Ladies and gentlemen, welcome to SNB 2Q 2024 Earnings Conference Call hosted by SNB Capital. I will now hand you over to your host, Mr. Iyad Ghulam. Mr. Iyad, please go ahead.
Good afternoon. On behalf of SNB Capital, I would like to welcome you to this conference call with SNB management regarding the bank's Q2 2024 results. Today's call is being recorded. Please note that this call is open for analysts, investors, and shareholders only. Any media personnel, please disconnect at this point. Today's speakers are Mr. Tareq Al-Sadhan, Chief Executive Officer, Mr. Ahmed Aldhabi, Group Chief Financial Officer, Mr. Abdulbadie Alyafi, Head Investor Relations and Market Intelligence, and Mr. Asad Khan, Group Chief Economist. I will start by handing over to SNB Head of Investor Relations and Market Intelligence. Abdulbadie, please go ahead.
Good afternoon. Welcome to SNB's earnings call on 2Q 2024 results. We would like to thank SNB Capital for hosting today's call. As usual, please take note of page two of the earnings presentation, which provides important information regarding today's discussions and disclosures, including the use of forward-looking statements. With that, I will hand over to our CEO, Mr. Tareq Al-Sadhan. The floor is yours. Please go ahead.
Thank you, Abdulbadie. Good afternoon, everyone, and thank you for joining our earnings call today. It's been a little over three months since I joined SNB, and I'm excited about the promising growth journey ahead to deliver a great value for all our stakeholders, including people, customer, shareholders, and the wider community. We are not only the largest bank in the kingdom, but we continue to be the most diverse with the most efficient domestic operating model. At the same time, we are pleased with the supportive economic backdrop, strong regulatory environment, and ample growth opportunities in the Kingdom created by Vision 2030. As you know, our strategy is long established and based on our aspiration to be number one in revenue and profits, the most innovative bank, best in customer experience and employer of choice.
Aligned with these aspirations, the bank shared with the market last year our strategic priorities for 2024. It's a comprehensive set of priorities that have been guiding our organization and success. Yet, toward the end of May, we have kicked off an exercise to refresh our strategy. The goal of this exercise is to confirm our key pillars and to ensure that we have all the right initiatives that will lead us to achieve our goals, and also to ensure that we have the right governance around these, the execution of these initiatives. The plan is to present these outcomes to our board toward the fourth quarter, and we'll be more than happy to update you on the progress of these initiatives and aspirations and the direction of our strategic aspirations.
Saying that, we have also identified obvious area that require an immediate focus and attention, and we have already begun executing on these in parallel. Overall, there are three broad areas that we are considering. First is enhancing value in our customer-centric approach, in particular from liabilities and fees. This entail a deep review of our customer experience activities to identify further areas of enhancement. Second, growth in more profitable segments aligned to the opportunities being created in the Kingdom such as MSME, mid-size corporate, mortgage, and credit card as well. Third is to use the data and AI to better serve customer needs, coupled with how we can enhance the effectiveness of our operating model and agility. In the meantime, allow me to take you through some of the highlights of our progress in the first half of 2024.
We reported sustained record of net income of SAR 10.3 billion for the first half and SAR 5.2 billion for the second quarter of 2024. We delivered return on tangible equity of 16.3%. Year to date, financing grew by 6% to SAR 637 billion, surpassing our initial forecast with a particular focus on MSME, which grew by 18%. At the same time, our NSCI margin was healthy and stable on a sequential basis. We continue to increase the number of our customer in the bank across corporate and retail. Our domestic NOI increased by 10% and domestic net income increased by 8% year-on-year.
We continue to make progress in deepening our operational efficiency through automation, digitization and cost optimization initiatives, driving our domestic cost-to-income ratio to 25.2%. We expect comfortably to meet our internal targets for this year on cost efficiencies. We continue to enhance our offerings to our customer on digital with a focus on bringing more innovative solution and leveraging the data to serve our customer and enhance profitability. On customer centricity, we have made excellent progress in reducing turnaround time and improve customer satisfaction through enhancing account lifecycle management, including a 19% reduction in branch waiting times. Finally, our people remain at the heart of all that we do. We will support them and to excel in delivering their best to our customers, and we are focusing in providing an attractive environment for them, investing in their development and training.
All with an eye on boosting engagement and enabling our people. With that, I will now hand over to our CFO to go through the quarter's results with more detail. Thank you.
Thank s, Abu Khaled. Good afternoon, and a warm welcome to all. Today, I'm pleased to present another set of strong financial results. Looking first at the balance sheet, we achieved a strong financing growth of 6% year-to-date, driven primarily by an 8% increase in wholesale financing and a 4% increase in retail, including 7% growth in mortgage. This growth was supported by a 7% increase in customer deposits year-to-date, and the capital ratio remains at a very healthy level of 74.2%. Also, the SAMA LDR stands at 78.8% at a comfortable level and well below the regulatory limit. Next, NSCI margin declined for the six months period by 12 basis points year-on-year. This resulted from 8 basis points domestic and 4 basis points from international pressure.
Looking at the sequential view, the margin remains stable quarter-over-quarter at 3.08%. On efficiency, our performance was affected by international market volatility, which pushed our gross cost income ratio to 28%. Nevertheless, we enhanced the domestic cost income ratio to 25.2% and cost of risk stand at 26 basis points for the period. These factors combined led to a 2% increase in group net income, while domestic net income grew 8%, achieving attractive return of 16.3% return on tangible equity. Let's move now to the balance sheet. Assets expanded 5%, driven by financing growth and further supported by higher investments. Balance sheet growth continues to be funded mainly by customer deposits, primarily CASA, which will be discussed in more detail later.
On the liability front, considering the rate environment, we also optimized funding costs and the maturity profile with a normalized shift in funding mix from interbank to longer duration liability, which are debt securities and term loans. Please see note 10 in the financials for the details. Briefly, though, you will notice the reclassification from due to banks into debt securities issued and term loans. We have provided this additional information as a part of enhancing our disclosure and transparency, particularly as we have increased our activity in some of these categories of wholesale funding. For example, previously, CD balances were clubbed within due to banks and other financial institutions. Now they are reclassified into debt securities because we have increased our activities in CDs, given their high cost efficiency and diversification benefits. These funding activities are diversified across tenors, markets, and investor base.
The increase in funding has been in line with the bank's overall growth aspirations and consistent with our strategy to expand sources of accessible, diversified funding. Our prudent approach to reinforcing SNB's strong liquidity base while maintaining a focus on cost efficiency. Next, please, to the financing. Our financing portfolio saw strong growth of 6% year-to-date. This growth momentum was evident across all key business segments. Wholesale financing is up 8% or SAR 21 billion, bringing the total to SAR 284 billion. On the corporate financing front, we observed a 7% expansion, which translates to an increase of almost SAR 60 billion. Our total corporate financing now stand at SAR 251 billion, driven by strong credit appetite, predominantly from the global and large corporate centers.
In terms of economic sectors, the utilities, transport, and communication, and mining sectors contributed substantially to the financing growth this quarter, while government-related financing experienced some repayments as expected and mentioned last quarter. In retail, mortgage growth remains strong, up 7% or almost SAR 12 billion to reach SAR 173 billion. We expect mortgage volumes in the second half of the year to be similar to the second quarter. At the same time, other retail financing grew SAR 1.4 billion in the first six months and expected to show more or less similar growth in the second half. Altogether, we are optimistic about lending growth for the full year, given the strong first half performance, including the robust corporate pipeline and sustained mortgage momentum. We are therefore upgrading our full-year 2024 guidance from high single digit to low double digit growth.
Moving to the next page. The investment portfolio increased by 7% year-to-date, reaching SAR 287 billion. The key growth driver in the first half of 2024 was a 6.16% rise in other fixed income instruments, mainly in investment-grade securities in the GCC and the U.S.. The QoQ increase was mostly due to the organic growth across asset classes and investment type, and supported by the valuation of bonds and equities. As mentioned previously, we continue to build up the longer-term fixed rate assets as a part of positioning the balance sheet to benefit from the expected decline in the interest rates. Next page. Customer deposits increased 7% year-to-date to reach SAR 633 billion. On a sequential basis, we have experienced a slight uptick in term deposits, bringing the year-to-date increase to nearly 10%.
As we had anticipated and cautioned previously, we experienced an outflow of transitory deposits during the second quarter. This has somewhat moderated our growth in CASA balances, bringing the year-to-date growth to 5%. CASA balances are expected to remain around this level going forward, although we continue our effort to acquire more core and current accounts. Our CASA ratio moderated sequentially but remains at a very, very healthy level, 74.2%, a similar level at the same quarter last year, and we anticipate the ratio remaining at similar level in the near term. Moving to the next page, to the profitability. SNB Group achieved net income of SAR 10.3 billion for the first half of 2024, reflecting a 2% increase compared to the same period last year.
This was driven by solid NSCI growth, partially offset by higher operating expense and improving interest costs. For the second quarter of 2024, our group net income stood at SAR 5.2 billion, marking a 4% year-on-year increase. It is important to highlight that in this period, we faced a substantial impact from international. The hyperinflation adjustment for the first half of 2024 amounted to SAR 218 billion, affecting our operating expenses and other non-operating income lines most. Our domestic business continues to perform exceptionally well, with domestic net income growing by 8% in the first half of 2024 and an impressive 13% year-on-year increase in the second quarter. Again, the terms metrics remains healthy, with return on tangible equity at 16.3% and return on tangible assets at 2%.
Let's focus next on the individual P&L component, starting with NSCI margin. NSCI grew 5% to SAR 14 billion, driven by a 9% increase in average commission earning assets and the NSCI margin declined 12 basis points year-on-year, of which 8 basis points was due to domestic, mainly from the change in funding mix, and the NSCI margin was stable quarter-over-quarter. Our sensitivity to interest rate is unchanged and just slightly positive in response to rate cuts. Specifically, every 25 basis points decrease in rate expected to result in an NIM expansion of approximately 2 basis points over a period of 2 quarters-3 quarters, considering our current balance sheet mix. NIM guidance remains unchanged, expected to be from 3% - 3.2% for the full year. Moving on fee and other income.
Fee and other income remains relatively unchanged year-on-year, as accelerated domestic fee income was offset by a decline in international fees. In the first half of this year, our domestic fee income from banking services showed a solid 16% increase. This growth was mainly driven by strong performance in brokerage and investment management fees, supported by improved market condition and increased market share. Trade finance fees also contributed to growth due to robust trade activities. However, this growth was partially offset by lower financing and card fees due to suspension of certain fees, increased liability expenses and seasonality. Investment-related income increased by 35% on the back of positive mark-to-market in funds and equities. Second half is likely to be at similar level or more moderate levels, depending on market conditions. Moving next to OpEx.
Operating expenses, excluding the amortization of intangibles, rose by 8% over SAR 5 billion, an increase of 7% in domestic and 14% in international. The increase in our domestic OpEx is attributed to the following. Depreciation rose by 21% or SAR 116 million, which reflects our focus in digitization and investing in our business to drive future value. Employee-related expenses rose by 6% year-on-year from increments in salaries and benefits, considering market dynamics and supporting our strategic priority of being the growth choice. Looking more closely at our cost metrics, domestic cost-to-income ratio has improved year-on-year by around 60 basis points and is at healthy level of 25.2%. We have been implementing various cost management initiatives that are expected to have a positive impact to our financials.
That said, our aspiration for the domestic cost-to-income ratio is to be contained below 26%. Moreover, the international cost-to-income ratio contributed negatively to the overall group. However, the outlook in Turkey's inflation is positive and expected to ease off in the second half, which in turn should result in the group cost-to-income ratio to be within the guidance range. Worth highlighting also, given the volatility around Turkey's macroeconomic environment, we will closely monitor the P&L dynamics and update the group cost-to-income ratio guidance next quarter if needed. Next.
Cost of risk was 26 basis points for the first half of 2024 or SAR 800 million, and moderated to just 6 basis points for Q2 due to stable asset quality and the proactive provisioning during Q1. Our cost of risk guidance remains unchanged at 0.3%-0.5%, as it's expected to normalize in the second half of the year. However, based on the current trends and risk assessment, we anticipate our full-year cost of risk may align closer to the lower end of this guidance range. Next page. NPL balances declined 3% year-to-date to SAR 7.2 billion. This improvement stems from lower than expected NPL flow in wholesale during the second quarter, combined with a settlement in the first quarter, as well as stable credit quality in retail. As a result, our NPL ratio has fallen to 1.1%.
Stage 1 coverages remain healthy across the board, with just some of the proactive provisioning booked in Stage 1 during the Q1 being reallocated to specific names in Stage 2. This was adding that the relocation of provisioning was not due to any major Stage 2 flow. Moving to capital and liquidity. The total regulatory capital increased 3% year-to-date to SAR 146 billion from organic net income generation, offset by the dividend payout of SAR 4.4 billion. The bank's capital adequacy is both healthy and stable, with a tier-one capital ratio of 18.5%, aligned with the midpoint of our guidance for the full year. Furthermore, our total capital adequacy ratio stands at 19.3%. Liquidity ratios are comfortably above threshold as anticipated, with some LDR normalized to 78.8%. Next, to recap of guidance.
As previously mentioned, our strong financing growth in the first half, coupled with a healthy pipeline, allows us to revise our financing growth guidance upwards to the low double-digit range. We reiterate our other guidance, noting that we will closely monitor inflation costs and revisit the group cost of risk and cost to income guidance as required next quarter. With these factors in play, we're on track to deliver an attractive return on tangible equity for the year. With that, I will now hand it back to our CEO for the closing remarks.
Thank you, Ahmed. Nothing to add following what you said. Just I'd like to repeat that we are well-positioned and on track to achieve our ambitious objective for this year. Our well-diversified business, resilient operating model, coupled with ample domestic opportunities and supportive economic environment in the Kingdom, have positioned us for success. We are committed to delivering sustainable value creation to our stakeholders, and I would like to thank you for your trust in SNB. Now, let's open up for discussion with a Q&A. Operator, back to you.
Thank you, ladies and gentlemen. We will now start the Q&A session. If you wish to ask a question, please use the Raise Hand button on your webcast toolbar. When it is your turn to speak, please introduce yourself by name and company, then proceed with your question. Alternatively, you can use the Q&A button found on your webcast toolbar to submit written questions, which will then be read out into the call. Thank you for not exceeding one or two questions per person. If you have further questions, then please re-enter the queue. Please stand by until we have our first question. Our first question today is from the line of Nida Iqbal of Morgan Stanley. Please unmute locally, introduce yourself and proceed with your question.
Presentation. My first question is on the loan growth outlook. I see in the notes to your account that your credit commitments are quite high, but they continue to grow and haven't been drawn down. Any color around timing on possible drawdowns here and what do you think is the driver behind the relatively slow trend here in terms of drawdown? To what extent are these impacted by some of the rationalization plans that we're hearing around Vision 2030? That's the first part of the loan growth question. The second part is around consumer loan growth. It would be great to get some context from you around expectations on loan demand as rate cuts start to come through. Thank you very much.
Thank you for the questions. The first part of the question is regarding the loan demand. As previously mentioned, with this high interest rate environment, all these big projects need to be taking its time for coming up. We saw some activities, but not at the same level that we've been expecting for some times. When rates are moderated, we expect there's more activities to come. For the other question regarding the retail loan, of course, affordability will be enhanced when rates are going down. That we are really intentionally decrease our pricing, which I think all the banks or the market will do so.
If we do the sensitivity of 100 basis points decrease in the IRR, that will increase the affordability of around 8% or 7%-8% for mortgage and 2%-3% for the personal finance. However, considering the activities that we are doing during the year, that will increase the volume of around 1%-2% from the origination that's been done during this year. Having said that, in terms of profitability or NSCI, there is not much impact because the decrease in rates will be compensated by the volume growth.
The momentum is very strong for lending, nothing related, as you mentioned, to the slowdown of certain activities as Vision 2030. I remember responding to this question in the first quarter, saying that the government is having more projects that came along like Expo 2030, the World Cup 2034, and we know that also we're hosting lots of sport events that's coming in the near future and that's the reason for the activities being shifting. We haven't witnessed any slowdown on the government activities and commitment to deliver any projects that's been announced.
Thank you very much.
Thank you. Our next question is from the line of Shabbir Malik. Shabbir, if you would like to unmute locally and then introduce yourself by name and company and proceed with your question.
Can you hear me?
Yes. Yes, we can.
Great. I have two questions. One of the things that is evident in your results is that the relatively weak growth for SNB compared to the sector and earnings is due to the Turkish operations. Do you see that headwind changing to a tailwind in the coming quarters? Do you see better prospects for the Turkish business that could help you in terms of profitability growth in the coming quarters? That's my first question. My second question is, Tareq mentioned some immediate areas of execution, including a focus on liabilities and fees. It would be great if you can shed some more light on that. What initiatives are planned and how soon can we see the results of that? Thank you.
For Turkey, the headlines, inflation to be eased, and that is positive to us. We hope this will be in the near future. Abu Khaled , for the second question.
Thank you, Shabbir. If you look at our growth being the largest bank in Saudi, supporting the largest corporates in Saudi, and if you look at our mix, it is clear that there is a great segment that we need to focus on and also extend our support to. That segment requires an enhanced customer experience and quick turnaround time. I'm naming here the small and medium businesses, the commercial. We started an exercise to review the whole processes from day one, contacting the client till the client got funded and trying to shorten the process, reducing the paperwork, introducing digitization in the process. Today, we had our MSME committee meeting and we were reviewing the, o ur digital offering and what we are proposing to come up with, as an application, new application to cater for our small and medium enterprises customers. We are tackling all what they need. We started by surveying them, what they're expecting from MSME, and we are taking actions on that. We are pushing very hard the agenda of all the other products that will bring us a higher margin. Customer experience, customer journey is in the heart of what we are doing. How quick we can achieve. You've seen that we have grown 18% already on our MSME. We want to grow faster and stronger on that segment.
We also want to capture the right segment when it comes to retail, affluent, and all these segments will require a cultural change, customer experience activities, and we are pushing the agenda. How quick that comes in terms of numbers, we hope that we will see something this year, but we hope that the big impact will come in next year, Inshallah.
Thank you.
Thank you. Our next question is from the line of Mohammed Al-Rasheed. If you would like to unmute locally and proceed with your question, please introduce yourself by name and company. Hi, Mohammed Al-Rasheed. My apologies. Mohammed Al-Rasheed, your line is open. If you'd like to unmute locally and introduce yourself and proceed.
Hello, can you hear me?
Yes. Yes, we can.
Yeah. Thank you. This is Mohammed Al-Rasheed from Ashmore. Just two questions from my side. First, regarding the recent news of the Saudi government decision to support Saudi Binladin Group. I would like to hear your thoughts on that and whether it will result in a possible sizable reversal of provision for the overall sector. Also, it would be highly appreciated if you can share how much does it represent for your book and Stage 3 book. My second question is regarding your exposure to project finance. So what's your current outstanding exposure to project finance, and how much of that is being classified as specialized lending versus general corporate on your Pillar 3 disclosure? Thank you.
Thank you, Mohammed. We are very pleased and we really appreciate Ministry of Finance commitment to support Binladin and support the banking sector by settling the financing activities that's been extended to Binladin. Today, we are in the process of negotiating with Ministry of Finance, so it's premature to comment on any reversal or any positive or negative impact of this discussion. We know that the Ministry of Finance is committed to support the company and to support the banking sector. We're staying positive on that. Once we have a full clarity on the agreement with Ministry of Finance, then definitely that will be communicated to everyone.
Thank you. Ahmed, thank you for the question regarding the project finance. First, the definition of project finance vary from one bank to another, but there is a disclosure in Pillar 3, something called specialized financing. That is not fully project finance, but may more than 90%, maybe 92%, 93% that is related to project finance. However, we do have some project finance for non-specialized banks. Okay, that may be the latter. It's the definition of this may be syndicated loans that is really considered to be project finance. So we cannot give a number without knowing the definition that you can see. But if you are referring to the Pillar 3 one, that is 90%+ is related to project.
I have noticed that some banks, they consider a large percentage of their corporate book as project finance, while others are not. Is there any certain discussion with the regulator to arrive to a unified definition of project finance and how you can track it in Pillar 3? I mean, the one that is not classified under specialized lending, because that would be very helpful.
No discussion, Ahmed, regarding this definition, but I think it is depending on the bank definition of project finance.
Okay. Thank you.
Thank you. Our next question is from the line of Naresh Bilandri. Sorry, Bilandani. Please, unmute locally and introduce yourself and proceed with your question.
Hello, can you hear me?
Hi, Naresh. Yes, we're receiving your audio.
Okay, perfect. Hi, thank you very much. It's Naresh Bilandani from JP Morgan. Just two quick questions, please. Ahmed, it would be very helpful if you can please share some insight into this low cost of risk and the impairment charge that we've seen this quarter. I mean, were the underlying trends similar to what we have seen in the other banks? I mean, some of the other banks have reported a reversal in the off-balance sheet exposure. I'm trying to sort of like deduce this because I see the depressed impairment charge actually a relatively positive number coming through in your corporate segment. If you can please throw some light into the trend for this quarter, that would be super helpful.
Just keen to hear some comments from Tareq, if these benign asset quality trends are likely to continue into the next year, that would be extremely helpful. That's one. Second is, once again, a bit of a pedantic question. We had a very low effective Zakat rate in the second quarter. If you can please throw some light into that would be super helpful. Finally, I'm just keen to know what's your expectation for the interest rate outlook on which you are basing your NIM expectation for FY 2024, and what would you be thinking beyond. If you can please just throw some light on what you're thinking on U.S. and also on Turkey, that would be extremely helpful. Thank you so much.
Let's start from the end, Naresh. Thank you very much for your questions. For interest rate outlook, though it is very hard to expect, but we're expecting 1%-2% rate cuts here towards the end of this year, and similar to 2025.
No, sorry. Pardon my interruption. 1%-2% rate cuts this year and, sorry, could you please repeat what you said for 2025?
Similar cuts in 2025. We have also assuming another one
Naresh, there is potentially very minimal impact from this year. If it's toward the year-end, then you know the repricing, it usually takes three months, so very minimal impact from this year.
Understood.
For the Zakat, you know, there is a component of Turkey tax, not Zakat, which is much higher than the local Zakat rate. While we are having mostly zero income during the quarter, that resulted in an effective tax rate to be lower than the previous quarters.
Okay.
Yeah. Last question, Naresh, regarding the asset quality. You remember after the merger, we've been saying that our strategy to focus on strengthening our recovery and ensuring that we are having the right asset quality and the right cost of risk. Any question, Naresh?
Sorry, my apologies. You know, the line was, you know, there seems to be some delay. If you'd please be kind enough to just give me the answer for your the cost of risk, that would be super helpful. My apologies, I missed that.
The risk will be similar. We are intending to close the year with lower end of the range. It's similar to that Q1 cost of risk, more or less. However, we are always having a pipeline of big recoveries. It's just part of really the two years or three years strategy that we did to ensure that we are increasing and expediting our recoveries. For assumptions, I think second quarter will be implying the half one with the assumption that we might have some good recoveries in the pipeline.
Okay. Understood. Thank you very much.
Thank you. Our next question today is from the line of Gabor Kemeny. If you would like to unmute locally and introduce yourself and then proceed.
Hello, this is Gabor Kemeny from Autonomous Research. My first question would be the depreciation. I understand you linked it to your digital agenda, so practically to IT investments. Can you perhaps give us a sense of your IT CapEx budget and how you expect this to develop? Also maybe some further light on your initiatives in this space, beside the SME offering you mentioned. My other question would be on just a technical one on the credit commitment linking to a previous question. I see relatively high numbers here, like credit commitments amounting to SAR 90, SAR 91 billion, I think. This used to be much lower figures. Were there any restatements here or a changed definition?
Because I understand this would be something like a third of your corporate loan book. Thank you.
Thank you very much. Without sharing how much is our CapEx when it comes to our IT investment, I can assure you that we don't shy from investing in our IT infrastructure to cater for our business as usual growth, but also for the future aspiration that our digital and innovative activities are taking, Inshallah, in the near future. One of the advantages that we have, being the largest bank in Saudi, is our ability to invest. We definitely take this seriously. We believe that today the banking sector is heavily reliant on our IT infrastructure, and we continuously invest and enhance and we bring the latest technology to cater to serve our clients with all segmentations. We will continue invest, and we will continue put the money that is needed to continue serving our clients the best way we do.
That's something that's a commitment that we are taking forward.
For the second question, commitment, yes, it was a change in definition, but previous periods also been restated.
Sorry, what has changed in the definition, please?
It's the definition of identifying the commitments. It's been unified within the bank, and we are now presenting the right balances.
Oh, I see. Thank you.
Thank you. Our next question is from the line of Yasser Al-Najemi . If you would like to unmute locally, introduce yourself, and proceed with your question.
Two questions. My first question is, does the bank have plan to exit from Samba Pakistan Bank and Turkish ? My second question is, what is the deposit breakdown by customer? The SAR 44 billion in this quarter. Thank you.
Thank you, Yasser. I think the bank announced the planned exit, Samba Pakistan . It's in the public news. We hope the exercise is ongoing. The due diligence is taking place, and we hope that before the end of first quarter next year, that transaction will be concluded. No plans for the Türkiye Finans. Our investment, subsidiaries in Turkey are business as usual there, and we are continuing with that activity as we speak.
Yasser, would you elaborate for the second question, please?
In terms of the deposit breakdown by customer, I mean, how many of these deposits came from government, semi-government, and retail and corporate?
They are all customers, the assets, so we compete to win them, whether they are government. I know it used to be in the past that government is easy money. Today, believe me, government is more difficult to attract. They are all customers. We compete to attract them, whether they are retail, affluent, mass, private, or institutional, being government or semi-government. We really push the agenda to attract these deposits, and especially the NIBs, the call accounts and the lower part of the fixed deposits.
Adding to this, the increase were coming from both sides.
Thank you, Mr. Tareq. That is quite helpful. Thank you.
Thank you. We have had a written question submitted by Vikram Viswanathan of NBK Wealth. The question is as follows: Can the low double-digit growth in loans continue during 2025? Thank you.
We believe there is appetite for the loan growth in the upcoming, not only 20 25, but even beyond. We are always seeing the market is increasing either high single-digit or low double-digit for the upcoming three years.
I think the unique situation that we are in in Saudi is really promising, where we see big demand in retail, big demand in corporate with all segmentation. The banking sector in Saudi grew significantly during a high interest rate environment, and we are anticipating the interest rate to go down in the coming years. We are very optimistic toward significant and a good growth, let's say double-digit growth for the coming years, Inshallah.
That's great. Thank you. As a reminder, if you would like to ask a question, please use the Raise Hand button on your webcast toolbar. Alternatively, you can submit written questions using the Q&A button also found on your toolbar. Our next question is from the line of Aybek Islamov. If you would like to unmute locally and proceed, please introduce yourself before beginning.
I'm sorry. We seem to be receiving no audio from your line. The line of Aybek Islamov, if you would like to unmute locally and proceed with your question. Apologies, it seems we have not received any audio from Aybek's line. Please stand by as we await our next question. The next question is a follow-up from the line of Nida Iqbal of Morgan Stanley. Please go ahead. Your line will be open now.
Hi. Just a follow-up question on the margins. You know, we've been talking about the liquidity environment in Saudi for the past 18 months or so. It would be great to get your thoughts on how you see that looking into 2025, in particular with rate cuts ahead. Do you think the share of term deposits for the sector and for SNB has peaked at this point? I see your cost of funding went up this quarter as well, excluding Turkey. Do you think we're, you know, it's expected to stabilize from here? And secondly, just wanted to get a better sense on the margin sensitivity, the neutral to slightly positive sensitivity to rate cuts. Does that take into account an improvement in margins in Turkey at all? Thank you.
For liquidity, Nida, we continue to see liquidity to be healthy in the market. Do we expect when rates are going down to see the previous liquidity issues in the market? We believe no. The reason now there is a permanent shift in the customer behavior of earning interest on their deposits. At the same time, government also has changed. No one is really giving the free deposits into the free deposits. The game now is how much customer base that you can increase to increase the overall volume in terms of retail current accounts. Outlook, it's very difficult now to see the outlook considering that yet to know the interest rate outlook, how things.
How the evolving market conditions, the market demand in terms of credit, at the same time, the oil price and all other factors. For sensitivity, the 2 basis points enhancement for every 25 basis points is related to the current balance sheet mix. Rates in Turkey sort of really not factored in this sensitivity. It will be out.
Great. We have our next question from the line of Adnan Farooq. Please unmute locally, introduce yourself, and proceed with your question.
Assalamu alaikum. Thank you for giving me the opportunity. I just wanted some clarification on your other operating expenses and other non-operating expenses. They seem to be elevated during this quarter. Just wanted to confirm they are high because of Turkey, and they should normalize given the information you have shared about your Turkish operations. My second question was on your fee income outlook. Just wanted to clarify, you mentioned something about you expect similar second half as compared to what you have seen in the first half in terms of fee income. Thank you.
On the fee income for the second half, we always aspire and we aim to achieve better. We are very optimistic that we can achieve better than the first half.
For other operating expense and non-operating, yes, that's true and confirmed it's related to hyperinflation in Turkey.
Our next question today is from the line of Eranjan Kulatunga. Please unmute locally and proceed with your question and be sure to introduce yourself to this team. Hi, Eranjan. Your line should now be open if you'd like to proceed.
Yes. This is Eranjan from Derayah . I have a couple of questions. The first one is on your CASA growth. If you look at the first half of this year, the growth that you achieved in CASA, how much of that growth came from non-interest-bearing core deposits, and how much came from the interest-bearing resources? I believe even the core deposits are grouped under CASA. That's my first question. The second one is, if you look once again on your funding side, you have fairly high exposure to repo balances and core deposits compared with time deposits. I'm just trying to compare the cost of funding of these three sources, which are the more expensive and which are the cheaper sources.
Thank you. Thank you, Eranjan. The second question is regarding the differential of the cost of funds. You know, the basis for this, it's either if it's repo, it's different than if it's not repo. If it's dollar, it's different than riyal. The differential factor is only coming from either the currency or the power that we have as SNB of having a high quality asset that we can repo. It will always give us really a differential factor when it comes to really cost of funding. For the first question, how much is coming from call and current , majority is coming from call, but call is also most efficient than TDs and other cost-bearing.
Okay. Got it. Thank you.
Thank you. As a reminder, if you would like to ask a question, please use the Raise Hand button on your WebEx toolbar, or the Q&A button for written questions. Please stand by as we just prepare our next question. Thank you. We have our next question from the line of Waruna Kumarage. Please unmute locally and introduce yourself and then proceed with your question.
Hello.
Hi, Waruna. We're hearing you. Please, introduce yourself and proceed with your question.
Hi. Yeah. Thank you. This is Waruna Kumarage from SICO Bank. I have a question regarding the other operating income. You gave some guidance on the fee income, fee and commission income, but regarding the other line items, such as exchange income, now this line item, although some banks, okay, most banks have, you know, been reporting, you know, growth in exchange income, but it's been kind of muted this year for you. I want to know what is your expectation going forward in terms of exchange income, and if you could give some color on the second half, what you expect in terms of investment gains and related income in the second half. Thank you.
We guided for the other fee and other revenue, which is including FX investment income and other operating income and expense. We always say it is ranging for the domestic between SAR 1.8 billion and SAR 2 billion for the quarter.
Yes, we identified the shortfall that's coming from the exchange, and then we have a heavy discussion with our colleagues in treasury and retail to enhance and improve our offering to our customers to bring that to beat the market growth on the exchange as well.
That's great. Thank you. Our next question is a written question submitted by Aybek Islamov of HSBC, who asks, "Question on cost-income ratio guidance, implies that, H2 2024 costs needs to grow at 2%-3% year-on-year. Is this a fair view?" Thank you.
It is fair, and always we are really forecasting our cost to increase in line with the inflation rate of the government.
That's great. Thank you. We have a follow-up question from the line of Nida Iqbal. Please unmute locally, introduce yourself, and proceed.
My apologies. It seems we have been unable to connect back with Nida's line. At this time, we have no further questions. Mr. Iyad Ghulam, back to you for the conclusion.
SNB Capital would like to thank SNB management for taking the time to conduct this call. We would like also to thank all participants for attending. We wish you a pleasant day. Thank you.
Thank you. This concludes today's webinar. You may now disconnect from the call.