Operator: Welcome to the Saudi Awwal Bank Q3 2026 Results Webcast. With us today, we have the CEO and Managing Director, Tony Cripps, Chief Financial Officer, Lama Ghazzaoui, and the Head of Investor Relations, Sirish Patel. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone, and you will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I will now hand you over to Qamra.
Qamra Al-Qahtani: Hello, and welcome to our results call for the Q3 of 2026. As mentioned by the phone operator, we have our CEO and Managing Director, Tony Cripps, and our CFO, Lama Ghazzaoui, with us on the call today. Tony will provide a brief intro on the Q3, and Lama will focus on some of the key financials. I will now hand over to you, Tony, to start the presentation.
Tony Cripps: Thank you, Qamra. Welcome, everybody. Obviously, it has been a challenging few months recently and regionally throughout the year. Just starting with a few words on our macro outlook. Globally, there is volatility. Persistent inflation suggests a higher-for-longer rate environment, which is built into the forward curve in the US rate hike in December, probable, and a couple of rate hikes in 2027. Stock markets have been volatile, bond markets maybe even more so. Closer to home and regionally, additional uncertainty has potential for trade flow impacts, investment decisions, and business confidence overall. Despite this, the kingdom remains extremely resilient. Businesses are open, investment continues, employment levels are robust, and the Saudi banking system remains sound, supported by strong capitalization, prudent regulation, and strong established risk management frameworks.
Tony Cripps: As I mentioned on the last call, we started the year with a fairly prudent outlook, a mindset that was wary about the inflationary impacts prior to the regional conflict breaking out. It was based on a strong global economy and tariff impacts, as well as our spending on AI and other factors. We started out with a mindset of moderate growth and increasing coverage where necessary, given the risks for potentially rates going up, not down, which was against consensus at the start of the year. Clearly, these actions were taken for reasons of prudent navigating of the macro, and we are obviously relieved that we took this approach given what has happened throughout the course of the year. As always, I will let Lama go through the financials, but here are my highlights. We continued to grow in the Q3.
Tony Cripps: But have elected to moderate growth. This was always the intention for 2026, to grow slightly faster than market, and clearly the market has slowed down. We are currently at 11% year-on-year, and this continues to be fairly balanced between corporate and retail. Trade continues to perform exceptionally well, given the backdrop of trade slowing in the Kingdom. Our fee income from the trade business actually continues to grow quarter-on-quarter. It is testament to the strong leadership we have in trade with a market share of about 25%. NIM for the bank has expanded quarter-on-quarter from the focused efforts across the bank to reprice some of our portfolios. Yields have expanded, whilst funding costs have largely remained stable, despite a pickup in liquidity tightness towards the end of the quarter. We remain amongst the lowest when it comes to cost of funding.
Tony Cripps: With our 4 basis points of sensitivity to higher rates, we are well-placed to see profit growth if interest rates indeed do go up. We took certain hedging at the start of the year and took some profit on our fixed rate position in the balance sheet, which have left our derivatives hedging deeply in the money. We established those around 4% on the US 10-year, and obviously rates are now around 5%. This has protected the portfolio. Fees have remained stable. Cost growth has been well controlled. The increase in coverage in Q3 relates to a handful of customers. Some of these customers are in stage one, and the increase is a result of new modeling inputs as opposed to any staging transitions. The other customers are already stage three customers, in any case.
Tony Cripps: Despite these actions, our cost of risk still remains at 22 basis points and includes the bulk of the additional overlay we booked in Q1, which we have not recovered back given the fundamentals have remained uncertain. At the same time, we have taken very prudent steps to remodel our expected credit losses. Finally, returns were stable at 14.2% RoTE for the first nine months of the year. We delivered SAR 6.6 billion of profit for the 9 months, which is a 3% increase from the previous year.
Tony Cripps: I would say that at the start of the year, we mentioned that there was a possibility, given the interest rate outlook, that we would start to see interest rates going back up again, and in addition, that credit markets would start to widen pricing in general. Both of those things have seen a positive impact on our NIM, which is in the results. Despite a challenging backdrop, the bank has delivered a strong set of results. I will now pass over to Lama for detail on the financials. Thank you.
Lama Ghazzaoui: Thank you, Tony Cripps, and hello, everyone on the call. I will start on slide 5. We generated SAR 6.6 billion of net income for the first nine months, which is 3% up year on year. Net special commission income was up 3% year on year, together with higher gains from the investment portfolio, and overall, revenues were up 1%. Fees were lower, which has dampened year on year overall revenue growth. We had also at the start of the year, expected higher capital gains from the fair value through OCI portfolio. But following the onset of the challenges in the region and higher longer-term rates, this meant we postponed our plans to divest off some of the investment portfolio. Impairments were higher year to date for the nine months, although our cost of risk remains stable year on year.
Lama Ghazzaoui: As Tony Cripps mentioned, we did take additional coverage on a few names, in part caused by more refined inputs into our ECL model. In addition, the profit increase was also supported by essentially an income tax rebate relating to prior periods. The bottom left chart shows the key year on year movement. On a quarter to date sequential basis, we delivered SAR 2.2 billion of net income or profit, which was down 7%, but this was mainly driven by the step up in cost of risk from very low levels in Q2. It was, of course, very pleasing to see 4% growth in net special commission income quarter on quarter with an expansion in NIM, basically. Equally pleasing to see a stability in fee income in Q3. Operating profits were up 6% quarter on quarter, supported by an 8% increase in total non-fund income.
Lama Ghazzaoui: Key ratios are at the top right-hand side of the slide. As mentioned, NIM's expanded to 2.59% sequentially for the three months of Q3. This is higher than the year to date NIM and close to the levels we saw at the end of 2025. RoTE is down year on year, in part driven by some of the revenue headwinds, such as the changes to regulations on fee income, elevated funding costs, and the absence of some of our planned capital gains from the investment portfolio. It is also down from active actions taken by SAB for prudency, such as capturing deposits at the start of the year and also our approach to modeling an overlay and provisioning in Q1. For example, our RoTE just excluding the overlay would be closer to 15%.
Lama Ghazzaoui: Cost efficiency ratio was 30.1%, which is slightly higher than our original plan for the year, but this is also exacerbated by some of the headwinds that I have just mentioned. Cost of risk of 22 basis points is ahead of guidance. We finished the nine months with a CET1 ratio of 14.4%, which is up 20 basis points quarter on quarter. Capital and RWA optimizations continue to be key focus areas of the bank and very pleased with the accomplishments made here during the quarter. Onto balance sheet. Gross loans grew 2% during the quarter, 9% year to date, and 11% year on year. So far, positive sentiment amongst our corporate customer base remains. We are clearly growing faster than the market, but much of this is the pipeline in action and from deals we have been working on for the last six to 12 months.
Lama Ghazzaoui: However, notably since the month of September, we have decided to moderate our loan growth given the pace we have achieved so far this year, but also reflecting the heightened cost of liquidity the sector has experienced towards the end of the quarter. Customer deposits fell temporarily at the end of the quarter, in part reflecting the tighter liquidity conditions, which resulted in our simple LDR ratio hitting 100%. We elected to reduce some of our more expensive deposits at the end of September, and of course, we have the flexibility to do so, given our prudent approach at the start of the year on deposit gathering. Despite a continuation in sector liquidity tightness into October, we have managed to replenish some of these deposits, so we enter November with a simple LDR ratio, less than 100.
Lama Ghazzaoui: On to slide 6, we delivered SAR 3.8 billion of revenue in the quarter, and we saw good net special commission income expansion from expanding NIMs and loan growth, and we also saw stability in fee income and quarterly expansion in other revenue lines. On slide 7, we have had stability in our quarterly net special commission income for a number of quarters now, where largely falling NIMs have broadly been offset by volume growth and essentially the longer-term strategy of reducing our NIM sensitivity. As we said last time, we felt we were at the bottom of the NIM cycle, so particularly pleasing to see expansion in NIM in Q3, following a couple of quarters of stable NIM. Now with a higher for longer expectation for interest rates, our sensitivity should deliver more expansion over the coming quarters.
Lama Ghazzaoui: However, as always, we need to remain mindful of the stickiness in cost of funding, and also we start Q4 under tighter liquidity conditions, which we would expect to ease over the next 2 months, but we need to remain vigilant on this. It is probably difficult to see on the chart that we have seen around 7 basis points improvement in yields quarter-on-quarter. This is across all the main businesses, and in our lending business, this is driven by the concerted effort to reprice existing and new businesses with our customers. Slide 8, non-funds income. The sequential performance has essentially 3 themes. We have seen a good rebound in fee income from growth in trade-related fees despite the current backdrop.
Lama Ghazzaoui: As we mentioned last quarter, we looked for efficiencies in some of the costs related to our credit card programs, and these dropped in Q2 and have remained fairly stable in Q3. FX income grew 9% quarter over quarter. Volume is likely to be affected by the current uncertain backdrop, but the fact that they have remained at these levels is a testament to the strength we have in this business. On other income, which is largely trading-related investment income, it is also up and benefited from short-term mark-to-market gains from our recent hedging activities, some of which could unwind during Q4 as spreads widen. As a reminder, Q1 had significant capital gains. We had originally planned for more, but paused on this and elected to retain certain investments given the current outlook for benchmark rates. On to slide 9, costs.
Lama Ghazzaoui: Briefly, costs are fairly stable, 1% growth year-on-year and 2% increase quarter-on-quarter. We expect year-to-date cost growth to be low single digits. We continue to invest in tech and AI, much of which will result in longer-term productivity gains. Cost efficiency remains slightly higher than we originally envisaged, and this is reflective of some of the revenue headwinds I mentioned earlier. Year to date, cost efficiency has continued to improve over the course of this strategic window. Slide 9, expected credit losses. They were extremely low in Q2 and have increased in Q3, and this increase in coverage relates to a handful of customers, and there are essentially two themes. One, some of these customers are performing customers in stage 1, and the increase is a result of new modeling inputs as opposed to any staging transition.
Lama Ghazzaoui: The second theme, the rest of the charge relates to increased coverage on some of our special asset management assets, essentially our stage 3 portfolio, where one specific client has gone past 90 days and a small number of other clients are going through restructuring. We feel, given the current backdrop, that we should increase coverage for certain names, but overall cost of risk remains low at 22 basis points. In addition, we still have the bulk of the overlay from Q1 within our provisions, and as we have always said, if this is not needed, we will be able to release it. But given the continued uncertainty, we are likely to hold this for 2026. As was mentioned also by Tony Cripps, we are taking prudent steps to review and remodel our portfolio.
Lama Ghazzaoui: This work has been ongoing for most of the year, and we are looking at some of these MEVs that we model, trying to use more sophisticated MEVs, which are more appropriate in the current environment. Having done this for Q3, pleasingly show that our coverage is at prudent levels. Slide 11, lending growth. Quickly, we have continued to grow the book and have seen 2% quarter-on-quarter growth and 9% year to date, and the growth was balanced to corporate and retail businesses. On slide 12, as I said, corporate loan growth was 2% in the quarter, and you can see originations also remain healthy. For retail, slide 13, we were faster than market in terms of growth. Although the overall sector is slowing, mortgage originations also remain strong, but clear that the market continues to slow, and the overall retail growth was 2% quarter-on-quarter.
Lama Ghazzaoui: On funding and liquidity, as we mentioned at the start of the year, we felt as a management team that it would be prudent to ensure that our liquidity levels remained high. This strategy has allowed us to let go of some of our more expensive time deposits as liquidity tightness has risen towards the end of Q3. This was in part temporary, having seen a rebound in deposits volumes during October. However, our prudent approach once again paid off, allowing us to maintain healthy liquidity ratios but at the same time improve profitability. This approach we adopt here gives us this flexibility. On capital and returns, we generated a RoTE of 14.2% post AT1 coupon for the first nine months of the year.
Lama Ghazzaoui: This is tending towards the lower end of our guidance range, and that is reflective of some of the headwinds we have faced during the year on revenues, such as the lower capital gains and some of the regulatory changes impacting retail fees, together with the stickiness of cost of funding. On this, obviously, we have elected to build up deposits this year, which does come at a cost. In addition, at the end of Q1, we had elected to take a sizable management overlay in provision. Excluding just the overlay would have our RoTE closer to 15%. CET1 grew 20 basis points to 14.4% as we saw profits broadly offsetting the dividend payment. But a continued push on RWA optimization delivered close to SAR 12 billion of RWA saves as we scrubbed down our significant portion of recoverable and irrecoverable commitments.
Lama Ghazzaoui: This led to a 41 basis point improvement in CET1 during the quarter, which more than offset the underlying business growth in RWAs and the movements in OCI reserves. We continue to work on further optimization projects. Volatility in CET1 from the OCI mark-to-market was limited because of the effect from rising longer term rates, and this was offset by narrowing Saudi spreads. But the disposal of part of the portfolio in the first quarter and our hedging actions for the portfolio since the end of Q1 have, of course, helped. On to guidance, slide 16. Performance has been pleasing. NIMs expanding, continued loan growth, stability in fees, prudent increase in ECL coverage, and still delivering a stable RoTE. At the same time, we have found pockets of RWA optimization, which have allowed us to become more efficient in our usage of capital.
Lama Ghazzaoui: Of course, uncertainty feels like it is here to stay for some time. With that, we have taken steps during this quarter to focus on returns and to protect the balance sheet. The steps we have taken since the start of the year have also allowed us to flex the plan. Loan growth guidance was originally planned to be greater than 10% on the basis that the market grew high single digit. Clearly, the market overall is slowing, and we will be taking decisions on H2 growth dependent on the returns that these opportunities can bring. If the right opportunities present themselves at the right returns, then our growth trajectory could continue. But at the same time, we can flex it to slow if the economics do not look attractive, so we maintain loan growth.
Lama Ghazzaoui: Given the strong performance in NIM during the third quarter, we have elected to narrow the range to the upper end. So we now expect to be between 2.55% and 2.6% for the full year, and hopefully will exit the year greater than 2.6%. In the medium term, in a world of higher for longer, we would still expect to get further benefit in our NIM from rate rises. Noting that SAIBOR has already priced in at least two hikes but remained cognizant of the stickiness in cost of funding. Cost efficiency is tracking higher than we originally envisaged at 30.1% compared with our less than 29.5% guidance. It is likely that we end the year close to current levels.
Lama Ghazzaoui: Despite this being marginally higher than our original aspiration, this still marks a continuous improvement in cost efficiency, and we expect further positive jaws to reduce cost efficiency further in the next strategic window. We will continue to optimize our cost base, but also we will continue to invest where necessary, especially given the fact that we are developing our new strategy currently. Cost of risk is likely to be towards the midpoint of our current range. The range might appear wide and imply a circa SAR 300 million spread in ECL. But due to the lumpier nature of our loan book, additional coverage for a small handful of clients can bridge that gap. Additionally, as we have mentioned, we have taken steps to remodel our ECL.
Lama Ghazzaoui: During the quarter, we will be reviewing the various weightings of our scenarios and our ECL modeling, where we currently see the downside is weighted at 60%. The weighting of the backdrop might also influence the Q4 expected charge. However, the main takeaway should be that the asset quality of the book is robust. The charges taken in the Q3 are driven by idiosyncratic reasons and are not systemic.
Lama Ghazzaoui: Defining the inputs to models have resulted in increased charging, but the book continues to perform well. CET1 guidance remains as is. Given all the above, we now expect our RoTE to be towards lower end of the 14% to 15% guidance. This still marks a significant improvement since the start of the strategy period, where returns were almost half these levels. We are currently developing the next strategy where we will look to grow returns even further. Thank you for listening and over to the phone operator for Q&A.
Operator: As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We will now take our first question from the line of Shabbir Malik from Morgan Stanley. Please go ahead.
Shabbir Malik: Hi, thank you very much. Can you hear me?
Lama Ghazzaoui: Yes, Shabbir, go ahead.
Shabbir Malik: Thank you very much for the presentation. I have a couple of questions, please. How do you see your NIM going into Q4 with rate hikes? One rate hike already has taken place. There is potentially one more. You have indicated that the sensitivity continues to be about 4 basis points for a 25 basis points rate hike. But in terms of, that is, I am assuming, a full-year sensitivity. Is there any initial negative impact of this rate hike on your time deposits that potentially could mean that margins are initially negative, but over the full year they become positive? That is my first question. My second question is around, did you see any mark-to-market valuation losses this quarter?
Shabbir Malik: Is there scope for those losses to potentially reverse into the end of this year as long-term rates potentially normalize? Any color on that would be pretty useful as well. I guess, just on the strategy, when can the updates be expected? Is it going to be the full year results? You have indicated that there will be a focus on ROE, but any other KPIs that you will be willing to share with that strategic update? Thank you.
Tony Cripps: Yeah. Hi. Thanks for the questions, Shabbir. The expectation of a rate hike, the 4 basis points is annualized. It is a full-year impact, so that will not have much effect initially. There might be a slight pressure on repricing deposits faster than the loan book reprices. There could be a short-term impact, but then we expect within 3 months, the positive impact starts to feed through into Q1. Also we have the existing rate hike that is feeding through now as well. Over the full course of the year, the pressure should be helpful on NIM as those rate hikes impact is annualized. On the fixed investment portfolio, the mark-to-market has deteriorated notwithstanding we hedged a significant proportion of the sensitivity. But the portfolio itself has seen a fair value OCI impact on the proportion of the book that is not held to collect.
Tony Cripps: That could reverse as rate hikes start to put more pressure on the economy. Potentially, the yield curve should start to flatten or even invert at some point, and therefore the longer end could even rally in that scenario. It is not something we are specifically factoring in yet, but you could start to see that happen in the second half of next year, depending on the outlook for the US economy. In terms of the strategy, we expect to be finalizing that towards the end of the year with the board. We have had several sessions around it already. We are not ready to announce anything yet, but it should be clear in the annual results. In the first quarter next year, we will give the guidance on what we are expecting in the next sort of 3-to-5-year outlook. Thanks.
Shabbir Malik: That is very helpful. If I may just ask one more follow-up. Would that strategic plan also include some thinking on your longer-term payout and dividend policy?
Tony Cripps: Yeah. By implication-
Shabbir Malik: Do you expect that to be consistent?
Tony Cripps: Yeah. When we announce, the implied outlook on growth will allow you to determine the consistency of the dividend payout, and profit expectations and our ROE expectations over the three-to-five-year outlook.
Shabbir Malik: Thank you.
Tony Cripps: Thank you.
Operator: Thank you. We will now take the next question from the line of Chrysona Zerou from Romeo Capital. Please go ahead.
Tryfonas Spyrou: Hi. Thank you. Thank you for the presentation. I have got a few questions, if I may please. The first one is on the outlook for growth, I guess, into 2027. I was wondering if you can give us some early thoughts on how you think about the magnitudes relative to this year, and what are the drivers that could shape this. I was wondering if you see the current level of interest rates as more restrictive for growth, either from the funding side or the client demand.
Tryfonas Spyrou: The second is on trade finance business and whether you have seen any potential impact from that in Q4, given the disruption to business travel or trade. Appreciate your comments were quite constructive earlier, but just wanted to maybe get some additional color. The third one is on the coverage. I think you mentioned that some more may be needed in Q4, and you are doing updates to your ECL model. At the same time, you still have the overlays booked. Could you see those overlays being used to cover the ECL changes, or would you look to take those from top? Thank you.
Tony Cripps: Yeah. Great. On the first question for the growth outlook, it is a bit tricky to say the least. The assumptions that we are building are around government forecasts, which is for growth to be muted this year. Hopefully, the situation in the region becomes less volatile and therefore growth then rebounds strongly in 2027. That is the current kind of working assumption, which also happens to be the government forecast. On the impact of the trade business, yeah, trade has slowed and volume growth is muted. Our trade business has held up well. Being sort of flat is a good result, we think, and it is something that will recover. It is just a question of whether it starts to recover early next year or a bit longer, and that just depends on many factors. The last question on ECL provisioning.
Lama Ghazzaoui: Q4.
Tony Cripps: Again, the outlook is quite difficult to pinpoint. It is possible that we could get releases based on the conservative overlays we took in Q1, but it is not something we are building into the plan. If there is resolution to the current situation, then yes, it might happen, but we cannot forecast that and it would be irresponsible to do so. But we are hopeful that that could happen. Thank you for your question.
Operator: Thank you. We will now take our next question from the line of Rahul Bajaj from Citi. Please go ahead.
Rahul Bajaj: Hi, this is Rahul Bajaj from Citi. I have two questions mainly. The first one is on the Zakat tax rate. I think Lama mentioned that there were some rebates in the Zakat line. I see historically the run rate of Zakat tax as a percentage of pre-tax profit has been around 12% to 13%. It has been running at 8% to 9% over the last couple of quarters. Is this the range you expect to continue for now or are those rebates done and dusted and we should go back to the 12% to 13% range in Q4?That is my first question.
Rahul Bajaj: My second question is on the exchange income that seemed to have jumped in Q3 sequentially. Can you please throw some light on the trend and to what extent there is any seasonality there, and should we expect Q4 and future exchange income to kind of grow from these levels? Those are my two questions. Thank you.
Lama Ghazzaoui: Thank you, Rahul. The Zakat rebates that we got are one-off, and the effective Zakat rate you mentioned is probably where I would guide to in the upcoming period. These were, yes, done and dusted and one-offs for the period. Your second question on the jump in exchange income, of course, this has been driven by customer flows. Yes, there has been seasonality impact in this. I would say it is likely to come back down again in Q4 given the backdrop. Yeah.
Rahul Bajaj: Very clear. Thank you. Thanks, Lama.
Lama Ghazzaoui: Sure.
Operator: Thank you. We will now take our next question from the line of Jon Peace from UBS. Please go ahead.
Jon Peace: Hi. Thank you. Just to follow up, please, first on the cost of risk guidance. If I use the midpoint of your range, that implies a Q4 charge, which is similar to or maybe even a little bit higher than Q3. Just to understand your comments, Lama, if that is not really reflective of the underlying asset quality, is that because you were talking about potentially changing the weights in your ECL model? Was that the reason? As we think maybe of an entry rate for the cost of risk into 2027, it is probably still comfortably below 50 basis points. Then a second question, please, just on the run rate of the fee income. I think you might have mentioned that you were hopeful of getting back towards the 350 level, by the end of this year. Does that still apply as you see things? Thank you.
Lama Ghazzaoui: Thank you, Jon. Yes. In part, on cost of risk question, we are now taking into consideration more sophisticated MEVs, more detailed sources and breakdowns, and taking into consideration, of course, the overall situation. Yes, this is how we still guide it towards the level of cost of risk we discussed. But, again, I assure you, it is not any underlying portfolio specific risk. This is largely driven by modeling and new MEV inputs. And of course, changing weighting, especially towards the downside scenario. Your second question about fee income, of course, we have seen in the latest trends how our trade fee income continued to improve, although the volumes were muted, but we were able to maintain the trade fee income. We have been looking into the detailed cost of our programs, especially on the retail side.
Lama Ghazzaoui: On the brokerage side, of course, and with our capital arm, SAB Invest, the market has not been very helpful considering the situation and the trading levels. So brokerage business has been under pressure. But we believe that we have reached the low levels, in terms of fee income, and moving forward, we should start seeing a pickup. Especially if we look into 2027 versus 2026, you will see more of a tangible impact in terms of fee income.
Jon Peace: Great. Thank you.
Operator: Thank you. We will now take our next question from the line of Kato Mukuru from Cantor. Please go ahead.
Kato Mukuru: Hello, can you hear me?
Lama Ghazzaoui: Yes.
Kato Mukuru: Yes. My first question is on the overlays. Would it be possible to tell us exactly how much of the overlays were included in the Q3 number, just so we know? I am sorry, but I was having a hard time listening in on the explanation you gave with regard to one or two accounts that had caused some problems in the transfer from stage 1 to stage 2, I believe it was. Please clarify on that. I would like to get some more color on that and what exactly happened, and how big an impact that potentially is into stage 3.
Kato Mukuru: The last question, I was in Riyadh about three weeks ago before the escalation in the conflict, and I was impressed by the level of business activity. What I would like to get a sense of is how does that compare today versus three weeks ago? Are you seeing a lot less commerce activity? What is the mood on the ground? How are people working? I hear a lot of people working from home. Just trying to get a sense of how that affects business. Thank you.
Sirish Patel: If you want, I can take the cost of risk one, and Sirish. I think you may have missed what we said. Essentially, there are two themes that increased coverage in Q3, and it is related to a small handful of customers. Essentially, the two themes are: one, you have a group of customers in stage 1 where we have just got more refined information, new financial statements for those companies and customers. So we have put that into the model. The model tells us take a little bit more coverage. For that group of customers, there is no delinquency issue, there is no extension of payments or anything like that. So it is just pure modeling inputs. Model tells us to take a bit more coverage based on the information we put in, so we increase the coverage. So there is no stage transition there.
Kato Mukuru: Right.
Sirish Patel: The second theme, essentially, a small handful of customers that are already in stage 3, where we are increasing a bit of coverage, or some are going through a restructuring.
Kato Mukuru: Thank you.
Lama Ghazzaoui: Q3 had no additional overlays. We just carried the ones we took in Q1. On business in the-
Tony Cripps: On the last question, activity levels are generally okay. In the environment when you drive around the city, people are in shopping malls and the foot traffic in our branch network in retail is down a bit, but not that much. There are key precautions that we are taking across the finance sector around deploying staff to different locations and increase in working remotely. Obviously, travel disruptions are in place at different times, depending on the airports functioning. So we are being cautious and we are looking after our people as a priority, but we are still business as usual.
Kato Mukuru: Thank you.
Operator: Thank you. As a reminder, to ask a question, please press star 1 and 1 on your telephone. We will now take our next question from the line of Mehmet Sevim from JP Morgan. Please go ahead.
Mehmet Sevim: Hi. Good evening. Thank you very much for your time. I just have 2 remaining questions, please. One on NIM, if I may come back to it. It is great to see the inflection and resilience there, and I thought your comments sounded quite encouraging into the year-end as well, obviously, despite all the challenges. Can I please ask you to comment a bit more on the most recent environment, just from the last 2, 3 weeks, especially on the funding front?
Mehmet Sevim: You did mention you rebuilt some of your deposits. Your LDR is now below 100% again into November. Maybe where are those deposits coming from? Are those at a higher cost compared to the before? You mentioned you expected normalization, but I did not quite get what the timeframe was. So if you could please repeat that would be very helpful. Thank you. My second question is on the cost of risk. You did mention a single customer in stage 3. You refined the input into your model there. I was wondering if that single customer was a big part of your provisions this quarter or not so. Thanks very much.
Lama Ghazzaoui: Yes, thank you. On your second question, no, it wasn't the most material driver, not this one customer. It was a handful of customers and not only the stage 3 customer, which led to the increase in cost of risk. On your question on NIM, of course, when we dropped these deposits in Q3, this was by design and the impact wasn't. Of course, we did not aim to be breaching 100% LDR, which once we went into October, we did regain some of these deposits.
Lama Ghazzaoui: To your question, these came at market prices and slightly lower. At maximum, we pay usually market prices, SAIBOR, basically. When do we expect this to normalize? I think into Q4, you would always expect that usually banks would load more funding while we're going towards year-end. As the sector liquidity costs step up, we would be catering for our customers' needs. But we are, of course, more cushioned from this step up usually. We have strong liquidity ratios and a historically low LDR. So if we want to be shedding some expensive deposits, we are able to do that.
Mehmet Sevim: That's very helpful. Thank you, Lama.
Operator: Thank you. We will now take our next question from the line of Shane Mathews from WhiteOak Capital. Please go ahead.
Shane Mathews: Yeah. Thank you for the opportunity. A couple of questions on asset quality. Just want to understand, you mentioned some specific sectors which are already in stage 3, where more restructuring was happening. Can you elaborate on what these were related to? Any large projects these customers were in? Do you anticipate more, let's say, going to stage 2, stage 3, more restructuring of particular loans in particular segments? Is that something you anticipate going forward in the next couple of quarters? The second one is just on your NPL balances, I think went from 4.1 to 4.3, and the POCI also reduced from SAR 3.6 billion to SAR 3.3 billion. Is that a migration from there or is that not related to, let's say, the increase in case?
Lama Ghazzaoui: Kedar, do you want to take that?
Sirish Patel: Sorry, Shane, can you repeat the question for me?
Shane Mathews: Yeah. The first one was just on stage 3. You mentioned some specific customers, some handful of customers going through some restructuring. Can you elaborate on were there any specific sectors related to any large gigaprojects, and do you anticipate any more restructuring going forward within these related sectors?
Sirish Patel: Yeah.
Shane Mathews: The second one was just on the NPL. Yeah.
Sirish Patel: I was going to say, yeah, our exposure to gigaprojects on balance sheet is very limited. It fluctuates quarter to quarter, but it is very small. I think the increase in coverage we have seen is a mixture of sectors, actually. There is nothing particularly systemic there, looking at the sectors. Yeah, it is just idiosyncratic charges, actually, and no particular patterns or anything systemic there. In terms of the NPL, the POCI balances do fluctuate because sometimes they are actually performing. But once you are POCI, you are always POCI from an accounting perspective. So sometimes these balances actually become performing and we lend to them. That is why you sometimes see these small fluctuations in the POCI book.
Shane Mathews: Okay. Sure. Thank you.
Operator: Thank you. There are no further questions at this time. I would like to hand it back over to Tony Cripps for closing remarks.
Tony Cripps: Thank you. Well, thanks everybody for joining the call and for the questions, which given the environment, it would be nice to be more precise about the outlook, but there are variables that we just can't forecast. But overall, our plans for the year are aligned to our results, very close to what we forecast despite the volatility. From a management point of view, we're quite pleased with the outcomes. We just have to keep focused on resilience and safety, and be aware of risks as they appear and manage them.
Tony Cripps: But we remain resilient, confident, and the economy is bound to rebound when the situation improves. We remain focused on growth, but also more importantly on returns for deployment of our capital. We continue to focus on capital optimization, RWA optimization, and therefore focused on getting our returns higher. With that, thanks once again for joining the call. Look forward to catching up again after the Q4. Thank you.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
