Hello, everyone, and welcome to the Al Rajhi Bank's Q4 2025 earnings call. My name is Sam, and I'll be the moderator for today's call. All participant lines are currently muted. After the prepared remarks, there will be a question and answer session. If you'd like to raise your question throughout the call, please use the Raise Hand button on your Webex toolbar. I'll now like to hand you over to today's host, Dr. Sultan Al-Towaim, Head of Research at Al Rajhi Capital. So please go ahead.
Good afternoon, everyone. This is Sultan Al-Towaim from Al Rajhi Capital. We are pleased to host Al Rajhi Bank Q4 2025 earnings call. Welcome, everyone, to this event. Without any further delay, I will hand it to Mr. Sulaiman Qureshi, the Head of Investor Relations, to introduce the management. Please, the floor is yours.
Thank you, Dr. Sultan. Good day, everyone, and thank you for joining the call. With us on the call today, our Managing Director and CEO, Mr. Waleed Al-Mogbel; CFO, Mr. Abdulrahman Al-Fadda; and Retail Group General Manager, Mr. Majed Al-Rajhi. As always, our CEO will start with the results, highlights, and strategy performance. Then the CFO will cover the financial performance in more details. And finally, we will open the floor for your questions. Please note that the results presentation is now available in both Al Rajhi Bank website and Al Rajhi Bank IR App. And now I'll hand over to Mr. Waleed.
Thank you, Sulaiman. Welcome, everyone, and thank you for joining our earnings call for the fourth quarter of 2025. As always, I will start by highlighting our performance, followed by an overview of our strategy, Harmonize the Group. Then I will give the floor to our CFO to cover the financial performance in more details. Before I walk you through the 2025 performance, it is worth mentioning to highlight that Al Rajhi Bank announced the board of directors recommendation to increase the bank's capital through the issuance of bonus shares. By capitalizing SAR 20 billion from retained earnings, 1 bonus share will be granted for every two shares held, raising the bank's capital to SAR 60 billion from SAR 40 billion.
The increase in the bank capital is aimed to strengthen the bank's core capital structure, which contribute to achieving our strategic objective. Also, the bank announces the board of directors recommendation to distribute cash dividend to the shareholder for the second half of 2025 by distributing SAR 1.75 per share, as part of our commitment to maintain a healthy payout ratio for our shareholder. Now, let's take a closer look of our 2025 financial year performance. If we move to the next slide.
For 2025 financial year, the bank delivered an excellent performance, supported by our strategy execution and an improved economic environment, resulting in an outstanding net income of almost SAR 25 billion, alongside with a healthy balance sheet growth. Starting with the balance sheet, we were able to deliver a 7% growth year-on-year, with the total asset standing at 1.04.
This asset growth driven by a 9% year-on-year increase in our net financing book. On the liability side, total liability stand at SAR [9 billion], reflecting a 6% year-on-year increase, which brings our LDR to approximately 83%. Moving to the profitability, the net income reached almost SAR 5 billion for 2025 financial year, higher by 26% compared to 2024. Net yield income grow by 20%, while non-yield income increased by 28%. This resulted in a total operating income increase of 22%, reaching around SAR 39 billion. In terms of credit quality, we continue to maintain distinct class asset quality, with a cost of risk standing at 32 basis points. Additionally, NPL stand at 75 basis points, supported by a healthy coverage ratio of 152%.
If we look at the key ratios, our market-leading cost-to-income ratio has improved to 23.3%, and that's supported by our operational efficiency. The bank also maintains a strong financial position with a total capital ratio of 22%, which is well above the regulatory minimum. Lastly, our net profit margin increased to 3.16%, supported by our focus on enhancing yield and optimizing the bank's cost of funds. Moving to the next slide to highlight the progress of our strategy execution, which is worth mentioning that this year is the last year of our strategy.
If we start with the first pillar of the strategy, which is business to consumer, B2C, our focus on retail cross-selling is a primary goal of this strategy, evidenced by an increase in the product per customer ratio to around 45% now since we introduced our strategy in early 2024. Our sales from target customer portfolio have witnessed a growth of 340% since 2023, and that backed by our effort to expand our customer base across both existing and new segments. Our universal offering and financial solution have made us the bank of choice for over 20 million customer across the kingdom, while we maintain high customer satisfaction, reflecting in a Net Promoter Score of 82.
Moving to the second pillar, which is B2B, business to business, our corporate portfolio has continued to grow, reaching around SAR 271 billion, 24% higher year-on-year. This growth resulted from our ongoing effort to expand wholesale lending and focus more and more on SME, which has grown massively by more than 50% year-on-year. And now the SME book representing 22%, 22% of our non-retail book and 8% of our financing book. The bank's also focused on developing the investment banking business as a part of our strategy, and that to enhance the non-yield income. With revenue from investment bank activity also growing by 270% since 2023.
Looking to our third pillar, which is the support business, we continue to invest in technology and automation across the group to drive innovation and operational excellence, reflected by the percentage of a process automated, which has reached now 60% as of 2025. While the percentage of applications that are ready, cloud-ready, has also increased to reach now 90% of our IT infrastructure. On the last pillar, which is digital and data, our digital to manual ratio has improved to 96% by end of 2025, highlighting our digital expansion. In addition, AI and data-driven activity are gaining momentum, generating revenue through data-driven marketing, which has increased by almost 450% since 2023. If you allow me now, I will hand over to Abdulrahman, our CFO, to give you more details on our financial performance for 2025. Thank you.
Good day, ladies and gentlemen. I will go over the financial performance slides very quickly so that you can have a further time during the Q&A session later on. I'll start with the balance sheet. Our total balance sheet stands at almost SAR 1 trillion, where we have seen 7% growth year-on-year and almost 2% drop on a sequential basis. It's worth to highlight that at Q4, this is the first time that we had a sequential drop since Q3 2019, due to a few securitization that we've done in the second half of 2025.
To analyze the 7% growth year-on-year in our total asset, as you can see on the bottom, left-hand side of the chart, it's mainly driven by our financing book, which has grown by almost 9% year-on-year. On the funding side, we continue to further diversify our funding sources, where you can see that the majority of our funding sources are contributed to almost SAR 12 billion increase in our customer deposit, 39 from sukuk issuance and others, and a further SAR 15 million equity buildup that we have done in 2025. Zooming in further into the main driver of the balance sheet movement, our total financing book stand at SAR 753 billion as of the year-end, almost 9% growth year-on-year, and flat on a sequential basis.
Retail book represents almost 64%, while non-retail book represents 36% of our financing book. To analyze the 9% financing book growth year to date, as you can see on the top right-hand side of the chart, we have mortgage have grown by SAR 8.5 billion, i.e., 3%. Although that we have securitized SAR 10 billion of a mortgage book in the second half of 2025, which bring the overall mortgage book growth of almost SAR 18.8 billion. Ex mortgage of the retail book have shown a contraction of almost SAR 2 billion. However, we have securitized almost SAR 4 billion of our ex mortgage of the retail book that have bring the overall retail book growth of almost 4.3% year to date.
Corporate and SME have grown by 19% and 50% respectively. Mortgage book stand at SAR 276 billion as of the year-end, which represent 57.2% of the retail book and 36.2% of the overall financing book. Our customer deposit stand at SAR 667 billion, almost 2% growth year-over-year, and 4% drop on a sequential basis. It's worth to highlight that our CASA as a percentage of the customer deposit stand at 64.8% as of the year-end, compared to 63.3% in Q3. Our CASA movement of our customer deposit, as you can see on the bottom right-hand side of the chart, CASA have dropped by SAR 25 billion.
If you recall, in the first quarter we had a major large account that have transitioned to time deposit. However, we managed over the last nine months since the first quarter to negate that impact. Time deposits have increased by almost SAR 41 billion, i.e., 21% year-on-year. Our investment book stands at SAR 174 billion, almost flat on a year-to-year basis. It's worth highlighting that we had a slight drop in the fourth quarter. This is to rebalance our investment portfolio to take advantage of the interest rate environment. Sukuk represent 87% of our investment book, fixed rate represents almost 74%, while 83% of the book are in domestic. We move to the profitability section.
Our Q4 net income stands at SAR 6.4 billion, 16% increase year-on-year and flat on a sequential basis. To analyze the sequential movement, as you can see on the bottom left-hand side of the chart, our NII decreased by almost 12%. Non-yield income has dropped by almost 12%. However, the core fee income, coupled with exchange income, has shown a very healthy growth on a sequential basis. Our expenses have increased by SAR 463 million. This is due to increase in communication, utility expense, IT and software expense. Our total impairment charge has increased by only SAR 56 million on a sequential basis. The net income for the period stands at SAR 24.8 billion, 26% year-on-year.
Driver, as you can see on the bottom right-hand side of the chart, NII have increased by 20%. Non-yield income, a healthy growth of 28.2%, while OpEx have increased by 14.5%, which bring the pre-provision profit to higher by 24.4%, while net impairment charge were 10% higher year-on-year. To further zoom in on the net income driver, I'll start with the operating income. Operating income for Q4 stand at SAR 10.4 billion, 19% year-on-year increase and 5% increase on a sequential basis. Our operating income for the period was stand at SAR 39.1 billion, 22% higher, mainly driven, as highlighted earlier, by 20% growth in our, NII due to the, increase in our average earning asset, coupled with three basis point NIM expansions.
Fees have grown by 25% year-on-year across all line item. We've seen a very good healthy growth into the, trade, cash management. On the retail side, as Waleed highlighted earlier, we made a very good progress in improving our cross-sell activities. Exchange income have shown a very healthy growth of almost 21% year-on-year. Finally, other income have shown a 48% due to securitizing some of the SME mortgage of the retail book, where we have taken the upfront gain in the second and the third quarter of 2025. NIM stand at 3.16, three basis points year-on-year expansion.
We have seen a very healthy growth in the fourth quarter, driven by the management initiative to reprice our gross, on the, asset, and increase on the, gross yield, coupled with a 16 basis point improvement in our cost of fund on a sequential basis. The driver of three basis point NIM expansion, as you can see on the bottom right-hand side of the chart, two basis point on the retail repricing, giving the management initiative to reprice our retail asset. Corporate have a seven basis point drop due to the SAIBOR movement, which is the same, almost the same reason on the treasury, where we have 1 basis point drop. Finally, our cost of fund has improved by 5 basis point.
To move and analyze the second driver of our net income growth, our OpEx for the fourth quarter, around SAR 2.7 billion, 30% increase year-on-year and 20% increase on a sequential basis. The driver of our OpEx increase of 14.5% year-on-year, as you can see on the top right-hand side of the chart, salaries has increased by 8%, depreciation has increased by almost 20%. This is due to capitalizing some of the project that helped us to execute the 2026 strategy. Finally, G&A has increased by almost 20%, giving the earlier explanation. While our OpEx have increased by 14.5% year-on-year, our operating income have increased by 22%.
That healthy positive jaws helped us to reduce our cost-to-income ratio from 24.9% to 23.3%. Moving on to the asset quality. Our NCL for the fourth quarter was SAR 626 million, thirteen percent year-on-year. However, our cost of risk remained flat at around 32 basis points. As you can see on the bottom left-hand side of the chart, although that our gross charge has increased by SAR 1.1 billion, however, on the recovery initiatives, we managed to negate that increase by SAR 900 million, which bring the net NCL movement of close to around SAR 200 million. Moving on, our NPL balance stand at SAR 5.7 billion, riyal, 6.7% year-on-year growth.
As you can see on the top right-hand side of the chart, we have written off close to SAR 5.3 billion, while the net inflows were around SAR 5.6 million. Having said that, our NPL ratio remained almost flat, both on a year-to-year basis and on a sequential basis, at around 75 basis points, driven by stable retail NPL, while the improvement we've seen on the corporate NPL. Our NPL coverage stand at a healthy level at around 152%. Our ECL stock at around SAR 8.7 billion as of the year-end, and as you can see on the top right-hand side of the chart, we have a top-up our non-retail book, giving that we have a healthy growth of growth in our financing book by almost 24% year-on-year.
Stage one exposure as of the year-end stands at 96.9%, flat compared to the same period last year. This is to show the healthy origination that we've been doing in 2025. Stage coverage remains unchanged, flat on a year-to-year basis and on a sequential basis, where stage one coverage, 37 basis point, stage two at 10.6%, and finally, stage three at 55.5%. Liquidity ratio remains healthy and within the regulatory requirement. Although that our headline LDR stands at around 113%, unweighted LDR, which takes into consideration the sukuk syndicate loan, stands at 95.2%, while our regulatory LDR at almost 83%. LCR and NSFR at a comfortable level and above the regulatory requirement.
On the capital side, our total RWA stand at SAR 674 billion, almost 10% growth year-on-year, mainly driven by 10.6% growth in our credit RWA. It's worth to highlight that our RWA density has increased to 64.6%, compared to 63.3% as of the third quarter of 2025. Our capital ratio, CET1, stand at 16.6%, Tier one at 20.5%, and finally, our total capital at 21.9%. In 2025, we managed to improve our Tier one capital ratio by a hundred and twenty basis points year-on-year. And as you can see, the driver on the bottom right-hand side of the chart.
Although that the credit growth, coupled with the dividend distribution, have contributed to almost 370 basis point in a drop in our capital ratio. However, there was an almost 400 basis point improvement in our capital ratio due to internal capital generation, giving the healthy RWA density. Return metrics are considered still at a comfortable and above the industry standard. ROAA at 3.86%, ROE at 23.4%, and finally, our ROA at 2.4%. Our outlook for 2026, and I think we still expect the GDP to grow at in the range between 4%-5%, mainly driven by non-oil GDP growth, which is expected to deliver the same momentum that we've seen in 2025.
Consumer spending is still healthy, where we have seen almost 11% increase year-on-year. And finally, our expectation that the credit demand in 2026 will be slower than compared to the historical standard. Under the interest rate outlook, our best case forecast is to cut one in July and the other one at the tail end of 2026. However, in the lower rate environment, we're still geared for a better NIM expansion, giving the healthy fixed rate component of our total assets. Having said that, our financing book guidance for 2026 is low to mid-single digit growth. NIM to expand between 25-35 basis points. Cost-income ratio to be below 23%. ROE to be above 23.5%. Cost of risk, stable in the range between 30-40 basis points. Finally, our total capital ratio to be above 20%. Waleed, back to you.
Thank you, Abdulrahman, for the financial highlights. We are so proud of our outstanding performance and the progress made across all KPIs of our Harmonize the Group strategy. As I mentioned earlier, this year is the last year of this strategy, Harmonize the Group. We will work on the new strategy in the beginning of this year, and once we get approved from the board at end of this year, we will present it, Inshallah, next year at the same time, 2027. Now, we will open the floor for the Q&A session. Operator, back to you.
Thank you. We'll now go ahead and open up for questions. As a reminder, if you would like to register a question, please use the Raise Hand button on your Webex toolbar. Our first question comes from the line of Naresh Bilandani from Jefferies. Please unmute and go ahead with your question.... Naresh, please unmute. Unfortunately, we're not receiving any audio from Naresh, so we'll move on to the next question, which comes from the line of Olga Veselova from Bank of America. Please unmute and proceed with your question.
Thank you so much. Thank you, Abdulrahman, and the management team. Please allow me to ask three questions. One is on the asset yield. Can you give us a sense on the pace of your loan book repricing? By how much do you increase the spreads, on which products you do and you don't, and how much more can you do this year? So that's question number one. Question number two is on costs. You mentioned during the presentation that there was some capitalizing on some of the projects. What exactly was this capitalizing, and how shall we think about depreciation and amortization going forward? We noticed there was acceleration in the D&A pace in the past several years. What should be the outlook for the next several years? And my last question is on your slide about the outlook.
Asking about new strategy, I understand you will be working on this during the year. You do mention that, when your strategy will be focused on providing financial ecosystem through a universal bank offering, what is different in building financial ecosystem versus what, what you actually already have and build now? Thank you very much.
Olga, on the asset yield, and I think, if you recall, on several occasions last year, we mentioned that the management focus is to improve the value rather than a focus on the volume. We focus on the high-yielding asset. We have seen a good growth on the SME. We've seen a certain growth into some portion of the retail assets that provide the higher-yielding asset. We see a percentage of the new origination or the new sales that happened in 2025, we have defined a percentage of the high-yield asset that has been improving, and this is one of the management initiative to negate the interest rate down by on the asset by maintaining a very healthy asset. The management will continue to focus into improving that in 2026 and beyond.
That's on the asset yield. As far as the... On the second question related to the cost, we have capitalized some of the project, especially in improving our IT infrastructure, to speed up the customer execution, to improve the customer journey, to digitize the transaction, to build an ecosystem between the bank and the subsidiary. All of those projects are contributed to execute the Harmonize the Group strategy, which you've seen one of the main initiative for us as a management, improve the cross-sell. In 2023, 38% of the customer base having more than one product, that has improved to 45%.
Now, as far as the cost outlook, I think we as a management, we are looking to further improve the customer journey, digitizing, and provide an improvement in our IT infrastructure. However, improve the customer experience, however, the focus for us is to build that positive jaws year after year to improve our operational efficiency going forward. On the strategy?
On the strategy, if you remember, when we start our building the ecosystem six years ago, we look at the market and we build our ecosystem, and we call it Unbank the Bank. Then in this strategy for the last two years and this year, we focus more on Harmonize the Group, which basically making sure that the bank, along with the eight subsidiary working together, getting benefit from the customer base has the bank and increase the contribution of subsidiary net profit to the total profit of the group. We will work, Inshallah, this year with the team some workshop to identify the new strategy, as I mentioned. Once it get approved by the end of this year, Inshallah, from the board, we will present it in more details next year at the same time.
Thank you. Thank you, and all the best to the team in 2026.
I can see we have Naresh back in the queue. So if we try again, Naresh Bilandani from Jefferies, please unmute and go ahead with your question.
Yes. Hi, can you hear me now?
Yes, we can. Please go ahead.
Oh, excellent. Thank you, and sorry for that. Thank you for the presentation. Congrats on the results. I'm sorry if these questions were already asked by the previous participant. I have three, please. One, can you kindly comment on the extent to which you feel the need to raise a further AT1 debt this year beyond the $1 billion that you already raised last month, and the fact that you are undertaking a capital release from securitization? I'm just trying to estimate the implied RoTE in your guidance post the AT1 go, AT1 cost, unless you can offer us some RoTE indication for the year here. That's the first question. My second question,...
Would you please be able to quantify the impact to your fee income run rate from the recent regulatory changes, the first ones that we had in the second quarter on credit cards and the recent, again, on the retail fees in early January? Are these going to be a meaningful impact to the fee income trajectory for this year? And my third and final question is, we recently saw some unfavorable developments in the brokerage landscape with one of the largest brokers in the system lowering their brokerage commissions on Saudi equities to zero. Can you please elaborate how meaningful an impact a similar move could have to your revenues given your lead positioning in the brokerage space, please? Thank you so much.
Thank you, Naresh. In regard of the fee guidance that has been imposed as a SAMA regulation, there is two elements. One, on the admin fee. As part of, it is part of our yield income, and it's amortized over the contract of the period. It is calculated as a percentage of the financial financing provided. The changes will be only applied to the personal finance and the auto lease. Mortgage will remain the same as it used to be. The impact will not be that material, and Al Rajhi Bank has effective, price strategy that can mitigate this impact. On the other, banking service, they are part of the fee income, with, varying impact across different service. However, the bank continue, assess, and evaluate market dynamic to adapt accordingly.
We believe the impact can be mitigated by focusing on increasing volume on the transaction of these services. Some of the fees will become more affordable to the consumer and will... we believe that it will continue growing. Overall, we believe that the positive momentum of the fee income will continue for the bank despite these changes. And the management initiative on harmonizing the group strategy will overcome this impact as the effort has resulted to the outstanding growth of year-on-year of over 25%. Naresh, on the first question on if there is any planned issuance of an AT1 in 2026, apart from the one that we have done, I think usually as a part of our annual operating plan, we put the best-case forecast in terms of the growth out.
First of all, the funding capacity, then we plan our growth outlook accordingly. Based on our best-case forecast that we put for 2026, we have not modeled in any further AT1 issuance in 2026, apart from the one that we have tapped in last month. As far as the last question related to the brokerage, I think Al Rajhi Capital, our investment arm, is considered to be one of the top player into the brokerage in the Saudi market. They have maintained a very healthy market share. We've seen those kind of an announcement. Usually, it's a tactical rather than a strategic. We've seen that similar competition into the world historically. We don't believe that will have a material impact as we speak.
Nevertheless, Al Rajhi Capital management team is looking like the bank in terms of the market development, looking for initiatives, how they can improve their bottom line. We've seen a very good contribution on Al Rajhi Capital's bottom line and contribution to the Al Rajhi group overall.
Thank you so much for the information. Would you please be able to offer any insight on what portion of the gross fee income is coming as a brokerage from Saudi equity market trading only? Is there any rough indication that you can provide at this stage?
It's mainly the majority of that, I think close to 90% of that, and I think as Al Rajhi giving, Al Rajhi retail bank customer of a 20 million, customer, this is one of the competitive advantage that Al Rajhi Capital is leveraging from-
Mm-hmm
... the Al Rajhi Bank customer to be having the highest retail market share, brokerage in Saudi.
Okay, got it. Thank you very much.
Thank you. Our next question comes from Jon Peace of UBS. Please unmute and proceed with your question.
Oh, hello. Thank you very much for taking the question. Firstly, on the loan growth forecast, would you please be able to break that out by category for us? How much is retail versus corporate? Second question, please, is on the NIM guidance, the net profit margin guidance. What do you assume in terms of the liability mix and the, the CASA share? And then lastly, great to see the dividend being restored, for the second half. How should we think about your comfort level with your CET1 ratio? Obviously, when it was at 15.5 in the second quarter, you reduced the dividend. Today, at 16.6, you've restored the dividend. Is there a certain number in between, that you'd like to manage your CET1 above? Thank you.
On the loan growth outlook for 2026, we expect a similar growth outlook or a growth trajectory, that we've seen, or sorry, growth mix. We believe that the SME is going to grow faster, given that the demand. Retail is continue to provide a healthy growth outlook in 2026. However, we've been very selective, and we are price the risk accordingly, take into consideration the liquidity premium. Corporate, again, we have been very selective. Overall, we believe the non-retail book will grow faster than the retail book in 2026, similar to the trend that we've seen in 2025.
As far as the NIM outlook, and I think one of the biggest factor is on the CASA balance, in terms of the mix, how much that is, is projected to be on the overall. However, I think overall, we still believe that the CASA might, as a percentage, might drop from the current level. However, it's not going to be materially lower from the current level, given that if you forecast an interest rate cut this year and beyond, that would reduce the percentage movement that we've seen historically in the CASA as a percentage of the overall CASA balance. Lastly, on the CET1, what is our comfort zone? I think overall, our CET1 stand at a very healthy level of close to above 16.6%.
Well above the Basel requirement. But be mindful, Jon, that, this is just only pillar, pillar one. We have the add-on of pillar two, which we have taken into consideration. The management position is to always maintain a very healthy buffer of, above 50-100 basis point range or above the pillar one plus pillar two, to maintain a very healthy capital ratio and to continue to pay dividend, as, the historical range of the payout ratio between 50%-60%.
Thank you. Moving on to the next question. The next question comes from Gabor Kemeny from Autonomous Research. Please unmute and proceed with your question.
Oh, hello. A couple of questions on similar topics, please. Firstly, on the NIM guidance, some further clarification. You guide for a 25-35 bps NIM improvement this year. I think your Q4 NIM was already about 20 basis points above the full year level, so maybe 5-15 basis point improvement from here. When we think about the timing, to what extent do you think it should be backloaded, given the further improvement, I mean, given that you expect the rate cuts to occur in the second half of this year?
So, so shall we expect, like, more like flattish dynamics in the first half and improvement in the second half, or do you see room to improve your NIM in the first half already? That's the first question. And the second, second one would be on the, on again, again, on the loan growth. I think you mentioned credit demand in your, in your opening remarks and already, already and also talked about like, some supply, supply questions, you being selective in the, in your, in your remarks. Can you talk a bit about the, the situation in the, in the mortgage market and, and its interaction with the, with the availability of funding? To what extent do you see funding driving your, your growth outlook there? Thank you.
Gabor, in terms of the NIM, absolutely correct. The NIM for fourth quarter were around 3.35. And I think the guidance that we provided from 2026 to expand by 25-35 basis points. So that is expected to be around, close to 3.41-3.51 range, for 2026. Now, historically, or based on the last couple of year, usually for the NIM to start, I would say, improve. It takes around 2-3 months to see the full impact, given that the customer deposits are usually within 2-3 months duration. And given that we are having our total floating liabilities, almost 2.1x for total assets, that you're absolutely correct, that directionally the NIM is expected to improve as and when we've seen a further reduction in the cycle, in 2026. Second?
As per mortgage, if you see, last year, 25, there was a slowdown on sales during 2025, and that is compared to last year, that has come from several reason. New regulation on White Land Tax, the government initiative in affordable residential, freezing rent, and liquidity interest rate. But overall, we believe that the mortgage will continue to grow over the long term ... backed by the government initiative toward achieving the Vision of 2030, of increasing home ownership to 70%, where it's currently at 65%. We believe that it's continue on the long term.
Thank you.
Thank you. Our next question comes from Mohammed Al-Rasheed from Hassana. Please unmute and proceed with your question.
As-salamu alaykum. Am I audible?
Yes, you are loud and clear.
Yeah. Thank you, gentlemen, for the presentation, and congratulations on the results. Just one follow-up question from my side, which is regarding the repricing. So based on the repricing table in your annual financial statement, the interest-bearing assets that gets repriced within three months is around 25-30% of your total interest-bearing assets. And if I see the impressive improvement in your assets yield sequentially and try to calculate it, how much was the repricing? It sounds very massive, it's up about 80-100 basis points. So I just want to understand whether this movement in assets yield was purely driven by repricing and mix, or was there, was there other factors such as timing of the loan book growth during the quarter, et cetera?
There wasn't a one-off then into the yield income and fourth quarter. I think all is due to repricing-
Mm
... coupled with changing the asset mix.
Okay. Very clear. Thank you.
Thank you. And our next question comes from the line of Mehmet Sevim from JP Morgan. Please unmute and proceed with your question.
Good evening. Thanks very much for the presentation and taking my questions. Just on the NIM outlook, if I may ask, could you please elaborate once again for my understanding on the underlying assumptions and the drivers of this pretty positive outlook? Given, as I understand, there's only one rate cut, the one in July, baked in that would affect this year's results. Just on the loan growth, I recall you saying in the past that mid to high single digit levels would be more normal for Rajhi now, given your focus on protecting NIMs and, or basically what you were saying on value over volume. What is driving this gap this year as you're guiding for now even a more slower outlook?
Is this just the liquidity pressures, or is there any other reason, like, for example, protecting capital or anything else? And finally, just on the harmonized group strategy, I believe one of the most visible results of it has been the increase in the share of customers that have more than one product. But, it seems like recently this has been slowing down, at least the increase quarter on quarter or the last two quarters or so, after a very strong delivery. I was just wondering if we've come to the end of it for now, especially as now you're also looking at the new strategy, or should we expect some further growth in that through 2026? Thanks very much.
On the growth outlook, yes, I think, probably till the tail end of 2023 and probably in 2024 and even last year, I said that the medium-term outlook or the normalize is somewhere around mid-single- to high-single-digit growth. However, we are a management looking at the operating environment, assessing the liquidity situation, assessing the capital requirement, assessing the credit demand and the opportunity, and to protect our competitive advantage of a very conservative organization with a stable cost of risk. And I think the demand is still there. We could further increase our, I would say, the growth outlook on the financing. However, we don't believe it is wise to chase volume rather than a value, especially we see an opportunity to improve the ROE for the shareholder.
So if that is... I think we see a further deterioration in our forecasting and the ROE, that will be a different discussion. I think overall, we assess the operating environment, take into consideration all the aspects: liquidity, capital, demand, asset risk, the costs as well, activities.
In terms of your last questions, I think we should look at the customer base when we start our strategy Harmonize the Group. If you remember, we start with below 60 million client customer in the beginning of the strategy, and now we are talking almost 21 million customer.
So although that probably the percentage is probably going the last couple of quarter going lower than what we have delivered from 2024 and beginning of 2025. However, on an absolute basis, it's still growing, which has contributed positively to the 25% fee income growth that we have delivered in our in 2024 2025 result.
... Yes. Super, that's very clear. Thank you. May I ask if you had any further comments on the NIM drivers, the improvement in the first half, especially because there'll be no rate cuts in your assumptions?
Again, our guidance is 25-35 basis point. I think our best case forecast in terms of the rate cut is in first cut is in July, followed by the tail end in 2026, which is in line of the Fed fund forecast.
Okay, thanks very much.
Thank you. Our next question comes from Rahul Bajaj from Citi. Please unmute and go ahead with your question.
Rahul Bajaj from Citi. Thanks for taking my question. I have three quick ones, actually. The first one is on loan growth. Just wanted to understand the slow to mid-single-digit guidance that you've provided. Are you baking in any securitization as part of this guidance or any securitization you will do will be on top of that? And also, you mentioned there were some securitization transactions in the second half of the year. Could you clarify both on the mortgage side and the non-mortgage retail side, has there been any securitization in the fourth quarter? So that's my first question. My second question is on dividends and kind of capital.
After the dividend adjustment, so to say, we've done in 2025, is it fair to assume you would revert back to the kind of usual 50%-60% payout ratio in 2026, or you expect further adjustments in 2026 as well? So that's my second question. And my third and final question, if I may squeeze in, please. This is on loan-to-deposit ratio, the SAMA loan-to-deposit ratio. Has there been any discussion about, from the regulator around changing how they calculate the SAMA LDR? Those are my three questions. Thank you.
You asked four questions, not three, Rahul. I'll answer them one by one. Securitization, did we forecast anything? Yes, we did. So what you see is a net, net across. That's the first part. Second question, mortgage securitization. Yes, we've done close to around SAR 10 billion in the second half, SAR 5 billion in Q3, and another SAR 5 billion in Q4. In the X mortgage of the retail book, we've done SAR 4 billion, around 50% of that in Q2, 50% in Q3. That's in terms of the securitization. Third question, dividends. I think we've... The first half dividend, we reduced our payout ratio to build and to restore our minimum capital buffer. We've said that we believe that it's going to be a short term.
We believe over the medium term, we continue to maintain the healthy payout ratio range, 50%-60%. I think, as Waleed mentioned earlier in his opening remark, our second half dividends was around 1.75 DPS, which contribute to almost 55% payout ratio. We will management or the way that we look at the payout ratio, we reassess on a regular basis. But our growth outlook versus maintaining the capital demand versus tapping in debt capital markets. So a lot of factors that we take into consideration. However, best case forecast, we still believe that we are restoring our old payout ratio range between 50%-60% in the medium term. The fourth question related to the LDR.
We are, you know, we, as along with the other colleagues on the street, we're part of the ecosystem. We continue to have a dialogue with the regulator in terms of the loan-to-deposit ratio. Not only the loan-to-deposit ratio, but multiple subject that we've been discussed. So far, we are not aware of any potential changes, and something that we will continue to assess on a regular basis.
Absolutely clear. Thank you so much.
Our next question comes from Chiro Ghosh from SICO. Please unmute and proceed with your question.
Chiro Ghosh from SICO. Hi, this is Chiro Ghosh from SICO, Bahrain. Couple of questions. So first one is on securitization again. You know, over the years, you have spoken a lot about it, but just want to get a sense of strategic strategy behind securitization, especially of longer duration, fixed-rated loans, especially in a downward trending interest rate environment. What kind of calculations do you do? How do you decide on that part? That is slightly intriguing for me, especially if you are considering more going ahead. And on similar context, the next question is: You are having a loan growth guidance of, say, low to mid single digits. So let's assume 3%-4%. Within this also, you are assuming a lower retail loan growth compared to the rest of it, so might be even lower than that.
Again, in a downward trending interest rate cycle, why is there such a gloomy picture, especially for the retail loan side of the loan book? Especially, you have such a big base, and you have made a lot of favorable inroads in that direction. Why, why such a gloomy picture on the retail side? Yeah, those are my two questions.
On the first part, securitization, and I think it's very simple. As long as the new, the delta between the new origination versus what the rate of the securitized book is a net positive, that the NIM and NII accretive over time. All the securitization that we've done since 2022. We have not sold it below at a discount.
Mm-hmm.
We, if you look at our capital equity ratio, are at a very comfortable level, so we're not looking to do any fire sale. If we see an opportunity to further improve the yield, and I think that-
Mm
... will take a call. We've done it, and we'll continue to do this over the medium term. As far as the second is on the retail side, the growth, indeed, and I think, if you recall our earlier, comments, either mentioned by Waleed, my colleague Majed, the management focuses onto the value rather than the volume. Despite that, we have a very huge retail, book, on as of the year-end, and I think our total, retail book were close to around SAR 482 billion, but still we managed to improve the overall yield by almost two basis point on 482. This is the management focuses, value rather than volume. There is no question about the demand. It's just matter of we-
Right.
Plan our funding first, then we plan our growth outlook accordingly. Thank you.
Got it. That's all from my side. Thank you.
Our last question on today's call come from Adnan Farooq from Jadwa Investment. Please unmute and proceed with your question.
Hello, Assalamu Alaikum. Thank you for the opportunity. I just had one question on the cost side. Just wondering if there were any one-offs in the operating costs during the fourth quarter?
No one-off.
Would it be fair to say, because there was quite a jump in other G&A, could it be because of accruals during the year showed up during the fourth quarter?
Again, no one-offs, and I think we've seen a bit increase into the communication utilities expense. Also, IT and software, there has been a lot of licenses that we have taken, imported into our IT infrastructure, to help execute the 2026 Harmonize the Group strategy.
Okay. Thank you.
We have reached the end of the Q&A session, so handing back to the management team for closing remarks.
Yeah. Thank you, everyone, for attending the call and for your trust in us. We will continue to achieve our strategic goal for this year and beyond, Inshallah, with our new strategy. We look forward to meeting you in the next earnings call. Thank you.
This concludes today's webinar. Thank you all for joining. You may now go ahead and disconnect.