Good afternoon, ladies and gentlemen. Thank you for joining us today. This is Mehmet Sevim from JP Morgan's senior financials research team, and we are delighted to host Alinma Bank's Q3 2026 results call. Please note that this call will be recorded, and the replay will be made available after the call. Let me now please hand it over to Arwa Alshehri, Head of Investor Relations, to start the call. Arwa, please go ahead.
Thank you, Mehmet, and thank you, JP Morgan, for hosting the call. Good day, everyone. Welcome, and thank you for joining us today on Alinma's third quarter 2026 earnings call. We will start today providing the agenda. Our MD and CEO, Mr. Abdullah AlKhalifa, will begin by providing an overview of Alinma's performance financial highlights, followed by strategy recap and update on the strategy progress. After that, our CFO, Mr. Adel Abalkhail, will be presenting the detailed financial performance up to September this year, ending with the guidance for the rest of the year. We will try to make sure to have proper time for Q&A, where our Deputy CEO, Mr. Khaled Al-Ghamdi, covering retail, private, and digital, and our Chief Corporate Officer, Mr. Jameel AlHamdan, also with our MD and CEO and CFO, we will be all answering your questions.
With that, I will hand it over to the CEO to begin with his presentation.
Hello, everyone, and thank you for attending our call. I will take you through a quick presentation on page or slide number six, high-level financial performance. Our financing increased by 10% year to date. Total assets as well increased by 10%. Nine months of operating income increased by 6%, net income by 4%. NPL ratio reached 93 basis points. Coverage ratio 189%. Customer deposits reached almost SAR 252, 11% year to date. CASA 118.9, and we also put for the first time average CASA for the first nine months, 115.8. That is what really earned the income on the average. CASA as a percentage of deposits at 47.2%. Cost to income, 31.1%. Net profit margin, 347, one basis points below same period last year. And ROE reached 17.6%.
On page eight, which covers our strategy, the main headline for our strategy is to be the most innovative and customer-centric in KSA, focus on profitability, and building distinctive differentiation through the latest AI technology. Main pillars in our strategy is to be most customer-centric, most innovative, and as I said by later, focus on profitability. Which translates further on business sectors, on retail, we aspire for primacy to all our customers. We want to innovate with segment-specific offering. We want to have memorable customer journey throughout all channels. Private banking, want to differentiate through value proposition. We also offer world-class global and exclusive local investment opportunity for our customers. In corporate, same thing, we aspire for primacy for all our segments. We want to also upgrade our transaction banking and build this in a cloud-scalable operating model. Digital banking, want to develop intelligent banking platform to drive primacy.
We also want to expand banking digital offering through partnerships with certain third parties. Enhanced operating model, including monetization and improvements to streamline collaboration with business units. In treasury, we want to continue to diversify our funding basis, grow our FX and other derivatives, and shift investments towards better yield enhancements. On the next page, some additional headlines from different categories. For example, we aspire to be the number one leading employer among the Saudi banks. Want also to be a digital leader, as well as the leading risk-adjusted decisions, and among the top five in the country in terms of brand and most leading operational excellence. On the next page is some of the things that we achieved in Q3.
We have already implemented three new AI family cases that we launched for retail, corporate, and IT. We also launched Global Blue VAT refund through the King Khalid International Airport.
LC Musharakah, fully digital in our platform. We are the third largest in terms of assets under management, with year-on-year growth of 33%. We had also experienced 28% growth in SME, as well as 21% growth in mid-corporate. We have launched a new application for accelerating client applications, to accelerate this process. We finalized the repo to maturity with multiple international banks. We issued SAR 2 billion tier one in private placements. We have also achieved 0.3% growth on cross-rate swaps or IRSs, some conversion of IRSs, as well as 42% growth in our forward FX. On the next page, talks about some of the issues that we have been working on in Q4 and deliver obviously enhanced customer experience across all these channels. Build an open architecture for wealth ecosystem with global asset managers. Build research and development innovation to drive faster innovation in all our digital platforms.
Specific customer-focused use cases to drive hyper-personalization and better journey for our customers. Form strategic partnership with global asset managers to offer our high affluent customers and privates some opportunity for investments. Want to accelerate FX and derivatives business, develop GenAI and AI-powered app companion for hyper-personalization. Strengthen trade finance and develop a rollout robust client-centric primacy model to enable us to continue to measure and drive primacy to our customers. That is a quick highlight of our strategy and our progress so far. I hand it to our CFO for technical details and financial presentation.
Thank you. Very good afternoon to you all, and welcome again to our earnings call for the third quarter of this year. As usual, I will be walking you through the financial performance in a bit of more details that will be followed as usual by our outlook and the guidance for the remaining of this year. Starting with slide number 14 in the presentation on the balance sheet trend. Total assets has grown 10%, clearly was driven by financing growth. Our investment portfolio was almost flat YTD. However, we have SAR 5.3 billion increase in cash in central bank and also balances in the central bank. On the total liabilities movement from December, 10% growth in the liabilities line. Clearly also in line with the financing growth, 11% driven by customer deposits that has grown 11%.
In our efforts to continue diversifying the funding, SAR 1.7 billion was relating to the issuance we did for tier two Sukuk and also the incremental certificates of deposits that we were efficient during the nine months of this year. Moving to slide number 15 on the P&L trends. The year-on-year growth in the bottom line was 4%. This was driven mainly by the 10% growth in the funded income. This was offset by a contraction of 8% in the non-funded income, and we will have more details on the non-funded income. This was offset by 5% growth in the overall OpEx and also the impairment charges year on year that has grown 25%. Moving into slide number 16 on the financing. On a sequential basis for Q3 from Q2, we have seen 4% growth.
That brought up the financing growth from December to 10% as a financing growth financing. This growth was brought up by 16% growth in our retail portfolio and also a 9% growth in the corporate book around SAR 15 billion. As of September, the overall composition of the financing portfolio, 73% relates to corporate, 27% relates to retail. Out of the total SAR 257 billion outstanding financing as a growth by September, 53% roughly the project financing and remaining 28% is the large corporate. Mid-corporate represent 7% and we have 5% for SMEs and 13% with mortgage represented from the portfolio by September. The 14% remaining relates to consumer financing, which includes also credit cards and auto lease. Moving into next slide number 17 on the deposits. As mentioned earlier, the growth year on year in customer deposits is 11%. This was driven by 8% growth YTD on CASA.
However, as mentioned earlier by Abdullah AlKhalifa, the CASA average growth was only 4%, which also that is what has been backed the cost of funding. 13% was the growth in time deposits. So the 8% growth on CASA versus the higher growth in customer deposits has brought down the CASA as a percentage of total deposits slightly down from where we were in Q2, where it was 47.3% and outstanding as 47.2%. Moving into slide number 18 on the NIMs. We have seen the 5% growth quarter on quarter from same quarter of last year. If you look at the nine months versus nine months, the funded gross income has grown 7%. 6% was from financing and 7% was from investments. Look at the bottom left of the slide, which is the net profits margin movement. It is almost flat. It is minus one basis point.
That was driven by reductions that we have seen by three basis points in the investment portfolio. Also, we have seen a contraction of 19 basis points of the same period of last year in the financing yield. This was offset by 21 basis points reduction in cost of funding that has made a difference year-on-year as one basis point. So the YTD was standing at 3.45% this month versus where we were YTD in the first six months of this year was 3.46%. Moving into slide number 19 on the non-funded income. Non-net income has contracted 7% on a sequential basis. This brought the deduction or the decrease on the non-funded income year-on-year by 8%. It is worth mentioning that the drop that we can see in Q3 versus the Q4, we actually had 11% growth in the net banking services fee.
Most of the reduction are SAR 78 million that came from the other income that is not related to the fees from banking services. So we are seeing a pickup in the third quarter versus at least what we have seen in the preceding quarter, which is the Q2 of this year. We have seen also the growth year-on-year now on the exchange income representing 7%. Most of the drop on the investment gain and dividends was relating to the fair valuation of those investments held at fair value for income statement. Moving into slide number 20, which is on the operating expenses. We are sequentially flat with what we have spent in Q2. When we look at the year-on-year for the nine months, the overall OpEx is 5%, mainly driven by personnel cost that has grown by 8%, and also the depreciation and amortization that has increased by 8%.
Looking at the other G&A, where it is flat year-on-year. This actually slightly dropped the cost income ratio from where we were in Q2, which was 51.5%. We are standing at 51.1% as of September this year. Moving into slide number 21 on the impairment. The impairment is 25%, 26% depending on financing. 25% year-on-year, this was increased and impacted the cost of risk, which has moved six basis points sequentially from Q2, where we are standing now at 51 basis points cost of risk as end of September. Moving into next slide number 22 on the NPL and NPL coverage. We are seeing 2% increase from December on the overall NPL. However, the NPL as a ratio remains lower than Q2 by 3 basis points, so standing at 93 basis points NPL ratio.
Also, the NPL coverage ratio has improved from Q2 at 176%, standing at almost 189% by end of September. Stage-wise coverage, the stage one coverage remains flat from the previous quarter, and this has been the trend at 40 basis points. We have built up during the quarter stage two coverage reaching now 11.5%, which has increased by 1.7 points per thousand from Q2. Also, stage three coverage stands at 73.3% by end of September. Moving into slide 23, which is on the overall capitalization. The overall capitalization, which is tier one and tier two for Pillar 1 risk, standing at almost 21%. This was almost 20% back in June this year. This is clearly the impact of the SAR 2 billion Sukuk of tier one that we have issued during Q3 this year.
The profitability in the ROE has come down 20 basis points from 17.8% back in Q2, standing at 17.6% by September, and also almost flat on the ROA. With respect to the prudential ratios, overall, it is looking healthy. LCR is standing as of September at 156%, well above our regulatory minimum of 100%. LDR, which is SAMA LDR, standing at 81%, small pickup from Q2, but still well below the regulatory maximum of 90%. The NSFR is standing at 111%, which is also in a good position versus the regulatory minimum of 100%. Moving into the next section is the guidance and the update to the guidance for the remaining of this year. We have seen, as mentioned earlier, the growth on financing at 10% YTD. We are still keeping the guidance at 10%, sorry, at no change for the remaining of this year.
Net profit margin, as I mentioned earlier, we are seeing YTD, our basis points, sorry, year-on-year, one basis point contraction. We are revising the guidance from previously 10 basis points to five basis points, and now we are revising the guidance to be flat to minus five basis points. Cost income ratio, we are standing at 51.1%. Our guidance is revised to be below 51% from the previous guidance to be below 50.5%. This clearly impacts the return on equity along with the cost of risk that I will come to, where we are standing at 17.6%, and we are guiding for around 17%. This is what is revised down from the previous guidance and ROE, which is 18%-19%. Cost of risk, we are standing, as I mentioned earlier, at 51% per basis point.
We are revising the guidance to be 65-55 basis points. This is a revision from the previous guidance, which is 55-45 basis points. Total capital CAR for Pillar 1, it is standing at almost 21%. Still remain around, we have revised that around 20%. We have revised that from around 19%, and this is clearly for, I mentioned, through the results of the capital instruments that were issued during Q3, which we expect to support this ratio until the year-end. With that, I will hand it over for the Q&A. Thank you.
If you would like to ask a question, please use the raise hand feature or the Q&A box at the bottom of your screen. If you are dialing by phone, please use star nine to raise your hand and use star six to unmute your line. I will pause for a moment to allow the queue to form. The first question, though, comes from Rahul Bajaj from Citi. Please state your name and the company before asking your question.
Hi, this is Rahul Bajaj from Citi. Thanks for taking my questions. I have two mainly. The first one is on credit cost of risk. So nine month 2026, the run rate has been around 51 basis points, but you are guiding to 55-65 basis points for the full year. Does that mean that in the fourth quarter, you are expecting a major spike in cost of risk? Linked to this question, also the fact, the coverage ratio, which you have nicely built over the last few quarters, they are now close to 190%. I think Alinma is probably, for the total coverage, highest in the sector now. Where is the end game? I mean, do you think that it will go into the 200% mark, or where do we go from here in terms of the total coverage ratio? That is my first question.
My second question is on costs, where I see the run rate of cost growth has come down quite materially over the past few quarters. We are now running at much below the run rate we were in 2024 or 2025, when cost growth was around 10%-11%. How should we think about cost growth going forward in the medium term? Is it fair to say it will remain in the mid to low single digit, or around mid-single digit range from a cost growth perspective? Or you think growth will come back next year on the cost side? Thank you. Those are my two questions.
Thank you, Rahul. On the cost of risk, the revision on the guidance is basically based on multiple factors. One is, we have been talking in Q3 about that big contract that was lost for one of our clients. That was a reason why we upgraded the cost of risk in Q2, and we anticipate that, just to be conservative, we will build more provision there. Second factor is the macroeconomics over here. Facts that is obviously with what happened in the region and geopolitical risks. I think the update on that has also would drive more provision from the model, the change in the model. The same thing, as I mentioned, the whole thing about economic activity due to the regional crisis or regional geopolitical risk would expect it to drive more provision just to be more conservative.
The coverage ratio, I agree with you, is one of the highest in the market at 189%, but we also anticipate in Q4 to see some movement from stage two to stage three based on the past dues. That would obviously would expect to reduce maybe the coverage ratio at that time. In terms of-
Yeah. To your question, Rahul, on the OpEx, as rightly said, we have seen a trending OpEx lower growth than what we used to see, at least in the recent history. But we have to be really mindful that if you look at the growth this nine months versus nine months last year was 5%, but as it presents, there is still growth as the bank is investing into the new strategy. We are seeing growth in the divisional cost, of course, the depreciation and G&A in general.
However, if you look at the G&A itself, it was flat nine months year-on-year, and this is part of it is related to what we have mentioned back in Q1, sorry, Q2 call, which is actually the impact of the savings that we are doing as part of the point of sale leasing through the partnerships that we have entered with one of the providers in a profit sharing agreement. Overall, as you know, we do not really guide on the OpEx growth itself. We guide them as far as the cost income, which of course going into 2027, we will communicate the same once the business plan is final. However, we are also, in addition to that, continuing to monitor the long-term contracts and also look at the efficiencies.
We expect to benefit also from the efficiencies on deployment of those use cases, also mentioned by the CEO already, that we have closed three use case families. As we mentioned in our presentation, we expect 35% of the overall of that growth to be through efficiencies. Hope that answered the question.
Great, [inaudible]. Thank you so much.
The next question comes from Shabbir Malik at Morgan Stanley. Please state your name and company before asking a question.
Thank you very much. Can you hear me?
Go ahead, Shabbir.
Yes. Thanks very much for the presentation. I have a couple of questions, please. First of all, on loan growth, your financing, you are seeing low teens growth for 2026. I think you are at 10% YTD. I was wondering, your guidance implies a 2%-3% growth in the fourth quarter. Considering the liquidity at the bank, LDR has gone up. Also, if I look at economic growth, the latest economic growth numbers suggest slowdown in the economy. Where would this growth likely to come from? That is my first question. My second question is around your cost of risk. You have indicated that there have been certain stage two movements, which drove the increase, or where you expect you need to take some additional provisions. Can you shed some light on what sectors or what segments do these stage two loans represent?
And maybe if you can give us some sense on what would be the medium-term cost of risk guidance, because for this year, it was initially at 45-55 basis points. Now you are looking more at 55-65 basis points. Should we see this as more of a medium-term cost of risk guidance as well? So yeah, those are the questions, please. Thank you.
Thank you, Shabbir. In terms of loan growth, we have already mentioned the strong growth happening already on the SME and the mid-corporates. That is one aspect. Also, if you look at project finance, especially on the PPP side of the project, those are projects that does not really relate to the price of oil or economic or any other conditions. It is all private sector, like renewables and data centers now, and other these things continue to develop. As well as we have been, as you see in our track record, we have been growing retail double, sometimes even triple the market growth. We are very successful in getting new customers and obviously selling some of those products to our customers. So the growth is not going to come from one segment. I think it is multiple segments despite the economic activities in the country.
Now, in terms of the cost of risk, it is our first year that we have seen our cost of risk higher than the previous year. To look at our history over the last five years, our cost of risk has always been higher than the market average, just because we are very prudent in taking provision and building protection in the portfolio. But we have been declining cost of risk year on year. This is the first year that we have seen growth on the cost of risk. I mentioned some of the examples in the macroeconomic factors that is due to the regional tension, as well as the large contract that flopped in Q3 for one of our important clients. As far as the migration to stage three, I do not think it is a specific sector.
It is a different customer, whether it is an SME side, whether it is a mid-corporate, or whether it is a large corporate. Retail also, they may have some mutual losses. So it is not specific sector. There was no concentration on the migration. Now, in terms of the medium cost of risk or medium-term cost of risk guidance, every year we are going to give you the guidance, and we have to amend it every quarter. If we feel the conditions are different or changed, we do that, as we always promise on that. But as far as the medium term, we give some guidance, but does not include cost of risk. If you follow our trends, typically we have seen lower cost of risk year on year, except this year.
This is the first year in the last six years, actually. This is the sixth year since I joined the bank.
I would expect to see hopefully lower [inaudible] next year, but we will give you update on the guidance once we finalize our business plan.
So this 55-65 basis points kind of reflects the slowdown in economic growth, and if, let us say, economic growth picks up, this could potentially be lower?
Yeah, of course. I mean, obviously, one of the factors is what is happening in the regional tension. I mean, obviously, that has an impact on macroeconomic inputs into the model. So if that changes, obviously, that will be supportive.
Great. Thank you.
The next question comes from Jon Peace at UBS. Please state your name and company before asking your question.
Hi. Thank you. Yes, it is Jon Peace from UBS. First question, please, is on the net profit margin. I think you said in response to the last question, something about your cost of funding may go lower next year. How should we think about the net profit margin overall, given higher interest rates? Would you expect it could expand a little bit going into next year? Then the second question, please, is on the 2030 ROE target of greater than 22%. You are starting from 17% this year. As I look in consensus, actually, it seems to be modeling it pretty flat at 17% in the medium term. So, I wondered if you could just maybe at a high level, give us a bridge from 17%- 22%. How do you expect to raise the profitability, and where is consensus being too conservative? Thank you.
Thank you, Jon. Obviously, on the NIM, the fact that now our portfolio, 73% are corporates, links directly to SIBOR plus, and higher rates would mean typically good results for us. So, if that rates I mean, obviously, once we finalize our business plan for 2027, we take at that time the latest forward yield curve of the market, and we use that and give you the But typically, I agree with you, the higher SIBOR, the better impact on NIMs. Now, as far as the 2030 ROE target, we kept it the same. I think following the full year performance, we will update that, and I suspect that would be lower than what currently is. And we will explain the reason at that time, but we have not done it on a quarterly basis. We will do it following Q4.
Okay. Thank you.
The next question comes from Rahul Rajan of Bank of America. Please state your name and company before asking your question.
Hi. Good evening. This is Rahul Rajan from Bank of America. A few questions from my side, please. Firstly, on the headline LDR levels. Where do you see that going from here? Broadly, do you expect deposit growth to continue to lag the financing growth? That is number one. Secondly is on dividends. Like last year, should we see 4Q dividends being paid through stock and not through cash? That is number two. Number three is from a fee income perspective, how sustainable do you think the fee income levels are that you posted in third quarter? As also with FX gains. I see that the FX-related gains have also seen an uptick in 3Q. Those are the three questions from my side, please. Thank you.
Thank you, Rahul. Obviously, on the LDR level, it is something that, as Adel mentioned, it is way below mandatory requirements or maximum requirement of 90%. We are at 81%, a slight change since last quarter. We try to be very efficient in liquidity, build the protection that we need in case of any adverse market movements, but at the same time, to not obviously try to be efficient in terms of liquidity. On dividends, I mean, obviously, we do not do bonus shares in every year. At the moment, we will wait for the decision of the board and obviously central bank, but I would expect that it is not something that we do every year. Every two or three years we might do it, but not every year.
In terms of fee, sustainability in fee income, actually, we did not do well on fee income, and we expect to see improvement on fee income in the years to come. With all our initiatives in place, our focus, that should drive fee income higher than this year. Same as for FX also.
Got it. Thank you.
The next question comes from Abdullah Al Buraidi at ENBD Capital. Please state your name and company before asking your question.
Hello. Thank you very much for the great presentation. Congrats for the great results. This is Abdullah Al Buraidi from ENBD Capital. I just have two questions, and they might be a follow-up to some extent. The first question is regarding the cost of risk. Since the beginning of the year, we have seen that stage two spike by around SAR 3 billion-SAR 4 billion. Forgive my ignorance, but if we assume that most of it coming from the exposure that lost the contract, then the increase in the allowance ratios is still far to cover even 30%-40% of that exposure.
Based on the updated guidance, which indicates that we might continue to see the cost of risk in the fourth quarter in line of 60-65 basis points, do you believe with that it will be over with and there would be no further risk from that specific exposure, or we are still expected to see some of it in the next quarter, sorry, in the next year? The second question is regarding the NIM. Your performance in NIM has been quite wonderful since the beginning of the year, and you are revising the guidance upward. However, what we are seeing since maybe the end of September and the beginning of October is that some liquidity pressure has come back, and that might put further pressure on the cost of funding.
How do you see yourself achieving that in the fourth quarter, given the cost of funding pressure came back as last year? Thank you very much. Sorry for taking long.
Thank you, Abdullah. In terms of the growth in stage two, we have to realize this is not necessarily deterioration of credits or risk quality of the portfolio. There are rules within IFRS 9, including structuring. We do structuring in the term because the business has changed for the client, and you restructure this. Typically, also seen by our risk as a trigger to move it to stage two. It does not mean the growth in stage two that will ultimately move to stage three. Then we have to move there for a certain period, and I think there is a period, that minimum period required to stay there, and then potentially can go back to stage one. I mentioned that we are expecting potential some downgrade from stage two to stage three, but it is not in the same volume that you have seen growth in stage two.
We are expecting some, but not very significant number. In terms of NIM, yes, you are right. The cost of liquidity since, I would say, early October on, have been surprising, to say the least. Because if you recall our earnings call in Q2, we actually seen improvement in level of liquidity in the first half this year. What we start seeing, and you are right, in late September, early October, we start seeing significant competition on deposits. That is maybe one reason that our revision and guidance did not shift significantly, five basis point movement. Could have been more if we had similar level liquidity that we had in the first half.
Thank you very much.
This question will come from Aybek Islamov of HSBC. Please state your name and firm before asking your question.
Yes. Good evening, everyone. Thank you for the conference call. This is Aybek Islamov from HSBC. I have two questions, really. One is on your AT1 debt. I can see that the share of AT1 debt within your total tier one capital is now 27% in the third quarter, so it really grew progressively from last year. Is there a maximum level of AT1 you would be comfortable holding? I am just curious to understand that, given that you continue to grow your loans above sector. I presume you probably need to issue more AT1. Correct me if I am wrong. Are there any plans to recall maturing AT1 in 2027? That is my first question on AT1 funding strategy. The second one is on your net profit margins.
The asset yields are lagging the increase in the cost of funds in the first nine months, as you show on slide 19. I mean, you do have more rate-sensitive assets than rate-sensitive liabilities on the balance sheet. What is preventing you from raising the asset spreads more aggressively in order to defend your net profit margin? I am trying to understand that. That links up to your also one previous question about the net profit margin outlook for next year. I mean, how strong is your conviction that the net profit margin would improve in 2027 with more rate hikes to come?
Thanks, Aybek. On the maybe first question, then I will come later to the second question. On the AT1, as I mentioned during Q3, we have issued SAR 2 billion in private placement, which, as you rightly said, increased the percentage to 27% of the total capital. As we always announce, we have programs in place that is cleared to all the approvals, and then whenever we see the market and the pricing is reasonable, then we can tap in the market for whatever size that we need. That contains that SAR 2 billion that came for issuance in Q3. We are not setting, we are not scrolling any that limit to which AT1 would stand as a percentage of the total capital. However, as you can appreciate, as the bank had started first time to issue tier two Sukuk was back last year in the second half.
This was the first time for issuance. We were diversifying also the funding side through the tier one Sukuk issued last year, and then also the CDs. We are active both in funding and also diversifying the capital supporting instruments that we have. That is something that we will continue to issue, as you would certainly continue to call before. We have been always clear that we probably, as we did with the SAR 5 billion that we issued back in 2021, we called it in the first repricing date, call date. We expect the same to go for the other issuance that we have issued already. On the NIM, as we have been saying before, Aybek, we are positive in the medium term to rising interest rates.
We have seen that throughout the past four years or so, because we have more positive rate-sensitive assets than rate-sensitive liabilities. This could be explained by the sensitivity that we have that has not moved a lot from Q2, but of course, where the impact will take 12 months period, it is around two basis points for every 25 basis point hikes. Again, that is the impact that you would roll over for 12 months, keeping every other factor also constant, because we have seen all the volatility in liquidity, the volatility on percentage of cash versus also the total deposits.
If rates continue to go up, definitely we are positively exposed given the fact that we have now, as we should give in the presentation, 73% of our corporate, of our book is corporate, with big part of that being floating, and we will be able obviously to price as the repricing phase comes in. As you have seen on the last slide, we guided based on the latest that we see in the market. Of course, we are finalizing our business plan for 2027. We will guide you on the NIMs we look into 2027. This year, as mentioned by the CEO, could have been maybe slightly better guidance than maybe what we had to revise. But given the liquidity that we have seen going lower end of October, where we saw SIBOR/SOFR spread has gone down from maybe what we have seen in September or end of September.
It is the way we see it now, and I think the revision that came because of what we expect and the repricing, plus the repricing that we have been doing since second half of last year. Hope that is clarified.
Thank you.
The next question comes from Naresh Bilandani of Jefferies. Please state your name and company before asking your question.
Yes. Hi, Abdullah, Adel. It is Naresh from Jefferies. Thank you very much for the presentation. Sorry, just a few quick follow-up questions, and sorry to probe further on these. Clearly, we had a spike in the stage two in Q2, which you had attributed to as the cause for the increase in the cost of risk guidance as we went into the second quarter. You had mentioned that this was due to a deterioration in visibility on the cash flows on a project where one contractor was affected. Do you have any better visibility on the cash flows on that account now that a couple of months have passed since we first realized that issue? So, any visibility there would be helpful. That is first. Second is, if I can ask some of the previous questions in a different direction.
We have seen the pace of write-offs as extremely low compared to what we have seen in the previous years, which I think is also adding to the buildup of the coverage. As we go into Q4, are we about to see a pickup in the write-offs on that line, or do you think that is unlikely to be the case? I am just trying to get a sense still if the cost of risk, that guidance that you have offered, is more conservatism and model-driven, or are you seeing some real deterioration which would require some write-offs to emerge in Q4 or probably in Q1 next year? That is the second question. And my third question, slightly off the beat.
Would you please be able to share on the current balance sheet structure, how much of the balance sheet, whether it is on assets and liabilities, is linked to the three-month SAIBOR and the higher tenors of the SAIBOR? Because in the past, I remember from our discussions, you had mentioned that you have a bigger portion of your loan book that is linked to the six-month and 12-month SAIBOR, and you were consciously trying to bring that closer to a three-month SAIBOR linkage. Any split there would be very helpful just to gauge on how the NIM could potentially behave in the short term for the franchise. Thank you very much.
Thank you, Naresh. Obviously, on the large projects, that obviously one of the reasons why we upgraded our cost of risk. As the project is canceled, it will take a long time between the project owner, the consultant, and the contractor to come up with final assessments on all the amounts that they are entitled to claim from project owner. At the moment, the process is a bit lengthy. We will have to wait, nothing yet on the expected claims that the contractor would raise, and whether those claims would be enough to pay the outstanding debt with us and their plan. We just want to be conservative, and we will start building provision on that. On the other questions
On the write-offs
I do not think we, the write-offs, I mean, obviously, we have, you are right, in the past had higher write-offs because the bank was very slow in taking write-offs. I think that is something that we would feel. Would be normal write-offs going forward? Yes. I do not expect a sudden pickup in Q4, but write-offs follow the normal process for us. The other one is, you are right, when we were expecting future SAIBORs to decline, we were actually encouraging our clients to go for longer benchmarks, either six months or 12 months. We have been trying, actively trying to push customers towards those. Now, things are different. Obviously now new lending and new renewals and so on, we are pushing for shorter benchmark as the mark as the rate is expected to go up.
We do not actually give a breakdown in how much of our, for example, corporate loans dated for three months, six months, or 12 months, the SAIBOR. It is something that I do not think we do at this close.
Understood. Thank you very much. Just a very quick follow-up, just to get a sense. Are you trying to say that the pace of write-offs, this is the new normal, and in the past you were writing off a lot more aggressively, and now you do not see the need? We should see the levels of coverage stay elevated, or are you being conservative and you probably expect the write-off pace to pick up in the short term, given how the state of affairs is on the ground?
No, what I am saying, Naresh, is that the bank historically has been reluctant to do write-offs, and I think that is something that we fixed. That is why you saw higher write-offs in previous years. I think now, in terms of write-off follow, it has become normal. It is not like elevated level of write-offs. I think I also mentioned in previous questions that we expect some migration from stage two to stage three, and that the higher coverage ratio is not expected to go significantly higher, and may go down either.
Thank you very much, Abdullah. Very helpful. Thanks.
The next question comes from Chiro Ghosh of SICO. Please state your name and company before asking your question.
Hi. This is Chiro Ghosh from SICO Bahrain. First, thanks for the conference call and for clarifying most of our questions. Just one last one which I have is purely from the retail loan and the SME loan, which I am looking at. Retail loan pace of retail loan has come up a little bit in this quarter, but still you are massively outpacing the industry. Can you give some clarity what differently you are doing? Because it does not seem to have any major impact on your margin also. It appears that you are not even cutting price to gain market share. If you can give some clarity on that, as well as an SME side, because most banks are looking to get into the SME sector. How is the competition there? How is the pricing power there?
Hi, this is Saleh. Thank you for the question. Yes, we grow our retail loan book without compromising the price. As we mentioned earlier in the previous earnings call that we grow our customer base significantly, and also we invest in our customer experience journeys and turnaround time. This is what makes us grow our portfolio in retail more than the competitor, 16% in the first nine months. So no, we are not compromising the price.
But are you doing something different where you can, you are going at this pace which others are unable to?
Can you repeat your question? You are not audible.
No, I am saying, in the same context, is Alinma doing something very different where all other banks are struggling to grow their retail book, while Alinma continues to grow? Is it just the customer base or there is something else?
I mentioned it is not only the customer base, it is the customer journeys experience, digitalization of most of the journeys nowadays. We are very efficient in terms of turnaround time. The customer application approvals come within instance now in our application. This is what makes us grow the business. It is both growing the customer base and investing in the customer experience and journeys.
In all the business that we do, we never actually go. We do not use the price as a strategy. We tend to be in the middle, even a bit higher, but we do not go for aggressive pricing at all. Corporates, retail, all the business that we do, pricing is not something that we go aggressive on.
How is the competition in the SME market, which is also where you mid-corporate SME?
[inaudible]
Sorry, you are not audible. Moderator, can we go to the next question and maybe-
The next question comes from Salman Al Hagbani of Al Rajhi Capital. Please state your name and company before asking your question.
Assalamu alaykum. Good evening. Two questions from my side. The first question is regarding the spread between SAIBOR and SOFR. We have seen that spread has been widening in October, and that has led to, let us say, a hike in the SAIBOR. How do you see that in terms of pricing competition, deposit competition, as well as how would that impact your fourth quarter results? My second question is regarding the OCI. We have seen that you have recorded a decline of 21% year-over-year in the comprehensive income and 15% on Q-over-Q basis. That is mainly on the back of fair value. How do you see it? How do you see the impact, given the further interest rate hike?
Yeah. For the first part, the first question on the deposit side, as you rightly said, we have seen this is going a bit lower in October, and hope that would impact, would also reflect maybe lower SAIBOR levels that we are seeing now. But anyway, as far as the competition, maybe the last month or so, we have seen financing just still holding deposits versus maybe what we used to see in the beginning. Can you mute, please, because there is echo coming?
[inaudible]
Yes, Salman. Yes. Moderator, can you mute the other part of the fence? Thank you. Go ahead, Salman.
Yes, sure. Sorry, Salman. Just continue. Again, of course, as mentioned, SAIBOR, we are again positively exposed to that and an increase, of course, of that. It just depends on the maturities and whether deposits will be repricing higher or quicker than what we would have realized from the asset side. You missed a question on the OCI. Of course, yes, we have put some losses in the OCI. This is a normal mark to market that we usually hit the OCI and then eventually the equity. I have to say, really, if you look at the SAR 56 billion total investment portfolio that we have, all of our OCI classified investments is around 11%. That is like less than 19% of that. Also, not all the OCI-related investments are also good, or some of them would be a normal mark to market when it comes to the equity.
Also, maybe you have seen in the financials as well that we already published that we have sold all of our equity portfolio. Some losses also that was realized within equity, but the mark to market was done before. It is also related to some of the OCI holdings for corporate Sukuk. That is also floating, so we wouldn't expect much of the changes or losses, or even again, as the floating Sukuk would be marked to market as it moves. I hope that answers the question, Salman.
Just to follow up on that, as expected, we might see a further hike. Do you have an expectation or guidance regarding how much the OCI would be impacted given a further hike, or every 25 basis points, how much would it impact the OCI?
We don't have, Salman, the sensitivity of investments really to OCI, but I would refer you back to the percentage of OCI as a percentage of total investment is really not that much, as most of our investment is government Sukuk, and this, as you know, classified as amortized cost, so it wouldn't touch the equity or the stuff.
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That is all the questions we have time for today. I would now like to hand over the call to the management for closing remarks.
Thank you so much, everyone, for joining the call and for your time. If you have any follow-up questions, please refer to IR@alinma.com. Thank you.