Good morning, everyone. My name is Aybek Islamov. I am a MENA Financials Equity Research Analyst at HSBC. On behalf of HSBC, I am glad to welcome you today to Derayah Financial's First Quarter 2025 Earnings Call. I would like to hand over the call to Ms. Ghida Obeid. Ghida, over to you.
Thank you, Aybek. Dear ladies and gentlemen, good afternoon, and thank you for joining us today for Derayah's Q1 2025 Earnings Call. We truly appreciate your continued interest and engagement with Derayah. Q1 underscored a resilient performance with continued strong core revenues and steady growth in AUMs and AUCs despite ongoing market volatility and challenging conditions. For the quarter, we achieved a total operating income of SAR 209 million, an operating profit of SAR 132 million, with a solid net profit margin of 51%, a reflection of the strength and efficiency of our business model.
Joining us on today's call are our CEO, Mr. Mohammed AlShammasi, and our CFO, Mr. Bilal Bushnaq. They will provide further insight into our quarterly performance, strategic initiatives and progress, and address any questions you may have during the Q&A session. I would like to take a minute to thank HSBC, Aybek, and Alia for hosting this call. I will now turn the call over to our CEO. Mohammed, over to you, please.
Thank you, Ghida. Good afternoon, everybody. Thanks to HSBC for hosting our second investor call as a listed company. Definitely a very exciting moment to engage with investors and reiterate some of the key messages that we have been talking about from the time of the IPO until now. The good news, we have been delivering on almost all promised initiatives. If you move to slide three, please. A very exciting news. Our customer accounts continue really to increase. We have added a significant number of new clients in the first quarter of this year. Our assets under management, despite all the challenging market environment, continue to increase. We have achieved more than 5% growth in the AUMs. Our assets under custody also have been growing at a very significant rate of more than 20%.
Despite all the challenges with the trading value overall declining by around 16%, Derayah managed to grow its brokerage business by more than 6% on a year-on-year basis to exceed more than SAR 134 million. Our total operating profits, which really represents basically our top-line figure, is more than SAR 209 million, with a small decline overall, despite all of the challenges that we have witnessed in this quarter.
This is mainly impacted by our investment mark-to-market, mainly in the equity portfolio that we invest our prop money in, and small also a decline from our asset management business, mainly in the subscription and performance-driven fees. Beside that, on the cost side, we continue really to show a very resilient cost-to-income ratio of around 37%. Our capital adequacy continue to be extremely high, 26% compared to 8% - 9%, which is the regulatory requirement. Our operating profit margins continue on the rise.
We have reached a new record of around 63%. Our return on equity is around 42%. Be mindful of the timing of the dividends here, and most likely this will be an increase if we adjust for dividends that actually was distributed to investors today. Our net profit for the quarter is around SAR 106 million, which is stable Q -on -Q, and on a quarter to year-on-year basis is around 20% decline. If you remove the impact of the investment and subsidiary, we are showing a very resilient, a very slow decline, again, despite all of these market challenges. During the quarter, we institutionalized a new dividend policy for the company. We secured the approval of our board of directors for a new dividends policy. It is stipulated that we will distribute for the full year of around SAR 1.3.
For that idea, we start with the Q1 distributing around 30 + halalas, and we expect really to continue on that going forward. Again, SAR 1.3 is the minimum that we will pay, and the board has the discretion to increase if we see fit. Also, for the remaining part, for 2026, 2027, we are giving an indication of our dividend policy not less than 60%, which is in line with our historical payments and distributions. Next slide, please. Derayah continues in a growth journey by expanding actually our customer base, as we are showing on the left-hand side. Our customer count continue really to increase, reaching around 555,000 customers, an increase of around 40% since 2018. On the products and services side, we continue really to show a very strong momentum and deliver on the initiatives that we have discussed before.
If I mention a few of these, we mentioned previously as part of the roadshow that we are working on launching the SBL program. I am very happy to inform you that we have completed the tests in the Q1 of this year. We are already running now the program in a test phase. And during this test phase, we have achieved a lending portfolio of around SAR 100 million, a very promising early signs for this, despite we are not really showing the inventory completely, and we are only showing a very limited number and only applicable to a very small segment of our customers. We expect really to move with a full launch of this in July of this year.
By year-end, we expect really to kick this off completely to the entire customer base of institutional as well as retail investors, and we will be enabling short-selling through our platform. Another initiative that we also talked about is the algo trading. We kicked off the testing of that connectivity in May of this year, and the platform, I would say, is almost ready. We are waiting for the final certification with Exilion. We will be able to launch this fairly soon. On the wealth management side, we have, as discussed before, we are working on relaunching this strategy. Alhamdulillah, we have relaunched Derayah Smart application a few weeks ago, and we have now Derayah Smart as a standalone application, enabling our customers really to tap into wealth management solutions for the mass segment of the market.
The early signs has been also very promising, and we are planning to do a campaign in the next few weeks. Our performance as an investment result has been really top-notch, competing and beating all the other robo-advisory platforms operating in the market. In the asset management side of the business, we continue to expand our products and offerings. We launched Derayah Nomu Market Fund, and we have gained significant attraction for Nomu Market Fund, and I think one of the larger Nomu Market Funds in the market is currently managed by Derayah. We continue also to expand in the alternative space. We have launched recently, and as we speak, we are raising for a real estate fund, and subsequently, we are looking at other strategies that will come during the third and fourth quarter.
Our pipeline of new funds and new strategies is quite full from now until end of the year. Next. To give you some color about what we see in the market and how market is really behaving, we thought of adding this slide to show you how the market is behaving and what are the drivers that we see in the market. If you compare the first quarter of this year compared to first quarter of last year, last year, first quarter was a very strong quarter for the local market trading. The average daily volume was around SAR 9 billion. The average volume for this quarter is slightly below SAR 6 billion. This is around 37% decline year-on-year.
If you look at this from a quarter-on-quarter, again, we see softening happening in the first quarter of this year compared to the fourth quarter of last year of around 8%. Having said that, early signs within the local market, we started to see some recovery happening, especially in April. May, I think it is still too early to judge, but as we see more progress happening toward resolving the trade war happening, we think that this will be quite constructive toward a better equity trading environment. Very important for Derayah here is we are not a function or a delta of the local market alone.
We operate as a platform offering exposure to local and international, and a different pattern we see also in global markets, cementing Derayah's position as best-in-class platform, providing investors with the maximum flexibility to trade different markets and take advantage of market opportunities. We see that the activity in the international side is still at very solid figures. As again, the trade war discussions continue to progress in a positive direction, we started to see very interesting data points on that side of the business. Next slide. When it comes to dividends, Alhamdulillah, we continue our progressive dividends strategy. If you look at the upper side, the graph on the right-hand side, you see from 2021, we distributed around SAR 0.17 for the full year, all the way to our promising for this year to distribute SAR 1.3.
This is quite progressive and indicating that the company has really been generous with its dividends policy. If you look at the payout ratio graph, we continue from 2022 to continue to distribute more than 60% of our income in the form of dividends, a very progressive and indicating that a sustainability of the same going to. One of the main questions we received as a company, if we are planning to do this despite all the challenges we received from the bank. Number one, we do not view the bank as challenges, we view this as an opportunity, and we will talk about it maybe in one of the slides later.
Despite all of the losses that are recorded in our financial statement, we believe these are non-cash losses, and it is natural for a company at the growth phase to show sort of a J curve behavior. We expect this to reverse in a few years to come. Derayah is committing really to support the bank and also distribute decent cash to our investors. We do not see any contradiction between doing both at the same time. With that said, I will leave the floor to my colleague, Bilal, to walk you through the financial performance of the company. Bilal, go ahead.
Yes. Thank you, Abu Abdullah, and thank you, HSBC team, for hosting this, and thank you for our investors to join us for the second earning call so we can share what we believe as tremendous performance and resilient results during the first quarter. Now we will go into starting with the guidelines about our numbers and what are the revenue generators. On the asset management, we continue to grow, achieving a growth of 43% comparing to the first quarter of 2024, which proved the trust that we have. The investors and the client trust is continuing to be in Derayah despite what is happening in the market and being able to generate almost SAR 1 billion of assets of close to SAR 1 billion fresh money is proof that the fact that Derayah now is becoming one of the leading asset managers within the country.
On the assets under custody, Alhamdulillah, we have reached a new record of SAR 36 billion, and that is supported by the growth we have with the number of clients that continue to join Derayah, and that shows the quality of the clients, not only on the retail basis, on the low-income, low investors, as well on the high investors and the high-value clients that are joining Derayah, which enabled Derayah to increase its total assets under custody to reach SAR 36 billion. If we combine them together, we can see that Derayah has reached almost total clients' assets of SAR 55 billion. Alhamdulillah, this is a new record for Derayah to exceed this number, and we believe this will continue as we are witnessing what's happening within the first few months of the second quarter. Next slide, please.
On the brokerage, and this is what we represent the core business of Derayah. If we can compare from a segment by segment, we can see that we continue to grow on the brokerage side and the revenue generated from the brokerage side. This is a result that is happening because of the client that has a strong belief in Derayah because of the seamless process that they're facing when we onboard the client and the continuous enhancement that is happening in the system. I don't know if any of you using our system, you can see that recently we are doing a regular upgrading. Even the full platforms of our trading application has changed, and we are receiving a very positive feedback from our investors.
On the revenue from asset management, although the assets under management are increasing, but as referred to by Abu Abdullah, the reason that we have faced a slight decline in the revenue generated from the asset management came as a normal result of the overall market situation, of the overall decline in the market cap, as presented in the previous slides. On the special commission, despite the challenges that is happening and the decline that we are facing in the interest rate, we were able to sustain almost the same level of revenue generated from the special commission. That's mainly as a result of the increase of the total AUC assets under custody. Again, this has proved the support and the trust the client has in Derayah, and they continue to support Derayah. In general, our total operating income declined an overall 6%.
The main reason for that, the lack of a performance in the first quarter and the decline that happens on the unrealized non-cash losses that we have booked in our investment as a result of the overall decline in the market cap. This is just for your information. The vast majority of our investment is within funds that are managed by Derayah, and that become as a normal result in the decline of the market cap that happened from, if you can see that the market cap has reached in a Q1 to SAR 11 trillion, where it ends up by end of the first quarter of 2025 to SAR 9.5 trillion. Next slide, please. In the non-margin trading revenue, we have the overall brokerage has increased as a result of the Earnings received on the trading volume, the overall trading volume has declined.
However, we were able to sustain a positive implied net fees to reach 40 basis points, which is higher even though than last year and higher than what we have guided the clients. This is as a result of the resilient products that Derayah offer to its client, and diversified ones as well, which allows Derayah to use all the potential opportunities that are available in the market to generate a positive revenue for our investors. The overall non-margin revenue has increased 3%, and we can say this is a new record on the brokerage revenue. Next slide, please. On the margin revenue, it has increased 64%, and that comes due to two factors. The first factors is the reduced SIBOR, and this is reduced the cost of funding that is charged to Derayah and the increase in the overall traded finance fund.
For those who have joined us recently or are not familiar with the trading finance fund, Derayah's trading finance fund is the backbone that is used by Derayah to offer margin to its investors. So the cost of funding is a SIBOR + 2%, so any decline in the SIBOR will be reflected positively on the revenue generated from the margin business. Next slide, please. On the asset management, as we can see that the management fees has increased year-over-year as a result of the increased AUM. This helped us to compensate and partially offset the decline that happened in the performance as a result of the market decline, as I referred earlier. The subscription fees within the first quarter has declined since Derayah launched some of the campaigns during the founding day to attract more clients.
We were able to generate a fresh money of close to SAR 1 billion. That proved the success, and we will continue that performance will continue to increase with what's happening in the market. So we start to see, let's say, a rebound in the market or recap of what's happening earlier, and we expect that what we have shared with the investors as a guidelines will continue to be going forward. Next slide, please. On the special commission, we remained stable, despite the decline that happened in the interest rate. As I referred earlier, the average interest rate has declined, as we all know, by the Federal Reserve. We were able to partially offset the decline in the interest with the increase of revenue generated from the assets under custody. Once the full SBL launch of the product, as Abu Abdullah referred earlier.
We expect this to be live, implemented within the second half of 2025, and this will be reflected positively on the revenue generated from the special commission. Next slide, please. That being said, and with the efficient management of our expenses, we were able to maintain a very resilient and one of the most efficient cost-to-income ratio in the market. As an action from Derayah to make sure that to deliver the highest return to the investors. If we see the market is not responding as expected or as we want it to be for the investors, we will continue, and we promise our investor to continue to be very efficient in spending or in the utilization of our resources and to maintain what was promised to the investors during the roadshows. Next slide, please. Okay, Ghida, if you allow me, can you go back one slide?
I want to refer on this slide, despite the maintenance or maintaining a good cost-to-income ratio. The reason just for you to understand why the personal expenses has increased as referred in the prospectus. Derayah Financial has adopted a program for the ESOP for its employees to return and attract good talent within the market. That was implemented within the first quarter, and the impact for that was around SAR 8.5 million, and that we are proud to say will enable Derayah Financial to maintain, to retain, and to attract more talent, which we expect will have a positive impact going forward on the income generated for our investors.
Despite that expense, we were able to, on the other parts of the expenses, the IT expenses, is continued to be, as promised, Derayah Financial differentiates itself with one of the best platform, with the best services, the best IT, the best, let's say, access to its services to the clients. This investment and this expense will continue to be within the IT to secure the best service delivered to our client.
Next slide, please. On the capital adequacy, of course, after, like Abu Abdullah referred to, there is a dividend that was distributed to our investors today. We are able to maintain a robust and resilient balance sheet with the north of SAR 1 billion total equity and a capital adequacy of 26%, which is much higher than the required by the regulator 8%. So we have almost 400% security for capital adequacy to meet any unforeseen risk in the future.
Next slide, please. Generally, in this slide, we'll give you a high level on the reasons of the decline that happened between the first quarter in 2024 and Q1 in 2025. On the revenue from brokerage, Alhamdulillah, we were able to achieve a 6% growth. On the revenue from asset management, there was a decline mainly due to the lack of performance compared to the same period on last year. On the special commission, we are almost stable at the income generated. The gain from an investment, as I referred earlier, and as a result of the decline of the market cap, we have booked unrealized non-cash losses of SAR 10 million. On the OpEx, in general, the expenses has increased by SAR 7 million as a result of the implementation of the ESOP program.
On the other part, which is the loss in associate, we have booked a SAR 13 million non-cash, extra. The total losses that were booked is SAR 24 million compared to the same period of last year. It's a SAR 13 million extra. To assure for our investor, this is not a decline in the value of our investment. This is an accounting entry of implementing the equity method, so we have to mirror the result that's happening with the D360, and we have to reflect that entry within our books.
So the net income goes to SAR 106 million, a decline of 22%. As Abu Abdullah referred earlier, the decline of our core operational income is around 16% only, despite what's happening in the market. That being said, we were able to achieve a net income margin of 51% and operating profit margin of 63%. Next slide, please. On D360 and the guidance, I'll pass this to Abu Abdullah so he can drive you over the performance of D360 and the overall value of Derayah. Back to you, Abu Abdullah.
Thank you. Thank you, Bilal. I would like to reiterate a few points that we have mentioned in the presentation. We continue to deliver on the major initiatives that we have highlighted as a company during the IPO process, and subsequently in the first investor call. Let me remind you that we have promised a share lending and borrowing program, which we have, Alhamdulillah, achieved a major milestone, and we are on the test phase as we speak. This is, I think, a very important initiative for the business and adding a significant new revenue stream for the business. The algo trading is a quite unique proposition in the market, and as we hear from our colleagues in Tadawul that the algo trading represents around 20%-25% of the trading volume you see in Tadawul.
I think moving into that direction for a company that has a very strong technical team is a no-brainer for us, and we are at the advanced stage. Hopefully, we can finish the certification and the final testing in the next few weeks. Lastly is the digital wealth initiative that we have spoken about, is Derayah Smart. We were one of the very early players in the market to offer robo-advisory services. We haven't really focused on that initiatives. Recently, we have relaunched this initiative, and now there is a Derayah Smart application as a standalone application in the market, providing a very simple user experience for those who are in their very entry level of the investment world, targeting the mass segment of the market. The early signs are very promising, and our performance continue really to be among the top performers robo-advisory.
Talking about D360 as a bank, this is, I think, a very bright spot. The management team has been surprising us with overachieving their targets. In a matter of a few months, they were able to reach one million client. I think by all means, this is a surprise or a positive surprise for us at Derayah, and we think they are in the right trajectory to achieve more than two million, hopefully by end of the year. The bank is well-received by the market and the user base are really expanding. A significant adoption for the bank. We see the active users are really quite engaging with the bank. The bank recently launched a test phase of its lending products limited to friends and family, and they are expecting to receive the full approval from the central bank really soon.
Also, we are in the process now of completing the integration between Derayah and D360 Bank. They have received the regulatory approval to do so, and it is now with the teams working out the final integration aspects between Derayah and D360. We are expecting really to show more cross-selling opportunities in the future. We have listed a few examples of the synergistic offerings that we are expecting, like Derayah credit card, working together on Derayah Smart, working together in fund distribution, and providing also some lending products for Derayah's clients.
To summarize, we believe Derayah is in its best position and continue to show a very strong growth and delivering in its promised initiatives. We continue to grow our assets under custody, assets under management, and our operating profits and margins are at the highest level for the company. From a standalone basis, we continue to show a very strong operating income of around SAR 209 million. If you exclude the effect of the bank, we have achieved more than SAR 130 million. This is a very strong set of results, and we expect, inshallah, to deliver much better results in the second quarter as we see the early signs are quite promising. Back to you, Bilal.
Thank you, Abdullah. This is the financial guidelines which we have shared with our investors throughout the road shows. We believe we are on the right track to deliver what we have promised to our investors in all aspects, from a revenue growth to the revenue in the brokerage, in the asset management, in the special commission, sustaining the efficient cost-to-income ratio, securing a positive and a high return on average equity among the highest in the market, despite what is happening in the equity market in general. Despite what is going on, we expect to continue with the dividend payout ratio of the north of 60%, as already sent and shared with the investors, which was recently announced within Tadawul platform. As we have completed our presentation, we are open for any questions or any clarification that, guys, you would like to clarify from me, Mohammed, or Ghida.
Thank you, Bilal. Thank you, Mohammed. Aybek, we can open the Q&A session now.
Yes. Thank you, everyone, for your presentation. We are ready to start our Q&A. Our Q&A will be a live session. Please raise your hand. I will then announce your name. Unmute your line. Please announce yourself, introduce yourself before you start asking your question. Thank you. We have the first question from the line of Hani Abuali. Hani, please go ahead.
Good afternoon, everybody, and thank you very much for the presentation. Thanks, Bilal, for actually putting up the financial guidance as your last presentation because that was my first question, which is, what gives you, just given the performance, obviously, in the first quarter, which missed on brokerage, on asset management, and special commission income. What can give us confidence that you will be able to meet your medium-term guidance here? Just walk us through what is the next second half of the year or the second and third and fourth quarter come in. Secondly, what are the issues that today concern you as a team? What are you focused on so we can just understand what are issues that you are running into in terms of meeting or perhaps exceeding this guidance? Thank you.
Thank you, Hani, for bringing this to the attention of everyone. First of all, we did not miss the guidelines. The guidelines are medium terms. In the short term, on the special commission, we are not missing it. On the brokerage revenue, we are not missing it. The only decline that is happening, it is coming from the assets under management, which is as a result of the first quarter performance that we have witnessed across the globe as a result of everyone knows with the trade war that is happening and has a negative impact on the market cap. That being said, on the efficiency ratio, is maintained. Return on average equity is slightly less than the guidelines, but it is close within the first quarter. And our expectation that in the second quarter, hopefully nothing will happen unforeseen.
We will be on the right track to achieve and, inshallah, overachieve what was communicated to the investors. The impact of D360, which was negative on our Which is an accounting entry. Again, we implement the equity method. This is an accounting entry that we have reflect with a no-cash impact. Therefore, our commitment to our investors is to generate a dividend of more than 60% and to secure more than 4% on the current or the listing price of Derayah, which was SAR 30 . I do not know if this answered your questions yet because your hand is still raised.
I've lowered my hand, but I actually just wanted to follow up also on the question of what are you worried about right now that could potentially impact this outlook?
So far, the signs that is available, honestly, nothing to worry about. What happened in the global equity market, it was beyond everybody's control. That was the slight missing with the asset management. Going forward, we are there. We will make sure to use all opportunities that is available. We will continue to provide a diversified product, be the first mover with most of the products that we have, be the, let's say, the choice for our investors for the potential B2B, and to complete the integration with D360 to get access to one million clients. We make sure that all our revenue is diversified, resilient enough to meet any unforeseen circumstances that can happen in the future.
Thank you.
Thank you.
Thank you, Bilal. We move on to our next question from the line of Michel Said. Michel, please announce yourself.
Hello. Michel Said from Franklin Templeton . Thank you for the call, and congratulations on the results. A couple of questions from my end. The first on-
Michel, would you raise your voice if you don't mind, please?
Sure. Is it better now?
Yes. Thank you.
Yes. Thank you. The first question regarding the brokerage. Apparently, despite the decline in trading value in the Saudi stock market, you achieved growth on the brokerage non-margin front. Obviously there have been an improvement on the international markets. Can you shed some light on that? Because we do not have the numbers yet, the official number. Is it more you are gaining market share, or is the retail actually clients with whatever happened in Saudi have been more active trading internationally?
That is my first question. The second one regarding the asset management. You had a guidance of almost having 100 basis points, overall margin for the year. I understand that you are below it for the performance fee front. However, is there any other things that you can actually work on in the second half in order to offset this decline in performance fee if nothing actually happened for the asset management team to actually outperform, or it will be depending on their performance? Thank you so much.
Thank you, Michel. On the first question, we have repeatedly mentioned that Derayah is not about local market or international market. Derayah is about the power of the platform that provides flexibility of investors to trade where they see opportunities. Despite the softening trading volume in the local market, we continue to show a very strong performance for our brokerage. This is one of the highest quarters, as far as I recall, in our brokerage activity. The recent volatility in the market also brought some additional liquidity in the market, which is covered, hopefully, during the second quarter of this year. Yes, we see customers taking advantage of volatility and moving their activities between local and international side.
Despite the softening of the local market by around 40%, the overall trading activity in our platform, from a volume perspective, only declined by 16%, indicating that Derayah have done an amazing job in providing the flexibility to investors to access international markets. Moving to your second question on the asset management side. The guidance we have provided between 90 to 100 basis points is applicable for the full year. In the first quarter of this year, we have done number of campaigns, mainly coinciding with the founding day of Saudi Arabia, in which we provided zero subscription fees for customers looking to buy into our equity funds. In the near term, this is a missed revenue, but we have been able to secure more assets and gather more assets and hence generate higher level of management fees in the longer term.
Also, because of market softening, we see that our performance fee was not really comparable to what we have achieved in the same quarter of last year, which was a very strong quarter. The overall margin we are indicating is not only limited to equity or public funds. This is also including the alternative space. I mentioned that during my presentation, we are in the market now raising money for a real estate fund and have a very active pipeline of new funds that will be launching throughout the year. So we expect that our margin will restore in the next quarters as these products are fully launched and distributed in the market.
Thank you so much. Very clear.
Thank you, Michel. Thank you. We will move on to our next question from the line of Rahul Rajan. Rahul, please announce yourself.
Hi, am I audible?
Yes, you are.
Yes. Hi. So three quick questions from my end. Firstly is, from a local investor perspective, is there any, or if you could help us with what's the cost difference between trading in Saudi markets versus internationally, if that is possible? Do you see any patterns of local investors migrating towards international markets? Or what is the decision that they make, or what is the primary factor that they consider for trading or moving away from Saudi to investing internationally? Have you seen any trends in terms of assets held locally versus globally? Is there any seasonal pattern? Is it interest rates? Is it volatility? That will be helpful. That's number one. Number two is on debt markets. I'm not too sure whether if you have debt products currently being traded.
If so, if you can help us understand as to what's the appetite of investors locally in terms of debt trading. Thirdly, as you mentioned about securities lending and borrowing, what's the opportunity size that you expect for Derayah, be it in terms of market share or what's the revenue potential like, and how is the industry placed currently for that? What's the cost that investors would bear? Cost towards brokerage, cost towards exchange. From an overall cost perspective, please. Thank you.
From which company, Rahul?
Sorry, I forgot to announce. I am Rahul Rajan from Bank of America.
Thank you. Let me just start with, you have asked actually a number of questions, let me just start to cover them as much as I can. In the local market, there is an official tariff of 15 basis points. 5 basis points of that roughly goes to the exchange and the regulator. The 10 basis points in the local market is the official tariff for brokers to charge. A typical behavior in the local market that brokers offer discount from that, 10 basis points, ranging between 10% all the way to few brokers are offering, from time to time, some campaigns to trade for free for a limited period of time. In the international side, Derayah trades or offer maximum flexibility and offer equities, ETFs trading for free through our Derayah Global Lite offering. This is the structure of the market.
In the derivative side, still both in the local side and the international side, people do charge commissions on that side of the business. Moving to your second question about debt market. Derayah is offering some debt exposure, and we do have a desk that deals with customers looking to acquire fixed income instruments. Having said that, this is representing a very small part of our business, and we do not even report this as a segment because of its small nature. Moving to your last question about Securities Borrowing and Lending.
The overall portfolio of securities, under this program in the entire Saudi market is around SAR 4 billion. Derayah, as I mentioned during the presentation, managed to lend around SAR 100 million during this test phase of the program, indicating roughly a 2% market share. But we think this is very early for us to provide a full guidance on the exact profitability of this line. We have provided a guidance for the overall assets under custody profitability. Bilal, remind me, I think, how much we have provided a guidance for.
For the brokerage is around 9 basis points, 9-10 basis points for the AUM, 105 basis points.
We are indicating for the overall AUC, which is a total of SAR 36 billion as we speak, of around 9-10 basis points.
Sorry, Abu Abdullah. For the AUC for the special commission is for 50-70 basis points, and we have achieved within the first quarter, 50 basis points. Because the SBL is not launched yet. We should be higher than 50 basis points.
I hope I answered your questions, Rajan.
Yes, absolutely. Thank you. Just, sorry, quick follow-up on that. On the debt trading side, is it routed through the exchange or are these negotiated deals? Similarly, on the securities borrowing and lending, would they be routed either through the exchange or through the clearing house, or is it again a negotiated deal of sorts?
So-
Thank you so much.
On the debt side, the local names are trading through the exchange. Tadawul is the exchange for all the local papers. For international dollar-denominated, we usually do it over the counter, OTC trades. Your second question as well, again, sorry.
Again, it is on the securities borrowing and lending. Is that also routed through the exchange, or is that again over the counter or bilateral?
No, this is currently routed through the exchange. It's not bilateral.
That's very clear. Thank you so much.
Thank you.
Thank you. We'll move on to our next question from [Ali Ojha]. [Ali], please introduce yourself and ask your question.
Sure. Thank you. [Ali Ojha]. I am with the fair services family office. First question relates to D360. D360 posted a SAR 24 million loss. At what point do you expect it to break even? Importantly, how integral is it to your long-term ecosystem strategy? Second question relates to the fair value through profit or loss, the FVTPL. If you look at the first quarter report, the decline in the FVTPL led to an investment. Investments led to a 6% year-on-year drop in the operating income. I assume that is because the previous quarters had fair value gains while the first quarter had a slight loss, probably due to market conditions. Can you confirm that is the case? If that is the case, is this the reason for the lower operating income? Can you also explain a bit more about what these investments are, please? Thank you.
Bilal, why don't you start with the financial questions, and then I will follow up about D360.
Fine, on the strategy part. On the financial questions, first of all. No, Ghida. Go to the decline that happens. Next, next, next, next. The last one. Okay. On this one. Thank you, Ghida. First of all, on D360. D360, we have reflected, as I referred, we are implementing the equity method because we have a 20% stake, and we have an influence. The equity method, for those who are not familiar with the accounting standards, we have whatever the bank generate losses, we have to apply our percentage. So this is not a reflection of a fair value of the bank. This is a reflection of just for accounting purposes, we have to reflect the result of the losses. Based on that, the bank has incurred losses of around SAR 120 million, and our portion of that losses is SAR 24 million.
Okay.
When we expect the bank to break even, according to the plan, again, we are a management of Derayah. We are an investor, although we have incubated the bank. But as of now, we are investors in the bank. So we expect this to break even within the H2 2026, and to start reflecting positively on our P&L within the first quarter of 2027, Inshallah. Regarding the unrealized profit, you are absolutely correct. This is unrealized related to our investment. The vast majority of our investments are within the managed fund. We have slight investment or relatively small investments in different VC companies that are linked to our business, like Malaa, Moyasar, Bawadiq, Dawul, which is a social trading. Moyasar is an aggregator of a cash. Malaa is a sort of advisory saving. You can robo-advisor with a saving platforms. So those, we are generating profit. Those are unlisted.
Regarding what has resulted in the decline is the investments in the funds we do have, which are related directly to the market and the decline with the market cap. It is within the equity of the Saudi, and that is a normal reflection of the decline. Again, to confirm, this is unrealized non-cash losses we have booked within the first quarter compared to the first quarter in 2024. I hope this answers the financial part, Ali.
Thank you. Yes.
Yes. Back to you, Mohammed, regarding the strategy with D360.
On the bank long-term strategy, we have been working actively with the management team of the bank to create multi-layered integration. We are working with them, integrating our cash positions with them and making sure that we offer the maximum flexibility to our customers in the way they manage their cash position. Adding to this, we believe that our customers will have access to banking products like a credit card or loans, etc. D360 Bank customers will have access to investment and saving products like funds, robo-advisory, and saving solutions tied to investment products. All of these products are quite important to be achieved, and the power here is really to create some synergistic approach and to create a seamless integration between the bank and an investment provider to enable customers basically to have a much better handle of their financial affairs.
As most of the banks struggling really to create that sort of a user interface linking the bank with the capital arm, we are working very hard to create the best-in-class user experience that will enable the users to have a seamless user experience between banking and investment products.
Thank you.
Thank you. We have time for possibly one more question. I will read out a question from the Q&A box. The question is, it is an accounting question. "Could you please share some thoughts on the ESOP program? The SAR 8.5 million charge in the first quarter, was this a one-off? And what run rate we should expect going forward?
First of all, the ESOP part, as referred on the prospectus, this is a program that we have implemented to attract and return clients. From an accounting point of view, you have to start booking for that, even though for the shares to be vested in 2029 and 2030. So we will start booking and reflecting the entries. What will be the impact going forward? We are expecting this is to be, as in general, it is not a one-off. This expense will continue till the full vesting. However, the vast majority will be on 2025 and will be declining as we go. This is from pure accounting point of view. The impact is expected. This is not a one-off. This is expected to continue. We expect this is to be around SAR 10 million going forward for each of the coming quarters.
However, that will not affect our guidelines, our promises to our investors to deliver a certain performance within 2025 and in the medium term as well.
Thank you very much. It appears we have no further questions. I think on this point, I would like to end our conference call today, and I would like to thank all the participants as well as the management of Derayah Financial for your insights. Thank you very much.
Thank you.
Thank you.
Thank you for your participation.