Good morning or good afternoon all, welcome to today's Al Rajhi Bank second quarter 2026 results call. My name is Adam, I'll be your operator for today. If you'd like to ask a question at the Q&A portion of today's call, please use the raise hand icon at the bottom of your Webex window. I will now hand the floor to Dr. Sultan AlTowaim to begin.
Good afternoon, everyone. This is Sultan AlTowaim from Al Rajhi Capital. We are pleased to host Al Rajhi Bank Q2 2026 earnings call. Welcome everyone to this event. Without further ado, I will hand it to Mr. Sulaiman Alquraishi, the Head of Investor Relations, to introduce the management team.
Thank you, Dr. Sultan. Good day, everyone, thank you for joining the call. With us on the call today, our Managing Director and CEO, Mr. Waleed Al-Mogbel, and our CFO, Mr. Abdulrahman Al-Fadda. As always, our CEO will start with the results, highlights, and strategy performance. CFO will cover the financial performance in more details. Finally, we will open the floor for your questions. Now I'll hand over to Mr. Waleed.
Thank you, Sulaiman. Welcome everyone, thank you for attending our earnings call for the second quarter of 2026. As always, I will start by taking you through our performance highlight and then follow with an overview of our performance on our strategy, Harmonize the Group. Then I will hand the floor to our CFO to cover the financial performance in more details. Now, if you allow me, let's take a closer look to our quarter two 2026 performance. If we go to the slide number three, in the last quarter, the bank delivered an excellent performance supported by the progress in our strategy execution the healthy economy. This result in an outstanding semi-annual net income of SAR 13.8 billion alongside with a healthy balance sheet growth. The balance sheet remains solid.
The total asset reach now SAR 1,055 billion, higher 2% year-on-year and 1% year-to-date. The total liability were flat at SAR 902 billion during the second quarter of 2026 with a healthy LDR, 82.8%. Moving to the profitability, net income now reach SAR 13.8 billion, as I mentioned, for the first half of 2026, higher by 14% compared to the same period in 2025. The net yield income grow by 16%, while the non-yield income increased by 7% year-over-year. The total operating income grow by 14%, reaching SAR 21.4 billion. Regarding the credit quality, we continue to maintain a high asset quality with cost of risk of 39 basis points. NPLs also stand at 74 basis points, supported by a coverage ratio of 153%.
Moving into the key ratio, the bank maintains strong operating efficiency with a cost-to-income ratio stand at 22.7%. Our total capital ratio reached 23.5%, well above the regulatory minimum, reflecting the bank healthy financial position. Our net profit margin expand to 3.5%, higher by 36 basis points year-on-year, and that's driven by ongoing effort to improve the yield and optimize the cost of fund in the current rate environment. If we move to the slide four, we highlight to the progress of our strategy execution. As you know, we are in the third and final year of our 2026 strategy, Harmonize the Group, the bank has outperformed across all the KPIs. Allow me to walk you through the pillar of our strategy, starting with the first one, B2C, business-to-consumer. Our focus on retail cross-selling remains as a key goal.
The product per customer ratio stand at 44%, higher by 6% since we introduced our strategy. Our sales from our target customer portfolio have witnesses a growth of above 400% since 2023, that's backed by our effort to expand our customer base across both existing and new segment. Our universal offering and financial solutions have made us the bank of choice for approximately 22 million customer across the kingdom. We also maintain high customer satisfaction, reflected in a leading NPS of 78%. If we move now to the second pillar, B2B, business-to-business, our corporate portfolio continue to grow, reaching around SAR 285 billion, which is higher year-on-year by 13%.
This growth was driven by our ongoing effort to expand wholesale lending and focus more on SME, which has grown massively by 47% year-on-year and now representing 24% of our non-retail book and 9% of our financing book. Our focus on developing the investment banking business is a key part of our strategy to enhance non-yield income, with revenue from investment banking activities grow by 328% since 2023. Looking at third pillar support business, we continue to invest in technology and automation across the group to drive innovation and operation excellence. As of the second quarter of this year, the percentage of process automated reached 66%, supporting our ambition of becoming a cloud-ready bank increase scale and agility via cloud. We are so proud to share that the percentage of application that are cloud-ready has officially now reached 100%.
This milestone reinforce our commitment to achieving our strategic goals across all pillars. On the digital and data side, the digital to manual ratio stand at 96% by end of second quarter 2026, highlighting solid progress in our digital transformation. In addition, AI and event-driven activities are gaining momentum in generating revenue through data-driven marketing, which increased by above 570% since 2023. By that, if you allow me, I will hand over to Mr. Abdulrahman, our CFO, to provide more detailed update of our financial performance. Thank you.
Thank you, Waleed. Good day, ladies and gentlemen. It is my pleasure to welcome you again in our Q2 earning call. I'll try to go over the financial performance very quickly so that we can have further time during the Q&A session. We start on our balance sheet. Our total balance sheet stand at SAR 1.06 trillion, almost 2% growth year-on-year and flat on a sequential basis. On a year-to-date basis, the growth in our total balance sheet stand at almost SAR 12 billion. The majority of that are coming from our financing book, and we'll cover that in further detail in the following slide. As far as the funding side, I think the bank continue to diversify our funding profile. We've seen a healthy growth in our customer deposit, where we've grown by almost 3.2% year-to-date.
Zooming further into the main driver of our balance sheet, our total financing book stand at SAR 762 billion. 3% growth year-on-year and 1% on a sequential basis. To further analyze the 1% growth in year-to-date growth in our financing book, as you can see on the top right-hand side of the chart, our retail book have contracted by almost SAR 4.8 billion, i.e., 1%, but that is a net basis. On a gross basis, the retail book have grown by SAR 3.2 billion, while we've securitized almost SAR 8 billion. We've securitized over the last six month, almost SAR 3 billion of a consumer loan and SAR 5 billion of a mortgage book. Corporate and SME shows a healthy growth of 2% and 16% respectively.
It's worth to highlight that our retail book stand at 63% of our financing book, mortgage at SAR 273 billion, which represent 57.2% of our retail book and almost 35.4% of our financing book. Our total customer deposit stand at SAR 688 billion, almost 3.6% growth year-on-year and 1.4% on a sequential basis. CASA, as a percentage of the overall customer deposit, stands at 64.2%. To analyze the 3.2% growth in our customer deposit, as you can see on the bottom right-hand side of the chart, CASA have grown by SAR 10 billion year-to-date. It's worth to highlight in the second quarter, we've seen some of the seasonal transitory CASA have left by almost SAR 17.5 billion. However, that has been compensated by almost SAR 12 billion growth in our customer time deposit year-to-date.
Our investment book, almost flat, SAR 175 billion as of Q2, whereby 87% of the book are Sukuk, 75% are fixed rate, and finally, 83% of the book are within the kingdom. We move to the profitability section. Our net income for the second quarter above SAR 7 billion, which shows almost 14% growth year-on-year and 4% on a sequential basis. To analyze the 4% sequential movement, as you can see at the bottom left-hand side of the chart, we had a small dip of 1% on our NII, while that has been compensated by a healthy growth on our non-yield income. Expense were lower by almost 3%, which will bring the pre-provision profit to be 5.2% year on sequential growth. We top up our impairment charge by SAR 250 million in the second quarter.
Our net income for the period stand at almost SAR 13.8 billion, 14% growth year-on-year, and the driver, as you can see on the bottom right-hand side of the chart. NII have grown by almost 16%, net yield income by almost 7%, while OpEx has increased by 14.7%, which will bring the pre-provision profit to be 13.7% higher year-on-year. While impairment charge were higher by almost SAR 387 million compared to the same period last year. To zoom in further into the net income driver, I'll start with the operating income. Our operating income for the second quarter were almost SAR 10.9 billion, 13% higher year-on-year, and 3% higher on a sequential basis.
Our operating income for the period standing at SAR 21.4 billion, around 14% increase year-on-year, and the driver, as you can see on the top right-hand side of the chart, NII were higher by 16%. The driver, our average earning assets has increased by 4%. That is coupled with 36 basis point expansion in our NIM. On our fees, we had a very healthy growth of almost 17% year-on-year. This is despite some of the regulatory changes that happened in the second half of last year, coupled with some also further changes in the beginning of the year. The driver of that growth are from the payment, trade, cash management, and also a good contribution from investment banking and asset under management. Exchange income were higher by 21% year-on-year.
Other income were lower by 33%, the driver for that is higher negative mark-to-market for this year, given that the credit spread as well as interest rate were higher. Also, the lower capital gain. Nevertheless, Q2 other income showed a very healthy growth, compared to Q1. Our NIM stand at 3.5%. We had seen a drop compared to Q1 for the second quarter. This is due to higher cost of fund, given that we've seen some of those transitory, seasonal CASA have left, which increased the proportion of the paid time deposit, which had a negative impact on our cost of fund. The 36 basis point NIM expansion year-on-year are attributed, as you can see into the bottom right-hand side of the chart. 22 basis point on the gross yield.
This is due to the management initiative to reprice the retail asset, coupled also on repricing the corporate. We had a further improvement of 14 basis point in our cost of fund year-on-year basis. OpEx at SAR 2.4 billion for Q2, 11.7% higher year-on-year. Nevertheless, were lower by almost 3% on a sequential basis. OpEx for the period were at almost SAR 4.8 billion, 14.7% higher year-on-year, mainly driven by the G&A, given that the bank continue to invest in executing the harmonized growth strategy, coupled with a further investment to modernize our IT infrastructure.
Our cost income ratio for the first half will stand at 22.7%, higher by 20 basis point compared to the same period last year. Nevertheless, cost income ratio for the second quarter were 22%, which give us a very good momentum to further improvement in the second half of this year. Impairment charge stand at SAR 880 million for the second quarter, almost 47% higher year-on-year. Cost of risk were at 39 basis point. As you can see on the bottom left-hand side of the chart, we top up further our gross charge by SAR 658 million. It attributed to the following factor.
Number one is updating our ECL model. Take into consideration that IMF revised the GDP growth for Saudi lower from 4.5% to 1.7%, coupled with few names that are under stress, and we increase our coverage accordingly. However, that SAR 658 million increase in our growth charge have been negated by SAR 270 million improvement in our recovery. On the bottom right-hand side of the chart, most of that top-up were happening onto the non-retail book. Our NPL for the second quarter stand at SAR 5.7 billion. No material change compared to Q1. In fact, it is around SAR 35 million.
NPL ratio stand at 74 basis point, retail at 45%, and finally, on the corporate side, around 1.23%. The NPL coverage stand at the healthy level of 153%. Our ECL stock stand at around SAR 8.8 billion, and the majority, as we mentioned earlier, were provided into the non-retail book. As you can see on the bottom left-hand side of the chart, stage one exposure represent almost 96.8% of the overall financing. No material movement compared to the year end, nor on a sequential basis. Stage coverage at still at the healthy level and no material change. Stage one at 38 basis point, stage two at 11%, and finally, stage three at 54%. Although our headline LDR at 110.7%, unweighted LDR by taking into consideration Sukuk and other syndicate loan, it will bring down the LDR to 95.5%. Our relative LDR at 82.8%.
LCR and NSFR at a comfortable level and above the regulatory requirement. Moving on to the capital side, our total RWA stand at SAR 679 billion, 2% higher year-on-year, mainly driven by 3.4% growth in our credit RWA. It is worth to highlight that our RWA density stand at a healthy level of 64.3%. Our capital ratio CET1 at 17.3%, Tier 1 at 21.7%, and our total capital at 23.5%. If you can see on the bottom right-hand side of the chart, we had 125 basis point improvement in our Tier 1 capital ratio. This is attributed to the 60 basis point due to the Sukuk issuance that we've done in the first half, coupled with 190 basis point of an internal capital generation.
That negated by almost 123 basis points due to the balance sheet growth as well as the dividend distribution for the second half of 2025. Retained metrics are at the healthy level and above the industry standard. We've seen a further improvement on our ROAA to stand at 4.07%. Our ROE for the first half were 23.3%. Q2 ROE were at 23.7%. ROA at 2.63%, while the Q2 ROA stand at 2.68%. Before we move on to the guidance, we talk about the revision on the GDP forecast for this year.
The IMF have upgraded 2027 GDP growth to be 5.5%, mainly driven by non-oil GDP, in line of the transformation agenda. Consumer spending still at the healthy level, where we have seen the growth of almost 8.4% year-on-year. On the rate outlook, our best case forecast is still no change to a one rate hike, in the second half, we don't think that will have a material impact in the NIM for 2026.
Mortgages rate still stand at almost 7.5%. Having said that, we have updated our guidance for the financing book to be previously we were guided to low to mid-single digits. We take into consideration some of the securitization that we have done and potential, based on the opportunity for the second half, we have lowered our guidance to be in the low single digit. Our cost of risk, we have updated our guidance to be 35 to 45 basis points, only five basis points higher compared to the previous guidance. Apart from that, no other changes in the guidance that we have communicated to you guys in the previous quarter. Waleed, back to you.
Thank you, Abdulrahman, for the financial highlight. We are so proud of our outstanding performance and the progress made across all the KPIs of our Harmonize the Group strategy. Now I will open the floor for Q&A. Operator, back to you.
Thank you. We'll now begin today's Q&A session. As a reminder, if you'd like to ask a question on today's call, please use the raise hand icon at the bottom of your window, please state your affiliation before asking your question. Thank you. Our first question will come from Shabbir Malik. Please go ahead and unmute. Hi there, Shabbir. Please go ahead. We will move on. The next question comes from Mohammed Al-Rasheed. Mohammed, please go ahead, unmute ask your question.
Am I audible?
You are.
Thank you, gentlemen, for the presentation, congratulations. Strong set of results. I have two questions. My first question is regarding the sequential drop in the assets yield. What drove this? Was it due to change in mix given the securitization, or was it driven by the repricing of the back book or the loans that were originated during 2023 and 2024 for the retail segment in particular? My second question is regarding the increase in the cost provisions. You mentioned that it's related to some corporate exposure that are witnessing some challenges. My question is, are these exposure related to some of the giga-projects that were reprioritized? If so, has there been a significant change in their stages classification? Has it been moved from stage one to stage two or stage three?
I'll start with the last question. The names that we have top up the provision in the second quarter, none of them are related to the giga-project. These are some of the sector that, given the current, I would say, situation, that we cautious, we have top up our provision to be cautious. As far as the first question, Hamad, on the sequential drop into the gross yield in the second quarter compared to Q1.
In terms of the retail book, we haven't seen, honestly, and I think the back book still has been repricing nicely. We haven't lowered our pricing into the second quarter that led to a gross yield. I think you need to take into consideration that probably the average SAIBOR in the first quarter were 4.85%. The average SAIBOR in the second quarter were 4.75%. That 10 basis points, to some extent, is impacting the corporate exposure. We haven't seen any material change in mix that led to that drop into the gross yield.
Clear. Thank you.
The next question comes from Naresh Bilandani. Naresh, please go ahead, unmute and ask your question.
Yes. Hi. Thank you very much. It's Naresh Bilandani from Jefferies. Thank you for the presentation. Two questions, please. First, it would be very helpful if you could kindly offer some insight into the muted credit growth that the bank has been reporting, which partially also seems to be led by the conscious strategy of the bank for NIM conservation. Will this continue into the next year, or could we see some uplift in the credit growth? I realize that 2027 planning would still be further out, but just keen to get some visibility at this stage on how should we model the credit origination, because it's important for us to have some visibility there for the valuation of the stock into the future years.
That's first. My second question is on the, given the fact that the rate outlook now has turned more hawkish in the recent months. We've also seen some pressure on the cost of funds in the second quarter, which unfortunately will not ease in the near term, given how the outlook is panning out. Could you reconfirm if it's fair to think that the peak NIM for the franchise for the current cycle is behind us, or do you have levers to deliver improvement on the NIM line, going into the second half of this year? Any insight on these two questions would be super helpful. Thanks a lot.
On the loan growth outlook, Naresh, I think our strategy has been consistent over the last couple of years. I think the management feedback is that we are focusing on our value rather than our volume. We believe that the liquidity has a premium. We wanted to make sure that liquidity premium is being reflected properly into the asset origination. I think overall, Azra, we believe the current operating environment, although that we take positively that the growth in the customer deposit for the first half has outpaced the growth into the customer loan. Nevertheless, we wanted to wait for a couple of quarter to see if that going to be a sustainable trend.
Nevertheless, as a management, we'll continue to look to diversify our funding profile vis-a-vis that capital market issuance, or tapping in different market or different instrument, look at further securitization, to further improve the NIM over the medium term. From our perspective, we are agile. We assess the operating environment on a regular basis. We will take a call. I think overall, based on the current environment, I think overall, from now, I think low to mid-single digit, probably it might intact. This is something that we evaluate on a regular basis. As far as the NIM, I think, we acknowledge that probably there might be some inflationary pressure which might lead the Fed to increase the rate.
As we mentioned earlier, before we highlight the guidance, we believe that there could be no change to probably one rate hike that might have a negative impact into the NIM, given that our gearing to lower rate environment. Overall, I think we will continue to look at improving the mix on the assets, as well as the liability. Having said that, if you look at our gross yield for the Q2 last year, it used to be at 5.84. SAIBOR, during that time, Q2 2025, the average SAIBOR was 5.41. This year, average SAIBOR for the second quarter were 4.75. We have almost 60 basis point drop into the SAIBOR.
Nevertheless, with the management initiative to reprice the retail as well as repricing our corporate, changing the mix by increasing our SME, that have helped the gross yield to increase from 5.84% to almost 6.05%. If you recall, in my earlier, when we discussed about the NIM trajectory, year-on-year NIM for the corporate book have increased by four basis point compared to 60 basis point drop into the SAIBOR. Long story short, we probably think that could be this is the peak, and I think we are trying our best to further improve the NIM over the medium term.
Got it. Thank you very much for the insights. Just one very small technical follow-up. Would you kindly be able to clarify what has been the level of securitizations that you've undertaken in the first quarter and the second quarter of this year?
In the first quarter, we've done close to SAR 1.5 billion. Second quarter, we've done the delta, close to around SAR 6.5 billion. Year-to-date, we've done SAR 8 billion of securitization versus the retail contraction of SAR 4.8 billion, which give you an indication that the gross increase on our retail lending were SAR 3.2 billion.
Excellent. Thank you so much for your insights.
Now we return to the line of Shabbir Malik. Shabbir, please go ahead and unmute and ask your question.
Hi, thank you very much. Can you hear me now?
Yes.
Great, thank you. My first question is around the tax rate, Zakat rate, which is a bit lower than what it has been historically. Just wanted to get a sense that for the full year, the effective tax rate is going to be 10% or thereabouts. That's my first question. Secondly, in terms of your OpEx, the trend this quarter seems to have moderated compared to the first quarter. If you can give some color on that. Generally speaking, on jaws, is the 100-150 basis points positive jaws strategy still intact? Finally, on loan growth, you've trimmed the guidance for this year. This is primarily because of the approach of profitability over growth. Is that what's driving this downgrade? Thank you.
On the loan growth, I think probably similar to the previous question, the management focus into value rather than volume, focusing on NIM, coupled with diversify our funding profile by virtue of securitization. This is mainly because of those reasons. As far as the OpEx, I'm starting the reverse cycle. As far as the OpEx, we haven't changed our strategy in terms of delivering a positive jaws. If you look on my OpEx slide, our cost income ratio year-on-year were higher by 20 basis points. If you look at Q2 standing alone, we are around 22%, below the 22.7%, which is a cost income for the first half.
I think we continue to look at, we're not shying away from investing, as long as that will help us to further improve the customer experience, improve the customer stickiness, which will have a positive impact into increasing our operating income. I think that we haven't changed our focus. As far as the tax rate, you're absolutely correct. The default tax rate in the kingdom is close to 10.3%.
However, there is a lot of initiatives that we, as a management, has been taking, and this is what I believe that from our perspective, to differentiate us, that we are thinking outside the box, looking at an opportunity, how we can maximize the shareholder value for our investor. There has been lots of initiatives that we have been taking that have reduced the effective tax rate for this year. However, the default, as I mentioned, is close to 10.31%. We will look to assess for a better initiative to optimize our tax rate over the medium term.
Got it. If I may, one more thing, one more question, please. In terms of capital, you seem to be in very good shape. Any comments on dividend or on the dividend philosophy? Is it going to be similar to what we saw in the second half of last year?
Yeah, if you allow me, Abdulrahman, to answer this question. I think it's very clear, like what we did in last year, the management decision when it comes to dividend distribution is to weigh in between dividend distribution and preservation capital to support the growth. As far as for the first half of this year dividend, we are still evaluating, and we will recommend to our board, taking into consideration the current operating environment, where we should announce the decision in the due course.
Thank you very much.
The next question comes from Chiro Ghosh. Chiro, please go ahead and unmute.
Hi. This is Chiro Ghosh from SICO Bahrain. The first question is related again to the fee income side of it. The fee income has been quite strong, if we look at it, in the context of that, the loan growth was relatively muted. What were the prime drivers, if you can again, just highlight those points. More importantly, how sustainable would this be? That's my first question. The second one, look, I get a sense that you might be also growing a little bit on the corporate side of the corporate loans, basically. Your retail franchise is quite strong. In that context, want to get a sense, how would be the profitability, that is, risk-adjusted return, which you would be making on your corporate portfolio versus your retail portfolio. Going ahead, would it have an impact on your ROEs? That would be my two questions.
In terms of the first question related to the fee income growth. Again, Chiro, you've been watching us for quite some time, and we've mentioned in one of the main KPIs of our Harmonize the Group strategy is how we can increase the fee income contribution by focusing on the cross-sell, focusing in introducing new product and services, customer acquisition. All of those factor have helped us to further improve the fee income. I think we've delivered close to 17% fee income growth for the first half. As far as the guidance, I think we've been highlighting that the management is looking to grow the fee income more than the growth into our financing book. We've grown our fee income 17% year-on-year, our financing growth were higher by 3%.
As far as the second question related to the mix on the non-retail versus retail on the overall and in terms of the profitability, whether that will have an impact into the ROE or not, I think we look at our corporate lending franchise on an overall 360. It's not only a balance sheet lending. We're looking also in terms of liquidity. We also look into the fee auxiliary business that come with that relationship, fees that is coming from trade, cash management, investment banking activities.
If you recall my presentation, when I've mentioned that on the main driver of the fee income growth were coming from trade, cash management, investment banking activities. Overall, from that perspective, despite that, probably the retail mix dipped from the same period of last year. However, if you look at an ROE, we still have improved an ROE year-on-year.
Very clear. Thank you. Thank you very much.
The next question comes from Mehmet Sevim. Mehmet, please go ahead and ask your question.
Hi. Good.
Apologies. Seems we've just lost Mehmet there. Bear with me one moment.
Hi. Good evening. Apologies. I hope you can hear me now. I had just two remaining questions, thank you for the presentation and taking the time. One, on the cost of risk, as you highlighted earlier, thanks for the comments. I was wondering if you can give a little bit of more color on the exposures there specifically. Was there any specific sector exposure given the ongoing situation, or were they just corporates where you thought you would like to be prudent?
Would you see a scenario where you need to increase the provisions on these loans going forward as well? With what we know today, do you feel comfortable on that front? The second question was on costs. Just looking at the seasonal impact in the fourth quarter of last year, there was a visible increase to end the year. I know things have eased a little bit, and you don't tend to guide for costs, but I was wondering if you can maybe give color whether we should expect any seasonal impact this year towards the end of the year as well, similar to last year. Thank you.
Mehmet, let me try to clarify. The increase into the cost of risk were for the first half, our cost of risk were 39 basis points. I've mentioned that the reason for the increase in the cost of risk were attributed to the following factor. A, the updating our ECL model take into consideration the IMF revision to the Saudi GDP from 4.5% to 1.7%. That will have impact, definitely on the ECL for our models. Second reason, there are, again, some of the sector that we believe that could be impacted due to the current situation. We have taken overlays to make sure that we are covered in the right, I would say, balance. As we speak, we are comfortable with the coverage as we speak.
We will continue to assess the ongoing situation, and if there is any requirement that we need to take a further or release, we will take that accordingly. As we speak, as of the closing of the second quarter, we are comfortable with the current provision that we have. As far as the cost, we don't anticipate any further seasonality. I think, although that I don't provide any guidance into the OpEx, but I hope the guidance that I provide on the cost income ratio and on the ROE should help you to take a directional view how the profitability move.
Okay, that's very helpful. Thanks very much.
The next question comes from Kareem Kakia. Kareem, please go ahead, unmute and ask your question.
Hello. Hi, can you hear me?
We can.
Okay. Thank you so much, and congratulations on the strong first half. Two quick questions from my side. You mentioned that the SAR 17.5 billion-
Sorry, the line is not clear, Kareem.
Sorry. I'll try one more time. If not, I don't think it will work. I was just asking about the SAR 17.5 billion of CASA deposits that left in the second quarter, which I presume weighed on the margin. Have any of that started to come back in July? What should we assume for the CASA ratio and cost of funds through the second half? I think you answered this question, if you want, but I just want to make sure, this is the last year of Harmonize the Group strategy. I hope, would you be issuing a new strategy next year? Will it come with new medium-term targets as well?
If you allow me, Abdulrahman.
Sure
To answer the last question, please. Yeah. In terms of strategy, as we mentioned before, yes, you are right, this is the last year of our strategy, and we are in the process of preparing our next three-year strategy. Once we finish it, we will approve it, by the board, by December, and then in the next, Inshallah, year, we will present it to you guys, in our usual meeting.
Great. Thank you so much.
As far as the first question related to the CASA, and I think one of the focus area for the organization is to grow CASA. Despite that transitory/seasonal CASA have left, but if you look at the growth in our CASA, for this year is almost SAR 10 billion. We will continue to focus in growing our CASA in order to manage our cost of fund efficiently.
Thank you so much Abdulrahman, and congratulations once again.
The next question comes from Aybek Islamov . Aybek, please go ahead, unmute and ask your question.
Yes, thank you very much for the conference call. I'd like to ask two questions, please. Right. The first one is, what's really driving the decision to securitize more assets? I believe these are retail loans. Is this decision somehow connected to your delayed dividend announcement, right? You haven't announced your first half dividend. These two questions, and I think the third one, is on asset quality. Given the slowdown and loan growth you anticipate, and assuming things don't change materially in 2027, how confident are you, you can keep your cost of risk below, let's say, 40 basis points, right, over the next 12 to 18 months?
Aybek, I think, our COO, Andy, have highlighted or elaborated further into the dividend discussion. As far as the securitization, I think, you've been, Mashallah, participating in our earning calls over the last Well, since I become a CFO. I think when we started the securitization journey back in 2022, we've been highlighting that if you look at our capital ratio, if you look at our liquidity ratio, we don't need to do any fire sale. I think when we wanted to do securitization, it has to be make sense for our balance sheet structure as well as from a liquidity and a capital perspective. Given that the operating environment since 2022 has changed in terms of the liquidity start as a premium, we've looked into securitization as a venue of our funding profile.
For us as a management, the way that we look at securitization As long as the new origination rate is higher than the securitized book, I think that's a NIM accretive over time. None of the securitization that we have done over the last three to four years, we have a negative trend on the NIM. In fact, it has a positive. We've done a securitization in the early part of the Q2, look at where are the rates now. If you look at the 10-year treasuries, I've seen it at four six two, compared to where it used to be, I think our range were four 25, four 30, we're expecting a mortgage origination to be higher. This we monitor on a regular basis.
We monitor the new origination rate minus the securitized book. What I can assure you, it is NIM accretive, which should help improve the NIM and the profitability over the medium term rather than increasing the leverage and start paying expensive into raising deposit to manage the funding profile. Second question related to the asset quality. I think as we speak, we are comfortable with the guidance that we have provided. You've said whether it's below 40. Again, the guidance that we believe it is around 35 to 45 basis points. As we speak, we don't see any material risk to change our guidance over the remaining of the year.
Thank you.
The next question comes from Edmond Christou . Edmond, please go ahead, unmute and ask your question.
Thanks for the call and the insight. Just two questions. The first one on the margin. I will start with this one. I understand the bank is geared toward lower interest rate in terms of outperforming period than higher interest rate. You are doing a repricing of the books and clearly partially has offset the decline in the SAIBOR, this is very good news. You are securitizing loans and freeing liquidity, you are able to grow into, or you are growing already into the corporate, which is float, you will capture higher rate with the Fed increase. I just want to understand from you, do you see upside in the asset yield or more or less flattish asset yield going into next year and next year, 2027? For the same question is the same concept on the cost of funding.
Your cost of funding has been increasing given the market situation. However, we've seen optimization happening with the banks where they are optimizing their wholesale funding because domestic time deposit could be cheaper. You do have a large wholesale funding and reliance on dollar funding. Do you see optimization that could help you on the cost of funding? Despite CASA coming down, your cost of funding will improve. That could be a positive story for the margin. This is on the margin side. Should I ask the second question or wait for you to answer the first?
I will try to answer because it was a very long question. Nevertheless, I'll try to be brief. I think yes, there is still an opportunity to further improve our asset yield, if the rates start going higher. I think if you look at an earlier example, we've seen asset yields have increased by almost 20 basis point year-on-year, despite SAIBOR were dropping from 540 to 475, i.e. talking about 60 basis point. We, as a management, we will continue to reprice, we'll continue.
I doubt that we'll have that close, given that we have a very large financing book, SAR 672 billion. I don't think it's going to be that similar to what we've done, but we will continue. As far as funding, answer is yes, there could be a further optimization. We are working very closely with our colleagues in the treasury, corporate, and retail, looking at an opportunity to optimize. Second question, please.
Second question on the overlay. Usually overlay, when it happen, it improve the stage one and maybe stage two. I can see that you have taken overlay, which has improved slightly the stage one to 38 from 37 basis point, and improved the stage two to 11 from 10.6. It doesn't seem to me a significant overlay has been taken here. If you are not able to tell me how much the overlay is, do you agree with me it's not significant? If it's not significant, do you expect some top up if we see some pressure happening in petrochemical and other sector that could be impacted? Thank you.
I disagree that it is not material in your perspective. I agree with you that I will not be able to disclose because you have not taken into consideration if there is any stage, if there is a one NIM moved from a stage to another stage and you write off that exposure, that is not in your calculation.
Okay. Yes, true. Sounds good. Thank you. Good luck. Thank you.
This will conclude today's Q&A session. I'll now hand the call back to MD and CEO, Mr. Waleed Al-Mogbel for closing remarks.
Thank you, everyone, for dialing in and for your trust in us. We are very proud of our first half of 2026 result. We will continue to achieve our strategic goals this year and beyond. We look forward to meeting you in the next quarter earning call. Thank you.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.