Hello, good afternoon, and good morning, everyone. My name is Muhammad Faisal Potrick, and on behalf of Riyad Capital, it's my pleasure to welcome all of you to Riyad Bank's fourth quarter 2024 earnings call. I would like to hand over the call to Mr. Rayan AlShuaibi, Head of IR and Market Intelligence, to begin.
Thank you, Faisal. Good day, everyone, and thank you for joining our Fourth Quarter earnings call. With us on the call today are our CEO, Nadir Al-Koraya, our CFO, Abdullah Al-Oraini, and our Chief Wholesale Officer, Majed Al-Ghamdi. As always, our CEO will start with a performance highlight and strategy update, followed by Majed with some updates on the Wholesale Banking. Then CFO will cover the financial performance in more details. I would like to remind everyone that today's presentation is available on our IR website. With that, I'll hand over to our CEO to start the presentation.
Thank you, Rayan. Good afternoon, ladies and gentlemen. Thank you for joining us for the fourth quarter of 2024 earnings call. I'm happy to share our strong performance for the full year of 2024, highlighting our achievements as well as covering the strategy progress update. As we are entering the last year of our 2025 strategy, our focus continues to be on the acceleration and completion of our strategic initiatives in two main areas. First, accelerating the growth on the asset side, coupled with increasing cross-sell activities within the bank, including Riyad Capital. Second, elevating the execution of our high-impact efficiency or impact efficiency initiatives. This includes cost optimization as well as operational efficiencies. We are very proud of the results delivered in 2024.
It was yet another historical performance year driven by our strategic focus, as we have seen good performance in all metrics, which we will be covering in further detail in the following slides. As you can see in this slide, the strong performance delivered during this year was driven mainly from Corporate and SME. We grew at 17%. We grew the Corporate by 25% and SME by 23%, respectively. This growth was driven by our strong presence and capability in these two segments and supported by healthy demand and improved economic activities. On the net income side, although the margins are lower during the year, reaching 3.4% due to higher cost of funding, however, we delivered a 16% year-on-year growth in the net income, supported by our focus on accelerating asset growth, coupled with increasing our cross-sell activities, as mentioned.
The growth in profitability resulted in ROE expansion reaching 16.6%. That's 100% higher than last year. This growth came with a very healthy and resilient financial position. Our NPL improved by 26 basis points year-on-year, standing at 0.98%, and our NPL coverage increasing by 25% compared to the same period last year, standing at 167%. Last year, if you remember, it was at around 140 level. We also continue to maintain a strong capital base with a healthy total capital adequacy ratio of 18.9% and a comfortable liquidity position with SAMA weighted LDR at 84.3, well ahead of regulatory limits, giving us ample room to grow our loan portfolio. We also made good progress on our refreshed strategy across Corporate, Retail, and Digital. We will continue to execute on strategic initiatives in line with our strategic pillars that I will cover in the next slide.
Our focus on delivering sustainable growth. We did just that. Our net income reaching, as mentioned, SAR 9.3 billion. That's 16% higher, and ROE expansion of 100 basis points, reaching 16.6%. On the efficiency part, we are focusing on cost efficiency and operational efficiencies. This resulted in our cost-to-income ratio to reach 30.6%, around 70 basis points improvement year-on-year. On the Bank of Choice and digital, we will cover it in the next page, please. Starting on the sustainability, we have completed the development of a comprehensive and ambitious sustainability strategy, and we just published in the fourth quarter a landmark sustainability white paper, setting a new standard for sustainability in the region. On the second initiative, we continue to implement a comprehensive initiative aiming to strengthen Riyad Bank brand, which is now up 23%, and in terms of value, it reached $2.5 billion.
On the third initiative, which is our new app, we are happy to share that we successfully completed the full migration of customer to the new app by year-end. Our work with the new app is continuous, with ongoing enhancement to introduce additional products and features that are both highly appealing and aligned with our customer needs. As we have been highlighting in the last few quarters, we have been since early 2024, one of the main focus areas is to accelerate the growth on the asset side, including cross-sell activities. We have done in 2024 a new organizational structure, introducing Wholesale Banking, covering Corporate and Treasury, and appointed my colleague, Majed Al-Ghamdi, as the Chief Wholesale Officer. Majed, he joined us from a rich banking experience from a leading local bank.
I will now hand over to Majed to highlight some of the strategic progress on the Wholesale Banking. Please, Majed.
Thank you, Nadir. It's a pleasure to be with you here today. Before we get to the details of the Wholesale Banking structure, I'm really pleased to highlight the early results that we have witnessed in the year from the introduction of the Wholesale Banking model. As Nadir highlighted, we have contributed substantially to Riyad Bank growth. Corporate banking growth was about 25%, out of which the fourth quarter presented the strongest growth in the year, 7.3%. Also, when it comes to the fee and other income contribution driven by our deep focus on cross-sell, the increase and the growth was about 27%, and the fourth quarter was the strongest quarter in the year. There are three strategic priorities we are focused on in the wholesale bank. Namely, we are focusing on accelerating growth and increasing cross-sell.
SME continues to be a strategic business for us in Riyad Bank, and we're doubling down on our SME strategy. Global Transaction Banking is a critical dimension for us, and we're going for a product leadership play. Before I get to these strategic vectors, it's really important to highlight that the key synergies that we are finding between Corporate and Treasury, we have a strong team in Corporate and a strong team in Treasury, and with the harmony and collaboration of both, we are really seeing amazing results in the early stages of the adoption of this model. The philosophy we're adopting here is offering the best of the bank approach to our strategic clients to ensure that we advance the client's agenda and find the best areas of opportunities when it comes to the bank's services and capabilities.
Speaking about the growth, we continue to benefit from a strong and deep relationship with our key clients in Riyad Bank. We have a strong delivery model backed by best-in-class relationship managers and credit experts, and we continue to take full advantage of that. Cross-sell is really a big area of focus for us, and we have seen really amazing results by the collaboration and the joint coverage from both Treasury and Corporate, and we have a very strong pipeline for the year 2025. SME is a big area of focus. Riyad Bank has invested over the years in deep capabilities and a strong network, evident, I think, by having the best centers and the best coverage model in Saudi Arabia, and we're also investing in a digital platform.
We're happy to report to you in this call that we have obtained regulatory approval for an SME system, which will act as a one-stop shop to serve and provide all the lending and non-lending capabilities for our SME clients. This will really allow us to deepen our expertise and deepen our coverage to our clients, where we don't rely only on our strong coverage. We also provide stronger capabilities offering the digital solution. One of the exciting things for us is really, really focusing on the Global Transaction Banking. We have a deep aspiration to be the leading bank in Global Transaction Banking. We are focused on two broad categories here. It's a play to really integrate with our clients and really gather cheap and interest-free deposits and also maximize and increase our fee contributions.
We enjoy a house bank status with many of our clients, and in this plan, we aim to further accelerate our leadership and increase our house bank status for many of our credit and overall relationships. A few areas I would like to shed light on: some of the initiatives we have launched in the year. We have launched some upgrades in our trade finance proposition. We issued and launched an upgrade in our escrow management capabilities for the off-plan developers. We have overhauled and launched a new online platform serving our Riyad Bank clients in the Corporate side, and also, we are really launching an exciting development on the supply chain finance, where phase one is already in pilot stage, and we have a few exciting phases on the horizon. In conclusion, we are really pleased by the strong early results of the wholesale model.
The momentum is strong, and we're even excited about the results in the year 2025 and beyond. And with this, I will hand over to our CFO, my colleague Abdullah Al-Oraini.
Thank you, Majed. Good day, everyone. Thank you, Nadir. I think it's a nice landing to these slides, which summarizes what my colleague Nadir and Majed have mentioned. I think the key message here, the strong growth has been supported by really the strong core operating income growth, as well as continuing driving efficiencies. I think this is a natural flow of our focus on the established 2024 strategic priorities with the leadership of Nadir on accelerating growth and cross-sell, as well as driving efficiencies, as well as increasing productivity across our organizations. Having said that, I think the funding has been expanded at a very strong rate of growth of 16%, largely driven by loans and advances, which recorded 17%, as well as also there has been an incremental investment growth, which has also supported both the NII as well as the balance sheet expansion.
I think that despite the fact that the funding mix or the CASA mix more or less has been stable compared to 2023, I think the significant growth of the NIIs that we have recorded during the course of 2024 has been a phenomenon, and that also has been matched by additional growth on the time deposits, which were largely funding our core business operations. And this is a reflection of our commitment on solidifying our leadership positions as a wholesale bank, while at the same time continue to drive efficiencies across the business model, target operating model. So net income has been expanded on the same rate of the funding expansions.
ROE, as my colleague Nadir mentions, expanded by 100 basis points plus, while at the same time we have recorded a net interest margin towards 3.4%, which we are going to comment around, but this falls on the low end of our guidance, which was 3.41%. Cost efficiencies continue to be an area of focus while we are driving digitizations as well as increasing productivity of our expense management. Expenses before impairment have grown by 6% compared to the total operating income growth. We're talking about more than 270 basis points positive jaws has been recorded for the year. Strong capital and liquidity and funding ratios have been maintained.
I think it's worth mentioning that while we continue to improve our assets quality, as well as through the strengthening of our coverage, as well as creating more buffers for the future, where possible, we have recorded also a coverage ratio of 167%, despite the fact that our cost of risk has normalized around 53%, 53 basis points. This is just to give you a view of the assets movements as well as the composition of our loans portfolio. We have been always highlighting that we have kind of a unique loan mix, while the SMEs have been contributing around 16%, albeit this year in 2024 has dented a little bit below, not because of not growing the segments, but also for the excessive growth that we have recorded, particularly in the Corporate franchise as well as the Project Finance area.
I think the key message also goes to the fact that we continue to make sure that we are the leader in SMEs. I think my colleague Majed has highlighted some key initiatives as well as key updates on both the coverage model as well as the service delivery model, but more recently on the digital capability that has been built over the past period that hopefully we are going to enhance our offering to our customers through it. I think it's worth highlighting here that we have guided the industry for the loans to be in the low double digit. What we have recorded is a very strong 16.7% growth, and I think this has been elevated and sets us in the sweet spot to continue to capture the growth opportunity and build on the established momentum during the course of the year 2024 for 2025.
The funding mix, I think, continues to be tilted towards deposits. That's a key area of focus, but at the same time, the bank has consistently and continuously continued to expand its funding options and tools, including also introduction of certificates of deposit as well as tapping debt and capital markets, which are part of our balance sheet management framework for quite a number of years now. Net special commission income expanded by 4%. I think it's worth highlighting that if we, on an adjusted basis, if we remove the impact of the COVID-19 deposits that were given to the bank during the COVID era, this would have been in the area of low double-digit growth compared to the 4%. I think the key message around here is that we continue to drive assets.
We continue to focus on optimizing our cost of funding, while at the same time continue to expand our funding sources tapping as well as options. This is just to give you a view on the balance sheet sensitivity to rate cuts. So on a static basis, every 25 basis points, that translates to SAR 25 million and NII reductions or one basis point to the margin. Other income, I think, is really the story of the year. It's really the most important component that has been extremely successful. It's a reflection of our organizational focus on our leadership drive, as well as on the reflections and pave the ways for 2025, particularly in the area of Wholesale Banking, which drives a significant component of that. 27% has been one of the strongest on record growth rate.
I think that translates to more than 15% market share as a whole to the industry, and I think this is something that we are extremely proud of. Efficiency continues to play a major role. It's part of our strategic pillar. It's part of everything that we do. I think driving efficiencies across the board is a key area of focus. We continue to invest in our people, on the talent, as well as on the infrastructure and digital capabilities, but at the same time, we are increasing our revenue productivity per se, and it's worth mentioning that we have recorded 30.6% cost-to-income ratio, which is better than our guidance that we have included last year. Proactive risk management continues to play a major part.
Given that we are a leading wholesale bank, I think it's imperative for us to continue to focus on risk mitigants as well as risk management as a philosophy and culture, and I think, as we have highlighted a year ago, we have embarked on strengthening assets quality trend, and I think this is very much translated on the end results of this slide. Putting all these together, I think that takes us to 16%, and I think it's very important to highlight that our operating income before impairments, our net operating income before impairments has grown by 10%, and that is a very strong growth given our large base of third largest bank. Our guidance in terms of ROE has been met and beyond, and I think this also sets the way to continue to expand our value creations to our shareholders.
Healthy capitalization, I think it's worth highlighting that, and by design consciously, that the RWA's velocity has almost doubled the capital formation velocity, and I think this is something clear reflections of our strong growth. It's a clear reflection of our capital management philosophy, as well as to the enhanced capital structure that we have embarked on in the past three, four years. The guidance here, I think, has been met in terms of common equity tier one ratios to register 14.1%. The momentum and strategic executions. We see it the only way to fuse an optimistic outlook for 2025.
I think it's worth highlighting to the investor community here that, given the dynamicness of the funding and liquidity, given the funding and liquidity challenge is continuing to be relevant and staying at 2025 and 2026 as we see it in-house, and given all of these factors impacting the net interest margins movement, aside from rate cuts or policy rate decisions, we thought that it might be a more meaningful guidance to establish a net special commission income guidance for the investor community. So we continue to have a more conservative approach when we set the guidance at the beginning of the year, very much similar to last year, a year ago when we have shared our 2024 guidance, and then we have made a couple of revisions to it.
We envisaged to have a low double digit as a minimum as a growth to our balance sheet driven by loans. We envisaged to have a minimum of mid-single digit expansion into our net special commission income, and that's also per se by real value. And I think we wanted to extra drive the efficiencies to go into the 30.5 and below, and our internal aim is to see the 29 level internally, but at this stage, I think it's more appropriate to have below 30.5. Our profitability when it comes to the return on equity, we envisaged this to have above 17% for the year 2025, while a continuation of moderations of cost of risk to be in the area of 30-40 basis points.
And the capital here, I would like also to pay or to get your attention that we moved from Common Equity Tier 1 to Tier 1 capital ratio and to be above 16%. And I think the movement to this Tier 1 capital ratio is a clear reflection of our enhanced progress that we had made so far, and we continue to envisage to make in the future when enhancing our capital structure. So with that, I will hand it back to Faisal for the Q&A.
Thank you, Riyad Bank Management. We have now moved to the Q&A session. If you would like to ask a question, please use the raise hand button on your screen. We'll take the first question from Nida Iqbal. Nida, please go ahead.
Hi, can you hear me? Yes. Yes. We can hear you. Great. Thank you for the presentation.
My first question is on the loan growth outlook for this year. You've clearly been outperforming the sector in terms of loan growth. When you guide to low double digit loan growth, can we get a sense of what your expectations are for the sector and whether you expect to continue gaining market share, especially taking into account the funding and liquidity conditions that we're starting to see for the sector? So that's my first question. And my second question on margin expectations for 2025, what do you expect in terms of rate cuts? And if you can just highlight what your expectations are in terms of how cost of funding is likely to evolve and the competition for deposits is likely to evolve and how Riyad Bank is looking to position itself in the current environment. Thank you.
Thank you, Nida.
With respect to the first question, I think when we built our annual operating plan, we always take a conservative growth assumptions. And I think what we expect or projections for the sector is that the low double digit, particularly between 10%-10.5% at that time. And I think what we wanted to do in 2025, you know, as a minimum, we grow at the same pace. However, I think given our the first six weeks of the year, I can say that we are outpacing the growth on the market as we see it today. So that's with respect to that low double digit. I think what happens is that we will gauge this towards the mid part of the year, and then if we see the progress and the potential to continue to grow, I think we might revise up our guidance accordingly.
With respect to the second question, I really don't know, or cannot further follow on the frequency of changes of the monetary policy expectations by the market as well as by the recent dynamics. But what we have built back on October assumptions, that's typically where our baselines go on, and from a planning perspective, is that we do expect and factored into the expected outlook shared just now is a two rate cuts. But I think the relevancy of rate cuts compared to the cost of fund dynamics and funding and liquidity continuous challenge in the Saudi banking system is getting lower and lower in terms of relevancy.
Thank you very much. We'll move on to the next question from Naresh Bilandani. Naresh, please go ahead.
I'm sorry, can you hear me?
Yes, we do.
Oh, excellent. Hi, Nadir, Abdullah, Majed. It's Naresh Bilandani from Jefferies.
Thank you very much for the presentation, and thanks for improving your guidance on NII, which is very helpful. Just two questions, please. One, with regards to the settlement of the large exposure that has been enjoyed by many banks across the system, including yourself, would you please be able to indicate if there has been any NII impact from this settlement? That would be extremely helpful to know. That's first. Second is the ROTE guidance that you have kindly offered for FY 2025 of over 17%. I think it's fair to assume that the pace of growth on the operating income would be driven more on the non-interest side, and you've illustrated that in your strategy. But is there any other sort of adjustment we should be thinking of from this ROTE perspective, especially given the fact that you are undertaking a strategic sale of one of your businesses?
Has that been adjusted for in this ROE guidance at all? Simply because once you sell a portion of that business, I think the minority takeout could affect the trajectory of the net income, which should have an impact on the tangible ROE. So has that adjustment been taken in this guidance or not? Thank you very much.
Thank you, Naresh, and good to have you on the different coverage.
Thank you. Thanks a lot.
With respect to the first question, I think there are adjustments on NII positively that took place, but that is not significant. With respect to the second question, I think we had made the announcements very clearly. The board has commenced the assessment of evaluating IPOing part of Riyad Capital.
I think in due course, we will only announce what is the results of that assessment into the market as per the regulatory requirement. Did I take it into my plan? That is absolutely something that we cannot plan, so we have no basis of assumption. So our 2025 is purely based on our current operating conditions. I hope I answered your question.
That is very clear. Thank you very much.
You're welcome.
Thank you. Our next question is from Murad Ansari. Murad, please go ahead.
Good day, gentlemen. Just confirming if you can hear me.
Yes. Yes.
Okay, great. Thank you so much for the presentation and a great set of results. Congratulations. Two questions. One on deposits. I mean, you've clearly been ahead of the market in terms of deposit growth and also on CASA mix.
In a quarter where everybody was shedding deposits because of competition, you've grown and not only grown, but grown on CASA. So just wanted to get your just some color on what is a key driver here that's helping you kind of grow on CASA in such challenging conditions as well. Secondly, on provisioning, fourth quarter was a higher number, and we've looked at the stage-wise provisioning number. There's obviously a settlement there that shows up in decline in stage two loans. That hasn't had any material impact on provisioning or reversal. So has that number been reallocated elsewhere to other buckets, retained, etc.? And could we see some reversals in the coming year? Thank you.
Thank you. For the first question is, I think we have been focusing on funding like no time before.
I'm mentioning this because obviously, I think the cost of fund has been one of the main pain points for all Saudi banks as well as for Corporate, given the elevations and the congestions of credit expansions and the velocity of credit expansions over the past 24-36 months. So I think we have been focusing on this in both whether this is a retail across all subsegments or private bank or even the Corporate bank and the commercial market. So I think that I think the targets have been set extremely very high. I think an active monitoring, and I think we have the right to celebrate at this stage. However, it's worth mentioning that there has been also some transitory deposits that we have witnessed, and that has been already cleared by the first week of February balance sheet.
So, the transitory is not. I'm talking here about between SAR 6 billion-SAR 8 billion equivalent, but the remaining, I think, is more of operational customer deposits as well as transactional deposits, and I think I wanted to refer back to my colleague Majed's point where he mentions the Global Transaction Banking as well as focusing on the cross-sell includes actually the funding elements because one of the objectives of the wholesale bank is also to continue its relevance when it comes to funding the bank. I think that is how I would answer the first question. For the second question, I think we clearly mentioned this before. We wanted to strengthen our asset quality through additional impairment provisions where possible, where we basically can demonstrate to our management as well as board and auditors a case.
And I think we have progressed very positively over the past four quarters. I think the settlement has definitely stayed within the balance sheet. So we haven't recycled anything into that one. I think it's not the intention is to have to build the buffer and then make a reversal on the due course, but I think the intention is to create a comfortable level of buffers that can save the banks during different cycles. I think that is the essence of it.
Thank you very much. We'll now move on to the next question from Jon Peace. Please go ahead, Jon.
Jon Peace here from UBS. Your guidance around net interest income growth does imply some margin compression in 2025, and you're not alone there.
As we go into 2026, would you imagine that your financing growth and your net interest income growth should be more aligned, i.e., more of a flat, NIM development? And then my second question, please, is on the cost of risk guidance. It's the second year in a row we've had a big improvement in the outlook. Where would you see your longer-term sort of through the cycle cost of risk? And if I may just add one final one, when might we expect to hear some more details around the potential IPO of Riyad Capital? Thank you.
Thank you, John. Maybe the easiest question is the fourth one. Yeah, you can go ahead. And you will see it on Tadawul once it's decided. So I think that's the easy answer.
But we are progressing very well on that initiative. Yes.
With respect to the first one on the net special commission income, no, it does factor margin contractions. In fact, if I was to do a like-for-like, I would think about anywhere between 10 to 20 basis points. I think we typically get more conservative when we set NII target and to ensure that we incorporate all the operating market environment conditions. At the same time that we also have our investments, directional investments book as a yield enhancement, not to put any pressures on them and take unnecessary risk on that front. So I think we are trying to balance that here. I see your point why is mid-single digits vis-à-vis that the notebook because I think loans continue to have two-thirds on the total earnings assets compared to the rest.
On through the cycle cost of risk, and I think it's very important to shed some light on the historical cost of risk and current or most recent and expected cost of risk. Operating environments before 2018 were completely different. I think the way of doing business, particularly in the Corporate, across all sectors, whether it's a building and constructions or a trader, has been elevated over significant levels in terms of professionalism, in terms of governance, in terms of planning, in terms of funding arrangement, in terms of terms. But I think that sets the stage for a more high-quality business that has been booked and will be booked in the future. And this by virtue will have a lower through the cycle cost of risk. So we expect really that through the cycle cost of risk is to hover around our current guidance.
Unless there is an improvement, we will update the industry.
Great. Thank you.
You're welcome.
Thank you very much. We'll go on to the next question from Waluna. Please go ahead, Waluna.
Hello.
Yes, please go ahead.
Yeah. So I have a couple of questions. First one related to loan growth. Specifically, in 2024, your growth in the retail side was kind of muted. So I want to understand what can we expect in 2025. And my second question is on the funding side. So predominantly, the funding was, it came through deposits. So do you plan to diversify the funding sources going into 2025? And is that the reason why you expect pressure on cost of funding? Thank you. Thank you.
For the first one, definitely it has to grow because I think the only single metric on a transparent way that we haven't grown like the market was the retail assets. I think there is a continuous focus since the beginning of the year on driving this, particularly on the targeted segment. So I think to answer your questions, we expect growth compared to 2024. With respect to the second question, I would like to take this opportunity to remind all the investor community that Riyad Bank has been known actually to be a frequent market issuer since a very long time ago. In fact, our programs, the debt programs have been upsized last year and approved through the SAR 10 billion size program. We are active on capital instruments.
We had the most recent one, the Additional Tier 1 that we issued in September, October of $750 million was the lowest price ever, an unrated sustainable Sukuk instruments globally. It was shown a very significant number of foreign investors from different geographies and was priced around 5.5%. The reason I'm saying this is because we just had done also SAR issuance. We have done customer deposits with Asian investors. We will continue to maintain that access to different markets, to different investor bases, as well as to the different group of customers. That includes also a variety, whether these are investment funds or commercial banks as well.
Thank you. Going back to the retail segment, where do you expect most of the growth to come from? Is it from mortgages? I mean, would you expect mortgages from your side to pick up?
I think compared to 2024, definitely, yes. Definitely. And I think on the first month of the year, the momentum that we have seen is definitely going to be very strong compared to 2024. That's one. And maybe it's worth mentioning that the mortgages also is a key asset class for us. It constitutes now 20% of our loan mix, where we have ample room for improving this mix along with SMEs, although the wholesale bank lending is growing very rapidly and also the Project Finance is becoming more relevant. And we have just crossed the 10% mix on the Project Finance of the loan book. So I think the way we do on the assets allocations mimic really our capital allocations and attributions plans on a year-by-year, on a medium-term basis.
I think it's worth highlighting that's why I mentioned the sources of funds, different geographies, and different markets, and different targeted investors is also as a country and as a resilient banking system. And more importantly, I think we have a very strong credit rating that we would like to take the full advantage of that through different markets.
Okay. Sounds good. Just one last question. I mean, going back to 2024, what was the reason behind you lagging in the retail segment compared to some of your peers, which grew faster, especially in mortgages?
I think there are some risk acceptance criteria. There are some certain thresholds that Riyad Bank was not really considering them as attractive enough for us. And while at the same time, we have been driving also strong growth rates in different segments and different habit.
But really, the retail bank has successfully focused on building the funding capacity and capabilities, which is essential on maintaining our growth aspirations and the recorded growth rates.
Thank you very much, Abdullah.
Thank you. We'll move on to our next question from Adnan Farooq. Adnan, please go ahead.
Adnan.
We'll move on to the next question now from Nauman Khan. Nauman, please go ahead.
Hello. Can you hear me? Yes, we can. Please go ahead. Thank you. I think a lot of my questions have been answered. Just one thing. Just wanted to have a color on the mortgage market as well. More recently, the mortgage market has grown quite strongly over the last two months or so as well. So if you can shed some light on that as well, what has been the factor that has led to the resurgence in the mortgage market?
Secondly, if you can guide us about the ongoing effective mortgage rates that are prevailing in the market more recently. Historically, they have been around 5%. So what are the new mortgage originations rates have been more recently? So I think these are just my two questions. Thank you.
Thank you. Thank you, Nauman. I think the last question is very hard to answer because that goes through subsegments, a certain offering, a certain customer profile. So I'm afraid that I wouldn't be able to give you really a one-size-fits-all here. But for the first question, we have seen a good pickup on Q4. And I think that pickup is expected to continue. I think it's largely driven by also we have off-plan sales accelerations we have seen.
We have seen a lot of events taking place on promoting and extending the accessibility as well as the support from different programs, and more importantly, also the flow of the ready-made units that has been in the pipeline over the past two years as well, and definitely, the moderations of rates will help on that space.
Thank you. We'll go back to Adnan Farooq. Adnan, please go ahead with your question.
Hello. Can you hear me?
Yes, please go ahead. Yep.
Thank you, and apologies for before. Thank you for the call and the presentation. I had just two questions. One, the fee income growth, especially in the fourth quarter, was extremely strong. I just wanted to understand how do you see the fee income? How should we think about fee income? Was fourth quarter sustainable level for fee income, and how do you see that growing going forward?
The second question is on your operating costs. It does seem that G&A expenses in the fourth quarter were slightly higher than the run rate. Did you experience any one-off costs in the fourth quarter? And what sort of year-on-year operating cost growth are you budgeting for in 2025?
Thank you, Adnan. First of all, I think it's important to understand the underlying drivers of the fee and other income. I think the main underlying driver is, A, the expansion on the credit that we have been offering to our customers. Second is the customer solutions that we provide to our customers, including all wide range of products from our treasuries. And I think here, and not saying it there because it's a lower amount, actually, it is a very high amount, is our leadership in our trade finance business. So these three constitute the majority income.
And then supported by the capital market activities, including the brokerage fees as well as other investment banking fees, and if there are any other kind of disposal income from here or there. So I think the base case is core. It is core to our engine. It's core to our business model. So it's fair to assume that rate is our focus and targeted rates. With respect to the OpEx, and whether it's G&A or others, typically at the year-end, there are lots of reviews on not only the closure of the year, but also the accrued expenses as well as other items that we typically have a full-cycle review. So from now on, and then you would have something similar to that. So it's nothing irregular, or I would call it anything in any shape or form of material.
How I am targeting my operating expenses, I think my plan always assumes to be a positive jaws.
Understood. Thank you and best of luck.
You're welcome.
Thank you very much. We'll go on to our next question from Olga. Please go ahead, Olga.
The first one is on SMEs. You mentioned some new initiatives in the SME segment and changes in service delivery model, I think. What exactly is new in SMEs? And what is your differentiated angle now in the segment where everybody seems to be willing to expand now? That's my first question. And my second question is, again, on provisioning. What gives you comfort to deliver, to guide such a low cost of risk for this year, 2025, and assume that it's sustainable for the next several years versus historical average?
Have you amended maybe credit risk assessment systems or any other factors which will help you to deliver future cost of risk at a much lower level than historical? Thank you.
Thank you, Olga. I'll take care of the first question. What's new about the SME new solution? It really is going to be an end-to-end solution, which we have seen in the market. Banks provide, and Riyad Bank is one of them, provide the servicing platforms for customers. But what's special about this new SME tool, it will be an end-to-end solution where it could act as a great tool to acquire new customers, onboard new customers, allow them to submit credit facilities requests, get them approved within the platform, and get them dispersed within the program.
So really, you think about it as really the whole bank at the disposal of the customer from the comfort of their own home or their own office. Now, just to highlight that what we have announced right now is the beta version where we get approval from the regulator. And we have a few exciting versions in store for really delivering a second-to-none platform, which would really, really advance Riyad Bank's position and the SME position.
Thank you, Majed. Olga, with respect to the second one, I think, again, I would like to reiterate historical cost of risk might not be the right benchmark, whether it's in the system or in Riyad Bank, a benchmark given the quality of the growth that the system has been growing, as well as the way of doing business. So I think that remains a fundamental driver.
I am not aware of any significant change on how we are risk-rating or we are determining certain provision levels for customers. Particularly here, I'm talking about Corporate. But I think there are macro stuff that is impacting this. I think the outlook of the economy is very positive. We're having 4.6% or 4.7% non-oil GDP growth expectation for 2025. I think we have a very strong and healthy pipeline. I think from now until 2030, there is a significant pipeline of projects that are high quality and strategically important to the country. So I think that's what's driving the cost of risk low. And please not forgetting that the Project Finance is a very high-quality asset. And it brings, actually, yes, they are very competitive in terms of pricing, but that is being complemented by the fee and other income.
But more importantly, it brings really a good diversification to the assets quality and the portfolio of the bank. So we're very happy that the Project Finance is constituting just below 11% of our RWA mix.
Thank you. If I can clarify with Majed about this end-to-end solution for SMEs, is it pretty unique? And how difficult is this to replicate by the other banks what you're doing now? Thank you.
Now, we cannot comment on what other banks are doing. But of course, there are some complexities with it. That's why I highlighted what you're discussing right now is the beta version, which is the first step. We're starting with some of the plain vanilla products, but we're expanding to all the full suite. Our goal is to offer the full suites of products for our key addressable part of the SME portfolio within this SME platform tool.
Thank you.
Thank you very much. We'll take our last question from Aybek. Please go ahead, Aybek.
Can you hear me? Hello? I just want to confirm that you can hear me.
Yes, we can hear you.
All right. Thank you. Thank you for taking my question. I'll be very short. How would you think about the sensitivity of your asset quality? Let's say if there is an oil price shock in the system, right? Oil prices, oil markets don't do as well as you would expect for 2025. What is your thought process around how the asset quality may respond? That's my one question, and I think the second question, do you think it's kind of makes sense to compete for market share in the current market? There are a number of banks which talk about severe price competition. Some deals don't make sense.
Some loan pricing doesn't make sense in terms of the risk-return profile. Do you think it makes sense to compete for market share? And if I may add, my last question here is that on the mortgage side, if you want to make a breakthrough, if you want to grow well on the mortgage side, does it mean that you have to grow the mortgages for off-plan properties or properties under construction?
That's a good question, Aybek. Thank you for your questions. With respect to the first one, I think the same answer that I have provided for the cost of risk through the cycles, I think it serves the same principles. I think in 2015, the economy was heavily dependent, and the volatility of the economy was as high as the volatility of the oil price. I think this is not the case today.
And that's why I think we have a much more strong and solid position as a sector, and particularly driven by banks as well, as well as the regulatory framework. So this is the answer to your first question. The second one, with respect to market share and other, I think we compete where we see our rights to win. We compete where we see our relevance is important. We compete where we see there is some value in the make. I think sometimes you have to be or to play a defense approach to protect certain customer groups that you have or subsegments. But obviously, I think we have seen this in the past. There has been like a market share war between few players. And that has set, and it has to set because at the end of the day, economics overplay any other objectives.
But I hope I gave you a color on how we are reacting to this and how the oil is linked to our economy. How is the volatility and the relationship between the economic volatility and the oil price volatility has been? And we're part of the system. And I think the system is doing that. I think it's clearly in every year that we see on the Ministry of Finance budgetary press and commentary that there is a very direct addressing points on why this is becoming less volatile economy compared to the previous years. But I hope I gave you a color, Aybek, on this one.
Yeah, that's very clear. Thank you.
Thank you very much. I'll hand it over to the CEO now for his closing remarks.
So thank you very much for your participation in today's.
And colleagues and gentlemen, we are pleased to have shared with you Riyad Bank's performance highlights for the full year of 2024, showing our healthy and strong financial performance. 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 KPIs. Thank you for joining us again and goodbye.