please, go ahead. You hear me? Yes, we can hear you.
Okay. Thank you. Hi, Nadir. Abdullah Al-Oraini. It's Naresh Bilandani from JP Morgan. A few questions, please, from my side. The first one is, we've seen a very strong pace of fee income origination come through in the first quarter.
Would you please be able to guide if this pace can be maintained in the future quarters? My second question is on costs. I mean, if I take a look at the first quarter pace, clearly, I think the pace has been much faster than the guidance that you are levels that you are targeting on the cost income ratio for the rest of the year. Do you reckon that this pace offers you some risk to the fact that the target below 32% cost income ratio may not be achieved? So just keen to understand what strategic initiatives you are taking to put the OpEx in more control in the future quarters. My third question is coming back to your point on interest and suspense.
I'm taking a look at the movement in your asset quality, and actually, the levels of NPLs have not changed much. Now, we don't have a disclosure on stage three loans. So I'm just keen to understand if the level of NPLs has stayed a lot more in control over the quarter, what is causing a pressure on the asset yields from the perspective of interest and suspense? If you can please clarify that, that would be super helpful. Thank you very much.
Thanks, Naresh. With respect to the, I think the strength, the strong fee income, aside from being derived from the pipeline that we are trying to accelerate as well as to increase the level of drawdown, I think this is a reflection of really the growth in the corporate in particular, in large.
I think our expectations for the year remain same. I think we have seen a very good pickup on the capital market activities, including also fees collected from our asset management business. The level of trade finance is also reflecting very nicely in Q1. And the level of the committed levels of projects and executions, it hasn't changed from the Q1 where we recorded. So at this stage, I think it's fair to assume in we will definitely continue to grow and maintain wherever we can. But this is something that we continue to focus on, and we target to maximize this as much as possible. So the fee income is for us the best highest quality income because that is a capital friendly.
That is something that continues to replenish our growth capacity in a much faster way than other interest income. With respect to the cost, I think our cost, or the guidance that we had put, is emanating from our annual operating plan for the year. So we have a very good visibility on the level of cost that we are managing and increasing. I think that the pace of Q1 not necessarily is a good reflection of the velocity of the growth for the remainder parts of the year. But I think we target to achieve below 32% as a cost income ratio. And this also reflects the fact that, you know, we'll continue to derive revenue growth in line with our budget and plan. So that's with respect to the cost.
The interest and suspense, yes, we do have, as I mentioned, that there has been some components, not really very much significant, but there is some component that was related to suspending interest, and some of these are various exposures, huh? It was part of portfolio subportfolios reviews. And those exposures largely have been classified. There are very long time towards recoverability. And those were basically have been provided fully and have been downgraded to write-off stage. So that's has impacted slightly the assets yield because we need to reverse that one. Overall, I think it's fair to recap on these points.
In terms of NIMs, I think we are working very well, and we have all the focus and the mobilizations around the organizations to drive or accelerate our sales and cross-sell, and protect our margins and further, or selectively, add to higher yielding assets, as per our appetite. That's one. Second thing is that we know NIMs have gotten the highest value in terms of margin protections and enhancements. So we continue to focus on this particularly across some key segments like the private and affluent in focus. That also being coupled with the fact that there are certain maturities that we know that is going to impact our cost of funds, and that has, or I say, largely filtered through Q1, and there are remaining to carry on the second quarter and a very small amount in the third quarter.
We have seen that the loan-to-deposit ratios in the systems has come down. So there is a less pressures on sourcing expensive deposits. So I think all of these factors continue to play its dynamics. But I think we at this positions, we are on our target. We are determined to achieve this, and hopefully we exceed these metrics.
Got it. Got it. Just one very quick follow-up question. In the last point you mentioned, and with regards to replacement of funding, I assume this is the interest-free funding from SAMA, which you had disclosed in FY 2023 financials at SAR 11.2 billion. Just to understand this very surely, are you saying the entire interest-free funding from SAMA has been replaced with market-priced funding, or majority of this has been done, and there's still some left to be done in Q2 and Q3?
There, I would I would say 60%-70% is done in Q1. Got it. 30%-40% are remaining, not necessarily fully free or the deferred program, but also some other supports package that we received during or, I would say on the in the last periods of the old interest rate cycle.
Got it. Okay. Thank you very much. Appreciate your reply. Thanks.
You're welcome.
Thank you. Just as a reminder, if you can please restrict yourself to two questions, so we can let others have an opportunity to also ask questions. Our next question is from Mohammad Al-Rashid. Mohammad, please go ahead. Mohammad, can you hear us? I'm sorry, we can't hear you. We'll move on to the next question from Rahul Bajaj. Rahul, please go ahead.
This is Rahul Bajaj from Citi. Thanks for taking my questions. I have two, actually.
Quick one. The first one is on deposit growth. We've seen very strong deposit growth during the quarter, purely coming from CASA, almost like 7% sequential growth. Just wanted to understand, where is this CASA growth coming from? Is this the SAMA funding, which was earlier outside the deposit number but now moving into the deposit number you alluded to earlier? Or is this some other sort of funding? And to what extent is this interest-free, really? Because it's the demand deposit that has gone up by 7% sequentially. Is that really just free, or is there a cost attached to that? So that's my first question. My second question is kind of alluding to the previous comment, I think Abdullah made, was around mix changes impacting asset yields. Just wanted to understand, what were you alluding to?
So, mixed changes have been positive for Riyad Bank's asset yield because you're doing more SMEs, SME loans? Or, how I mean, how should I read that comment, the impact of mixed changes? Thank you. Those are my two questions.
Thanks, Rahul. First, I think, it might be a good opportunity to clarify that. We don't classify SAMA as KSA and has never been done that. And I wish if they would be eligible to be KSA. So, these are not SAMA deposits; the ones that I was referring to was part of the due to banks. And that was related to the deferred payment program that has been established now four years, I guess. So that's to clarify the question.
I think the deposits growth is coming as a total deposits that we have replaced due to banks with a customer deposit. So by nature, you would have an uptake in customer deposits. But at the same time, we have progress in our demand deposits as well. So it's both components. And the demand deposits is coming. I think the retail, including private, have done a very good job on Q1. And I think the momentum is expected to remain, inshallah. So this is with respect to the deposit growth. When I say the portfolio mix of growth is what I meant is the incremental one, which is basically Q1 vis-à-vis Q4 2023. So we have expanded also the incremental growth in the corporate was more towards the large corporate and the project finance.
So those, by virtue, they would have a more competitive spreads compared to other segments within the corporate banking. So this is where, when I meant the change on the mix within the corporate. But also at the same time, we have recorded a very nice ancillary business that had been reflected very nicely in the fee and other income. So I think this is how we capture the opportunities here, and we continue to do so and focus around. I hope I answered your question.
Thank you. Our next question is from Shabbir Malik. Please go ahead, Shabbir.
I touched upon this earlier, but I just wanted to see if there is a timeline for Riyad Capital's IPO and what is the plan if the IPO goes ahead to use the proceeds of the IPO? That's my first question.
The second question, I think you mentioned in your comments something about retail growth not being very strong because of high interest rates. I also maybe want if you could touch on the credit quality aspect of it. I don't think provisioning has increased on the retail side, but generally, what's your sense of retail credit quality? And yeah, so these two questions primarily. Thank you.
So, I would take. Thank you, Shabbir. This is Nadir Al-Koraya. Regarding your first question, when will it happen? That all depends on the progress of the assessment. Any material development in this regard will be announced in due course in accordance with the applicable regulations. So, we are targeting, obviously, 2024, but that all depend on the regulations and the approval process and the assessments, of course.
Thanks, Nadir.
For the second part, we haven't observed any significant or material irregularities of payments or installments that basically might trigger any concerns on the retail. In fact, I think one of the things that we are looking into internally as part of some operational efficiency when it comes to how we can drive efficiency in terms of the collections, in terms of some operational models, plus also how we can further accelerate and increase our recoverability rates. So doing the efficiency might have a very positive impact on that one. But in terms of formation of or a pileup or a strong level or indications that past dues are pressured or something, we haven't observed anything of that that makes us worry at this stage.
But because, as you would expect, and these are salary-backed, I think the level of DBRs, even with the select and the customers that we continue to operate with, has progressed very well from our side. Probably last year, I did mention that we have addressed certain exposures related to deceased cases. And these have no factor to be of any recurring in the future because we have addressed the root cause as well. I hope this answers your questions.
I guess that it does. Maybe one point regarding the Riyad Capital IPO. If it goes ahead, any specific plan for the proceeds from the IPO, or is it too early to discuss that?
Yeah, please go ahead. Yeah.
I think going back to my colleague Nadir on unlocking part of the value that we mentioned. I think the value that he were talking is how we can further support the strategic growth of Riyad Capital as well as the Riyad Bank. So, I think that's the overall value that, or how we are looking at it. So unlocking the value would definitely increase the level of capacity of supporting the strategic aspirations of the capital as a company and as the bank as a majority, if we decided to go that IPO. So, no, Nadir.
No, as a management, you know, our goal is maximizing the shareholder value. And one of the ways of increasing or maximizing the shareholder value is to unlock value of some of the subsidiaries.
As you know, Riyad Capital is the second largest asset manager in the country. As I mentioned in my introduction, leading local provider of custody services. So, by unlocking some of the value will be good also for the capital and to help us to increase assets also in the future.
Thank you.
Thank you. Our next question comes from Jon Peace. Please go ahead, Jon.
Hello. Can you hear me? Yes. Great. So my first question, please, is on the NIM. You talked in the fourth quarter about being relatively insensitive to interest rates, and that's what your annual report disclosure showed. Does that still stand? And, I mean, how can we think about the NIM going into 2025, if that was still the case? Do you still think you could sustain a level close to 3.4%?
Then my second question, please, is on the cost of risk. You'd mentioned, I think, earlier about potentially seeing some recoveries, later on this year. Does that give you some comfort that you might end up towards the lower end of your range, especially given the good start? Thank you.
Thanks, John. With respect to the NIM, I think, from a positioning perspective to rates, when I say rates here of the benchmark rates, haven't changed in any material way because that is a positioning. So it's continuing. I think what does impact the NIM or the cost of fund dynamics, I think the reasons that I mentioned are still valid towards 2024.
On 2025 onwards, I think there is a great deal of time that might have changed an impact whether there is rate review changes from a policy perspective, from the Fed and, subsequently, with SAMA as we are following the same policy rates. That's one. The second thing is the dynamics that have been mentioned already in the cost of funds, and the because I think 2025 would have to have you know, we will have be in a much better positions as we approach the year-end and we see what kind of monetary actions that is taking place, what is the forward curve looking like, and how is the liquidity pools continue to play in that time as well as in the expected or foreseeable future.
So, I would largely say I think the 2025 NIMs would be really addressed towards end of the year and particularly in the earnings call whereby we recap the whole 2023 and, complete our, annual operating plan for the year 2025.
Thank you. Our next question comes from Olga. Please go ahead, Olga.
I have several. One is, can I clarify, on your first quarter margin, could you maybe disclose the impact on margin from stopping accrual this interest on a part of loans? So how, how sizable this pressure was in basis points? And is this exactly why you see margins being flat or maybe up in the rest of the year according to your, full-year guidance? So this is the first question. The other question is, on liquidity, you had a very nice quarter. So did some other banks.
Can we maybe zoom out a little bit? What exactly has changed on a sector level in the first quarter? How sticky are these new funds? And maybe were there any deposits which you assume can be transitory? Thank you.
Well, Olga, I think for the first one, I already mentioned, you know, this is not a significant part. But I think more importantly is, our planned pipeline, particularly on the yield, a relatively higher yield, booking that we are anticipating. So, that will put us towards, the lower end of the guidance on the next couple of quarters. But I think with the, incremental focus on the yield enhancement and selectively also, and opportunistically building on our investments, pipeline, that will help us, to get into our target. So our target has not changed.
So, thus, I think the guidance is taking that one. In the second question, I think, broadly speaking, I think expanding the acquisitions of the NIBs or the demand for low-cost deposits is an ongoing basis. And I think the stickiness typically goes on a much wider timeframe in a much deeper pool and segments that we continue to evaluate. So this is an ongoing process. Is it hot money? If it was part of a cash management or some transitory accounts in the corporate, we would really say that. Otherwise, but it's coming from retail, really. And please.
Oh, also, Olga, I think the government initiatives of diversifying the economy are working. We're seeing tourism is soaring record highs in the country.
Also, oil prices and dividends from Aramco and the others also help the liquidity in the system.
Thank you.
Thank you. Our next question comes from Aybek. I think we've reached the end of our conference call now. I'd like to hand over the call to CEO Mr. Nadir Al-Koraya.
So, ladies and gentlemen, thank you for participating in today's earnings call. We are very pleased to have shared Riyad Bank's performance highlights, showing our growth and financial stability. Our refined strategy covers corporate, retail, and digital initiatives, positioning us as a leader in Vision 2030, green projects, and digital penetration. We are dedicated to becoming the best bank in Saudi Arabia with a focus on profitability, efficiencies, customer choice, and innovation, all guided by clear KPIs. So, again, thank you for joining us, and have a good one. Thank you.