Welcome to the BSF 1H 2025 earnings presentation. Please note that the call will be recorded. During today's call, webcast participants will be in a listen-only mode while we conduct the question-and-answer session. If you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Instructions will also follow at the time of the Q&A. I would now like to turn the call over to the Citi host, Rahul Bajaj. Please go ahead.
Thanks, Sophie. Hello, everyone. Good morning. Good afternoon. This is Rahul Bajaj from Citi. We are delighted to host BSF for their first half 2025 earnings call today. At this moment, I will hand over the call to Yasminah Abbas, Head of Investor Relations at BSF, to take the call forward. Thank you.
Good afternoon, everyone. Welcome to BSF's Q2 2025 earnings call. We would like to begin by thanking Rahul and the Citi team for hosting us today. Kicking off the session will be BSF CEO, Bader Alsalloom, who will walk us through earnings summary and provide an update on the current strategy, along with a preview of what is ahead. Following Bader, our CSFO, Ramzy Darwish, will offer a deeper dive into the financial performance. We are also joined by Zuhair Mardam, our CTIO, who will be available to answer questions at the Q&A session towards the end of the call. Let me now hand over to Bader.
Thank you, Yasminah. Good afternoon, everyone. Thank you for joining us to go over our first half performance for 2025. We delivered another strong set of results this quarter, supported by disciplined execution. Our focus on sustainable and profitable growth continues to deliver tangible outcomes with healthy top-line expansion, improved cost metrics, and most importantly, returns. Let me start by walking you through the key financial highlights for the quarter. In the first half of 2025, we maintained a disciplined approach to lending. While loan origination remained healthy, loans and advances grew by 6% year-on-year to roughly around SAR 210 billion, supported by both corporate and retail segments. We continue to prioritize quality growth without compromising, of course, on profitability.
On the funding side, total deposits declined by 7% year-on-year, mainly due to a 14% reduction in interest-bearing balances, in line with our ongoing efforts to optimize the funding mix. During the period, we successfully accessed capital markets through additional debt issuances, helping to diversify funding sources, extend maturity profiles, and reduce reliance on expensive shorter term deposits. These actions, alongside effective hedging strategies, supported a 3 basis point year-on-year improvement in NIM to 3.11%, with margin also improving on a sequential basis. This margin expansion, coupled with solid growth in fee and other income, contributed to a 14% year-on-year increase in operating income, reaching SAR 5.317 billion. Net income grew by 20% year-on-year, driven by strong revenue growth, positive jaws, and an improved cost of risk. Cost of risk declined by 10 basis points year-on-year to 0.5%.
Although the NPL rose slightly by 3 basis points to 0.97%, we maintained a robust coverage level of 183%. Our capital position remains strong with a Tier 1 ratio of 20.1%, also supported by the issuance of additional Tier 1 capital during the quarter. The liquidity coverage ratio stood at 168%, lower year-on-year, but broadly stable versus previous quarters and well above regulatory requirements. The non-interest-bearing ratio increased to 47%, reflecting the decline in interest-bearing deposits mentioned earlier. Before we jump into the strategy update, I just wanted to give a quick high-level update on our businesses. Starting with Wholesale Banking, which showed strong trade fee growth alongside repricing momentum for on and off-balance sheet items offset by lower loan volumes. Retail Banking continues to show high momentum with notable progress in customer servicing, lending activities, and enhanced branch offerings.
Private Banking showed strong improvements in our business model, particularly in service quality, client coverage, and synergies in our capital markets arm. JB delivered robust first half results compared to the previous year, signaling solid progress towards profitability, customer acquisition, and distribution. Last but not least, BSF Capital continues to show high momentum on the back of increased IPO activity, real estate fund expansion, and increased collaboration with the bank's Wholesale Banking and Personal Banking businesses. Jumping into our existing strategy execution. We continue to deliver steady progress across all business lines as we approach the final stretch of our current strategic cycle. Wholesale Banking expanded its footprint through deepening government relationships and new strategic partnerships. While Personal Banking benefited from enhancements in digital channels, branch transformation, and growing traction in the affluent segment.
The new development plan for Private Banking, introduced last quarter, is already showing promising early results. On the next slide, our subsidiary, JB, continued to drive digital adoption across key products, and BSF Capital gained momentum in real estate funds, increased IPO activity, and collaboration with other business lines. Let's turn to the progress we're making on the technology infrastructure side. We've entered an important phase in our digital transformation, with several key initiatives either launching soon or already underway. Our integrated corporate portal is progressing well, with Phase 1, which is focused on trade services, on track to go live in the coming weeks, helping digitalize all trade service processes, specifically improving turnaround time and operational efficiency. Phase 2, planned for early 2026, will introduce a client-facing trade services interface that allows users to submit and track trade requests digitally.
Looking forward ahead, we also plan to expand into supply chain financing to expand our trade capabilities and support scalability as part of our strategic growth and financial services. In retail, our new omni-channel digital app, BSF Mobile, launched earlier this year, has seen continued investment. Additional feature releases are scheduled throughout the rest of 2025, and of course 2026, including real-time capital integration and enhanced deposit capabilities. This platform continues to be a core differentiator in our retail offering. Finally, our core banking system upgrade with the current phase focused on corporate lending, is advancing as planned. Deployment of the retail deposits model is targeted for the third quarter, with corporate loan capabilities scheduled for rollout in the first quarter of 2026. This will significantly improve scalability, efficiency, and customer experience in our corporate offering. Moving along to our new BSF 2030 Strategy.
We're also actively shaping our BSF 2030 Strategy, a new long-term roadmap that will guide the next chapter of growth, innovation, and value creation for the bank. As we shared in the first quarter of 2025, this strategy is built on two core pillars. First, strengthening our core business to maximize value and ensure sustainable performance. Second, preparing for the future by exploring adjacent opportunities that align with our bank's DNA and long-term vision. The program is also holistic in nature, a group-wide exercise covering all business lines, subsidiaries, and support functions with a strong focus on internal alignment and integration. Strategic direction has already been defined for our Retail, Private, and JB segments. The next focus areas are Wholesale Banking and BSF Capital, with structured checkpoints scheduled for the second half of the year.
We're intentionally challenging ourselves to reevaluate our asset mix and business model, explore capital optimization, strategic partnerships and fintech opportunities, and identify underserved segments and markets, all guided by a thoughtful risk- reward lens. This work is being approached from a group-wide perspective, ensuring a unified direction across BSF Group. While the work is ongoing, we have a clear roadmap, strong engagement across the organization, and a shared ambition to future-proof our business and unlock new sources of value. This is a snapshot of where we stand in our 2030 strategic journey. While there's still significant work ahead, we're progressing steadily with clarity, alignment, and a shared commitment to executing our vision. We expect to complete the strategy development by the end of this year and plan to share the full strategic direction with you in the beginning of next year.
With that, I'll hand it over to Ramzy, who will take you through the financial performance in more detail. Over to you, Ramzy.
Thank you, Bader. Good day, everyone, and thank you for joining us. It's a pleasure to welcome you to our second quarter for 2025's earnings call. I'm excited to have the opportunity to walk you through our financial performance for the quarter and also share some important updates on the progress we've made. This quarter's results really underscore the continuation of momentum and effectiveness of our strategy, with a 20% year-on-year increase in net income, driven by solid growth in core operating income, improved cost of risk, and also effective cost discipline. We continue to prioritize profitable growth, adopting a more selective approach to lending, while also maintaining a strong focus on returns. In addition, enhancing ROE remains a work in progress and will be a key area of focus as we shape our strategy.
Let me now walk you through the key developments, starting with the balance sheet on slide 10. As of June end, our total assets increased modestly by 3% year-to-date. This was driven by a 3% rise in loans and was further supported by a 4% increase in our investment portfolio. This echoes our diversified approach to asset allocation, balancing between liquidity, yield, and also interest rate risk considerations in line with our investment policy. On the liability side, we recorded a 2% year-to-date increase, primarily from a 54% jump in debt instruments and term loans due to our successful capital market activity, where we continue to execute on a three-pronged plan to expand institutional relationships, engage with international capital markets, and reduce tenor concentration. During the second quarter, we completed several additional private placements of certificates of deposit and bonds.
This reflects our ongoing efforts to diversify funding sources, optimize the maturity profile, and also maintain our presence as a regular issuer in the market. Lastly, for shareholders' equity, this rose 10% year-to-date to supported by retained earnings and the issuance of $650 million in additional Tier 1 during the quarter. I should mention that the issuance attracted really strong demand from both regional and international investors, with oversubscription exceeding 3.5 times. This further strengthened the bank's capital base and enhanced our funding diversification. On slide 11, total loans grew 3% year-to-date, or 6% year-on-year, and a relatively smaller 0.4% since the first quarter. Throughout the quarter, we continued to remain prudent and selective in our approach to commercial lending, with a continued focus on prioritizing profitability, risk-adjusted returns, and liquidity optimization.
It is worth noting that there was growth for the quarter by roughly SAR 7 billion, which was offset by settlements and maturities, without which growth in commercial lending would have been between 3%-4%. We do continue to expect to see similar level of settlements going forward but are also anticipating a stronger pace of drawdowns in addition to the healthy pipeline we see. This should drive commercial lending growth towards a full year of around 6% growth. Consumer lending expanded by a robust 9% year-to-date, or 17% year-on-year, and for sequential growth over the quarter was about 4%. This was driven by 11% year-to-date growth in mortgages and 8% year-to-date growth in personal loans. This momentum reflects the benefits of earlier strategic investments, including the omni-channel platform or BSF Mobile and the Saudi Pro League sponsorship.
We've increased our focus on the retail segment, particularly on the affluent customer base, and expect this growth trend to continue in the second half of the year. Also of note, JB contributed around 1/3 to the personal loan growth and delivered solid performance in auto loans. On slide 12, customer deposits declined 1% year-to-date as a decrease in interest-bearing deposits from corporate clients outweighed retail inflows. This was partly driven by the profitability focus, along with maturity and source diversification, as the bank looked to rightsize the mix to achieve these objectives. As a result, given the lesser asset driven needs of the quarter and the additional funding secured through other borrowings, we reduced almost SAR 9 billion in interest-bearing deposits, or close to 8% during the quarter.
Given the majority of diversification efforts have already taken place and the loan growth expected in the second half, we see deposit growth returning towards a more normalized pace. Non-interest-bearing deposits remained resilient, with overall NIBD balances rising to 40% of the total, around two and a half percentage points higher than in the previous quarter, which was mainly due to the rightsizing of the mix and optimizing liabilities. Nevertheless, on a year-to-date basis, we saw an increase of around SAR 1.5 billion or 2% in NIBDs. Retail inflows specifically were mainly driven by new- to- bank customers, with notable growth following the previously mentioned SPL sponsorship, the digital app enhancements, in addition to the credit card campaigns. Private banking also contributed as the rollout of the three-year private banking strategy began delivering results on the deposit front almost immediately.
On slide 13, net income for the first half of 2025 rose 20% year-on-year, supported by higher operating income, improved cost of risk and positive jaws. On a quarter-on-quarter basis, the second quarter net income reached a record high of SAR 1.4 billion, rising 5% versus the first quarter. We will go through the details on later slides, worth highlighting, operating income grew 14% year-on-year during the first half, reflecting double digit growth in both net interest income at +12% and non-interest income at +23%. Additionally, operating expenses grew by 10%. Impairment charges were lower by 6%, all contributing to the improvement in both the bottom line and return on equity, reaching 11.24%, up 36 basis points.
Also, for information, utilizing the ROE calculation by excluding additional Tier 1 from the denominator and reducing the cost from the numerator, the ROE would stand at 12.9%. On the next slide 14, net interest income increased by 12% year-on-year and 4% versus the first quarter. This was on the back of 11% growth in average interest earning assets and a 3 basis points margin expansion. Interest income for the first half of 2025 rose by 7%, while funding costs saw only a modest 2% increase. On slide 15, net interest margin improved by 3 basis points year-on-year and 4 basis points for the quarter. Important to highlight that we updated the calculation methodology to truly reflect our core earning assets and thus now are excluding cash and taking into account gross loans instead of net loans.
On the net interest margin, the improvement year on year was achieved as the drop in funding costs by 25 basis points year on year more than offset the decline in asset yields by 23 basis points following earlier rate cuts. The increase in average interest earning assets by 11% versus the increase in average interest-bearing liabilities of 9% also supplemented the NIM improvements. For the cash- flow hedges, these also contributed on a year-on-year basis positively in terms of delta, adding 18 basis points to NIM, or close to SAR 200 million on a year-on-year basis. Our emphasis on profitable lending growth and effective hedging strategy were key drivers of this margin resilience. On slide 16, with reference to rate sensitivity, our interest rate sensitivity remains limited, with 100 basis points rate shift estimated to impact net interest margins by approximately five basis points.
This is a marginal 2 basis points higher sensitivity and this was mainly driven by a point in time assessment of sensitivities as repricing for June has slightly greater sensitivity as a result of the timing of repricing. We continue to gauge interest rate sensitivity as being limited and expect to continue limiting interest rate sensitivity going forward via the many on balance sheet and off balance sheet tools available. For example, the balance sheet structure is supported by a larger share of fixed rate assets from retail lending and investments. Accordingly, the notional value of the cash- flow hedges declined by 9% year to date to reach SAR 28.4 billion, reflecting the evolution of the balance sheet. On the next slide 17, non-interest income was up 23% year on year.
This growth was supported by strong FX income in both quarters of this year, investment related gains booked in the first quarter, and improved performance across banking fees. Additionally, we recorded a one-time gain from the sale of an asset during the quarter in other non-interest income for roughly SAR 30 million. Fee and commission income, in the bottom right hand of the slide, increased 6% year on year. This was mainly fueled by a 17% rise in brokerage and asset management, and a 19% uplift in trade finance fees. In terms of operating expenses, on slide 18, expenses rose 10% year on year and were largely stable quarter-over-quarter. The year-on-year increase was mainly due to a 22% rise in general and administrative costs.
About 1/3 of this came from higher IT maintenance, another third from increased third party fees, a smaller portion relating to the branding expenses. We continue to optimize and look at costs to ensure it's fit for growth aspirations, while also ensuring efficiency and effectiveness in spend, as we highlighted last year. This is an ongoing exercise that the bank is monitoring, especially in light of the upcoming strategy. For depreciation, as a result of many projects and initiatives coming online this period, we also saw a 19% year- on- year rise in depreciation expenses. Despite this, the cost to income ratio improved 113 basis points year on year to 32.7%, driven by positive jaws. On slide 19, with reference to cost of risk and impairments were down 6% year on year in the first half of 2025.
This pushed the cost of risk down to 50 basis points for the half year, an improvement of 10 basis points, reflecting the normalization we had aspired to, but also the more prudent approach to underwriting. On a sequential basis, impairments declined by 16% due to lower required risk costs, but also due to recoveries. This quarter, recoveries across both retail and corporate segments improved, albeit not material to change the overall number. We also had small, roughly SAR 20 million reversal due to the cancellation of an off-balance sheet guarantee. On slide 20, we continue with risk on the NPL ratio, which had increased to 97 basis points in the second quarter due to a few exposures migrating into the category. Nonetheless, the overall level still remains healthy and within expectations. NPL coverage remains robust at 183%, supported by strong provisioning practices.
Stage-wise, provisioning remains stable with a minor year to date increase in Stage 3 coverage. Moving on to liquidity. On slide 21, liquidity continues to remain strong with prudential ratios for the liquidity coverage ratio at 168% and the net stable funding ratio at 116%. The headline loan to deposit ratio rose to 114.9%. At the same time, the regulatory loan to deposit ratio remained stable at 82.2%, leaving ample capacity for further growth. We continue to balance alternative long-term funding sources, which help support growth and reduce short-term maturity risks while maintaining a balanced liquidity profile. On capital, with slide 22, the total capital increased by 9% year to date, with the Tier 1 ratio improving to 20.1%, with total capital adequacy rising to 20.9%, and the CET1 ratio around the same levels at 16%.
These gains reflect solid retained earnings, OCI movements, and the successful $650 million issuance in additional Tier 1, partially offset by the dividends paid during the quarter. Two points that worth highlighting here as well. First, the board of directors on the 21st of July announced the decision to distribute a cash dividend for the first half of the year. The SAR 0.55 dividend per share represents roughly SAR 1.371 billion, and the ex-dividend or record date was three days ago, on the 27th of July, with the payment date of August 13th.
The second point to highlight, again, is that we have a SAR 5 billion local AT1 issuance that is callable in November of this year, which we had started preparing for from the third quarter of last year with the SAR 3 billion issuance and almost SAR 2.5 billion equivalent in this quarter. We continue to assess the needs for the future and manage capital requirements in its many different forms accordingly to sustain growth over the longer term. Lastly, on guidance. For the last year, as we had been highlighting, the focus on ROE, profitability, and selectiveness in lending. As a result, the first half loan growth stood at 2.8% year to date.
As such, we are revising our loan growth guidance down from low double digits to high single digits, reflecting a pragmatic view based on the modest first half expansion and some expected pickup in the second half of the year in line with the current pipeline. We leave other guidance targets unchanged at the moment. Net interest margin remains well positioned within the 3.05%-3.15% guidance band and is expected to stay within that range. Cost of risk continues to trend lower towards the lower end of our range of 50 - 60 basis points. Our cost-to-income ratio is aligned with the guided level of below 33%, with efficiency remaining a key priority. Return on equity reached 11.2% in the first half of the year, tracking well within our 11%-12% target range. Our CET1 ratio remains comfortably above the 15% minimum guidance, ensuring strong capital resilience.
To conclude, we delivered a strong first half performance driven by healthy revenue growth, prudent risk management, and disciplined cost control. We remain committed to maintaining this momentum into the second half of the year. On behalf of the entire leadership team, I want to thank you all, and once again for your continued interest, support, and partnership. With that, we're happy to open the floor for your questions.
Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Once your name has been announced, please unmute yourself and ask your question. If you would like to withdraw your question, please lower your hand by using the raise hand function. Thank you. A moment for the first question, please. We'll take our first question from Shabbir Malik. Please unmute your line and ask your question.
Hi, can you hear me?
Hi, Shabbir. Please go ahead and ask your question.
Yes. Okay, great. Thank you so much for the presentation. I have one question, please. In terms of your payout ratio, if I see that as of first half, it is roughly about 55%. Is this a level that you think is sustainable, given the growth outlook of the bank, and the potentially new capital requirements, the countercyclical buffer, which is coming in next year? Do you think this payout ratio is sustainable over the medium term? Thank you.
Hi, Shabbir. Thank you for the question. Maybe just to reiterate, I think the dividend payout ratio, we are at 50%. I think taking into account many different factors, like you mentioned on the capital requirements, this is one element. There is the growth in the balance sheet in terms of RWA as well. I think at this stage, we are really trying to look at it on a long-term basis. We do go through this process internally and with the central bank in terms of the internal capital adequacy assessment, which goes out three years. Within that, we do take into account also stress scenarios. At this stage, I think we are still comfortable with the current level, but we do assess on a dynamic basis. As you can tell from our pre-p reparation for the potential call of the additional Tier 1 in November.
We do want to maintain a buffer in terms of time and in terms of quantum. This would obviously have an impact on the potential dividend payout ratio. At this stage, nothing to comment on in terms of change. Again, we do go through this process on a regular basis.
Thank you. If I may, one more question. If I, at least, maybe you've discussed this as well. In terms of my calculations, the asset yield QoQ was up, even though, I guess the interest rate environment was broadly stable. Just want to hear your comments on that. Is that something that you've observed as well that the asset yield sequentially was up? If it was up, what was the driver of the expansion?
Sure. I think this came down to many factors, but looking at the breakup in terms of constituents, the investments would have been repricing. This would be one element. The second is our effort on the loan side to reprice in terms of spread as well. I think in combination, this is what led to the increase on the asset yield for the quarter.
Got it. Thank you so much.
Our next question comes from Olga Veselova. Please unmute your line and ask your question.
Thank you. Good day. Good evening and thank you for taking my questions. I have several. One question is on loan growth. During your presentation, you mentioned that the moderate loan growth in the first half or in the second quarter was driven by settlements. Did these customers migrate to competitors, where they received better interest rates than at BSF, than Banque Saudi Fransi? In which industries were these settlements? This is my first question. My second question is on increase of capital requirements. I understand that you are well-capitalized, CET1 comfortably above the minimum. Zooming out, what do you think is the rational for the regulator to grow capital requirements now? This is my second question. My third question is on asset quality and cost of risk. We see that Fransi, but also other Saudi banks, are not really growing provisioning charges.
They remain low versus history, versus emerging market peers. I understand the argument that there are no signals of asset quality deterioration, surely a part of provisioning is built based on IFRS 9, as anticipatory provisioning, related to potential changes in the budgets of macro parameters. Do we conclude from this that you do not anticipate any changes in operating environment in the mid-term future, or maybe quarters and several years? Thank you.
Yes. Hi, Olga. Thank you very much for your question on the loan growth. As mentioned more specifically on the corporate loan book, has grown more modestly than the market, mainly due to our selective approach to lending, which, of course, focus on maintaining, as always, asset quality and client profitability. Your question was regarding settlements. These were normal monthly asset runoffs that we have, these were scheduled settlements. What we're doing is, this exercise actually started in the second half of last year, we're actually replacing those loans or those assets at a higher level or a higher yield. We're not experiencing any pre-settlements per se, given the competition in the market. We do have some, that's not the main driver for our asset runoff.
Our asset runoff are scheduled asset runoffs, which are currently being replaced with higher yielding loans, while at the same time maintaining the same quality of assets.
Hi, Olga. I'll take the second question on the capital requirements. Unfortunately, I don't think I can speak for other parties, I think in general, in the system, we've always been prudent in terms of capital and capital requirements. For this reason, I think there would always be a hesitation, at least to err on the side of caution, whether it's within individual banks or across the system. Would not be able to comment too much on the capital requirement side. For the third question on impairments and cost of risk, you are correct, this is model-driven. Again, I can't speak to the other banks, it does rely on several macroeconomic factors, oil being one of them.
We do highlight the sensitivity to oil there, but it is dependent on, I think at least a 12-month change that would be included. Even in that case, when we model out the sensitivity, it's fairly limited in terms of the feed-through to impact, unless we actually start seeing deterioration in the credit names themselves. Maybe on Stage 1 addition, you would see that, but for Stage 2 and 3, you would actually really look at the actual potential risk that comes out of it. Thus far, given the healthy, robust economic profile that we're still seeing, especially with all the infrastructure requirements going forward. The growth in terms of lending and deposits, we don't see it really impacting names outside of a case-by-case basis. Sector-wide, no issues that we can see, at least as of now.
Thank you for your answers.
If I may, sorry.
Yeah, please.
Olga, sorry. On the first question, when it came to the settlements, I believe there was a second part of the question, if we saw which sectors it actually came from. The answer is, it was across the board. We didn't see any significant shifts when it came to our concentration, our loan book concentration, more specifically our corporate loan book concentration from a sectorial perspective. It was mainly across the board with no significant shifts in any concentration sector-wise. Sorry, go ahead, Olga. You were about to say something.
Yes. No, thank you for this. That's clear. I wanted to clarify, I do remember you mentioned that you were replacing loans at higher yield. Was this a one-off exercise at the beginning of the year, or this is ongoing exercise which you continue now?
This is an ongoing exercise, which we actually started in the second half of last year. This exercise started in Q3 of 2024 and is ongoing.
Thank you.
Again, this is part of our strategy to focus on profitability rather than volumes. We are looking at more profitable extension of loans rather than tight margin. We are letting go of some of these loans that are very tightly priced and replacing them with the same quality, if not better quality, but at better yields.
That's clear. Thank you.
Our next question comes from Naresh Bilandani. Please unmute your line and ask your question.
Yes. Hi. Thanks a lot. It's Naresh Bilandani from Jefferies. I have three questions, please. One is, I think in your Q4 call, you had mentioned that the NII growth expectation for this year is going to be low teens. In context of your reduced volume growth expectations, how much NII growth should the targeted or the indicated NIM offer? That would be very helpful. Second, would it please be possible to share, even if in broad terms, how the high single-digit target for loan growth should be split between corporate and retail? My apologies. I think you did offer some indication when you were talking about loan growth, Ramzy, I may have missed that point. It would be very helpful if you can split the high single-digit loan growth guidance between corporate and retail. Third, and this is a bit of a broad questions.
In an earlier call in this year, you had mentioned that the higher liquidity premium environment eventually, in your view, should lead to a repricing of credits, thereby helping the NIM across the industry. Clearly, we haven't seen that yet. I know you've made some efforts on that direction; we haven't seen this trend come across in the industry. Overall, would you say, are you seeing any signs of this favorable change occurring? Is the pricing competition still remaining irrational, which means that the outlook for the NIM is still likely to remain under pressure into the medium term? Any thoughts for the industry there would be extremely helpful. Thank you.
Naresh, thank you for the question. Maybe I'll start with the first one, maybe I misunderstood, I think in terms of net interest income, even with the smaller balance sheet growth versus expectations, we still do expect to be in the same level on net interest income change. For NIM, the same as we've guided, no change there. Maybe if you want to clarify, I can add more context there's no change in our expectations on the NII versus NIM.
I'll take the second and third question. Your second question, Naresh, was on loan growth split, the higher single-digit guidance for the end of the year. We are from splitting it, of course, looking at the current or the first half year-to-date growth, I believe corporate is currently at roughly around 1%, consumer lending is currently running at 17% year-to-date growth. What we expect towards the end of the year is 6% growth when it comes to corporate, roughly around 15% growth when it comes to consumer lending or retail. On your last question, when it comes to competition on spreads, of course, we continue to see competition on spreads, both on the consumer lending side, more specifically on personal loans, and also on the corporate lending side. It may have eased a bit since last year. However, we still continue to see competition on spreads.
We, of course, maintain our strategy not to get involved in any price wars when it comes to competition.
Thank you very much, Bader. Thanks, Ramzy.
Our next question comes from Aybek Islamov. Please unmute your line and ask your question.
Yeah. Thank you for taking my questions. Well, I think some questions are about funding, right? Let me be very specific. Can you discuss your pecking order in terms of your funding preferences, additional tier one versus certificates of deposits, and you've been very active in that market. Relating to this question, you spoke about the diversification of funding recently. Is that diversification of funding going to impact the funding cost in the coming quarters positively or negatively? Would be great to have some color. On asset quality, the second question, can you discuss what is driving the marginal increase in absolute NPLs in both consumer and corporate segment in the second quarter? Lastly, I'm just looking at your fee to asset ratio, and that ratio has been in a steady decline since 2021. Although it's just a minor drop, but it's not improving.
What are the initiatives that you are taking to reverse this trend? That's pretty much it. Thank you.
Thank you, Aybek. I'll take the first one. We have been witnessing obviously a drop in our customer deposit base. We've seen a 1% decline year-to-date and 4% on sequential basis. The quarter-on-quarter drop was largely driven by the 8 .5% reduction in interest-bearing deposits. This aligns with our strategy to enhance funding efficiency by selectively releasing some of our high-cost, unstable customer deposits and tapping into diversified wholesale sources. Several programs we've established in the past, which provide stable funds, longer maturities, and diversified in terms of geography and investor base. This is also evident in our net stable funding ratio, which stood at a healthy 116%.
It's also worth noting that in the second quarter we've rolled out the CD program, which raised approximately $950 million in the second quarter from several investors, be it institutions, money market funds, also international high net worth individuals, which can provide direct access to the deposit base within the kingdom. This initiative complements the local deposits while strengthening our funding diversification and would act as interchangeable with our customer deposits. Despite the tactical shift we've seen in the funding mix, deposits remain and will continue to represent the core proportion of our liability base, which we expect to grow organically alongside with credit growth. Being active and present in the capital markets and having a solid liquidity buffers allow us to flex our funding mix based on evolving market conditions and ultimately control cost of funding.
I'll take the second question on NPL, and what was driving that slight increase. As mentioned, NPL ratio slightly increased by 3 basis points, so not a significant shift. No specific name actually moved that, but on the staging, at least, on the corporate side, we had one medium-sized company and one small company, both in the construction industry, move into Stage 3 NPL. On the consumer lending side, slightly maybe impact from JB, but nothing worrying, as it's fairly insignificant.
Aybek, sorry, could you repeat the third question?
Yeah, sure. I was asking about the fee- to- asset ratio, right? Looking at fees as a percentage of your average assets, that ratio has been steadily declining since 2021. That trend continues in the first half. Any particular initiatives that you're undertaking to reverse this trend?
I think it has been a focus that we've been looking at over the last few quarters. Part of this is driven by trade fees, where we have had significant improvement. The other is on asset management and brokerage, where also there's been a significant uplift. You would've seen over the course of the first half, even running into this half of the year, quite a lot of activity on the investment banking front. I think the one area that has been declining has really come mainly from the credit card business, particularly when we look at fees. When we look at the credit card business overall, there's obviously interest income that comes with it. There's relationships and other ancillary business, so we don't really look at it on a fee-only perspective.
I think across the first three that we have discussed, asset management, brokerage, investment banking, and trade fees, we do see a really good traction momentum, and we hope to continue that going forward.
Okay. Thank you.
This concludes the question-and-answer session. I will now hand back to management for closing remarks.
Thank you again for joining us today and for your valuable questions. We're energized by the opportunities ahead and confident in the direction we're taking. As always, our focus remains on delivering long-term value while staying agile in a dynamic environment. We look forward to keeping you updated on our progress in the quarters to come. Thank you very much again.