Mehmet Sevim: Good afternoon, ladies and gentlemen. Thank you very much for joining us today. This is Mehmet Sevim from JPMorgan's CEEMEA Financial research team, and we are delighted to host Abu Dhabi Islamic Bank's 3Q26 results call. Please note that this call will be recorded and a replay will be made available after the call. Now please let me hand it over to Lamia Hariz, Head of Corporate Communications, Marketing, ESG, and IR, to start the call.
Lamia Hariz: Thank you, Mohamed. Good afternoon, and thank you for joining us on this call. It is a pleasure to welcome you to ADIB Q3 2026 financial results. Before we start, please note that today's presentation and all our financial disclosures are already available in the investor relation app and on our website. I am joined today by Mr. Mohamed Abdelbary, our Group CEO, and Mr. Ahsan Akhtar, our Group CFO. As usual and as every quarter, we will go through the highlights of the quarter, and we will give you an update on the guidance and also a clarity on the performance trajectory in relation to our strategy. Ahsan will then present a detailed overview of the financial performance, and we will end it with Q&A. Over to you, Mr. Mohamed.
Mohamed Abdelbary: All right. Thank you, Lamia. Good morning and good afternoon, everyone, and thank you for joining us on today's call. ADIB delivered another strong set of results in the first 9 months of 2026, reflecting sustained business momentum, strong balance sheet growth, and continued customer acquisition across our key businesses. Profit before tax increased 6% year on year to AED 6.4 billion, driven by strong financing growth and continued business momentum. Revenue reached AED 9.7 billion, driven by strong funded income, with non-funded income contributing a healthy 37% of the total revenue. What is particularly encouraging is the breadth of our growth. We continue to see strong demand across our business, with financing and deposits growing alongside our customer base, bringing total assets to AED 318 billion.
Mohamed Abdelbary: Customer acquisitions remains exceptionally strong, with more than 200,000 new customers joining ADIB since the beginning of the year, reflecting the strength of our proposition and the opportunities we continue to capture in the UAE market. Importantly, we continue to maintain disciplined underwriting, strong asset quality, and robust liquidity and capital levels. Our capital position remains strong, with a CET1 ratio of 12.4%, and the AED 1.75 billion rights issue will further strengthen our capacity to fund future growth and deliver on Vision 2035. Overall, these results give us confidence as we look ahead. We have a strong franchise, growing customer relationship with our customer, and the capacity to continue investing in our business and delivering on our Vision 2035. Moving on to slide 5. Let's look at our outlook for the rest of the year.
Mohamed Abdelbary: With financing growth continuing to exceed our original guidance, we have raised our full-year financing growth to between 20% and 22% year on year. On margins, we have revised our full year guidance to 3.5% to 3.6%, and we will be touching on this point in more detail during the presentation, but I am pretty sure also during our Q&A. Equally, the quality of our growth remains very strong with resilient portfolio performance across our key segments and our national customer base. Asset quality has remained robust as well. As a result, cost of risk is performing better than our original expectations, and our decision was to revise our full year guidance. The number we have set for the full year guidance, I will state at this point, and we will talk about it later as well.
Mohamed Abdelbary: I think it is probably, again, on the conservative high side, given where we are even now towards beginning of November. Two months left in the year, things are looking very promising. The investment is focused on revenue-generating business and capabilities. Returns remain central to how we manage the business, and we have consistently allocated capital where it earns attractive returns. Accordingly, also our return on equity, we have kept it unchanged, guiding above 25%. Year to date, we are at 28% ROE. Moving forward, Lamia, to slide 6. This slide sets out the core trends that underpin ADIB's performance and define our investment case. First, our distinctive market position. We serve today 2.8 million customers with strong standing among UAE nationals and a significant share of the UAE retail banking market. This gives us deep customer relationship and a strong platform for growth.
Mohamed Abdelbary: Number 2, the strength of our funding and capital position. We have a stable customer-led funding base, supported by strong liquidity and a strong capital position. Third, we continue to deliver strong growth-based business momentum. We are growing financing and deposits, expanding our customer base, and translating that growth into higher revenues and profitability. Importantly, we are achieving this growth while maintaining strong asset quality. Let us move forward, slide 7. Our strong financial performance is matched by continued progress in executing our vision and as well as our 2030 corporate plan. We are continuing to invest in the areas that will strengthen our franchise and create the next phase of growth. We are building the bank of the future and accelerating investment in AI and digital capabilities.
Mohamed Abdelbary: We are also deepening customer relationship by expanding our proposition across retail, wealth, and business banking, while continuing to grow our wholesale franchise as well. We are also making progress on new growth engines, creating more diversified sources of growth for the future. Importantly, we are doing so while maintaining strong operational resilience and rigorous liquidity and capital discipline. Our focus, therefore, extends beyond today's results. We are investing now to strengthen ADIB's competitive position and deliver sustainable growth and returns over the long term. With that, I will hand over now to Ahsan, who will take us through the financial results. Ahsan, over to you.
Ahsan Akhtar: Thank you, Mohamed, and good morning, good afternoon to everybody on the call. I will take you through our financial metrics for the first 9 months of the year, followed by the quarter as well. In terms of profitability, it grew very strongly. Profit before tax was higher than last year by 6% overall, reaching a record AED 6.4 billion. Our revenues increased 6% year on year to reach almost AED 9.7 billion. This performance has been underpinned by the continued expansion in our balance sheet and consistent underlying momentum that we have seen in the bank in the business. Throughout this period, we have maintained prudent operating efficiency amid continued investment across the business to support the future growth. The asset quality continues to improve further, reflecting the resilience of our portfolio and our consistent, disciplined approach to risk management.
Ahsan Akhtar: In terms of our balance sheet growth, this has remained particularly robust, with total assets reaching AED 318 billion, up 18% year on year. This performance has essentially translated into a strong return performance, as return on equity is now at 28%, supported by a solid capital position. Moving forward now onto slide 10, which is our Q3 performance. The key message for the quarter remains that our underlying momentum continued, which we inherited in the H1 of the year, has remained particularly strong, especially as our customer activity has increased, robust financial demand continued, and our fee and commission capabilities increased across all businesses. As a result, our customer financing increased by a further AED 8 billion during the Q3, supplemented by an increase in deposits by approximately AED 13 billion, which was a clear evidence that the franchise continues to expand and customer activity remains healthy.
Ahsan Akhtar: Importantly, this activity has translated into an 11% increase sequentially in our fees and commission growth, reflecting higher business and higher transaction volumes across the different franchise. Overall, the underlying business continued to perform strongly, supported by sustained growth in customers, financing assets and fees, alongside a resilient asset quality. As we move forward in terms of our income statement, you can see here that our quarterly pre-tax income has consistently exceeded the AED 2 billion mark over the last five quarters, reflecting the stability of our earnings as well as supporting the soundness of our business model. More importantly, our growth has remained broad-based across all businesses within the franchise, reflecting the strength of our diversified business model. Our income mix is equally important.
Ahsan Akhtar: While funded income has increased by 11% year on year, reflecting the expansion of our core financing proposition, our non-funded income has continued to account for more than a third of our total revenue and continued to grow. In terms of our funded income, the key takeaway is that the robust business volumes continue to mitigate to a great extent the margin suppression, supporting an 11% increase to reach an all time record number of AED 6.1 billion. This has been broad based, and you can see that our retail business increased 20% on the back of sustained customer activity. Meanwhile, wholesale business funded income increased 23%, reflecting selective growth in our core government and public sector client segments. Meanwhile, if you look at our cost of funding, it did increase sequentially by 12 basis points, reflecting continued competition for deposits.
Ahsan Akhtar: As a few mentioned, we will allude to this point a little later as well, with our net profit margin now at 3.64% for the first 9 months of the year. We do, however, expect, as rates have already started to go up, some parts of our portfolio start to reprice, in Q4. Moving towards the non-funded income side of the balance sheet, the income statement, we have seen that this component remains an important source of earnings for the group, and contributing in a healthy 37% of our total revenue base. What is particularly important to call out here is our fee and commission business. We have seen this grow continuously since Q4 of last year. In Q3 alone, fees and commission have increased 11% sequentially, and 9% year on year.
Ahsan Akhtar: This is a notable development, reflecting rising customer activity and transaction volumes across the bank as a whole. While headline non-funded income was impacted by some mark to market volatility that we saw in Q3, with a positive contribution in Q2, which was followed by an unrealized loss in Q3, creating negative swings between these two periods. As a result, on an overall basis, you will see non-funded income has declined 2% quarter on quarter. A movement which is best viewed, in our opinion, against the 11% sequential increase that we saw in our fee and commission business. Turning on to slide 14, which is the operating expenses. While we have continued to invest through the cycle, this has been done to support the growth and the transformation that we are actually doing as a franchise in ADIB.
Ahsan Akhtar: Therefore, at a group level, we have seen expenses increase by 9% year on year to reach AED 2.8 billion, hence reflecting sustained investment that we continue to make in people, technology, the AI capabilities which will drive future growth and productivity as well. More importantly, on the efficiency front, we remain disciplined. As a result, our cost to income ratio has remained relatively stable at around the 29% mark which is comfortably below the guidance of 30% that we had provided. In terms of provisions on slide 15, you can see here that our portfolio continues to perform very well over the last year or so, despite the fact that we have had a significant increase in our financing portfolio. As a result of this, our impairment charged declined year on year by 12% to reach AED 450 million.
Ahsan Akhtar: While overall cost of risk has further improved to reach 30 basis points against 33 basis points at the halfway mark at the end of June. In terms of the breakup of this by business or retail, cost of risk remains broadly stable at 48 basis points, while the wholesale business is at about 18 basis points. This reflects disciplined underwriting, regular stress testing that is done at a group level and a prudent approach to provision recognition. As we move forward towards the non-performing side of the balance sheet, the broader asset quality indicators remain very positive. The overall non-performing assets have further declined by 22% year-on-year to reach an all time low of AED 4.4 billion, as a result of some chunky settlements that we've seen, a reduction of AED 1.3 billion overall and some selective write-offs that we've done during the year.
Ahsan Akhtar: Our non-performing assets ratios, therefore, have further declined or improved to reach 2%, which is at an all time low, further strengthening the cash coverage ratio to reach 114%. If we were to include collateral, that number has further improved to reach 183% by the end of September. If we now turn our attention to the balance sheet side. Overall, the growth has remained very strong during the first 9 months of the year, with total assets reaching AED 318 billion, up 18% year-on-year. This expansion in our balance sheet has been achieved by a primary increase in the customer financing business, as we mentioned earlier, up 26%, as well as increase that has been supported by a diversified funding base, with customer deposits being higher by 17% year-on-year to reach AED 259 billion by the end of September.
Ahsan Akhtar: On slide 18, we turn our attention to the key drivers of our customer financing business. This continued to demonstrate broad based momentum, with total financing assets increasing by AED 44 billion to reach AED 215 billion by the end of September. This is 26% higher. More importantly, the momentum that we've seen in Q3 has continued with the further increase of AED 8 billion net assets or 4% quarter-on-quarter growth. The growth has been well diversified across our key business segments, with particularly strong momentum, which we have seen in our retail and wholesale businesses. On an overall basis, our retail business has increased their assets by AED 15 billion year-on-year or 15%, which accounted for approximately 45% of the total growth that we've seen during this year.
Ahsan Akhtar: We're very proud to say that we've seen record sales originations across all key products within the retail business in Q3. Within our wholesale business, our government and public sector financing has contributed a further AED 11 billion year to date or around 33% of the total increase. Together, between retail and wholesale, this has driven an increase of over 80% of the total growth, further complemented by continued expansion in corporate and other segments. If we move forward, on slide 19, this is the investment portfolio, which has remained broadly stable. The total portfolio now is about AED 36 billion, up 3% year-on-year and 2% quarter-on-quarter. The portfolio quality remains high quality. It's a very well-diversified portfolio, primarily invested in amortized cost Sukuk and other low-risk instruments supporting liquidity management and balance sheet resilience.
Ahsan Akhtar: In terms of our deposits, which is slide 20, here you can see that these have continued to grow very strongly over the last year or so, rising by AED 30 billion year to date, supporting the financing increase that we have seen across the bank. Particularly important is the fact that the overall increase in deposits was about AED 13 billion in Q3 or 5%. Our current and saving deposits continue to grow even during these times, which is a key strength of our franchise and is now at a healthy 60% of our total customer deposits, underpinning our competitive funding advantage. Overall, deposit growth has been across both retail, but it has also been led by the wholesale business in this year. Lastly, we now go to slide 21, which is our capital and liquidity position.
Ahsan Akhtar: In line with the expansion that we have seen in our balance sheet overall, we have continued to maintain a strong capital position as well as a liquidity position also. Our total capital adequacy ratio was at 15.6%, while our Common Equity Tier 1 was further improved since the beginning of the year to reach 12.4%. In terms of our risk-weighted assets, we continue to optimize capital. Overall risk-weighted assets increased by 15% compared to financing asset growth of 26%, as we have continued to deploy capital into capital-friendly assets. We have done this through disciplined capital allocation and ongoing efficiencies, enabling this growth to be absorbed through strong organic capital generation.
Ahsan Akhtar: Lastly, just a point on liquidity. These ratios remain healthy. Our overall financing to deposit ratio is stable at 83%, while our advances to stable fund ratio continues to be around the high 80s, so it is about 87%. With that, this will conclude the presentation, and over to you on the questions.
Lamia Hariz: Thank you, Ahsan. I will hand it over to you, Mohamed, for the questions.
Mehmet Sevim: Thank you. Operator, can we please open up for questions?
Operator: We will now begin the Q&A session. As a reminder, please select the raise hand feature at the bottom of the Zoom interface to be placed in the virtual queue. Once it is your turn to ask a question, we will call your name and ask you to unmute yourself. If you are on a mobile device using the app, simply tap into the three dots or more button to find the raise hand feature. Lastly, if you are calling in today, star 9 will activate raise hand and use star 6 to mute and unmute. Our first question comes from Aybek Islamov. Please unmute yourself and ask your question.
Aybek Islamov: Yes, good afternoon, and thank you for the conference call and congratulations with a good set of numbers in Q3. Well, I think I have two questions relating to your net interest margin performance. The first one is the guidance that you provided on the NIM implies that you are going to see more contraction in Q4 this year compared to Q3. How do you think about your NIM into 2027, given that we may see more rate hikes, right? Can you also discuss what sort of mitigants can you use in order to protect your margin from further decline into next year, right? Rate swap products, growing your GRE book or corporate lending more aggressively, would be interesting to have that color. Secondly, I noticed a gradual increase in cash balances relative to your deposits or liabilities. What is the view here, right?
Aybek Islamov: So long as deposit ratio is comfortable, is there room to optimize your cost of funds at this point by leaving some expensive deposits. How do you think about this funding equation and fairly increased cash balances on your balance sheet? Is that something which is also holding back your margin? Thank you.
Mohamed Abdelbary: Thank you, Aybek. I will attempt to answer this question. If I miss any points, please do let me know. First on net profit margins. I think the situation which we need to look at is that this year has been quite unusual in terms of, number one, that rates after initially being thought of coming down, have now reversed, and actually have seen one hike. There is probably one more hike coming in September. The forward curve suggests another probably in March/April, and then another one towards the end. So we are still now in a reverse situation. What has happened unusually is that actually higher rates are good for banks, right? When rates go up, actually we make more money.
Mohamed Abdelbary: But given the situation we have seen this year, and I have been, I think, alerting the market for some time, is that the funding cost increase has outstripped the ability for institutions to reprice on the asset side because the situation particularly which emerged at the start of this conflict, is that because of the instability of some of the liquidity available, some outflows, and I think we have spoken about what the major pockets where we know about the India outflow impact, and again, people are not aware of that, and some other outflows which had to be backfilled with some other funds. So the liquidity is available, but it became more scarce. What it meant is that the funding cost, or what institutions need to pay for funds, have not been passed on to clients at the same time. So there is a timing difference in this.
Mohamed Abdelbary: Second is also that, I speak about ADIB specifically and probably my colleagues will join me on this, is that we also, in some cases, were cautious about passing on immediately the higher rates into the asset side to support the economy, to support our clients in, again, a very unusual time. What it means for us, and that is why we keep on saying it is actually a temporary situation. If I look forward into Q4 and into next year, what is likely going to happen? What is likely going to happen is that our assets will automatically reprice because the entire wholesale bank book is on variable basis. By the end of this year, and we have done the clear analysis, Ahsan can talk about it, is that by the end of this year, the entire book would have captured the first and second rate hikes.
Mohamed Abdelbary: As the book starts to reprice even into next year, it will capture this. We expect that the funding cost should not keep up because the higher funding cost has already been built in today, which actually should have happened over the next, in my view, two quarters. Hence, the margin will start opening up again. The second point, I think what will happen is that we will start hopefully seeing some of the money coming back into the system. The good thing is, which has worked for ADIB, is that actually even in that environment, our current account and saving accounts for the retail book has actually grown AED 5 billion to AED 6 billion, which is again, very unusual for a market where there is some pressure and the rates are high, but we still have grown AED 5 billion.
Mohamed Abdelbary: Where the outflow happened on the Qatari side, were more on the institutional and wholesale banking side. Hence, we believe still that I would not extrapolate the current situation. Margins are compressed. Probably in Q4, there will be pressure. That's why we have guided the market accordingly. But as we look into that in the next two quarters, I believe we will go back to some sort of normality where actually higher rates are beneficial for the bank. When we said every 50 basis point actually adds AED 120 to 130 million. We are not seeing that this year, right? Because we're only paying one side, not being rewarded for the other side given the situation we're in today. So that is on the net profit margin side. You had a question on the reserve, on the cash balances. So these are the reserve requirement adjustments.
Mohamed Abdelbary: In the beginning of the conflict, the financial package included an element of release of reserve requirements, which banks have placed at the central bank. This, as part of the renewal of the package, this was one of the elements which was not carried forward, and it ended by the end of August?
Ahsan Akhtar: Yes.
Mohamed Abdelbary: End of August, yeah. End of August, and we were back to pre-conflict reserve requirements level, and hence you would see that higher cash balance appearing on the balance sheet. Before that, yes, we were obviously using that money to recircle back into financing, but this has stopped. One more thing also I think worth mentioning is that, there was also a choice between do I protect my margin and shrink to greatness?
Mohamed Abdelbary: What I mean by that is that I could just hold the machine, stop asset origination, wait for CASA balances to build, and then build the balance sheet. But as we have been always saying, we run through the cycles, not only from business, but also from cost, every element. And we try to do the same. We will continue originating the assets which we like, which meet our threshold. It meant in the near term, maybe we pay a bit more for funding them, but these assets will stay, the financing or the funding will normalize eventually.
Aybek Islamov: Yeah. Thank you very much.
Operator: Our next question comes from Jon Peace. Please unmute yourself and ask your question.
Jon Peace: Hi, can you hear me?
Jon Peace: Hi.
Mohamed Abdelbary: Yeah.
Jon Peace: I hope I am audible. Apologies. My first question please is just a follow-up on the net profit margin question. You talk about the normalization next year, but I just wanted to get your thoughts on what the pace of that normalization might be. Could we be back to a normalized profit margin by the middle of next year, or is it likely to be a little slower and towards the year end? My second question please is on your guidance overall. I think as you were going through that slide, you mentioned that the guidance was quite conservative. Was that specifically the cost of risk guidance or did it apply more broadly to things like your lending growth as well? Just maybe on the cost of risk, are you seeing any areas of pressure at all in the portfolio? Thank you.
Mohamed Abdelbary: Thank you. Let me take the last one first. Yes, I was specifically talking about cost of risk. When I said that we are being conservative, the cost of risk has. I think this is a year where ADIB has been stress tested to its maximum and it is almost proven that the quality of the book was not only an assumption, but this was a real-life example. Again, just to remind the audience, in our retail book, having just 80% of the entire retail book financed through nationals has definitely paid off. Accordingly, the ECLs have done fantastically well. When it comes to the wholesale bank, this great mix between corporate and GREs meant that we still have a good margin on the corporate side, but also protected ECLs when we went to GREs.
Mohamed Abdelbary: The cost of risk is the one where I think we are conservative. I think we will probably surprise the market to the upside on the cost of risk. Anyway, with that, we are Q4, so let us see how this plays out. In terms of timing of normalization, I am penciling in Q2. Why I am saying Q2, it is just a measure of how I am matching my variable financing book towards the size of my contractual funding mix.
Mohamed Abdelbary: For us, we always, not even this year, but always, we are keeping an eye on what is the size of my wholesale banking book, which is floating in nature, versus what is my deposit base, which is profit-paying. I always match the two in terms of size, but also frequency of repricing. When we did the math, I think barring any left field surprises, it should happen in Q2 of next year.
Jon Peace: Got it. Thank you.
Operator: Our next question comes from Naresh Bilandani of Jefferies. Please unmute yourself and ask your question.
Naresh Bilandani: Thank you. It is Naresh from Jefferies. Just a few questions, please. One, can you please offer more insight into the sizable mortgage origination that you have done in Q3? I am just keen to know the average LTV of the new origination, the borrowing customer segment, and any indication that you can offer on the average pricing at which you raised these mortgages specifically in Q3. That is the first question. My second question is on regulation. It would be very helpful if you can please throw some light on this new draft regulation that is circulating in the media that requires a certain length of the relationship aging before the customer can transfer their loans to a different bank. How would such a change be positive or negative for you as a franchise? That is the second question.
Naresh Bilandani: My third and final question is on the capital. In light of the recently announced rights or upcoming rights issue, as we approach the dividend payment season, which is likely to be just 2 months after the rights conclusion, would you please be able to share some thoughts on how the management is thinking of recommending dividends to the board? Any thoughts there would be extremely helpful. Thanks a lot.
Mohamed Abdelbary: Sure. Thank you. First on the home finance situation. Home finance remains to be one of the products which ADIB is known to be very strong in. The strength of the home finance situation for us is not actually. We do not look at only as home finance. Why are we so strong in home finance? Not only because we exercise better or we are the cheapest, because we are not. It is because we bank the ecosystem. When we work with the developer, when we work with the contractor, when we work with the entire ecosystem, the home finance comes naturally. That is why we are almost 25% of any new origination in the market for home finance. Your question on the average LTV, it is around 65%. That is where it currently is. Some go up, some go down. Because the average book today is actually about 60%.
Mohamed Abdelbary: The average book today on LTV on the home finance is 60%. When it comes to the pricing, again, I think the markets, when they look at the landscape, we are priced competitively for the risks we have. The return actually on this book is very lucrative, and it gives us not only RWA relief, but it is also a natural hedge for us. So pricing on this book is very good risk-adjusted. RWA is 35% of the book, and the LTV is around 65% on new origination, and the existing stock is at 60%. In terms of the new regulation, I think, which you have seen in the media, we will get to know more about it when we receive actually the final draft.
Mohamed Abdelbary: What I can tell you is, I think what is being addressed is that in the personal finance space, there was a common practice whereby banks would give grace period to clients before they start paying any installments, whether it is principal or profit, or the conventional bank interest. What I think the regulator might have picked up is there is too much shopping around or round-tripping from bank to another whenever this grace period ends because the cost of moving between entities was low. The barrier was very low. You just could finish your first few months grace period and could go all the way up to 9 months, by the way. Some institutions offer 9 months to 12 months grace period. You finish that, and then you go to the next bank who will give you another 6 months. So it became like a never-ending circle.
Mohamed Abdelbary: I think what will come out, and I will caveat just my statement because we have not seen the final circular yet, but what I expect to see is that the regulator will control that round-tripping to ensure that the financial system is not exploited by just personal finance or clients moving from bank to another and actually never ending up paying any installment to anyone, as it is just moving between banks and buyouts. So that is the regulation on personal finance. In terms of, I think, the fourth question before I go to capital, by the end of the year, obviously, we will review the situation, we will look at our dividend policy. We cannot give you forward-looking statement on dividend, but I always been saying that ADIB is very consistent in its dividend policy.
Mohamed Abdelbary: You go back 5 to 10 years, it is very predictable of what we usually pay to the market, what is the potential of our net income. Sitting here today, I do not see that changing for any reason whatsoever. Let us see, right? Obviously, there will be a time and date for that and approvals to be taken, but our dividend policy is very consistent with what we have seen in prior year as well. Can you just send the capital question? What was the, uh-
Naresh Bilandani: What is the thinking behind recommending dividend to the board?
Mohamed Abdelbary: Sorry?
Naresh Bilandani: So the thinking behind the recommendation of the dividend to the board. I am just keen to get some visibility on, given the fact that you are just conducting a rights issue at a point in time when we will have the dividend sort of like a decision taken 2 months after the rights issue. I just wanted to get
Mohamed Abdelbary: Sure
Naresh Bilandani: some clarification on whether you are trying to still have a conservative thought process of the dividend payout to retain more capital for growth, or that is unlikely the risk that the market will be seeing.
Mohamed Abdelbary: Yeah, no, I think also that, I think what your answer is that our dividend policy and proposal will probably be very consistent with prior years. At that time, we will also be coming to the market with more details. At this stage, I do not see a reason why we would change our approach from prior year, even with the rights issue coming up. It all bakes in into our forward capital planning.
Naresh Bilandani: Got it. Thank you, Mr. Mohamed. Very quick follow-up. You mentioned the number, 65% LTV. That is the LTV on the front book only, right? Not the entire mortgage book. Just to clarify, that is the LTV that you are on the new origination. Also in the Q3, the strength of the mortgage book, if I think of the customer segmentation, fair to assume again that majority of this customer origination is coming from UAE citizen retail, or would there be a fair mix of expat borrowers also?
Mohamed Abdelbary: Yeah. So on your first point, 65% correct. That is on the new origination because the stock today is at 60%. In terms of the mix of clients, it is slightly balanced in terms of numbers, but in terms of size, it is more tilted towards UAE nationals. So the ticket size is that it is bigger in UAE nationals. The number of transactions could be more equal because there is also a big component of coming from Dubai as well. But in terms of size, it is usually tilted to UAE nationals.
Naresh Bilandani: Understood. Thank you very much.
Operator: Our next question comes from Rahul Bajaj of Citi. Please unmute yourself and ask your question.
Rahul Bajaj: Oh, hi. This is Rahul from Citi. Thanks for taking my question. I have two mainly. The first one is on margin; the second one is on cost of risk. If I focus on slide 12 of the presentation, the top right-hand side chart, and how I read this chart is the main drivers for margin compression over the last 9 months, the top right-hand side chart on figure 12, slide 12, is cost of funding, which I understand, and retail financing. I am slightly surprised to see this chart because I was thinking that the GRE growth is part of the driver for NIM compression year to date, but that doesn't seem to be the case. Retail is the major driver. I am just trying to understand what is driving retail margins lower.
Rahul Bajaj: Is it because the product mix has maybe slightly changed, the customer mix has maybe slightly changed? I mean, what has driven retail margins lower in this environment, more than wholesale financing or GRE-based financing? That's my first question. My second question is on slide 15, on the cost of risk, if I look at the bottom left-hand side chart there. If I compare the H1 situation versus the 9 month on slide 15, the wholesale credit cost has gone up. Retail is pretty flat, but overall credit cost has actually come down.
Rahul Bajaj: What is driving this decline? If wholesale has gone up from a negative 9 basis points in the H1 to 18 basis points in the 9 months, I would have assumed the overall rate cost would have gone up. Is it related to Egypt maybe or is it partly to do with reversing back some of the overlays that you might have taken at the start of the conflict? How should I read this chart? Thank you.
Mohamed Abdelbary: Okay. Thank you, Rahul. On your first question regarding retail financing margin, the reason why you see this 16 basis points reduction year on year is because we are coming from a point of some of the personal finances booked at higher rates coming to maturity and then rebooked at new rates, right? Because the average life of that book can anywhere between 2 or 3 years, right? Don't forget, only a couple of years or 3 years ago, we were at the highest point, when it came to rates before they came down again, and then now they're going up again. So it's just a matter of changing the specific tickets within your book of 2 or 3 years originated-
Rahul Bajaj: Oh, wait.
Mohamed Abdelbary: personal finance at high rates, particularly related personal finance. Then rebooked again with the new rate. Again, I would say the 16 basis points actually, not a bad outcome, given that personal finance is usually very high yielding. But now where the rates are reversing, I think this will also be taken care of in the next few quarters. That is for the retail financing. Your question on impairments, I think you answered it exactly right. These are recoveries we have, and we always like to show recoveries separately because how we deal with the recoveries is that you have your retail book and you have your wholesale book, where you see the affected ECL, whether it is stage 1 and 2.
Mohamed Abdelbary: Usually when you have a transaction moving into stage 3, it is moved also outside the business to a GSAM unit who takes care of recovery. This was one of the recoveries we had, and we have spoken about it also in H1. So that is not something just very recent, but it is an accumulation of the last 9 months of different recoveries we had.
Rahul Bajaj: Understood. It is all clear. Thank you, Mohamed.
Operator: Our next question comes from Shabbir Malik of Morgan Stanley. Please unmute yourself and ask your question.
Shabbir Malik: Hi. Thank you very much for this presentation. I have a question. I just want to go back to the NIM outlook. You suggested that you are expecting some further NIM compression going into Q4. I just wanted to understand, considering that this quarter, in Q3, deposit growth was relatively strong compared to financing growth. We have seen a rate hike already coming through and potentially one more in Q4.
Shabbir Malik: I am assuming, I think you indicated that there is going to be some effort in terms of repricing loans as well. I just wanted to get a sense of how you see the NIM evolving into Q4, and maybe also shed some light on the potential rights issue in Q4, what is likely to be the immediate use of those funds? Are those going to be used to repay, let us say, the more expensive time deposits, which could benefit your margins, maybe not so much in Q4, but maybe into Q1 2027? If you can shed some light on that, it will be very helpful. Thank you.
Mohamed Abdelbary: Yeah, sure. Thank you. On your point regarding the rights issue fund, yes, absolutely. This is cash very welcome into the bank, so it helps capital, but at the end of the day, it is cash, right? You are getting AED 1.75 billion into the bank, which you will deploy. The deployment will be definitely for, I think, as step number one, supporting the financing growth in Q4 as well. Clearly, if the financing growth is not going to need all that money, then there will be recalibration of pricing yourself out of some of the more expensive institutional deposits we have. This will not be a problem because I can tell you the demand on deposits in that market is actually one of the reasons why it is driving the cost too high. It will be picked up in no time.
Mohamed Abdelbary: So we will not also rush into that because liquidity is precious these days. But yes, definitely the 1.75 will be a very good source of liquidity, which will help us in funding new assets. And to your point, I agree with you, Shabbir. It will also help with margin, right? Because you are almost getting considered as a CASA coming into a balance sheet, right? If we are growing 4, 5.5, 6 billion in CASA in retail year on year, that is another 2 billion considered as CASA-like money coming to you. You are not paying anything on it. So yes, this is going to definitely help our margins as well. What was your follow-up question, sorry, the other one?
Shabbir Malik: I also kind of-
Mohamed Abdelbary: Demarcus
Shabbir Malik: If you think about excluding the rights issue, this quarter, your deposit growth was already higher than, I think, financing growth, and your loan to deposit ratio was a bit lower. And you have seen rate hikes, one already, and you have kind of indicated that you have a favorable sensitivity to higher rates. So I just want to kind of understand the outlook for a further NIM compression. Is it going to be more moderate NIM compression relative to what we saw in Q3? And maybe another question, you saw mark-to-market losses this quarter. And I just want to kind of understand how that portfolio has held up in Q3. So is there scope for potential reversal of those unrealized mark-to-market losses in Q4? Thank you.
Mohamed Abdelbary: Yeah, very good. So yeah, I think the short answer to the first one is yes. We do expect, given that we have this inflow, that the pace of probably putting pressure on your margins in Q4 will be less or slower than what you have seen in Q3. Q3 is almost like, I would not say call it a perfect storm, but this is where, after a few months of some of the situation we have seen, building up cost of liquidity, seeing the India-related outflows, and everything almost hit you as a perfect storm in Q3. So Q4 will definitely be expected to be much more moderated in terms of the pressure points we have seen.
Shabbir Malik: And just on the point about mark-to-market losses on the investment portfolio.
Mohamed Abdelbary: Absolutely right. So we have, as part of our investment book, we have a trading book as well. Now, with the rates in the long term, going up significantly, I think crossing 5%, what is it on, 5, the first 5, right?
Ahsan Akhtar: Almost 5.
Mohamed Abdelbary: Yeah, 5.5%. Our mark-to-market loss also, which we have disclosed in the financial statement, year-on-year impact, I can tell you is almost AED 70 million. So if rates would have just held of where we expected them to be, our net profit would have been higher by AED 70 million. Now, I am reconfirming these are mark-to-market losses. These are not realized losses. And the intention is that rates will eventually moderate. We will reposition the portfolio accordingly. So I see it actually more as an opportunity than a loss. Yes, it hit us in Q3, but it will expect it to eventually reverse and give us back some of these losses in due course.
Shabbir Malik: If I can maybe ask just one last question. In Q3, given the liquidity dynamic, do you think that you were able to grow uninhibited in terms of financing growth, or were you kind of held back because liquidity was a bit tight and maybe you were thinking about the upcoming rights issue? Maybe if you can shed some light on 2027's loan growth outlook as well.
Mohamed Abdelbary: Sure. Look, I think, I can tell you that any deal we wanted to deal with it, right? So liquidity, I say liquidity was always like capital, our enablers are always available. We did not hold back on any deal we wanted to do just because of liquidity, which was good. As I said, ADIB has the benefit of having access to liquidity when it is needed. Our treasury is very active. Our wholesale bank and retail team can access liquidity. For us, it was a matter of cost. Which is okay, if you choose between having liquidity or paying a bit more for it, I would say I would rather have liquidity and pay more for it to support my underlying business goals because if you are putting yourself outside the market because of some of these cost implications, it becomes very difficult to restart the engine again
Mohamed Abdelbary: ADIB strategy is we work, we go through a cycle, we underwrite what we need to underwrite, and we make the capital and liquidity available, even if it means that we take some short-term pain, but eventually when things normalize and the cloud settles or the mist settles, I think we emerge with a much different picture even in 2027.
Shabbir Malik: All right. Thank you.
Operator: Our next question comes from Aaron Armstrong of Ashmore. Please unmute yourself and ask your question.
Aaron Armstrong: Hi there. Thanks very much for taking the question. Congratulations on a good set of numbers. Just a couple of questions from me. One would be on the net interest margin side, please. So in the slide deck, you break out 9 months versus H1. Could you give us the numbers, please, for Q3 NIM specifically versus the Q2 NIM? So the quarter-on-quarter change, and if you could break that as you have done in the deck for 9 months in terms of what you report as gross margin versus cost of funds. If you could just give us some Q3 versus Q2 numbers there, that would be very helpful, please. That is question one. Question two, if you could just give a little bit more on the repricing of the loan book.
Aaron Armstrong: You mentioned confidence there that this is going to support NIMs over the next few quarters and into next year. Just in terms of average duration, in terms of, say, how long that repricing takes. Is it contractually repricing over 3 months or over 6 months? Does it differ for retail versus corporate wholesaler and so on? Anything there? Then just finally on the advances-to-deposits ratio, that has obviously been ticking up a little bit in recent quarters. I think it is in the mid-80s now. Is there a comfort level or a ceiling level there? Does that become a constraint at any point?
Mohamed Abdelbary: Sure. I will take it, the few points. If I miss anything, any point, please let me know. So in terms of repricing profile, let us take them business by business. The entire wholesale bank book reprices around within 3 months. We do not go beyond 3 months. So whatever we have reported as a wholesale bank portfolio, and that is why we also mentioned that by the year end, we would have captured at least the first and second hike, and as we go into next year, we will capture it as well. The size of the wholesale bank book is almost equal to the size of our contraction paying deposit as well. In terms of the retail bank, it is slightly different. I can tell you average behavioral life, because our retail book, which has crossed the AED 100 billion mark, the home finance book is probably 6 to 7 years repricing.
Mohamed Abdelbary: The personal finance book, I would say, anywhere between 2 and 3 years, despite contraction, can go to 5. But we have seen the velocity of that book churning between 2 and 3 years. Auto finance applies the same. You have a good mix there between giving you some hedge in terms of interest rate of movement in the market, but also ability to capture that uplift when rates go up. That is why I said it is unfortunate that this year, the funding cost actually just moved much faster unusually than what we expected. I think we have seen a lot of media coverage on this, where it is becoming actually we call that as a phenomena, which is very unusual in terms of that situation. That is on the repricing side. What was the other one?
Lamia Hariz: Loan to deposit ratio.
Mohamed Abdelbary: Loan to deposit ratio. No, I think we are still comfortable, right? I think we are one of the banks who the AD ratio is on the lower side, hovering between 80% and 85%. We have seen institutions going to 100 plus. There is no cap for that. But we internally, we are comfortable with that level. At certain times, can we go a bit higher? Yes, we can. Probably we will see us then dropping back to the 80s again. That is our comfort level. Let us call it comfort level. Is it regulation? Is it something we do? No. But we have a philosophy of we fund before we finance, even if you pay up for it, but we first fund and then we finance. That is why you see us anywhere between the 80% and 85%.
Mohamed Abdelbary: In terms of your question on net profit margin evolution, we will send it to you separately. I do not think we have the numbers ready yet, but I am looking at Ahsan and Lamia. Separately, we should be sharing with you quarter on quarter, so you can see how its evolution has progressed over the year.
Aaron Armstrong: Thanks. Maybe just at a very high level on that Q3 NIM number. If put the cost of funds and the average yields to one side, just the headline NIM. Is it down roughly 30 bps quarter on quarter? If we break it out Q3 versus Q2, is that a fair estimate?
Mohamed Abdelbary: No, that is not 30 bps. Much lower than that. My guess, and please don't quote me, but I give you the number, maybe 10, 12 bps max. This is the number which has dropped, but let us send it to you so you have exact numbers for your modeling as well. But I don't think it was more than 10, 12 bps.
Aaron Armstrong: That's great. Thank you. Maybe just finally from me to confirm that the comments you previously made on the Q4 side of things, would you expect the Q4 versus Q3 NIM trend to be a smaller decline compared to the Q3 versus Q2? So maybe it was 10 to 12 NIMs, quarter on quarter decline in Q3. If we're looking Q4, it could be narrower than, say, 10 bps. Would that be fair?
Mohamed Abdelbary: Yeah, that's the expectation. It will definitely be lower than Q3. By how much, we'll have to find out because there are many moving parts. As Shabbir Malik was mentioning, the rights issue is a huge source of liquidity coming into the bank as well. But yes, it will be lower than Q3.
Aaron Armstrong: That'd be great. Thank you. Then Q1, we're back to positive quarter-on-quarter NIM trend.
Mohamed Abdelbary: I think what we're guiding now is that when I spoke about normalization, I think there was a question earlier, I said Q2. By Q2 of 2027, let's pencil it in. If we are surprised on the upside, happy to take it any time, but our modeling today tells us probably by Q2 of next year, where the normal level of NIM's corridor will be established. As I said, a rising rate is beautiful for banks, right? So I want to see that beautiful happening more faster than not, but we just have to go through the motions this year.
Aaron Armstrong: That's great. Thanks very much.
Operator: Our final question comes from Rahul Rajan of Bank of America. Please unmute yourself and ask your question.
Rahul Rajan: Hi, good evening. This is Rahul Rajan from Bank of America. A couple of quick questions from my side, please. Firstly, on the deposit growth year to date, I think it has come at around 30% odd, but it has mostly come from non-individuals, because I see individuals deposit growth has only been around 1.52% odd year to date. What are the efforts that are being taken to sort of increase these deposits from individuals? Because we are seeing continued credit growth from individuals, but not really deposit growth. That is number one.
Rahul Rajan: Secondly, is just to follow up to the earlier question on ADR. When you say that 80% is the comfortable level for ADR, 80% to 85%, does this mean that we are going to see or does this mean that what you see in 2027 is deposit growth sort of matching that of credit growth? Is that something that you see in 2027, please? Thank you.
Mohamed Abdelbary: Yeah. Just to reemphasize again, when we say 80% to 85% is our comfort level, it does not mean it is a ceiling. Obviously, if you have to go a bit up or down, we will do that. But the expectation is that when I want us to look at slightly below the headline numbers of deposits, and I want us to look at retail and the corporate separately. Retail, in fact, as I mentioned, has grown AED 5 billion to 6 billion in an environment where the entire market is paying 6% and 6.5% on CASA accounts. That is now the norm. You still have protected your client base and grown by AED 5 billion to 6 billion, which I think shows the resilience of that institution. But you cannot hold back also clients when they see some of these numbers in the market.
Mohamed Abdelbary: For us to support financing growth, we were able to tap into institutional money, GRE, and other avenues, which obviously they will cost you a bit more, and hence we have seen that pressure on the funding cost. Next year, we have a lot of initiatives happening as well, and we have always the benefit of the salary transfers. This is one of the strengths of ADIB. We have natural salary transfers coming to us every month, particularly from UAE government entities. These are one of the strongest source of our CASA and client-based growth. They will continue, they have not stopped, and they will continue next year as well.
Mohamed Abdelbary: As I expect, I hope, that when the situation starts to become slightly more normal, I am saying slightly because we are already adapting to a new situation, that the funding in terms of CASA will pick up at its usual normal pace. Having said that, if it does not pick up, we will make sure that we still are able to write accretive assets, which will be funded efficiently as well. We will not stop business. It is a franchise which has grown to 3x over the past 4 years from AED 100 billion to today's AED 317. I think when looking at return assets, it also means that ADIB is really punching above its weight 6 times in terms of its size and the profitability it generates.
Rahul Rajan: Got it. Thank you.
Operator: At this time, we turn the call back over to Mehmet for closing remarks.
Mehmet Sevim: Thank you, Jerry, and thank you, everyone, for the questions, and thank you, management, for your time today. We have now come to the end of our allocated time, so please send any remaining questions to the IR team. I will now hand back over to management for any closing remarks. Thank you.
Lamia Hariz: Thank you, Mohamed. As you said, we are happy to receive any questions on call or in emails. Thank you, everyone.
Mohamed Abdelbary: Thank you very much for your time. We appreciate it. Thank you.
Operator: Goodbye.
