Welcome everyone to the Riyad Bank 4Q 2025 earnings call. My name is Lauren, and I will be your coordinator today. If you wish to ask a question during the webinar and you are connected via WebEx, then please use the Raise Hand icon on your screen. Alternatively, if you've joined us on the phone, then please press star one on your telephone keypad. I'll now hand you over to Mohammed Faisal Potrik from Riyad Capital to begin. Please, go ahead.
Thank you. Good afternoon and good morning, everyone. On behalf of Riyad Capital, it's my pleasure to welcome you all to Riyad Bank's fourth quarter 2025 earnings call. I would now like to hand over the call to Mr. Rayan Alshuaibi , Head of Investor Relations at Riyad Bank. Please go ahead, Rayan.
Thank you, Potrik. Good day, everyone, and thank you for joining the call. With us on the call today, our CEO, Nadir Al-Koraya, CFO, Abdullah Al-Oraini. As always, our CEO will start with the performance highlight, followed by a new strategy, covering the new strategy for the bank, and then, CFO will cover the financial performance in more details. Now I'll hand it over to our CEO to start the presentation.
Thank you, Rayan. Good afternoon, everyone, and thank you for joining us today for the fourth quarter of 2025 earnings call. I'm pleased to be here to share the highlights of another strong quarter and the continued momentum we have seen throughout the year. In today's call, I will walk you through our key financial results and present to you the new strategic direction of the bank under Strategy 2030. Before we start the presentation, it's worth to highlight that the bank has announced the board of directors' recommendation to increase the bank's capital through issuance of bonus shares by capitalizing SAR 10 billion from the statutory reserve and return earnings in equal proportion. The increase in the bank's capital is aimed to strengthen the bank's core capital structure, which will support us in achieving our new strategic directions and objectives.
Now, with that, let's now go to the presentation, please. In this slide, I'll just walk you through our 2025 highlights. On the balance sheet side, we saw a solid growth. Our total asset hit SAR 519 billion Saudi riyal. That's up 15% year-on-year. This is mainly driven by a SAR 53 billion increase in our loan book, which is 17% growth year-on-year. On the funding side, customer deposit grew 8%, and our liabilities rose 16% year-on-year. When we look at the profitability, and thanks to a solid asset growth and cross-sell effort, we saw operating income rise 6% year-on-year, funded income up around 2%, and we had standout 20% jump in fee and other income. Our focus on efficiency is paying off.
Cost to income improved to 29.6%, down 100 basis points. As a result, net income hit SAR 10.4 billion, up 12% from the year before, and our... and, our ROE went up to 16.9%. That's 44 basis point increase from last year. This shows we have maintained a healthy, resilient, position, and even with this growth, our asset quality stayed solid. NPL dropped 19 basis point to 0.79%, and coverage ratio is at a healthy 150%, percent. Our capital position is solid, with CAR ratio at 18.4%, and liquidity is strong, too. Our SAMA LDR is at 81.8. All are well within regulatory limits. Next slide. On this slide, I'm proud to say we have accomplished what we set out to do.
We had four clear aspirations, and we delivered. First, in profitability. We strengthened it through disciplined growth, healthy margin, and better optimization. On efficiency, we improved processes and speed up the delivery. And for being the bank of choice, we elevated customer experience and trust. And in innovation, we expanded the digital journeys and our ability to innovate. Next slide, please. These strategic improvements directly impacted positively our financial performance. So now, let me walk you through what these results look like in numbers. Our total assets grew from SAR 310 billion - SAR 519 billion. That's an 11% CAGR growth. Loans grew even faster, 14%. Net income more than doubled, from SAR 4.7 billion - SAR 10.4 billion. That's a 17% CAGR growth.
Our cost to income ratio, it dropped to 29.6%, making us one of the most efficient banks in the Kingdom. And our ROE is up to 16.9%. Next, please. So as strong as we have been, we cannot stand still. The world is changing fast, from economic shifts to digital transformation and evolving customer needs. Our next strategy tackles these shifts. We have got four interconnected themes driving our transformation forward. First, hyper-scale retail. We are going to grow our customer base through digital channels, partnering where customer already are, and building a long-term customer loyalty. Second, from strength to strength in wholesale. We are already strong, but will further penetrate global transaction business solutions, which will help us increase fee income generation. Third, AI. So AI will be at the core. This is not just a project, it's how we will operate.
AI will power customer service, streamline operation, reduce risk and cost, and that's how the bank will run. Lastly, a robust core technology foundation. We are rolling out a modern banking system that's flexible, cloud native, and having tech and business working hand in hand. The foundation will let us achieve everything else we are aiming for. In this slide... So these four themes are the how, and now let me share with you the what. In the new strategy, we have five strategic pillars. These pillars define where we are headed and how we will measure success. With our board guidance, we have set a bold vision for our 2030 strategy. So I will walk you through these pillars. First, we focus on strong shareholder value, delivering consistent, sustainable financing or financial performance, with the profitability and total shareholder returns as our guide.
Second, we are about delighting both customers and employees. It's all about creating meaningful experience measured by Net Promoter Score, NPS. Third, digital first. We will lead innovation with advanced digital solution, measuring success by our digital transaction share. Fourth, building for the future. This is about long-term growth, measured by new retail and MSME customer new to bank. Fifth, being the most trusted, resilient, and sustainable bank. Our focus is on ESG and operational efficiency. Together, these pillars form a solid framework, balancing our past achievement with a bold future and giving us clear way to measure progress. So to sum it up, the next five years will not follow the same playbook. Growth will become more competitive. Capital efficiency will matter more than balance sheet expansion alone.
Fee income and the bank's franchise will increasingly differentiate performance, and the right balance between margin and market share will be critical. In short, the next phase require a smarter, lighter, more digital, and more capital efficient operating model. That's precisely what Strategy 2030 is designed to deliver. Let me anchor this in a clear financial ambition. By 2030, we aspire to achieve high teens return on equity. These ambitions are grounded in our historical performance and supported by clear or clearly defined operational levers. This strategy actually position us at the intersection of massive trends: Saudi Arabia economic transformation under Vision 2030, the digital revolution in financial services, the AI revolution reshaping every industry, and the growing demand for sustainable, responsible banking. We have the aspiration, we have the strategy, we have the capability, and we have the commitment.
I'm excited about what we are building. I'm confident in our ability to deliver, and I'm grateful for your partnership on this journey. So with that, I will now hand over to my colleague, Abdullah, to walk you through the financial performance in more details. Thank you.
Thank you, Nadir. On page nine, the slides basically highlights the solid growth in the balance sheet footing and loans and advances portfolio by 15% and 17%, respectively. We also have seen a very decent and strong growth in the investments of 13%. Those were primarily funded by customer deposits as well as debt securities, including various sources of instruments. And that has set us in a very strong positions until increase our and enhance our returns overall, and registering a solid profitability with a 12% net income year-on-year and return on average equity to reach 16.9%.
Despite the fact that margin has contracted by around 50 basis points year-on-year, and that has impacted the net special commission income to register a modest increase compared to the previous periods. However, these were very much supported by a very strong fee and other income generation that has contributed to the operating income growth of 6.3 for the year. And not discounting the extra efforts that have been progressing on for our Strategy 2025 journey, where our efficiencies has continued to derive values, where we registered 29.6% as cost income ratio, which is a record low for the bank.
While the cost base has marginally increased by around 3% or 2.8% specifically, and that were on the back of a very disciplined cost management and controls. Both cost of risk and NPL has descended to a very favorable levels, where a cost of risk registered to 39 basis points and NPL ratio to 79 basis points, respectively. With that, funding as well as liquidity and capitals remained at comfortable level and pretty much supports our future outlook. On slide number 10, this just to give you the key movements of the balance sheet in terms of total assets.
As you can see that, which already highlighted by my colleague, Nadir, 53% has been booked under the loans and advances, which equates to 16.6% or 17% growth year-over-year. We have also opportunistically increased our investments portfolio to further support the not only the diversifications, but also opportunistically to expand into a more investments instruments. The remaining parts were more or less is a fair distributions of the asset mix. The loans movement have been driven basically by the corporate and commercial loans book, where out of the 53 is around SAR 50 billion have been recorded during the year. Retail has grown modestly by 3% or SAR 3 billion for the whole 2025.
The growth that has been recorded by the corporate and commercial book have been widely spread across the different sectors, and those sectors are the key focus and are the relevant sectors and benefiting sectors from the ongoing economic development in the Kingdom of Saudi Arabia. While continuing our efforts and plans and executions on diversifying our funding sources through different funding instruments and leveraging our funding franchise that we have established several years ago in the market.
Along with our approach and in approaching different customer deposits, relatively cheaper sources of funding as well, I think the overall liability movements has grown very nicely by 16%, predominantly in the domains of the customer deposits, which are in the form of interest-bearing deposits, as well as the debt securities in issue, which includes various instruments, including some capital instruments as well. Customer movements, as I highlighted, SAR 36 billion have been in the form of IBs, which equates to 25% growth year-over-year, while we saw a contraction in non-interest-bearing deposits by SAR 10.3 billion. And I would like to call out this SAR 10.3 billion.
On the last year, full year results of 2024, we did highlight that around SAR 7 billion-SAR 8 billion of non-interest bearing deposits were in the transitory space, and this were being reserved by the bank to contain them through interest-bearing deposits. Net Stable Funding Ratio remains very healthy at 109%, which increased 2.2% year-over-year, while headline LDR increased by 88.1% to reach 112.5%. We have seen stabilizations on the CASA mix or the NIBs as a percentage of total deposits since the second quarter of this year. We continue to focus on further penetrate that segments along with that sources of funds, along with the relatively cheaper customer deposits.
The net special commission income in Q1 were modest, but was propelled by volume growth, which was offset by the higher funding costs that the whole industry has faced during the course of 2025. I think that translates to a SAR 13.1 billion recording of net special commission income. What we have seen also that a tick up on or a pickup on margin for Q4, and I would like to call out here what we have updated the industry and the market participants, that we are ongoing repricing wave across our addressable corporate book. And I think we have progressed very well in Q4, and will continue to be the theme for the year 2026.
For the full year, we recorded 2.88 percentage point as a net special commission margin, and that is expected to stabilize in the foreseeable future. I think the momentum in fee and other income continue to be driven by our strategic focus on the cross-sell activities with an objective to continue to diversify the revenue streams and support our business models, and penetrate our customers across all business groups and entities.
As you can see, the 20% increase year-on-year that my colleague, Nadir, has alluded to were significantly propelled by the core banking services, as well as the complementary treasury solutions that we offer to our corporate business, as well as the deals that we participate in to ensure that we compensate for the margin compressions in case of competition. The fee from banking services on the bottom left chart is just to highlight the key components of that, which has grown very nicely to by 16%. At the same time, if we look at the trend of the fee and other income, we see that the trend has continued to be robust.
Although that Q3 was a very strong in terms of the quantum due to a successful completion of a couple of key transactions that we have undergone in Q3. I think our journey on deriving or diversifying increasing our revenue in general and focusing in cross-sells, while at the same time derive efficiencies and productivity across the businesses, which we have highlighted at the beginning of 2024 as a strategic priorities for the next two years, have continued to serve us very well by registering a 3.6% positive Jaws on the back of all the efforts from the efficiency improvements.
While at the same time, we continue to focus on directing our capital investments allocations to our people and infrastructure in general, and penetrating our and integrating our digital capabilities. This is just to give you a waterfall on the key movements of the cost base. As you can see that the employee related has modestly grown around 2%-3%. And the depreciation as the an expense has increased as per the capitalizations has started to kick in from our previous investments.
Quarterly expenses, if we look at the past three five quarters, we see an overall declining rate by 3%, which sets us in a very nice positions to achieve our strategic target of having below 30%, which is, in this case, 29.6%. The strong recoveries that we have started to see during the course of 2025, and we continue to focus on, has been a key areas of focus on making sure that we complement our risk management processes and sound assets quality processes by optimizing our or lowering our cost of risk to to the level where we are comfortable with. In that case, we have registered 39%. It's worth mentioning, mentioning that the recoveries were, were a record.
What you see here is the SAR 300 million equivalent, which is 51% growth year-over-year. But if we count the NPL recoveries that we have done, it is even much more than two folds of this figure. NPL ratios registers a very low and healthy level of 79 basis point, and that were as a combination between both the provisioning as well as the asset growth and write-off as well. Coverage ratio has reached again to the 150% level, which we believe that it is sufficient at this stage, with an appropriate staging coverage across the whole three stages.
Putting it all together, I think that that was the conclusion of registering a record profits for the bank history, SAR 10.4 billion, which equates to 11.7% or 12% year-on-year. And with a record total operating income of SAR 18.4 billion, 6% year-on-year, were very much supported by strong assets quality, strong profitability metrics of 16.9% return on average equity, and 2.14% on return on average assets. As highlighted by my colleague, Nadir, capitalization remains healthy and they are above regulatory minima. The regulatory capital grew by 11% on the back of a very strong internal capital generation velocity. As well as the risk-weighted assets continue to grow faster than total capital, regulatory capital.
On the back of our very strong balance sheet growth, supported by a strong growth in our trade finance business, which typically are in the form of off balance sheet. Capital ratios, Tier 1, stood at 16%. We see common equity Tier 1 inching up to 13.6%. And, I think what my colleague, Nader, mentioned at the beginning on the internal capitalizations or the bonus share or issuance proposed by the board of directors, will continue to strengthen our common equity Tier 1, and that would set us in a very good positions to execute our strategic plan for 2030.
That leads me to the same promising outlook and our strategic journey that we have commenced for the next five-year and sharing with you the guidance for 2026. We are guiding for a high single-digit in both loans and advances, as well as on net special commission income. We are also guiding below 30% for the cost income ratio. It's worth highlighting that although that we have recorded 29.6% for 2025, we are very vigilant around the first year of our strategic execution for our next horizon, where a lot of front-loaded investments are planned for. That also would provide us above 16% for ROE for the first year of execution.
Credit risk, we continue to maintain similar guidance around 30-40 basis point for 2026, while Tier 1 capital would remain above 15%. Throughout, I think the medium horizons or the strategic horizons that we mentioned and highlighted by my colleague, Nader, we aim for high teens as an ending journey for our next five years as a general guidance for the outlook. With that, I will hand over back to my colleague. Operator, back to you for the Q&A session.
Thank you. We will now begin the Q&A session. If you would like to ask a question and you have joined the call via WebEx, then please use the Raise Hand icon on your screen. Alternatively, if you've joined on the telephone, then please press star one on your telephone keypad. We'll pause for a moment to allow questions to be registered. Our first question today comes from John Peace. Please state your company name and proceed with your question.
Oh, thank you. This is John Peace from UBS. So my first question, please, is on the 2030 goals. I apologize, the line cut out a little bit. I heard you say that you were targeting a high teens return on equity. I wondered if there were any other elements to financial guidance, for example, the loan growth or the dividend payout that you expected over the period? And then could I ask a question, please, about asset quality? You continue to have that number one share in SME lending, yet your NPLs are still very low. And I noticed also your coverage historically has been a little bit lower than peers. Could you just remind us about why the asset quality of that book is so good? Is it...
Perhaps you can remind us the share of Kafalah loans, but, but also, are you targeting larger MSMEs, which tend to be a little bit lower risk? Thank you.
Thank you very much, John Peace. If you allow me just to comment on the first question. Yes, our strategic plan targets high teens, probably at the high end of the high teens. I think it's more importantly is that we recognize that the volatility of the foreseeable future that we're in. I think we our plan is built is built on scenarios, and these scenarios have different assumptions. And I think might be a little bit immature at this stage to provide a solid CAGR on how the loans and the key metrics would look like.
Because the base year, I think the first year would be a very probable the next 18-24 months to establish how is the momentum is going to be. So I think there are lots of moving variables, but I think what we are focused on is how we are being more resilient through different scenarios, whereby we land on our ultimate objectives and execution's capacity. I think down the road in the next periods, I think in the after the first or second year of execution, we would have more solid scenarios on the forming basis of the global trends, particularly as well as the key fundamentals evolutions that we are monitoring very closely. However, but we are very well positioned to capture this.
We think that we can create that value. We do have different tools and means, and we are also, at the same times, directing a significant investments on some choices, strategic choices that will give us also some levers and leeways around different scenarios. That's with respect to the first question. The second one, with respect to the asset quality, yes, we are market leader, and probably, I think we have more than two decades of experiences on that segments. We have a lot of experiences with that segments. We have lived through different cycles with that segments, and also we were the early mover to Kafalah, and that translates our largest share with Kafalah. That segment has been very well tested over the past four years, post-COVID.
And I think what we are remaining with are those of better quality than what we have witnessed in the pre-COVID. And the Kafalah are performing on a good basis. And I think the only difference that Kafalah would require a further processes in order to have the recoverability amount when those exposure goes to a level where they are not able to service their debts. I think we had been, you know, I think handling these accounts very diligently and delicately. We have seen spikes in the past, but those spikes in the size of portfolio are pretty much manageable. And I think whatever cost of credit that we're incurring there on a risk-adjusted basis, still the returns are very attractive.
So that explains what is our position on Kafalah. Kafalah, we have around, roughly around, eleven billion of worth of exposure. And and that's constitute roughly, I would say, around 12% of the total MSME portfolio. I think our biggest exposures are in the middle and the upper ones, and I think that's what we do have really an excellent position on. And we continue to penetrate the micro as we go and further penetrate the digital capabilities that we have been building and will continue to build on the micro side. So that's with respect to the MSME and the asset quality. On the last part of the questions on the coverage, as you know, we are, we are, we're a leading corporate bank.
We're a leading trade finance house for decades, and our loan book is roughly around 73% or more in the form of corporate and commercial, and around 27% in the form of retail. So that explains our coverage ratio is always hovering around these levels because sometimes as a leading corporate bank, we need to deal with a certain accounts of exposures, and those exposures are not necessarily very widely spread like retail, where you have a typical rate flow. So I think what I want to say at the last part of this question is that we're pretty much comfortable around the level of coverage. I think we continue to monitor the problem loans and watchlist very carefully.
We do have the right governance around it, and we do have the right risk processes that we continue to focus ourselves on. I would like also to reiterate what we have shared, and Nadir, my colleague, Nadir, have mentioned this in 2024, because we wanted to focus more on solving these problematic exposures and try to find appropriate solutions through appropriate structuring, as well as to increase our recoverability and recoveries. And that's why we established a very dedicated large team, we called it inside the special assets teams, whereby these have proven to be very effective, and we have seen the results actually in 2024 and 2025. Thank you.
Very clear. Thank you very much.
... Thank you. Our next question today comes from Naresh Bilandani. Please state your company name and proceed with your question.
Yes, thank you. It's Naresh Bilandani from Jefferies. Thanks a lot for the presentation. I have three questions, please. One is, given that we are halfway through the first quarter already, would you please give some indication on how the NIM has been progressing year to date? I'm just keen to gauge if the funding costs are still exceeding the yield decline led by the lower rates. So any indication there would be very helpful. That's the first question. Second is, could you just throw more light on the quantum to which the fee income could still remain pressured in the near term due to the regulated pressure that still needs to be baked in on remittance fees and perhaps the competitive pressure coming in on brokerage revenues?
Any thoughts there would much help. And third is, I wanted to kindly check on the sensitivity of the ECL assumptions that you are presenting in the note 34.3 of your financial statements. I am comparing these to those presented in the last year, and specifically, I see the impact to ECL from lower oil prices having declined notably by about 90% level year-on-year. So what has led to the buildup of this resilience to lower oil price? Would you please be able to share any reason behind that? Thank you so much.
Okay. I will start by answering the first question regarding NIM. We expect NIM to stay flat or to improve a little as we are optimizing our balance sheet and asset allocation to improve returns. We are also continue to execute on the repricing activities that we already started last year. We are doubling down on the cross-sell activities. We had a record year last year on cross-sell income, and we are improving efficiencies across the bank. We also are focusing on attracting lower-cost deposits. And I think although these initiatives, NIMs would stabilize or we expect it to improve but not in a big margin. And for the rest of the two questions, I will leave it to Abdullah.
Right. Thanks, Nadir. Thanks, Naresh. With regards to the quantum of the fees on these regulatory, the consumer and payments, and that one, I think the annual impact that we have assessed, it could be as high as 1% of the total, which, in our view, is very manageable through different means, including, but not limited with, is factoring really that impact into our pricing. I think the volume, particularly that our retail growth over the past two years was, were not at a very high level, so there are volumes lead that can be compensated.
More importantly, I think also the offsetting that through the enhancing the credit cards usages, for example, growing the ENRs through different means. So in a nutshell, I think that is pretty much manageable. Brokerage revenue, I think it's very early to tell. We saw that at least that I'm aware of one of the companies that they are offering it for free in lieu on that. But we have seen also we are vigilant around the market. But I think it's very early to tell, but I think there are the brokerage haven't been doing really well over the past few periods, given the market sentiments and the value added traded.
Perhaps we see a lot of offering through different recoveries of that fees. You know, as our Riyad Capital is focusing more on growing their digital penetrations in that space. I think they have done considerably well over the past periods when it comes to the international as well. But I think that, in my opinion, is still very, very early to comment on because... And more importantly, I think our the brokerage income contributions to the fee and other income are pretty much limited in our case. On the last one, I think that you know that this is part of the expected credit loss models, scenarios where you have built some macro effects and etcetera.
I think the key part here is there are different scenarios that goes into to that one. I think there are scenarios that have already been incorporating using the latest different independent sources as well, including international institutes, but also reflects the fact that volume growth of the oil productions and export growth. And more importantly, and I think, as the Saudi economy has been transforming over the past few years, the dependency that we see on the volatility in the oil price and the impact of that on the economic development has significantly de- yani de- divert. And I think that is a contributions of that. But there are multiple factors that implement that.
But I think the most important thing that I would like to highlight, you know, these go through different iterations of an independent reviews, including, but not limited with, and a completely professional company that is completely independent from the bank. Thank you.
Got it. Got it. Thank you. Just one very quick follow-up. Abdullah, you mentioned the Q3 fee income was abnormally strong due to certain transactions. So in light of the answer that you provided, is the Q4 fee income of SAR 802 million that you reported in the fourth quarter, is that likely to be a much more normalized run rate? Or there could still be pressure coming through in the second quarter as the even if the small impact, but the remittance fees are still lower remittance fees are still incorporated in this number?
Thank you, Naresh. I'll, you know, we always work on a cutoff date. So, for example, what I meant by Q3, there were transactions should have concluded in Q1, at least one that I'm aware of, sizable, but that has shifted towards the month of July. I think that has inflated that one. When it with, with the second part of the question, is that a normalized one? I think it's a bit early to assume that because I think particularly this quarter, we're having some seasonal positive effect and some seasonal negative effect in overall sales and other services activities.
But more importantly, I think we have consistently delivering that if we don't do it, or we don't capture it for reasons that is beyond us, we try to compensate it from elsewhere.
Got it. Thank you very much.
You're welcome.
Thank you. Our next question comes from Murad Ansari. Please state your company name and proceed with your question.
Yes, hi. Good afternoon. This is Murad Ansari from GTN. Thank you for the presentation. So three questions. Firstly, on loan growth, you know, you're guiding towards a high single-digit growth. I just wanted to put the 2025 growth in perspective, as in that, you know, there was very little growth on the retail. Is that the blueprint we should expect for 2025? And also, if you could comment on the mortgage book. I mean, it's been a slow year. SAMA data for December was relatively weak compared to last 2024 December, despite all the activity that was there. So just your thoughts on consumer and mortgages. My second question is on the dividend in sec for the second half.
So typically, over the last four to five years, your final dividend for the year has been higher than your interim dividend. This time, you've given a combination of cash and stock dividend. Just wanted to understand... obviously, I mean, this is to strengthen capital ratios, but, I mean, should we see this as, you know, kind of base going forward or this cash dividend cut versus last year, kind of, you know, covers the capital needs that you have? And related to that, I mean, just on the RWA intensity, I mean, at 91%, you are relatively, Riyad is relatively high compared to peer banks. I mean, is there more room for RWA optimization?
And lastly, on the funding side of the equation. So, you know, just want to get a sense, I mean, you've said you've, you've been able to sustain CASA ratios over the last couple of quarters. Liquidity situation apparently is, or as, as we hear, is, is slightly better. I mean, as we go into 2026 and over the 2030 strategy, how do you expect the funding mix to evolve? I mean, you know, is, is there room for this CASA mix to improve? Is, is, you know, are the best years behind us? And in terms of funding, you know, will there be more issuances on senior debt or AT1 or Tier 2? Thank you.
Thank you, Murad. Regarding your first question, although we are guiding lower on asset growth, or loan growth, but we will be focusing, going forward in high value, and value-added assets and investment. As I said earlier, we will optimize the asset allocation to improve returns, this year, and we continue to execute on repricing activities. And we will double down on these across select activities. But more importantly, I think we will be focusing in more investment, rather than asset growth. And again, efficiencies will be focused for us in 2026. Okay, thank you. Murad, I tried to write down all the questions.
But, in case if I missed one, please feel free to jump.
Sure.
I think like what my colleague, Nadir, mentions exactly, and I think we are coming from a high base. There is a base, higher base have been formed. We have been saying this over the last six months, that we do expect the market in 2026 to decelerate to high single digit to, yani, at best, low double digit. And I think that is, yani, what we are expecting, and we will continue to derive the best value out of it, as highlighted. When it comes to the mortgages, I think it follows the same point that Nadir has mentioned.
Okay, we will focus on whether if the more we see value on the current mortgage outlook, or the offering, or the products, and the yield out of it, and the collective, given the, from an asset allocation perspective, we'll continue to pursue. Because I think we look at the whole thing from a value perspective. So I think that is the key determinant factors in how we are growing our book. In terms of the... You mentioned about the dividend. I think I would like to take the liberty to remind the investor community when the last time that Riyad Bank has issued bonus share for its shareholders. It was in 2014.
So probably, I think we have seen over the last two cycles, that the average durations that banks do that probably is around four to five years. We have seen that is changing towards a shorter durations. I think the key message here is that we had been into a growth trajectory since to the first phase of transformation in 2017, where we had a leapfrog for until 2020. And then this 2025 strategy from 2020, 2025, I think we had been very consistent in delivering a very strong shareholders' returns. And I think we had been very consistently and sustainably growing our also dividend streams over time.
I think the board of directors sought to know, I think, given the new horizons that we are embarking on, it might be, I think, the most options that, you know, we continue to provide this window of recapitalizations, while at the same time, achieving for the year a very decent payout ratio. I think going forward, this will continue to be guided in the same guiding principles that we have shared five years ago, or more with the investor community. We need to have a sufficient capital to execute our strategic plan, and we need to have adequate capital reserves. We need also to consider progressive dividends for our shareholders and total shareholders' returns. So the guiding principles on balancing these multiple objectives are still intact.
With respect to the market outlook on the mortgage, I think the mortgage has definitely slowed down over the last 2-3 years compared to the previous periods, where we saw a very strong growth, and that is as expected, and particularly also with a high interest rates environments. After that, a very high inflationary environments that are being hitting the global geographies, which has also contaminated some of the inflations on the development cost. So I think that sectors will continue to be under our monitoring, and it is an integral part of our book. Just to highlight that our mortgage book now constitute 18% of our total loan mix, and it remains a strategic assets for us.
But also we need to look at the value on overall value that from that particular product. Did I miss something, please? Because that's what-
Yes, so funding mix.
Yeah, the funding mix, I think.
How do you expect that to work?
I think if you look from 10 years or 15 years earlier, I think 97% or so, no, more than 95% of the consolidated banking balance sheet are funded by purely customer deposits, out of which more than 70% of that are on non-interest-bearing deposits, which have been there for a while. I think what we have seen, a strategic shift, particularly post 2018, and then we had the COVID-19 effect, and then we started to see the funding gap between loans and deposits. And that's where a more modernizations of the market funding comes into the play. As we speak, still the wholesale funding represents very, very, yani, conservative levels compared to the regional and global benchmark.
We do expect some development in that one, but I think what is very important from our perspective is to make sure that the funding risk, as well as the assets liability mismatch and the diversifications, as well as the dependency on a single or certain sources of funding, does not exceed our threshold and our risk appetite. So we do expect more liberalization, but also I think that might not change the mix percentage per se, but I think the relevance might be higher.
Thank you so much, and all the best for 2026.
Thank you very much.
Thank you. Our next question comes from Abdullah Al Buraidi. Please state your company name and proceed with your question.
Am I audible?
Yes, you are.
Yeah. Thank you very much for the great results and the great presentation. This is Abdullah Al Buraidi from Emirates NBD. I have a couple of questions. The first one regarding the sensitivity of regardless of the net special commission income. We noticed when we look at the repricing table that the duration of assets continue to inch lower, given by the high growth in corporate loan book, which outpaced the growth and retail book significantly. On the other hand, we noticed that liabilities has increased in duration a little bit from being extremely short duration to slightly higher duration, which makes the bank, I mean, in theoretical basis, more sensitive to lower benchmark rates. So, how confident are you from having this NIM to be flat or slightly improving?
That's the first point. The second one, we noticed some connecting points here and there regarding the mortgage growth not being that high in this year, and the decline maybe in CASA and the duration as well. I mean, and forgive my ignorance, and I think more growth and mortgage would bring with it more CASA and a higher duration, which is helpful in such declining interest rates environment. How do you look at this?
Thank you very much. I think for the first question, I think we have been positioning the balance sheet very favorably for the falling rate cycle. I think based on actual and based on the December 31st positions, as well as when based on the maturities and the sensitivities that we apply on through our ALCO process, I wouldn't say 1 basis point positive for every 25 basis point rate cut, but I would caveat it to nearly zero. But there could be some marginal benefits. I think that has been very well managed through our directional investments portfolio, as well as through also the repricing periods of our corporate book. That's one. And thank you for bringing this up.
The second one is, yes, on the face value, I think mortgage would share in a better way for a higher for a falling rate cycles, provided that they are bringing they are being priced reasonably well. And I think that's our focus. Don't get me wrong on that one. And I think the level or the type of mortgages would have a different impact on the different of CASA that they bring. So if we go to the low buckets mortgaging, mortgage businesses, I think the level of CASA is almost not that great or negligible. But when we do our focus and we are geared towards our the non-REDF the affluent and the upper mass segments, I think that's what we are targeting. That has a positive implications.
But also, I would like to bring a point here that mortgages also, because of durations, it is a capital intensive when it comes to the interest rate risk in the banking book. So I think we look at this from the whole balance sheet perspective, rather than just a product and a business by itself in isolations on others. I think that's what my colleague, Nadir, was alluding to in terms of the value impact for the bank, on the foreseeable future. Thank you.
Yeah, thank you. Very, very informative. One last question, if you allow me. There was a good amount of write-offs in the second half, mainly the third quarter and even the fourth quarter. Could you shed some light on this? Thank you very much, Wafa Kamel.
I think during the third quarter earnings calls, I did inform the investor community that we had to deal with... We were trying to restructure one of a large exposure that we have. We had initiated a discussion during the course of the fourth quarter, 2024. And we continued that discussion in Q1. Unfortunately, the restructuring has collapsed at that time, and we had to recognize this as an NPL, and that was translating in our coverage dipping down. The legal process started, and we think that, you know, this is going to take long time. So we decided to cover up the remaining because we had very prudently provided for, and we wrote it off. So we are talking about-
And-
... about SAR 1.something billion. So that's what has swinged that curve. And we were very, I mean, I think we updated the Q3 and Q4 on that basis.
And the fourth quarter as well, there was around SAR 1 billion?
No, no, it is the same. Nothing more.
Okay. Okay. Thank you very much.
You're welcome.
Thank you. In the interest of time, that is now the end of the Q&A session. If you have any further questions, then please direct these to the IR team. I will now hand back over to the management team for closing remarks.
So, ladies and gentlemen, thank you all very much for joining us on today's call. We are pleased to have shared another set of strong and healthy result for the year 2025. Our continued progress reflects the strength of our strategy and the discipline of our execution. We are excited about what lies ahead and look forward to sharing more updates with you in the future, earnings calls. Thank you again for your time, and have a good day. Thank you.
Thank you, everyone. This concludes today's webinar. You may now disconnect from the call.