Good afternoon and good morning, ladies and gentlemen. On behalf of Riyad Capital, it's my pleasure to welcome you all to Riyad Bank's Second Quarter 2024 Earnings Conference Call. I'd like to hand over the call to Mr. Rayan Nacherafi, Head of Investor Relations at Riyad Bank. So please go ahead, Rayan.
Thank you, Patrick. Good day, everyone, and thank you for joining the call. With us on the call today, our CEO, Nadir Al-Koraya, and our CFO, Abdullah Al-Oraini. As always, CEO will start with the performance highlight and then followed by strategy update. Then our CFO will cover the financial performance in more details. I would like to remind everyone that today's presentation is available in our IR website. Thank you again, again, for joining the call, and now I'll hand over to CEO to start the presentation.
Thank you, Rayan. Hello, and good afternoon, ladies and gentlemen. Thank you for joining us for the second quarter of 2024 earnings call. I'm happy to share our performance for the quarter and the first half of 2024, highlighting our achievements, as well as covering the strategy progress update, where our focus continues to be on the acceleration of our strategic initiatives throughout 2024 and 2025, with mainly on two main areas. First one is accelerating the growth on the asset side, coupled with increasing cross-sell activities within the bank, including Riyad Capital. Our second area of focus is elevating the execution of our high impact efficiency initiatives. This includes cost optimization as well as operational efficiencies.
As we highlighted before, 2025 will be our final year of for our current strategy, as we plan to kick off the activity on refreshing our strategy for the next five years, and we'll update the market once it's finalized. So now let's move to the performance highlight for the second quarter of 2024. At slide two, we are very happy here in Riyad Bank to share with you the strong growth delivered in the period, driven by both loans and investments. Our loan portfolio is up, as you can see, 6% year to date. This is mainly driven by growth in corporate and SME.
We have seen good credit demand in the market in these two areas, meaning the corporate and SME, with a healthy pipeline in the coming periods, which is driven mainly by strong economic activities in the country as a result of Vision 2030 initiatives and projects. On the retail side, however, we continue to see pressure on credit demand due to the high interest rate environment, especially in the consumer and mortgage lending, where we have seen a slowdown in the market overall. But we have been in Riyad Bank, selectively growing based on the demand and the pricing. We also continue our focus on private and affluent segment by improving our value proposition through our partnerships and enhancing our enhanced product offerings.
Additionally, the investment portfolio has recorded growth of 5% year to date, which is helping us in diversifying our revenue stream, as well as supporting our liquidity position. On the net income side, although margin dropped in the first half, which was mainly due to higher cost of funding, we were able to deliver a 10% year-on-year growth in the net income. As a result, we delivered a healthy 16.1% ROE for the first half, which is translate to 22 basis points higher than the same period last year. The growth came with a very healthy financial position.
Our NPL improved by almost 26 basis points year-on-year, standing at 1.18%, and our NPL coverage increased by 24% compared to the same period last year, standing at 145%. We also continue to maintain strong capital base with a healthy total capital adequacy ratio of 19.5%, and our LDR ratio at standing at a very healthy rate of 84.3. This give us an ample headroom to grow our asset portfolio. If you can go to slide four, please. Again, I think you've seen you've seen this before. Our...
As you know, the goal of Riyad Bank by 2025 is to be the best bank in the kingdom, which defined by four key pillars. The first pillar: We want to be the most profitable bank. Our focus on delivering a sustainable profit growth and return to our shareholders. Our ROE expanded from 14.5% for the full year 2022, which is our base year, to reach a level of 16.1% as on the first half of this year. In the second pillar, we want to be the most efficient bank, and at this pillar, we are focusing on cost efficiency, mainly operational efficiency.... We want to achieve the highest return in our spending, which will help us in improving our operational efficiency and time to market.
Our cost-to-income ratio, which is one of the metrics that we look at, has improved by 60 basis points in the first half of 2024 compared to full year 2022. 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 for our customer, enhancing our employee engagement, and implementing best ESG practices. Last pillar, we want to be the most innovative and digitally enabled bank. This is a very, very important pillar in our strategy. We are committed to innovation and digital banking. We believe it's actually a cornerstone for future growth and customer satisfaction.
We continue investing in innovation and digital solution to enhance our service offerings and to maintain our leadership position in the market. We are very proud to share that we have launched, during second quarter of this year, the Center of Intelligence. This is the first of its kind in Saudi banking sector, focusing on developing innovative solution for the bank, using the latest technologies in AI, machine learning, and advanced analytics. Also this year, we've launched 1957 Ventures Fund. It's a venture builder fund that plays an important role in our ambitious digital banking ecosystem. This fund is designed to foster innovation and drive both growth and competitive advantage for the bank. Slide five, please.
On slide five and six, in the next two slides, I, I will be highlighting some of the strategic initiatives that we are progressing well during the first half of 2024 and helping to drive the business growth and enhance our customer experience. Starting with scaling up the RM Workbench. It was successfully completed in early second quarter of 2024. It is a front-to-end digital solution for RMs dealing with the corporate clients. It has advanced analytic capabilities that support in maintaining a high quality portfolio. In addition to daily performance monitoring, our aim is to capture the most value from our corporate clients by driving cross-sell and return on capital across the portfolio. On the second strategic initiatives, we continue to expand hedging business to execute to accelerate cross-sell opportunities.
The bank now is positioned and well-positioned to increase the overall income from FX, and other fee income products by providing customer with holistic, risk management, offer and services. Third, we have set the objective to become the leading global transaction bank in the Kingdom in the country, focusing on product penetration across corporate clients. We have accomplished multiple achievements, such as upgrading trade finance system, deploying screw management system, enhancing our internal system for aggregate aggregator to improve offering of cash management products. And we also are improving the digitalization of end-to-end journey through the new release of a Global Transaction System. Slide six. On the fourth strategic initiatives, the new Mobile App was launched in the late second quarter of this year.
We have released the new application with a targeted go-to-market strategy. Basically, our aim is to achieve the global leaders level in digital sales by making all products and services accessible in the platform. Fifth, we are focusing on micro segment credit cards to increase our market penetration and enhance our product value proposition. So during the second quarter also of this year, we introduced a new multicurrency credit card. This is a travel prepaid card with which we target the silver, gold, and affluent segment and retail.
Lastly, we continue to invest in building on our existing bank-wide capabilities to scale up the Center of Intelligence in order to become the analytic and artificial intelligence leader in the region through data monetization and value realization by building on our strong foundation of rich data, modern system, and expert team. With that, I conclude the strategy part of the presentation.
...Thank you for your attention, and I will now pass the word to Abdullah, our CFO, to proceed with the detailed breakdown of our financial result and future outlook.
Thank you, Nadir, and good day, ladies and gentlemen. On slide eight, I think this gives a summary of our key metrics across the balance sheet, as well as the key profitabilities. So, in a nutshell, I think the strong registered growth in profitability was largely driven by improved non-funded income, as well as lower cost of risk that was registered for the period. And I think Nadir highlighted the key growth items across key balance sheet items.
Namely, the funding has expanded for the past six months by 5%, on the back of strong loan growth for the six months of 6%, that were largely funded by customer deposits, particular on, in the form of, non-interest bearing deposits. So the funding mix, when it comes to the, CASA or NIBs, to the total deposits, has improved by around 110 basis points. As well as, we have registered a good growth on the non-funded income, supported by largely the fees, capital market activities, as well as the, solutions, customer solutions, resulting from hedging and derivatives. Cost income ratios for the period has registered 31.8%.
Expenses, or the cost, excluding impairments, have gone a year-on-year basis by 7%. Cost of risk decelerated to a level of just below 60 basis point, while NPL ratios registered 1.18%, a very healthy level. Margins contracted on a year-on-year basis roughly by 30 basis point, while profitability has registered a decent growth on a rising trajectory compared to the previous quarters, to reach 16.1% for ROE. While continued the funding and liquidity metrics to be at the comfortable level, very strong capitalizations continue to be intact.
On the balance sheet expansion, as I mentioned, and also highlighted by Nadir, was largely driven by corporate growth as well as the investments. So as you can see from the year-on-year movements on the assets, you see that the growth on the balance sheet footing is largely the loans, followed by the investments. As you can see, I think we continue to progress towards both our corporate and SME focus, throughout the period, while mortgages have registered a marginal growth over the period, similar levels to the last quarter. Sector loans largely they are the same, so there is no major change. Our NIBs, our SMEs market share continue to be at the same level.
As I mentioned, I think the growth was largely funded by the NIBs, the non-interest bearing deposits, while the liquidity positions remains very comfortable. As you can see here, we have also factored in our NIBs ratio as a total of the deposits. We have been focusing on this since at the beginning of the year, and we continue to believe that, you know, there is a room for improvement. I think the expectations is to continue to trend this up on the coming periods. NSFR and LCR remains very comfortable, while the regulatory LDR remains well below the regulatory limit. Our net special commission income witnessed a marginal decrease driven by higher cost of funding.
I think particularly here, it's worth reiterating that the cost of funding pressure has continued throughout the, the year, but also was largely driven by replacing some unrelated COVID program deposits that took place in Q1, and I think that was the major pressure that we have witnessed on a year-to-date basis. Well, fee and other income increased from a strong growth from fees from banking services as well as the capital market activities. I think from a level of already strong of similar period last year, I think we continue to focus on the non-funded income as a primary objective to continue to grow our revenue lines in the light of...
higher cost of funding environment, while if you can see in the upper right-hand side, the quarterly fee and other income has continued to register a strong growth compared to already elevated levels. From the fee and other banking the other income compositions, the banking services continue to dominate that component of mix. The cost efficiency improved sequentially, despite our ongoing investments on digital infrastructure as well as our strategic initiatives. I think the staff costs continue to be the major component at 55% of the cost base, while we continue to derive our efficiencies across other cost components, including G&As, depreciation, as well as the rental components.
If you see the quarterly trends, I think there has been more stabilizations on the cost base, particularly, it compares very well, across all the past five quarters. So at 1,225 levels, and we continue to focus on further optimize, which gives us significant capacity to continue to invest at a higher rate on our propositions. Cost of risk improved on the back of proactive risk management, higher recoveries, and sustained asset quality. I think in Q2, we have a very decent level of recoveries that took place, and I think this is an area of focus of the special assets units within the risk management to continue to work on accelerated recoveries.
There is a very strong plan has been put in place for the remaining part of the year, as well as 2025. So, cost of risk registering 58 basis point for the quarter, with an increased coverage ratio for all stages of the loan portfolio, with an overall NPL coverage ratio reaching 145.2%. Together, all of these factors have supported the growth and profitability and registering a 10% growth year-on-year. Total operating income has grown on a year-on-year basis by 1%, and with a continued focus on the strategic initiatives, as well as the key priorities that my colleague, Nadir, has mentioned on accelerating assets growth and cross-sell.
We continue to plan for continuous and sustained growth from the revenue streams. Return on average assets have witnessed a decent growth from last quarter, as well as from the similar period last year to reach 2.23%. Capitalizations and funding and liquidity, as I mentioned, I think the quarterly trend continue to be as per our expectations. You can see here the risk-weighted assets has increased at a faster rate than the capitalizations due to the fact that we have recorded a strong growth and of off-balance sheet activities resulting from our trade finance business and in in the form of the LCs and LGs.
So we had increased our market shares and gained back our first positions in the market. So that translates into a higher Risk-Weighted Assets intensity compared to both the balance sheet footing as well as to the capitalizations in terms of velocity. On the back of the quarter performance, as well as the growth registered and with the continuous optimistic view on the local economy, supported by the non-oil GDP growth outlook, we have revised up or to stay more on the high end of our initial guidance. So we do anticipate to have a low double-digit growth in terms of the loan portfolio.
We would be happy to replicate similar trend of the past six months, and our pipeline is healthy, so we are expecting now a low double digit when it comes to the loan growth. Net special commission income margin, we continue to hold on our guidance with a view of a focused approach on normalizations of cost of fund on the second half. Cost to income ratios, we believe that our initial guidance on 30, below 32% is still intact, and we are working towards our targets.
When it comes to the cost of credit risk, we revised down our guidance on the back of a strong recovery that we have witnessed and then ongoing efforts on to further optimize our collections. Our Common Equity Tier 1, we revised down our equity Common Equity Tier 1 ratio from above 15 to be in the range of 14%-15%, which is a reflection of continued focus on driving assets growth, as highlighted by Nadir, as well as reflecting in our growth that we registered in the first six months, as well as reflecting also on a decent growth on our dividend payout and quantum as well for the first half of the year.
With that, I think also the return on average equity continue to be relevant, to be above 15%, while we registered at the first half of 16.1%. So I think these the revision of the loan growth as well as the cost of risk along with the Common Equity Tier 1 ratio is a clear reflections of our progress year to date, as well as our pipelines and our expected growth towards the end of the year. With that, I will hand it back to Faisal for Q&A, and we're very much happy to respond and answer your questions.
Thank you very much, gentlemen, for your presentation. We'd now like to move to the Q&A session. If you have a question, please use the Raise Hand button on your screen. Our first question comes from Naresh Bilandani. Naresh, please go ahead.
Thanks for your presentation. It's Naresh Bilandani from JP Morgan. Just three questions, please. One is, could you please offer some insight into the strong reversal that you've seen in the other financial assets in this quarter? Is this the underlying reason that is helping you reduce your cost of risk guidance for the year? And also, on the same topic, more recently, there were some positive developments that were reported in the media with regards to the Saudi Binladin Group, which, as you can appreciate, has been a legacy exposure across the industry. Just keen to understand how broadly does this affect, or form, the improved cost of risk outlook that you have reported in the second quarter? So that's one.
The second is, could you please explain the reason for the decline in the depreciation charge in the Q2, and how we should think of the sustainability of the same, in the future quarters? And my, my third and final question is, will you please be able to clarify how many rate cuts are you baking into your interest rate outlook, compared to your previous expectations? And, if you could just offer some sort of, like, insight into the trajectory for the NIM going into 2025, if it would be—if the quantum of decline would be similar or worse or better, even if you can offer that broad indication, that would be super helpful. Thank you very much.
Thank you, Naresh. Pretty much this is a comprehensive set of questions, so-
I'm sorry, I'm happy to repeat them if you couldn't hear me.
No, no, no. It's, it's okay. It's okay. With respect to the first question, yes, I think it is related to certain guarantees that were revised in light of certain positive development. So that was a reversal that the bank has taken from prior periods as a matter of prudence back then. So that is explaining why we have this as a reversal. That's one. Yes, it links to our revisions, for sure, when we revised our cost of risk for the outlook for the year. That's with respect to the first question.
The second question, while we don't comment on specific customers, I think, our guidance is staying. The revision of the guidance was more reflections of the recoveries that has been already under the bank's focus. It is reasonable not to estimate the newest impact on our revision to the guidance when it comes to the cost of risk. The third one, I think, we constantly have communicated to the market and investor community that when we built our annual operating plan for 2024, we have considered two rate cuts, one in September and one in December. That has not changed, because I think this has kept changing over time.
However, I think any rate cuts that comes towards the remaining part of the year will be more favorable to the 2024. And, the impact, estimated impact of every single rate cut of 25 basis points on a full year basis, based on financials, is around 1.5-1.7 basis points. Everything else is constant.
Understood.
I hope I did answer all your questions.
Yes, very kind of you. Thank you so much. Sorry, there was one other question on the depreciation charge, which has come up.
The depreciation?
Sorry, I was taking notes.
Yes, I think we had worked over the past several months on reviewing our fixed assets registers, and it took really a long time. It is a long exercise. We had planned this since late last year. Particularly, we have been continually investing on our strategic initiatives, whether this is in the technology, digital, as well as also our branch network, renovations and optimizations, etc. As well as our Riyad Bank Tower that we have we are finalizing, and we are expecting to fully move by this on the second quarter next year.
So as a reflection of that study, so the right of use or the economic value of the asset has been revised and benchmarked against accounting standards as well as the banking industry. Well, and it has resulted on further expanding the useful life, the usefulness of the economic life of these assets, particularly like the building and the renovations, software licenses, information technology hardwares, licenses. So that has been expanded. Some of them is marginally reviewed, some of them stayed the same, and some of them have expanded the usefulness life. So for example, building purchases have gone from, just to give you a flavor, from 33 years into 40 years.
Some renovations or, specifically on the branching, renovations with the new identity, the that we have been rolling out, again from five to eight years, some of them from five to 10 years. So I think all of that have been encapsulated. So I think run rate is what you see here is a few reflections of the six months on a year-to-date basis. And you would expect, you know, this is to stabilize at the same rates. I hope I did answer your question.
Yes, thank you very much. Thanks for your insights. That's very helpful.
You are welcome.
Thank you very much. Just before we move on to the next question, could I please ask everyone to limit themselves to two questions, please? Please state your name and name of the company before you ask the question. Thank you. Our next question comes from Shabbir Malik. Shabbir, please go ahead.
We can't hear.
We can't hear you, Shabbir. We'll move on to the next question. Our next question comes from Aybek Islamov. Aybek, please go ahead.
To the next.
Our next question comes from Mohammed Al-Rashid. Mohammed, please go ahead.
Hello?
Mohammed? Yes.
Yeah. Thank you, gentlemen, for the call. Two questions from my side. The first one is regarding project finance. So what's your current exposure to project finance?
Second question?
Okay, and, my second question is regarding your required stable funding. So it has dropped by around SAR 3 billion on a quarter-over-quarter basis, despite the growth in your loan book and investment book. So if you can help me understand what drove the decline on the required stable funding on a sequential basis.
First, I think, the project finance is part of our wholesale corporate business. I think it represents a major part in the overall corporate exposure that we have. And it spreads across different industries, ranging from oil and gas, renewables, infrastructure, et cetera. So I think, as a portfolio of the wholesale, it represents more than 60% of the corporate, but that does not necessarily to be a project finance specifics. That's with respect to the first question.
In the second question, these are because we have entered in the second quarter, the full impact of the callable or our Tier 2 Sukuk that is expected to be called in February next year, is fully reflecting on the first half of this year when it comes to the NSFR. So that has an implications. Also, maturity updates of our funding mix, sorry, our funding maturity profile of our deposits as well as other funding items, has also a reflections on that. While we continue to grow our asset side when it comes to longer duration assets.
So all of that has impacted the Net Stable Funding Ratio, but still it is well above our internal risk limits.
Just to add to what Abdullah mentioned, we will be replacing the matured Tier 2 this year.
Okay, clear. Just a follow-up on the first point regarding project finance. In your June pillar three disclosure, the specialized lending on balance sheet amount is around SAR 18.3 billion. So can we call this as your project finance or that is directed to SPV, and the rest is classified as general corporate?
... I think specialized, that the project finance is a subset of specialized, but it's not a complete set.
Okay. Okay, clear. Thank you.
Can we go on to Aybek Islamov again? Aybek, can you please try again to ask your question?
Hello, can you hear me now?
Yes, we can hear you very well. Go ahead.
Thank you. Yeah, this is Aybek Islamov from HSBC. So a couple questions from me. The first one is, your margin guidance obviously implies that you're going to improve your margin in the second half. I'm just curious, are you mostly leaning on the funding costs going lower compared to the first half when you're presenting this guidance? That's my first question. And secondly, with regards to your capital structure, any intentions to issue Additional Tier 1 notes? I can see some competitors have been quite active. You know, and or in view of the asset growth expectations, you know, that you have in mind, are you comfortable with your current Additional Tier 1, or you think you need to raise more? Yeah. Thank you.
Thanks, Aybek. With respect to the first one, definitely I think cost of funds optimization is an ongoing exercise that the bank has been, you know, focusing on, and this is continuing to be the case. Definitely, any Fed cut rates will result in a faster response to cost of funds compared to the assets yield. As well as we continue to grow our SMEs focus, we continue to increase our any assets yield in the corporate as much as possible, to largely offset the rising competition's impact on the assets yield, particularly on high quality assets. So to answer your question, cost of funds as well as an ongoing attempt and focus on enhancing the assets yield.
That's with respect to the first question. The second thing, our capitalization is still very comfortable. I think our capacity to enhance our capital structure has significant rooms to improve. We are communicating to the investor community that we will continue to enhance our capital structure as we continue our growth journey. We anticipate to continue to increase our Additional Tier 1 capital towards the total capital components. To answer your question, yes, we are comfortable, but I think this is an ongoing exercise. It is also, it's part of our funding and capital plan for 2024, 2025, and 2026, to continue to have this as part of our an ongoing or rolling operating plans for the next three years.
Mm. Thank you.
You're welcome.
Thank you very much. Our next question comes from Mr. Tasir. Please go ahead, and please state your name and company, please. We can't hear you. I'm sorry. We'll move on to our next question. Yazeed Al-Jammaz, please go ahead, Yazeed.
Quick questions. One is, how sensitive, going forward, is the risk special commission income to a 1% cut in rates, given the mix, Riyad Bank has, which is a unique mix between retail and corporate, on its, on its assets, side of the balance sheet? And the second question is regarding the deposit base. The growth rate is way below the industry so far this year. So, what plan there going forward for, for this to be... Because the difference between the, the loans growth and the deposit growth is widening over time, looking at the past few quarters. Thank you.
I'll answer the first question, and I'll make an attempt to address your second point, because I think our deposits growth has been at healthy levels and in tandem with our loan growth. But I'll try to address it from different perspective. The first question is what we mentioned is our... Based on June, every rate cut of 25 basis points, the impact on them is a reduction of 1.5-1.7 basis points. So multiplication by four, that would result in one or basically 6 basis points to 7.5 basis points. That's with respect to the first question.
The second question, I think we have been managing our growth and cost of fund very well. And as this is being translated through different asset liability management practices that we have adopted several years ago. And this is also reflecting on our maturity management of our liabilities and assets as well. So the mismatch is part of it, and this is very well reflected in our regulatory loan-to-deposit ratio. But for this year, our asset growth, loan growth, and deposits growth overall has been as per our balance sheet needs. So the system actually has moderated in terms of liquidity if you compare it the first six months to the last part of or the last quarter of last year.
So this is expected to be an ongoing challenge, given that the strong growth prospects on the local Saudi economy. I hope I answered your second question.
If I, if I can also, I would like to add to your point. In the system, the deposit grew, 7.9%. Our deposit grew by 8.3%. So, I, we really I could not understand, where, where you come up with this, analysis.
Thank you, gentlemen. We'll move on to the next question. John, please, please go ahead, John.
Hi, can you hear me okay?
Yes, we can hear you.
Great. So thank you for the question. My first question is on loan growth. You've obviously seen very good corporate loan growth so far this year, but retail has been fairly stagnant. So I just wondered if you could give us your thoughts on retail growth in the second half of this year and into 2025 as interest rates start to come down. And then my second question is on Riyad Capital. Apologies if I missed the comment, but could you just give us an update on your plans for potential IPO?
If I think about the profitability of that business, when I look at your segmental disclosure, can I assume that the equity of the business is simply the assets minus the liabilities in the table you give us in the financial statements, i.e., about SAR 7 billion? Thank you.
Thanks, John. I'll take the first question first, and with respect to... Yes, I think we have consistently said that since actually the last two years, that the medium-term growth is going to be driven by corporate, and I think this is translations of the underlying economic activities that is taking place, and that's what we have been witnessing and continue to be our expectations in the foreseeable future. Retail growth in the past was driven by mortgages. Mortgages definitely has been impacted by high rates environments, so and started to decelerate in late 2022 and significantly in 2023 and 2024 as well.
So the high rates environment, coupled with high demand and availability of ready-made units, as well as the real estate prices pick up, since over the past three years, since the past three years. I think all of that has resulted in a muted retail growth. I think particularly we're focused on driving other products like cards businesses, with where we have witnessed a very strong growth over the past periods. Auto lease has been also a successful period in terms of growth area. Definitely, 2025, particularly when rates started to normalize with rate cuts expectations, as well as on the lending environments in the retail and more going into further employments and the unemployment rates decelerating.
Quality jobs are being expanded. I think we could see in 2025, 2026, a pick-up on the retail business, which we typically would shed more lights on it when we prepare our annual operating plan for next year.
Just to add, on retail, we have launched our new mobile application, with as I mentioned earlier, targeted go-to-market strategy. And this app will help us in attracting new customers and improve the customer experience and increase our digital sales activities. Also, on the mortgage side, we have also launched a pilot phase our home buying ecosystem as well to improve our turnaround time to help the increase of our sales activities. So that's from the retail side.
On the second questions, with respect to Riyad Capital, I think what you see on the financials, yes, the equity is typically as you described, is the reported assets minus liability. But also, I would like to remind you that also Riyad Capital publishes semi-annual as well as the annual financial statement, which is available on their website as well. So I think that is pretty much similar. I hope I answered your question.
... Thank you.
You're welcome.
Thank you. We'll try with Shabbir again. Can you go ahead, Shabbir? I'm sorry, we can't hear you still. We'll move on to Mohammed Arsalan. Please go ahead, Mohammed Arsalan Siddiqui.
SAR 2 billion quarter-on-quarter. Yeah. So is that-
Sorry, sorry, we got you the first few seconds of your question.
Okay. I'm just repeating. So in the balance sheet and liabilities, the due to banks is reduced by around SAR 4 million. So is that solely related to the summer maturity of summer interest-free deposits? And how the banks actually targeted to replenish those interest-free deposits? Because as we see in first half, the demand deposits have actually outpaced the interest-bearing deposits. So is it because of those targeted strategy to, you know, to replace with the interest-free deposit? And how do you see, second half, deposit performance? Like, will you continue focusing on demand deposit expansion or, whatever your strategy is, can you please shed some light on it? Thank you.
Again, I think, as I mentioned in the last earnings call, I think the majority of the COVID-related summer free deposits has been replaced in Q1. There was some maturity happens in Q2 as well, which we accounted for, as well as there is an ongoing maintenance of the interbank activities, including part of it is some repo related. So, that, that has basically took place in Q2. I think this has already been part of our balance sheet management and funding management. So I think this is a going concern when it comes to how we are going to fund and manage our balance sheet.
Do you still see second half demand deposit growth healthy as happened in first half?
I think what we are focusing on, as highlighted previously, that we are making progress in our affluent and high net worth propositions. So I think this is something that is set to continue. So and we hope that we continue to drive growth in that funding part. I think for the first six months, we're happy with the progress that we have made, and we continue to elevate the focus on these on the remaining part of the year.
All right. Thank you.
You're welcome.
Thank you. We'll try again. Tasir, please go ahead. Can you hear us?
Yes. Can you hear me now?
Yes, we can hear you. Please go ahead.
Perfect. Thank you so much for the presentation. I just have a follow-up question on cost of risk and loan growth. We discussed in that context. So I would just want to know how comfortable are you with your current coverage level and specifically stage three coverage? And if there's any positive development, would you use this opportunity to boost up your coverage or should we expect lower cost of risk? Second thing on the loan growth, we also discussed the retail loan growth ex mortgage is lower, retail book. What level of rate cuts do you see will trigger a healthy growth in that segment? Same thing on the corporate side. We have been hearing some scale back in Giga Projects.
Does this change your view as you discussed previously, or how comfortable would you be of, with your previous guidance? Thank you.
Thank you, Tasir. I think on the first question, again, we don't talk specifically about any customers, and we will continue to comply with that. But what I can tell you that we are comfortable with all our customers at stage one, stage two, stage three, the level of provisioning and the level of coverage and the level of staging. So I can confirm comfortably to you that we're comfortable with the level and the adequacy level of our provisioning. On the second point, when it comes to the what kind of rates that we see, mortgages, more healthy growth on a sustainable basis, I think it's very hard to establish this at this stage.
But what we have observed over cycles that a normalized level of rates of 3% area is works very well for the whole economy. So, and, as such, I think mortgage is part of the ecosystem of the non-oil related economy, and we think that it could extrapolate to the mortgage business not only from the lending perspective, but also from the ecosystem of the mortgage. With the last questions on the government review of reprivatization, I'll leave this to my colleague, Nadir, to-
... We, Riyad Bank, we don't see a risk of credit demand impacted by government reprioritization and assessing some of its plan. We see this as a normal exercise to allocate resources and liquidity in the best way in achieving the main objective. But some of these projects, they have hard lines, for example, Expo 2030 and the World Cup 2034. We believe that project and activities related to such initiative will progress as planned, and others with more flexible deadlines. I also forget, I think, some of the projects are the Riyadh airports that will also be... I think will have hard dates, hard line.
Keep in mind, there are good numbers of projects and initiatives that are progressing as planned, and we've been participating in some of these projects. I think this is the last question?
Yes. This brings us to the end of our earnings call. I'll hand over the call to Rayan and Mr. Nadir for any final comments.
Okay. So, this will conclude our remarks. Ladies and gentlemen, thank you for your participation in today's earnings call. We are pleased to have shared Riyad Bank's performance highlights for the first half of 2024, showing our growth and financial stability. Our refined strategy covers corporate, retail, and digital initiatives, positioning us as a leader in Vision 2030 Giga Projects and digital penetration. We are dedicated to becoming the best bank in Saudi Arabia, with a focus on profitability, efficiency, customer choice, and innovation, all guided by clear KPI. Thank you for joining us today, and have a great day.