Operator: Welcome everyone to the Al Rajhi Bank Q3 2026 earnings call. My name is Charlie, and I will be the coordinator today. If you would like to ask a question and have joined the call via Webex, please press the raise hand icon on your toolbar. I will now like to hand the call over to Dr. Sultan Altowaim, Head of Research at Al Rajhi Bank, to begin. Dr. Sultan, please go ahead.
Sultan Altowaim: Good afternoon, everyone. This is Sultan Altowaim from Al Rajhi Bank. We are pleased to host Al Rajhi Bank Q3 2026 earnings call. Welcome everyone to this event. Please note that this call is open for analysts, investors, and shareholders only. Media, including social media outlets, are requested to disconnect at this point. Without any further delay, I will hand it to Mr. Mohammed Al Ghaffani from Investor Relations to introduce the management team.
Sulaiman Alquraishi: Thank you, Dr. Sultan. Good day, everyone, and thank you for joining the call. With us on the call today, our MD and CEO, Mr. Waleed Al-Mogbel, our Group CFO, Mr. Abdulrahman Al-Fadda, and our Group Treasurer, Mr. Abdulrahman Al-Ajaji. As always, our CEO will start with the results highlights and strategy performance. Then our CFO will cover the financial performance in more details. Finally, we will open the floor for your questions. Also, I would like to remind everyone to refer to page 2 of the earning presentation for the disclaimer notice. Now, I will hand over to Mr. Waleed.
Waleed Al-Mogbel: Thank you, Mohammed. Welcome everyone, and thank you for attending our earning call for the third quarter for 2026. As always, I will start by taking you through our performance highlight, followed by an overview of our performance on our strategy Harmonize the Group. Then I will hand the floor to our CFO to cover the financial performance in more details. If we move to the next slide. In the last quarter, the bank delivered an excellent performance supported by the progress in our strategy execution and the healthy economy. This result in an outstanding net income of almost SAR 21 billion alongside healthy balance sheet growth. The balance sheet remains solid. Total assets reach SAR 1.076 billion, higher 2% year-on-year and 3% year-to-date, while total liabilities stand at SAR 921 billion, reflecting a 2% year-to-date increase with a healthy LDR of 83.6%.
Waleed Al-Mogbel: Moving to the profitability, net income reached, as I mentioned, almost SAR 21 billion for the first 9 months of 2026, which is higher by 13% compared to the same period in 2025. Net NII grew by 17%, while non-yield income increased by 3% year on year. As a result, total operating income grew by 13%, reaching SAR 32 billion. Regarding credit quality, we continue to maintain high asset quality with a cost of risk of 41 bps. Additionally, NPL stands now at 76 bps, supported by a coverage ratio of 152%. Moving to the last part, the key ratios. The bank maintains strong operating efficiency with a cost-to-income ratio standing at 22.2%. Also, our total capital ratio reached 23.6%, well above the regulatory minimum, reflecting the bank's healthy financial position.
Waleed Al-Mogbel: Lastly, our NPM expanded to 3.51%, higher by 42 bps year on year, and that is driven by ongoing effort to improve the yield and optimize the cost of funds in the current rate environment. Regarding the progress of the strategy, as we are now in the last year and the last quarter of the three-year strategy Harmonize the Group, I will just give it a very high level. All the ratios now are in their progress, and most of the ratios either achieved already the KPIs or will be achieved by the end of this quarter. As I mentioned before, we are working now on the next three years strategy, which will be presented, Inshallah, next year once it gets approved by the board in December. Now I will hand over to Abdulrahman to provide a detailed update of our financial performance. Thank you.
Abdulrahman Al-Fadda: Good day, ladies and gentlemen. It is my pleasure to welcome you again in our Q3 earnings call. I will go over the financial performance slides very quickly so that we can have further time during the Q&A session. Starting with the balance sheet. Our total balance sheet stands at SAR 1,076 billion, almost 2% growth year on year and 2% on a sequential basis. Our balance sheet has grown by almost 3% year to date, as you can see on the bottom left-hand side of the chart, mainly driven by the financing book, which has grown by almost 3%, and I will cover that in further detail in the following slide. That SAR 32 billion increase in our total assets, mainly funded by almost the customer deposits, while we have taken an opportunity to shed off some of the expensive interbank as well as Sukuk and others.
Abdulrahman Al-Fadda: Zooming further into the main driver of our balance sheet movement, our total balance sheet stands at SAR 775 billion, 2% growth year on year and 2% on a sequential basis. To analyze the 3% growth year to date, as you can see on the top right-hand side of the chart, our mortgage books have contracted by almost SAR 5 billion. I want to highlight that we have securitized a total year to date of almost SAR 10 billion. Hence, our mortgage growth was only SAR 5 billion contractions. Ex mortgage and retail, we have seen healthy growth, mainly on the Q3, where we have seen a 2% growth year to date. Corporate and SME have shown a healthy growth of almost 5% and 20% respectively.
Abdulrahman Al-Fadda: Our total mortgage books stand at SAR 271 billion, out of which represent 56% of the retail book and 34.5% of our overall financing book.
Abdulrahman Al-Fadda: Retail book as a percentage of the overall stands at a healthy level of 62% while non-retail, 38%. Our total customer deposits stand at SAR 700 billion, 1% growth year on year, and almost 2% growth on a sequential basis. So on a year-to-date basis, as you can see on the bottom right-hand side of the chart, our total customer deposit has increased by almost 5%, mainly driven by time, while cash have contracted by SAR 6.5 billion due to transitory deposit movement through the year. On the investment side, our total investment books stand relatively stable at almost SAR 178 billion, out of which 87% are Sukuk and Murabaha with SAMA, 75% fixed rate, and finally 82% within KSA. If we move to the profitability section, our net income for Q3 were almost SAR 7.1 billion, at 12% growth year on year and 1% on a sequential basis.
Abdulrahman Al-Fadda: To analyze the sequential movement, as you can see on the bottom left-hand side of the slide, NII has increased by almost 3.7%. Non-yield income contracted by almost 3%, mainly driven by the treasury investment book, which is classified as a fair value component. OPEX were lower by SAR 38 million, which would bring the pre-provision profit to be 3.2% higher on a sequential basis. Our net income for the period were SAR 20.9 billion, 13.3% higher year on year, mainly driven by the yield income of almost 16.7%, non-yield income by 3%. While OPEX were higher by 11.8%, which brings the pre-provision profit to be 14% higher year on year. To further zoom in into the net income driver, I will start with the operating income. Operating income for Q3, a healthy level of SAR 11.1 billion, 12% higher year on year and 2% on a sequential basis.
Abdulrahman Al-Fadda: Our operating income for the period stand at SAR 32.5 billion, 13.4% higher year on year. The driver, as you can see in the top right-hand side of the chart, our NII have went higher by 17%. Although that our average earning assets has increased by only 3%, however, we have had 42 basis point NIM expansion, which drive that healthy growth in our NII. Fees have further improved by 15% year on year, mainly driven by payments, the GDP, which we have seen a very good improvement in our acquiring profitability, trade, cash management, and finally, the subsidiary contribution to the overall fee income growth.
Abdulrahman Al-Fadda: Exchange income have shown a 12% year on year increase, while other income have shown a contraction of SAR 564 million, which is in line of my previous comment that is due to the treasury mark to market movement, given the higher interest rate environment.
Abdulrahman Al-Fadda: Our NIM for the nine months were 351, 42 basis point expansion. And the driver of that 42 basis point expansion, as you can see on the bottom right-hand side of the chart, around 25 basis points were coming from the gross yield improvement. This is due to the management initiative to reprice our assets. Also, the asset mix, all of that have contributed to almost 25 basis point increase in our gross yield to reach at 6.10. That is coupled with 17 basis point improvement in our cost of fund, given that an average SAIBOR year on year were lower by, as of the first nine months compared to the first nine months of 2025, by almost 57 basis points. OPEX for Q3 were almost at SAR 2.4 billion, 6.3% higher year on year and 2% lower on a sequential basis.
Abdulrahman Al-Fadda: Our OpEx for the period were close to SAR 7.2 billion, 11.8% higher year-on-year, mainly driven by staff costs as well as the G&A. This is to further, as Waleed mentioned earlier, to execute the Harmonize the Group strategy, to further improve the ROE of the shareholder. Given that we have a very healthy operating income increase of 13.4%, while OpEx increased by only 11.8%, that 160 basis point positive jaws helped us to reduce further the cost income ratio from 22.5% to almost 22.2%. On the asset quality, our impairment charge for the Q3 were SAR 862 million, close to 50% higher year-on-year and 3% lower on a sequential basis. Our cost of risk at 41 basis point compared to 31 basis point at the same period last year.
Abdulrahman Al-Fadda: The movement on our ECL charge, as you can see on the bottom left-hand side of the chart, gross charge were higher by SAR 815 million. This is attributed to three main factors. Number 1, the portfolio growth. Number 2, the management has taken overly, take into consideration the current environment. Thirdly, we are keep updating our ECL model, take into consideration the recent macro outlook changes. As you can see on the bottom right-hand side of the chart, the majority of that growth into the ECL were topped up our non-retail book. Our NPL stand at SAR 6 billion, where we have seen a 5% increase year-on-year, mainly driven by the non-retail book. Write-off, we written off close to around SAR 4.4 billion and while the inflow is close to SAR 4.7 billion. Our NPL ratio stand at almost stable at 76 basis point.
Abdulrahman Al-Fadda: Although it is worth to highlight that we have seen a further improvement on our retail NPL given the natural write-off coupled with the portfolio's growth, where we have seen the retail NPL dip to 35 basis point. While non-retail book, we have seen a growth into the NPL in the, specifically on the SME sector. We have not seen any one-off that has taken us to increase the non-retail book, NPL to 1.44%. NPL coverage stand healthy at 152%. Our ECL stock stands at SAR 9.1 billion, mainly driven by topping up our non-retail provision book. Stage 1 still represent the majority, 96.6% of the portfolio. No material movement compared to the previous quarter. Stage coverage, again, remain stable.
Abdulrahman Al-Fadda: Stage 1 at 37 basis point compared to 38 basis point in the Q2. Stage 2 at 10.7% compared to 11%. And finally, stage 3, flat compared to the Q2 at 54%.
Abdulrahman Al-Fadda: Liquidity position remain healthy and within the regulatory requirement. Although that our headline LDR at 110.7%. However, unweighted LDR, which includes Sukuk and other syndicated loan, stand at 96.9%. Regulatory LDR at 83.6%. LCR and NSFR are at a comfortable ratio and above the minimum regulatory requirement. Our total RWA stand at SAR 693 billion, 3.4% increase year-on-year, mainly driven by 3.4% increase in our credit RWA. It is worth to highlight that our RWA density at 64.4% compared to 64.3% in the Q2. Our capital ratio stand as follows: CET1 at 16.8%, lowered by 50 basis point compared to the Q2. This is due to the H1 dividend distribution which has been paid in the Q3. Tier 1 at 21.5%, and finally, our total capital at 23.6%. Year to date, we have seen our total Tier 1 capital have increased by almost 100 basis point.
Abdulrahman Al-Fadda: Although our balance sheet growth, coupled with the dividend distribution, have contributed to almost 290 basis point of capital drop. However, that has been offset by the same amount due to internal capital generation, given that we have a very healthy RWA density. Return metrics are healthy and above the industry average. Our ROA stand at 4.07, ROE at almost 23.3%, and finally our ROA at 2.65. Before we jump into 2026 guidance, maybe a couple of minutes to discuss or to highlight our output. As far as from the GDP forecast, IMF have revised our Saudi GDP forecast for 2026 to be 3.3% contraction, mainly driven by oil activity, while the core non-oil GDP is showing 2.6% expansion. Outlook for 2027, still healthy to grow at almost 8%.
Abdulrahman Al-Fadda: Consumer spending outlook is still healthy, where we have seen in the first 8 months the consumer spending have increased by almost 8%. On the interest rate environment, the Fed have delivered one hike in September, and I think our best case forecast, there will be additional hike in this quarter, which might have a negative impact into the NIM. However, the management initiatives are still undergoing to further improve the asset yield and optimize the cost of fund in order to improve and/or manage the NIM accordingly. Having said that, taking into consideration all of the above, our outlook is still unchanged compared to what we have communicated in Q2. Financing book will be low single digit growth, NIM 30 to 40 basis point expansion, cost to income below 23%, ROE is above 23.5%, and finally, cost of risk in the range between 35 to 45.
Abdulrahman Al-Fadda: Waleed, back to you.
Waleed Al-Mogbel: Thank you, Abdulrahman, for the financial highlights. We are so proud of our outstanding performance and the progress made across all KPIs of our Harmonize the Group strategy. Now, we will open the floor for Q&A. Operator, back to you.
Operator: Thank you. As a reminder, if you would like to ask a question, please use the raise hand feature on your Webex toolbar. We will allow for all the questions to be registered. Our first question comes from Abdullah Al Bairadi of Emirates NBD. Abdullah, please unmute yourself locally and proceed with your question.
Abdullah Al Buraidi: Congrats for the wonderful results. I have a question regarding the NIM guidance. While we have undergone a hike and we are expecting another hike to be in the remainder of the year, I think the focus on the liquidity stance is, at least during October, the SAIBOR-SOFR spread, which expanded massively, and we have seen through other banks' financial disclosures that deposit has declined and the competition for funding has come back again. Based on that guidance, it is that either we are expecting a flat NIM quarter-over-quarter or a slight increase. We know that Rajhi is geared for a rate cut or lower cost of funding. However, how do we pencil that with the increased SAIBOR-SOFR spread? Thank you very much.
Abdulrahman Al-Ajaji: Okay. Just to cover the SAIBOR-SOFR spread. If you look at the average for Q3, the spread stood at 107 basis points comparing to 109 back in Q2. Yes, in October, we have seen some widening in that spread, and that is mainly due to short-term liquidity fluctuations. However, from our end, we view this as a temporary movement rather than a structural change in the funding conditions. Since then, by the way, our spread has dropped from a peak of 180 basis points to approximately 124 basis points. If I am correct, today's spread was 113 basis points as market conditions, in our opinion, have started to stabilize.
Abdullah Al Buraidi: Yeah.
Abdulrahman Al-Fadda: Abdullah, as far as the NIM, first of all, I did not mention that the NIM will be flat to positive compared to Q3. I think on a sequential basis, we are expecting probably the NIM there will be pressure. However, on a full year 2026 compared to full year 2025, the NIM still continue to expand. That is number 1. Secondly, if you recall slide 10 in our presentation where we have highlighted the NIM movement. Out of the 42 basis points, Abdullah, there has been a 25 basis point improvement in our gross yield, despite that the SAIBOR were lower in the same period by almost 57 basis points. This is due to the management initiatives to reprice, take into consideration the management communication over the last few earning calls, that the management focuses on value rather than volume.
Abdullah Al Buraidi: Okay. That is pretty informative. What is the spread that you are expecting in deriving that guidance? SAIBOR-SOFR spread.
Abdulrahman Al-Ajaji: I would believe, from now till the year-end, we will be flattish to what levels we are in right now.
Abdullah Al Buraidi: Okay.
Abdulrahman Al-Ajaji: Depends on market conditions.
Abdullah Al Buraidi: Allah yaatikum al-afia. Yafqah mallah. Thank you.
Operator: Thank you. Our next question of today comes from Shabbir Malik of Morgan Stanley. Shabbir, your line is open. Please unmute yourself locally.
Shabbir Malik: Hi, thank you very much. I just have a couple of questions around asset quality. Your stage 2 ratio seems to have increased quarter on quarter. Just wanted to get your thoughts on what is driving that increase. Maybe if you can touch on the cost of risk trends over the medium term. I think you have indicated that there were certain changes, like for example, changes in the macroeconomic variables and certain overlays, which have driven provisioning a bit higher. But over the medium term, given that you are leaning more towards SME and corporate, how does the cost of risk shape up over the medium term? My second question is around margins. This quarter, you indicated that there was some benefit of loan repricing. Can you indicate if there is room for more repricing going into Q4 and into 2027?
Shabbir Malik: Is this more towards the corporate side or is it more towards the retail side? Thank you.
Abdulrahman Al-Fadda: Actually, Shabbir, three questions, not two questions. Number 1, stage 2 exposure, 2.4%, you are absolutely correct. This is due to some stage migration, but I do not think this is something that we are worrying as we speak. I think that our credit team have invested quite a lot over the last few years to further improve recovery and the stage migration. I think this is something that they will continue. I do not think that is something worrying as we speak for the time being. The second question related to the cost of risk medium-term outlook. I think over the cycle, I think the cost of risk average is anywhere between 50 to 55 basis points over the cycle that we have seen over the last probably 10 years. Currently, we are at around 41 basis point.
Abdulrahman Al-Fadda: Despite that, probably the SME as a percentage of our financing book, increased to almost 9.4%. Nevertheless, I think similar to our collection team, where we have seen improvements in the retail business to improve further the recovery and the collection. I think they are investing now to further enhance their capability on the SME side. The third question related to the NIM. Yes, I think the NIM, I think the management has been taking lots of initiative over the last few years to reprice the assets. We will continue to focus in our value rather than the volume. We will continue to focus to make sure liquidity premium is reflected properly into the asset origination.
Abdulrahman Al-Fadda: I think it will take some time, and I think all what you have seen, the 25 basis point increase into the gross yield that we have delivered year on year, it wasn't happened only this year. It was that several initiative has been taken over the last couple of years, deliver that 25 basis point. We will continue to do so and to further improve the NIM over the medium term.
Shabbir Malik: Got it. Thank you very much.
Operator: Thank you. Our next question comes from Jon Peace of UBS. Jon, your line is open. Please unmute yourself locally.
Jon Peace: Hi. Thanks for taking the question. Firstly, please, would you expect loan growth to pick up a little bit next year as the capital pressures are eased and the mix is continuing to shift towards corporate and SME, back to the mid-single-digit range? The second question, please, is you referenced treasury mark-to-market within the other income. It looks like that might have been around the SAR 200 million level. Just wondered if you might be able to confirm that. Thank you.
Waleed Al-Mogbel: Yeah, hi. It is very difficult now, considering the current situation, to give you an outlook for the next year. However, as you know, us from the last 2 strategy, we are always trying to find ways to improve our profitability and enhance our benchmark compared to other competitor. Jon, would you be kind enough to repeat the second question, please?
Jon Peace: Oh, yes. It was within the other income line, you mentioned there was some treasury mark-to-market impact in that line. Just looking at your run rate, I wondered whether you might be able to confirm the size of that, whether it was around the SAR 200 million level.
Abdulrahman Al-Fadda: That is not disclosed, Jon. That will be usually an annual disclosure. Nevertheless, I think despite the movement in the interest rate, our treasury team are doing an active management of our balance sheet as well as the investment book. I think, in the first 3 weeks of October, we have seen a further reversal of that negative mark-to-market year to date. And our treasury team is actively managing that exposure to further improve the other income line.
Jon Peace: Got it. Thank you.
Operator: Thank you. Our next question comes from Tryphonas Spyrou of Römer Capital. Tryphonas, your line is open. Please unmute yourself locally.
Tryfonas Spyrou: Questions, most of them have been answered, but I have got two. The first one is on securitizations. Is there any way for us to track the accretion or economics of these transactions? Do you expect more of them to come given the current interest rate environment? The second one is on cost of risk. I think you mentioned some overlays that you took in Q3. I was wondering whether you could help us quantify those. Thank you.
Abdulrahman Al-Fadda: On the securitization, as I mentioned, we securitized SAR 10 billion this year, our mortgage. Since we started the general securitization, we securitized close around SAR 31 billion. If you look at our capital liquidity ratio, we are at a very comfortable level. We are not looking to do any fire sale. As long as the economics work for us, whereby the delta between the new origination of mortgage minus the rate of the securitized book is positive, this is something that will have a NIM positive impact over the medium term. The management is looking in a very continuous dialogue and looking at securitization. If the economics work, we will definitely look into securitization. As far as the second question, the overlays, I think rest assured that the management is conservative. Look at the current environment.
Abdulrahman Al-Fadda: If we need to take any charges to be conservative, we will be more than happy. I think overall, we have taken an adequate overlays as we speak. This is a regular review that has been done by the internal management team. However, our cost of risk guidance is still intact of 35 to 45 basis points.
Operator: Perfect. Thank you. We will move on to our next questioner now. Our next question comes from the line of Aybek Islamov of HSBC. Your line is unmuted. Please unmute yourself locally and proceed.
Aybek Islamov: Thank you very much for the conference call. Three questions from me, please. First is on your CASA deposit ratio. What do you think is an absolute floor for your CASA deposit ratio, especially given that your assets continue to grow in low single digits and you have captive current accounts which back your mortgage book and point-of-sale loans, for example? That is my first question. Secondly, on the corporate loan book, do you see a risk of rising prepayments given high interest rates at the moment? Also, are you observing any pickup in demand for USD lending versus Saudi Riyal lending among the corporates? That is a second question. Thirdly, at what sort of rate hikes do you think you may need to securitize mortgages more aggressively?
Aybek Islamov: Given the capacity within the market, could you tell us about the maximum securitization volume per quarter that you can digest? Assuming economics is attractive, as you pointed earlier.
Abdulrahman Al-Ajaji: For the first question, higher yields have increased customer preference for interest-bearing deposits. We are responding through stronger transactional relationships, cash management solutions, while disciplined pricing, even though our CASA from Q2 to Q3 dropped from 64% to almost 61%, which is fair given that we have had some transitory outflows that took place in Q3, and we started getting that inflow back again in Q4. So we are comfortable with the levels that we are in right now.
Abdulrahman Al-Fadda: On the second question, Isaac, about the impact of the rising interest rate environment, whether that will have an impact in the corporate repayments. Probably the best benchmark is to go back to the history. If you look at 2022, when the Fed started hiking the rates. In 2022, our corporate book has managed to increase by almost SAR 24 billion. In 2023, our corporate book has increased by almost SAR 40 billion. Yes, there could be some repayment pressure. However, overall, there has been a growth overall on a net absolute basis. I do not see that is a material risk. Dollar funding versus Saudi Riyal, again, from our perspective, the management is still continuing to focus into the SAR lending, given that the majority of our customer time deposit in SAR. From our perspective, I think that is being selected. But overall, the management preference is SAR.
Abdulrahman Al-Fadda: Finally, on the mortgage securitization. Again, I think we are looking from our perspective at the economics work, as you mentioned. Even during the low interest rate environment, if you remember back in 2022 when we started the mortgage securitization, rates were much lower than the current level. So it is depending on multiple factors, depending on capital, depending on funding, depending on the growth outlook. From our perspective, as long as the economics work and there is an opportunity to further improve the NIM and the ROE, we will definitely take that offer.
Aybek Islamov: Thank you.
Operator: Thank you. Our next question comes from Naresh Bilandani of Jefferies. Naresh, your line is open. Please unmute yourself locally and proceed with your questions.
Naresh Bilandani: Thank you. It is Naresh from Jefferies. Two questions, please. In an earlier comment from the management in the call, there was a view shared that the liquidity pressures that had elevated in the past few weeks are now stabilizing. Can you please share what supportive actions, if any, from the authorities are helping the liquidity situation? I think the system-wide pressure on liquidity was being led by the government deposits decline. Are you seeing these reverse at the system level, or are you seeing some other indicators, if you can please share, that you feel are now bringing this liquidity situation a lot better as compared to what we have seen in the past couple of weeks? That is the first question. My second question is on the NIM sensitivity.
Naresh Bilandani: I am just keen to hear if in light of the heightened volatility and the risk of a hawkish Fed going into the next year, if you have taken or are planning to take any steps to bring your NIM sensitivity lower via interest rate swaps or any other measures. Thank you.
Abdulrahman Al-Ajaji: Well, despite the ongoing geopolitical tension, the Saudi banking sector has continued to demonstrate a strong resilience to maintain a robust liquidity position, with no significant adverse impact observed on the overall banks. We as a bank maintain a diversified Saudi Riyal and USD funding sources, supported by a prudent liquidity buffers and disciplined balance sheet management. By just looking at the SAMA bulletin, the latest which was published in August, total deposits have posted SAR 3,079 trillion, which is up about 5.2% year to date. Even though, if you have seen the diversity on a quarter-over-quarter basis, we have dropped from SAR 59 billion to SAR 48 billion in this quarter, which still remains at stable level. Now, you have mentioned something from a regulatory point of view or from SAMA.
Abdulrahman Al-Ajaji: SAMA continuously support the quality of the banking regulatory environment, also closely monitoring the liquidity situation.
Abdulrahman Al-Ajaji: There are a number of funding tools that are used by the regulator to manage the system liquidity. For short-term, SAMA offers bank repo on an overnight basis and term basis. However, banks in the kingdom uses SAMA as the lender of last resort.
Abdulrahman Al-Fadda: Naresh, as far as the NIM sensitivity.
Abdulrahman Al-Fadda: Take into consideration the inflationary pressure that we have seen probably from the first quarter. I think if you recall my earlier comments, we have securitized close to SAR 10 billion of our mortgage book, which reduced to some extent the long-term fixed assets. Also, you have seen our floating book have increased by almost 5% year to date. Those measures have been taken by the management to reduce the NIM sensitivity, coupled where there are ongoing activities that our treasury team is looking in line of the ALCO discussion to reduce the NIM sensitivity. Earlier in the year, our NIM sensitivity was close to seven basis points for every 25 basis points.
Abdulrahman Al-Fadda: However, due to the management initiative that has been taken, either securitization or focusing in the floating rate or some of the hedges that have been put in place, the NIM sensitivity dropped from seven to six basis.
Naresh Bilandani: Understood. If I can just get back a clarification on the previous reply, please. Am I to infer from these comments that have been shared that SAMA has been intervening in the market to bring the liquidity situation in control? Alternatively, in the next set of readings.
Abdulrahman Al-Ajaji: No, let me correct you. SAMA did not intervene.
Naresh Bilandani: Okay
Abdulrahman Al-Ajaji: which has been there since I've known the banking sector on a short-term basis, which is the reverse or the repo and the term repo. I have not mentioned any intervention.
Naresh Bilandani: Understood. But you said that we are seeing sort of like a stabilization in the liquidity situation, and pardon me if I'm getting too argumentative on this one, but I'm just keen to understand the metrics that you are seeing that you feel now is bringing the liquidity situation a lot calmer as compared to what we've seen in the past couple of weeks.
Abdulrahman Al-Ajaji: I've mentioned earlier that we've had one transitory deposit that left in Q2. Sorry, in Q3, which as of the beginning of Q4, we're seeing inflows in the same way and in the same amount, which can be tracked if you look at the SAIBOR-SOFR spread, wherein October we've seen a peak of, I believe, 180 basis point, and that was about 10, 11 days ago. And now we're back into 113, which is around the same levels that we've seen in Q2 and Q3.
Naresh Bilandani: Understood. Thank you very much.
Operator: Thank you. Our next question comes from Waruna Kumarage of SICO Bank. Waruna, your line is open. Please unmute yourself locally and proceed with your question.
Waruna Kumarage: Hi. Good afternoon. Am I audible?
Operator: You are.
Waruna Kumarage: Thank you very much. I have one question related to the NPLs, specifically on the NPLs in the non-retail segment. Am I correct in assuming that this uptick that we have seen in Q3, that it is related to MSMEs in particular? Just want to understand if there are any trends that you are seeing and any mitigation measures that you are taking.
Abdulrahman Al-Fadda: Waruna, yes, this is exactly what I have mentioned that in the NPL slide, which was in page 13 of the presentation. I think that we have highlighted that this is the SME book start to de-season. Nevertheless, as I mentioned, although that probably that uptick in the NPL for risk-adjusted return still is an attractive value proposition, giving the yield attractive. It is efficient from a credit RWA perspective. Also, it provides further improvement in the fee income, and even adjusted for the cost of risk, is still an attractive business. Nevertheless, I think I would also reiterate my earlier comment. Our credit and collection team have been investing quite a lot to improve further the SME collection and recovery to be able to manage the cost of risk to further improve the profitability for the organization.
Waruna Kumarage: Okay, clear. Thank you very much. All the best.
Operator: Thank you very much. Our next question comes from Rahul Rajan of Bank of America. Rahul, your line is open. Please unmute yourself locally.
Rahul Rajan: Hello. Good evening. A couple of questions from my side, please. First is, in October specifically, or from the impact of the heightened geopolitical tensions that we are seeing in Saudi, should we see some impact on the quarterly fee generation trends in Q4 or even the general non-funded income? That is number 1. Secondly is from a loan growth perspective, if you can probably shed some color as to what are the drivers for loan growth in the corporate space, specifically in Q3? Even otherwise, typically Q4 or Q1 has been seasonally strong quarters for mortgages. So should we see mortgage growth, or how should we see mortgage growth this year versus last year? Thank you.
Abdulrahman Al-Fadda: To be honest, Rahul Rajan, I do not think that there will be any impact on the fee income. I think the majority of the fee income, given that we are a retail bank, we are serving close to 20 million retail customers. We have a very good dominance in the cards market share whether on the issuing or the market side. Probably it might be on a cost cut. I think given that most of the spend rather than it was done internationally, it will be done locally, which will provide a further improvement into the acquiring profitability. Nevertheless, I think if you recall my earlier comments related to the 15% growth in the fee income year-on-year, were attributed to multiple initiatives. We have seen a good pickup in our trade cash management. Despite the current tension that we started seeing end of February.
Abdulrahman Al-Fadda: Nevertheless, we have seen a further improvement into the fee. The second question, Rahul Rajan, if I get you correctly, you are asking specifically on to the mortgage from the origination in the Q4, whether that will have an impact or not, correct?
Rahul Rajan: Yes, absolutely. One is from the mortgages. Typically, we have seen Q4 and Q1 to be stronger quarters from a mortgage origination perspective.
Abdulrahman Al-Fadda: That is usually because of the Cityscape Global, which usually happens in Q4. As far as I know, I am not aware of any changes could happen to the event, maybe reschedule. That is not up to our knowledge for the time being. Nevertheless, I think the mortgage slowdown we have seen this year, which has been communicated to you guys. We have seen the mortgage average origination were close to SAR 5.6 billion per month, which is lower than the same period last year. That is expected due to the White Land Tax introduction that has happened earlier this year. We have been saying that we believe that the impact is going to be short-term, but a medium to longer term outlook is still positive about the mortgage growth story.
Rahul Rajan: Thank you.
Operator: Thank you. Our next question comes from Kato Mukuru of Cantor. Cato, your line is open. Please unmute yourself locally. Hi there, Cato. We are not receiving any audio from your line. Please make sure you are unmuting on your side. We are still not receiving any audio via Cato's line. So I will move on to the next question that comes from Hussein Safieddine of Arqaam Capital. Hussein, please unmute yourself locally and proceed with your question.
Hussein Safieddine: Hello. Congratulations on these results. My first question is, have you seen any decline in investor appetite for securitization in the current market? My next question is for the cost of fund. Is the cost of fund pressure persisted in October or intensified? Do you expect the regulators to introduce any measures to ease funding conditions? Thank you.
Abdulrahman Al-Fadda: We are not aware of any changes into the investor appetite on the mortgage securitization. It is an open dialogue. We will continue to look for opportunity. If it maths is suitable for us, we take the call immediately. As far as the second question, I think my colleague, Abdulrahman, our Group Treasurer, has answered that question accordingly related to the overall liquidity situation. As I mentioned earlier, I believe that overall, the cost of fund is expected to continue to rise in Q4 compared to Q3. However, as a management, we have multiple tools to be able to make sure that liquidity premium reflected into the asset origination.
Hussein Safieddine: Thank you so much. Understood. Thank you so much.
Operator: Thank you. Our next question comes from the line of Talal Al Radan of ICAP. Talal, your line is open. Please unmute yourself locally and proceed.
Talal Alradan: Asalam Alaikum management. Thank you management for the presentation and congrats on the set of results. I have only one question. How much of the investment book is repo funded or swapped to floating, if you can share during Q3?
Abdulrahman Al-Fadda: One moment.
Talal Alradan: Hello, am I audible?
Abdulrahman Al-Fadda: Can you repeat the question again, please, Talal?
Talal Alradan: Yeah. How much of the investment book is repo funded or swapped to floating during Q3?
Abdulrahman Al-Fadda: First of all, our investment book, if you recall, when it came to the investment book slide that I presented earlier, that was in slide 8. I have mentioned overall, the fixed rate component of our investment book is close to 75%. 25% is floating. That does not take into consideration the hedges that have been put in place. As far as repos, this is not a material book. Again, this could be as an opportunity for us to manage our cost of fund efficiently.
Talal Alradan: Thank you, management.
Operator: Thank you, Talal. This is all the questions we have time for today, so I will hand back over to the management team for any further or final closing comments.
Abdulrahman Al-Fadda: Thank you everyone for dialing in and for your trust in us. We are very proud of our result for Q3 2026, and we will continue to achieve our strategic goal this year and beyond. We look forward to meeting you on the next quarter earning call, Inshallah. Thank you.
Operator: Ladies and gentlemen, this concludes today's webinar. Thank you for joining. You may now disconnect your lines.
