Earnings call transcript: Al Rajhi Bank Q3 2025 sees strong income growth

Al Rajhi Bank, with a market capitalization of 44.75 million USD and an overall Financial Health score of "FAIR" according to InvestingPro, reported a robust financial performance for the third quarter of 2025, with net income surging by 30% year-over-year to 18.4 billion Saudi riyals. The bank’s total assets grew by 17% to 1.059 trillion riyals. Despite the absence of specific earnings per share (EPS) data against forecasts, the bank’s shares rose by 1.77% to 107.1 riyals, reflecting positive investor sentiment.

Key Takeaways

• Net income increased by 30% YoY, reaching 18.4 billion riyals.
• Total assets grew by 17%, totaling 1.059 trillion riyals.
• The stock price increased by 1.77% post-earnings announcement.
• Return on equity improved to 23.55%, up from 20.5% last year.
• Cross-selling and digital transformation initiatives showed significant progress.

Company Performance

Al Rajhi Bank demonstrated strong performance in Q3 2025, driven by substantial growth in net income and total assets. The bank’s strategic focus on digital transformation and cross-selling has paid off, with the digital-to-manual ratio improving to 96:4. The bank also reported a 35% year-to-date growth in its SME portfolio, underscoring its expanding market presence.

Financial Highlights

• Net income: 18.4 billion riyals, up 30% YoY
• Total assets: 1.059 trillion riyals, up 17% YoY
• Net interest income: increased by 21% YoY
• Non-yield income: rose by 29% YoY
• Operating income: 28.7 billion riyals, up 23% YoY
• Return on equity: 23.55%

Market Reaction

Following the earnings announcement, Al Rajhi Bank’s stock price increased by 1.77% to 107.1 riyals. This movement places the stock closer to its 52-week high of 113 riyals, indicating strong investor confidence in the bank’s financial health and strategic direction. InvestingPro analysis suggests the stock is currently overvalued, with analysts maintaining a consensus "Hold" recommendation. For comprehensive valuation insights and more exclusive ProTips, explore our detailed Pro Research Report, available to InvestingPro subscribers.

Outlook & Guidance

The bank maintained its loan book guidance but revised its net interest margin (NIM) guidance to a range of -5 to +5 basis points. The cost-to-income ratio is expected to remain below 23%, and return on equity is projected to stay above 23%. These metrics reflect the bank’s continued focus on efficiency and profitability. InvestingPro subscribers can access detailed financial health metrics, including profit scores and growth potential indicators, helping investors make more informed decisions about the bank’s future prospects.

Executive Commentary

Abdulrahman Abdullah Al-Fadda, Group CFO, emphasized the bank’s strategic focus, stating, "The management focus is on value rather than volume." He also highlighted the importance of cross-selling and innovation, adding, "Cross-sell, introducing new products and services... is the key priority."

Risks and Challenges

• Potential macroeconomic pressures with anticipated Fed rate cuts.
• Need for continuous digital transformation to maintain competitive edge.
• Managing non-performing loans (NPLs) in a growing loan book.
• Balancing capital buffer management with reduced dividend payouts.
• Navigating regulatory changes in the banking sector.

Q&A

During the earnings call, analysts focused on the bank’s lending strategy and non-yield income growth. The management reiterated its focus on value over volume in lending and expressed optimism about continued non-yield income growth, despite a reduced dividend payout aimed at strengthening the capital buffer.

Full transcript - Al Rajhi Bank (1120) Q3 2025:

Sam, Call Moderator: Hello everyone, and welcome to today’s Al Rajhi Bank Q3 2025 earnings call. My name is Sam, and I’ll be the call moderator today. All participant lines are currently muted. After the prepared remarks, there will be a question and answer session. If you would like to register a question throughout the call, please use the raise hand button found on your WebEx toolbar. I’d now like to hand you over to the host for today’s call, Dr. Sultan Al-Tuwaim, Head of Research at Al Rajhi Capital. Please go ahead.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Al-Tuwaim from Al Rajhi Capital. We are pleased to host Al Rajhi Bank Q3 2025 earnings call. Welcome everyone to this event. Without any further delay, I will hand it to Mr. Sulaiman Alquraishi, the Head of Investor Relations, to introduce the management team. Please, the floor is yours.

Sulaiman Alquraishi, Head of Investor Relations, Al Rajhi Bank: Thank you, Dr. Sultan. Good day, everyone, and thank you for joining the call. With us on the call today are Group CFO, Mr. Abdulrahman Abdullah Al-Fadda, and Treasury Group General Manager, Mr. Abdulrahman Al-Hajaji. We apologize due to an emergency. Our Managing Director and CEO, Mr. Waleed Abdullah Al-Mogbel, is here. Our CFO, Mr. Abdulrahman, will cover the results highlights and strategy performance. He will then cover the financial performance in more details. At the end of the call, we will open the floor for your questions. Please note that the results presentation is now available on both the Al Rajhi Bank website and the Al Rajhi Bank IR app. Now I’ll hand over to Mr. Abdulrahman.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Thank you, Sulaiman. Welcome, everybody, and thank you for joining our earnings call for the third quarter of 2025. On behalf of Waleed Abdullah Al-Mogbel, our Managing Director and CEO, I will start by highlighting our performance, followed by an overview of the strategy, harmonize the group. Then I will cover the financial performance in more details. Now, let’s take a closer look at our performance for the first nine months of 2025. In the last quarter, the bank has delivered an excellent performance supported by our strategy execution and improved economic environment, resulting in an outstanding net income of SAR 18.4 billion, alongside a healthy balance sheet growth. Starting with the balance sheet, we were able to deliver 9% growth year to date, with the total assets standing at almost SAR 1 trillion plus.

This asset growth was primarily driven by a 9% year-to-date increase in our net financing book. On the liability side, our total liability stands at SAR 922 billion, reflecting an 8% increase year to date, which brings our liability LDR at approximately 81%. Moving to the profitability, our net income reached SAR 18.4 billion for the first nine months of 2025, higher by 30% compared to the same period in 2024. Net yield income grew by 21%, while the non-yield income has increased by a healthy growth of almost 29%. This resulted in a total operating income increase of almost 23%, reaching almost SAR 29 billion. Regarding the credit quality, we continue to maintain best-in-class asset quality with a cost of risk around 8.31 bps. Additionally, our NPL ratios stand at 76 bps, supported by a healthy coverage ratio exceeding 150%.

On the ratio side, our market-leading closed cost-to-income ratio has further improved to 22.5%, supported by our operational efficiency. The bank also maintains a strong financial position with a total capital of 21%, well above the liability minimum requirement. Lastly, our NIM maintains a 3.09, supported by our focus on enhancing the yield and optimizing the bank cost of funding. Moving to the next slide to highlight the progress against execution of the harmonized group strategy. As you know, we started the strategy back in 2024 when we highlighted the key KPIs of the strategy. Allow me to elaborate further on our strategy, starting with the first pillar, business to consumer. Our focus on the retail cross-selling is a primary goal of the strategy, evidenced by an increase in the product per customer ratio, which has increased to almost 45% compared to almost 38% in 2023.

Additionally, our sales from the target customer portfolio have increased by almost 300% compared to 2023, backed by our effort to expand our customer base across both existing and new segments. Our universal offering and our financial solution have made us the bank of choice for over 20 million customers, while we maintain our customer satisfaction, reflecting a net promoter score of 85. Moving on to the second pillar, B2B, our corporate portfolio has increased, reaching almost SAR 270 billion, 23% higher year to date and 30% year on year. This growth has resulted from an ongoing effort to expand the wholesale lending and focus more on the SME, which has grown massively by almost 35% year to date and 52% compared to the same period last year. SME now represents 20% of our total non-retail book and almost 7% of our financing book.

The bank’s focus on developing investment banking businesses is a key aspect also of our strategy to enhance the non-yield income, where the revenue from investment banking activities has grown by almost 220% since 2023. Looking at the third pillar: support businesses, we continue to invest in technology and automation across the group to drive innovation and operational excellence, reflected by the percentage of processes automated that reached almost 58% as of the third quarter of 2025, while the percentage of the applications that are cloud-ready has increased to 89%, supporting our strategy on becoming a cloud-ready bank. Finally, on the digital and data pillar, our digital-to-manual ratio has further improved to 96 to 4 by the end of the third quarter of 2025, highlighting our digital expansion.

In addition, AI and event-driven activities are gaining momentum and generating revenue through data-driven marketing, which has increased by almost 360% since 2023. Now, I will go over the financial performance for the third quarter in further detail. Our total balance sheet stands at SAR 1.059 trillion as of the third quarter, almost 17% increase year on year and 2% on a sequential basis. To analyze the 9% increase year to date, as you can see on the bottom left-hand side of the chart, mainly driven by the increase in our financing book by almost 9%. I will cover the financing book in further detail in the following slide.

Our total funding has also increased by 9%, mainly driven by an almost 6.7% increase in our customer deposit, where we’ve seen a further improvement into the other line items within the total funding to reflect the management initiative to diversify our funding sources. Zooming further into the main driver of the balance sheet movement, our total financing book stands at SAR 756 billion as of the third quarter, almost 16.5% increase year on year and 2% on a sequential basis. To analyze the 9% increase year to date, as you can see on the top right-hand side of the chart, our mortgage books have increased by 4%, ex-mortgage of the retail book having almost flat, which will bring the total retail book growth of almost 3%. Corporate and the SME have grown by 21% and 35% respectively.

Mortgage books stand at SAR 278 billion, which represents almost 56% of our retail book and almost 36% of the overall financing book. It’s worth to highlight that in the third quarter of this year, we securitized close to SAR 5 billion of our mortgage book and almost SAR 2 billion of ex-mortgage of the retail book. Our total customer deposits stand at SAR 670 billion, almost 8% increase year on year and 4% increase on a sequential basis. Our CASA, as a percentage of the overall customer deposit, has dipped to almost 65.6% compared to 68.4% in the second quarter. To analyze the 7% movement of our total customer deposits, as you can see on the bottom right-hand side of the chart, our CASA went lower by almost 4%.

If you recall, in the first quarter, we have seen a transitory deposit that has moved and impacted the CASA balances. Nevertheless, removing that one-off factor, our CASA has been increasing quarter over quarter. Time deposit has increased by almost 38% to improve further our funding profile and support the balance sheet growth. Our investment book stands at SAR 179 billion as of the third quarter, which is almost where the book is 87% Sukuk and Murabaha Awesama, 75% of the book is fixed rate, and finally, 83% of the book is domestic. If we move to the profitability section, our net income for the third quarter was almost SAR 6.4 billion, 25% increase year on year and 3% increase on a sequential basis.

To analyze the 3% sequential movement, as you can see on the bottom left-hand side of the chart, NII went lower by SAR 11 million, and non-yield income has shown a healthy growth of almost 13% on a sequential basis, while OpEx has increased by 3%. That has brought our pre-provision profit to be higher by almost 3% on a sequential basis. Our net income of the period is at SAR 18.4 billion, 30% higher year on year, and the driver, as you can see on the bottom right-hand side of the chart, our NII has increased by almost SAR 3.8 billion, non-yield income by almost SAR 1.6 billion, offset by an increase in our OpEx by SAR 500 million, which will bring our pre-provision profit to be higher by almost 28% year on year. To further zoom in into the net income driver, I’ll start with the operating income.

Our operating income for Q3 was at almost SAR 9.9 billion, a 17% increase year on year and 3% increase on a sequential basis. Our total operating income for the period was at SAR 28.7 billion, 23% higher year on year. The driver, as you can see on the top right-hand side of the chart, our NII has increased by 21%, supported by an increase in our average earning asset by a similar magnitude. Our fees have increased by almost 27% year on year. The fees growth that we have delivered is a part of the management initiative to execute the 2026 strategy by focusing on the fee income, leveraging from the cross-sell, and further improving on some of the few line items. We have seen a healthy growth in the payments, trade, cash management, and investment banking activities through our subsidiary, Al Rajhi Capital.

Exchange income has increased by 15% year on year. Other income has increased by almost 51% year on year. The two main drivers are as follows: the upfront gains in securitizing some of the transactions that I have highlighted in the third quarter, coupled with a further improvement into the mark-to-market and the dividend, finally on the derivative business as well. Our NIM for the period stands at 3.09, one basis point higher compared to the same period last year. It’s worth to highlight that our NIM for the third quarter has dipped by almost 14 basis points on a sequential basis, and the driver is as follows: we’ve seen the gross yield has increased by 2 basis points. However, the cost of funding has increased by 16 basis points in the third quarter, given the liquidity premium that we’ve seen recently.

Moving on, our OpEx for the third quarter is at SAR 2.2 billion, 7% higher year on year and 3% on a sequential basis. Our total OpEx for the period was at SAR 6.5 billion, higher by almost 9% year on year. The main driver of the increase in our OpEx is coming from the salaries, coupled with the depreciation. All those increases are enablers for the management to execute the 2026 strategy KPIs. Our cost-to-income dipped by almost 293 basis points, reaching a leading cost-to-income ratio in the market at 22.5%. That drop in our cost-to-income ratio has been reflected by the growth in our operating income of 23% higher year on year, offset by an OpEx increase of almost 9%. Very healthy positive growth, and the management will continue to focus on further maintaining a very healthy positive growth over the medium term.

Our net impairment charge for the third quarter was SAR 570 million, 17% lower year on year. Cost of risk at 31 basis points, 2 basis points lower compared to the same period last year. Our total net impairment charge for the period was at SAR 1.7 billion, almost 8% increase year on year. It’s worth to highlight that although our gross charge has increased by SAR 1.2 billion, as you can see on the bottom left-hand side, the increase in the provision charge was almost 43%. However, that has been offset by a very healthy growth or improvement in our recovery, where our recovery has improved by almost 91%, where we have delivered almost SAR 1.1 billion improvement in our recovery. The recovery improvement is a part of the management initiative as a strategic and a sustainable business model to negate the increase in the gross charge.

It’s worth to highlight that the recovery for the first nine months of 2025 equates to the full 2024 recovery. Our NPL balance stands at SAR 5.8 billion, almost 9% increase year on year, and we’ve seen a growth or increase in our retail NPL by almost SAR 389 million year to date. The movement, as you can see, is although we have written off almost SAR 3.6 billion, however, offset by further inflow of around SAR 4.1 billion. Our NPL ratio stands at 76 basis points, 3 basis points lower year on year and 2 basis points higher on a sequential basis. Our retail NPL is at 43 basis points, while our corporate NPL is at 1.36%. NPL coverage stands at a healthy level of 151% plus.

Our ECL stock stands at SAR 8.8 billion, and as you can see on the top right-hand side of the chart, we have further increased our non-retail book, given that we’ve seen a very healthy growth in our corporate and the SME book. Stage one exposure stands at SAR 742 billion, close to 97.1% compared to 96.7% at the same period last year, which shows the healthy origination of the new book from last year till today. Our stage coverage, no material movement, stage one at 37 basis points, stage two at 11.4%, and finally, stage three at 56.3%. Our HQLA balance stands at SAR 122 billion, although our headline LDR stands at 112.8%, but if you include the Sukuk and the other syndicates, the LDR will go lower to 93.5%, while the regulatory LDR is at 81.2%, all above the minimum regulatory requirement.

LCR and SFR are at a comfortable level and above the minimum regulatory requirement. Our total RWA stands at SAR 670 billion, almost 16% higher year on year, mainly driven by the healthy growth in our financing book. It’s worth to highlight that our RWA density stands at 63.3% compared to 64% at the same period last year. Our CET1 ratio has improved to 15.9%, Tier 1 at 19.7%, and total capital at 21.1%. We’ve seen a 44 basis point improvement in our Tier 1 ratio, as you can see on the bottom right-hand side of the chart, whereby the credit portfolio growth, coupled with the dividend distribution, has quintuplied to almost 350 basis points with a drop in our capital ratio. However, there has been a 300 basis point offset of an internal capital generation, giving the healthy RWA density of our financing book.

Retained matrices have further improved and are considered to be leading in the industry, where we have further improved our ROA to 3.83% compared to 3.45%. Our ROE further expanded to 23.55% compared to 20.5% in the same period last year. Finally, our ROA has further improved from 2.2% to almost 2.4% in the third quarter. At the macro level, I think the economy is still, we’ve seen the second quarter GDP flash estimate, where it’s estimated to further expand by almost 4%, driven by almost 4.6% growth in our non-oil GDP. IMF revised the full 2025 to 4% and maintaining the same for 2026, which shows a very healthy macro outlook for the Saudi economy. Consumer spending is still improving, where we have seen a 10% increase year on year.

On the interest rate, we still factor in a couple of one to two rate cuts by the Fed between now till the year end. It’s worth to highlight that we have seen SRC have reduced the mortgage origination for a 20-year mortgage origination to almost 7.1% compared to close to 7.4% in the second quarter of 2025. Having said that, we kept our guidance unchanged for our financing book, given that we have seen a further corporate repayment in the fourth quarter. We’ve downgraded our NIM guidance to be between minus 5 to plus 5, taking into consideration the current liquidity premium. In the third quarter, SOFR cyber spread was at around 119 basis points versus what we have seen as of today, around 125 basis points.

Cost-to-income ratio, we have upgraded our guidance to be below 23% and the ROE to be above 23%, cost of risk to be in the range of 25 to 35 basis points, and finally, our Tier 1 capital to be above 20%. Now, I will open the floor for a Q&A session. Sam, back to you.

Sam, Call Moderator: Thank you. If you would like to register a question, please use the raise hand button found on your WebEx toolbar. Please hold while we allow the questioners some time to queue. Thank you. Perfect. Our first question today comes from John Peace of UBS. Please unmute locally, John, and proceed with your question.

Hi there. Thanks for taking the question. First one, please, is on the non-yield income growth. I just wondered, I know you don’t tend to guide on that line item, but it’s been growing extremely quickly and substantially quicker than lending growth. I know it’s part of the strategy. Could we imagine it continuing to grow at these very strong rates as we go into next year in the teens or even higher? My second question, please, is around the capital and in particular around the decision to reduce the interim dividend. I just wonder if you’d give us a little bit more color around that decision and if you’re targeting a certain level of CET1 as a management team going forward. Thank you.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: First of all, on the non-yield income, you know that we’ve been the key driver of our harmonized group strategy, where we have built a universal bank offering with a large customer base and a satisfied customer and a scalable business. The whole objective is to be able to improve the cross-sell. If you see on our strategy update, the percentage of the customer base that they have in more than one product was only 38%. We managed to grow it over the last, and we are in the second year of our strategy, to almost 45%. Cross-sell, introducing new products and services that will help us to focus on improving the non-yield income as a contribution to the bottom line, is the key priority for the management initiative.

Although we don’t provide any guidance in the growth into the non-yield income, the way that I see it, we forecasted that the non-yield income will grow faster than the financing book growth over the medium term. If you see that our financing book has grown by almost 16.5% year on year, while our fee income has increased by almost 27%, we would like to continue maintaining that positive momentum over the medium term. As far as the second question related to the capital and the decision to reduce the payout ratio, we have probably spoken about it or we have communicated to some of you.

When the management recommends the dividend payout ratio to the board, we usually take into consideration the following factors: the operating environment from a liquidity and a funding diversification, the growth outlook over the medium term, and finally, maintaining a healthy capital ratio over our minimum requirement. Historically, we have seen an opportunity to expand our ROE by increasing our leverage and reducing the payout ratio. If you recall, between the period of 2020 till 2022, we reduced our payout ratio to in the range between 24% to 29%, but we managed to increase the ROE from 20.5% to an average of almost 22% during those periods. This time around, given that the profitability has further improved and the growth outlook has normalized, we have taken a decision this time around to maintain a healthy capital ratio by reducing the payout ratio.

There has been a couple of public information that most of you are aware of. The increase into the countercyclical buffer that will be effective from May next year by almost 100 basis points increased. Second is the increase in the interest rate shock as per the Basel rules, which the increase in the interest rate shock for the SAR has increased from 200 basis points to almost 275 basis points effective January 1, 2026. All of those public information will require us to maintain a very higher capital minimum requirement over the current level. Hence, we have taken a decision on the short term to improve the capital ratios by reducing the payout ratio. However, the management is still looking to maintain a healthy and go back to our historical payout ratio over the medium term while we’re improving the ROE.

Sam, Call Moderator: Thank you. Thank you. Our next question comes from the line of Chiro Ghosh from SECO. Chiro, please unmute locally and proceed with your question.

Chiro Ghosh, Analyst, SECO Baren: This is Chiro Ghosh. Hi, this is Chiro Ghosh from SECO Baren. My couple of questions are, first is, you know, you appear to be on a slightly deleveraging strategy. Basically, the loan-to-deposit is on the downward trend. How should we see it? Is it a short-term plan, or once the interest rate comes off, you plan to again leverage your book up to boost your margin and net interest income? Some clarity on that direction would be very useful. Second one is more on the asset quality side of it. The asset quality remains quite strong, but my only concern is because the NPL ratio is so less that the 150% odd NPL coverage has very little, the buffer is still very thin. How should we read it? The recovery was quite good this quarter.

How risky is it in the sense that if there are some major defaults, how well positioned are you? On similar lines, in a downward trending interest rate cycle, is it fair to assume that the defaults will come down, or for retail loan book, it kind of remains the same? Yeah, these are my questions.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: On the first question, on the LDR, I think on the regulatory LDR, which is the public information, at 81.2% is our LDR. The regulatory requirement is not to exceed 90%. In the organization, we have an internal risk appetite. These risk appetites are reviewed regularly by the Asset and Liability Committee and also by the Board Risk Management Committee and also the board. This is something that is a continuous process that we are doing on a regular basis. Now, do we have an internal target? Definitely, number one is to maintain a very healthy loan-to-deposit ratio that is within the regulatory requirement and also within our acceptable risk appetite. Abdulrahman, if you want to add anything on the LDR?

Sulaiman Alquraishi, Head of Investor Relations, Al Rajhi Bank: Just one more point. If you go back in the day, specifically in 2023, the regulator has revised the existing loan-to-deposit ratio guidelines to comprehensively capture the bank’s funding base. The purpose of the guideline was to include weights on long term to incentivize the sector or the local banks into getting into Sukuk, bonds, syndicated, to get more weight on the LDR.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: On the second question related to the asset quality, first of all, you need to take into consideration the following factors. Retail, as a percentage of our financing book, stands at 64%. The retail book, which is considered to be the majority of our financing book, is well distributed among many retail borrowing customers. The credit appetite is focused on salaries assigned plus government-related employees. We haven’t seen, even during a downward or the recession, any impact into the retail NPL given the conservative credit underwriting standard. As far as your comments on when you said that the probably NPL coverage is low, I probably disagree with that statement. I think probably lower compared to the historical standard for Al Rajhi Bank. If you compare it against the competition as of the second quarter, the NPL coverage for Al Rajhi Bank was 151%. Industry-wide, NPL coverage is around 154%.

That’s number one. Secondly, I think you guys know us. We are a very conservative organization. Whenever we’ve seen any customer that was considered to be stage two, we consider topping up our coverage in case the customer moved to a stage three. That’s on the asset quality. Shiro, can you repeat your third question, please? I think.

Chiro Ghosh, Analyst, SECO Baren: No, first of all, I was not saying that the NPL coverage is low. It’s quite good. I’m just saying that at 0.75%, the 50% additional is low. That’s what I was trying to say, that it is still only 0.3% or 0.35%. That was the context. Anyway, my third question is, does the retail default have anything to do with the interest rate cycle? I mean, if the interest rate goes down, does the retail default go down?

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Technically, conceptually, no, because all retail lending is fixed rate. Either in the higher interest rate environment, if you see when the interest rate has increased from the beginning of 2022, we haven’t seen any material increase into the retail NPL, nor in the lower interest rate environment.

Chiro Ghosh, Analyst, SECO Baren: Quite clear. Thank you very much for all the clarifications.

Sam, Call Moderator: Our next question today comes from the line of Gabor Kemeny from Autonomous Research. Gabor, please unmute locally and proceed with your question.

Thank you. Hi. My first question is on the margins, please. I believe your NIM guide for 2025 leaves room for a relatively broad range of outcomes for the fourth quarter, ranging from a possible further decline to a turnaround and increase. Can you perhaps elaborate a little bit on the moving parts? Also, if you could comment on the NIM outlook for 2026 under your current baseline rate outlook. I understand that you linked the NIM outlook to the liquidity premium to an extent. Do you have a view on how the liquidity premium may develop going forward? The final one would be just one related to a previous question on capital. Can you share any target levels of capital you have? The reason I’m asking is because your capital ratios are already at relatively comfortable levels in a global context. Thank you.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: The first part, first question, the moving part on our NIM for the fourth quarter. I think there are multiple moving parts. Number one is any change in the asset mix or any change into the repricing of the asset mix. That’s on the asset side. On the liability, again, similarly, in the change into the liability mix, if we have seen a further, I would say, or drop into the CASA as a % of the overall customer deposit, that might have an impact into the cost of funding. Also, the liquidity premium, and I’ve highlighted earlier, Gabor, that the average for the SOFR-Cyber spread in the third quarter was one of the highest levels I’ve ever seen, around 119 basis points compared to the third quarter in 2024 of almost 100 basis points. These are the moving parts into our NIM outlook for the fourth quarter.

As far as the 2026, again, and I think probably the same drivers, same driver will be applicable for 2026. However, we take into a positive, I would say, outlook into the rate cut of the Fed between now till the end of 2026. That will have a positive impact into the NIM. However, as I mentioned, NIM, I think there are multiple moving parts, which I’ve highlighted earlier. The NIM theoretical sensitivity for every 25 basis point drop into the Cyber, the NIM will expand by almost 7 basis points. Again, that is a theoretical. I’ve taken into consideration the change in asset mix, nor the repricing in the asset or in the liability mix or repricing or a liquidity premium into the liability side. Is there any indication of the liquidity premium? How is that will move?

I think I will leave it to my colleague, Abdulrahman, our Treasurer.

Sulaiman Alquraishi, Head of Investor Relations, Al Rajhi Bank: Thank you, Bull Johar. I think it is a real indicator to monitor the cyber SOFA spread, which has been accelerating since the beginning of the year. However, from an Al Rajhi Bank point of view, we will continue to diversify our funding mix. This is a journey that we’ve started two or three years ago to further optimize our cost of funding, cash flow requirements, and ratios. As an example, in this quarter, we have successfully tapped into the debt capital market with a Tier 2 issuance, and we have further expanded our certificate of deposit program, which all of these transactions have taken place in the third quarter.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Last question, Gabor, related on the, is there any minimum capital requirement? If you recall, in one of the slides that I have highlighted about the CET1, Tier 1, and total capital, although those are from a Pillar 1 requirement, and I’m sure that you’re aware on the Basel, they give the flexibility to the regulator on each restriction to impose a Pillar 2. From a Pillar 1 plus Pillar 2, although that is not disclosed, we would like to maintain a very healthy of at least 50 to 75 basis points above the minimum Pillar 1 plus Pillar 2.

Sam, Call Moderator: Thank you. Our next question comes from the line of Wareena Khamaraj from SECO. Please unmute locally and proceed with your question.

Wareena Khamaraj, Analyst, SECO: Hello. Good afternoon. Am I audible?

Sam, Call Moderator: Yes, you are.

Wareena Khamaraj, Analyst, SECO: Hi. Thank you very much. I have three questions. The first one is a clarification regarding your comment on the additional buffers that will apply from next year. You mentioned 100 basis points of countercyclical buffer. Did you mention that this interest rate shock will go up from the current 200 basis points to 270 basis points in 2026? Is that what you mentioned?

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Yes, January 1st.

Wareena Khamaraj, Analyst, SECO: Okay. Additional 70 bps there, right?

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Yes.

Wareena Khamaraj, Analyst, SECO: Okay. Right. Thank you. Secondly, as far as liquidity premiums are concerned, now, as you mentioned, the SOFR-cyber spread was very high in the third quarter. When I look at the current, at least rates in October, the spread has narrowed, not by much, but maybe to about, you know, back to about 100 basis points. Is that a fair statement, or am I missing something?

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: I think that’s a categorically inaccurate statement. As of today, the SOFR cyber spread was at 125 basis points.

Wareena Khamaraj, Analyst, SECO: Okay. Right. Thank you. Lastly, as far as the OpEx, the run rate of OpEx is now you had the OpEx was around SAR 2.2 billion. I mean, can we consider this as a run rate going forward? Do you expect further acceleration from here?

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Listen, Wareena, I think we don’t provide any guidance into the OPEX. We provide a guidance in the cost-to-income ratio. The management is not shying away from investing as long as we see the return is factored in into the operating income and within to improve further or to maintain a very healthy positive growth. Our OPEX has increased by almost 9% year on year, while operating income has increased by 23%. We’re not shying away. We’ll continue to look into opportunities if there, again, this is something an ongoing exercise that we do on a regular basis.

Wareena Khamaraj, Analyst, SECO: Okay. All right. Thank you very much. That’s it from my side.

Sam, Call Moderator: Our next question comes from the line of Abdullah Al-Baridi from Emirates NBD. Please unmute locally and proceed with your question.

Yeah. Hello, am I audible?

Yes, you are.

Thank you very much and congrats for the great results. Asking regarding the guidance. Basically, you’re keeping the loan book guidance unchanged despite achieving it in the third quarter. However, you’re reducing the guidance for the net interest margin. If the loan book is going to stay as one would expect, you’re going to be less aggressive in pricing either in terms of paying for deposits or pricing the loan book here. However, this is not happening. Moreover, you’ve mentioned that the theoretical sensitivity is 6 to 7 basis points. We are one cut down the road and two cuts expected this remaining of this year. However, the NIM guidance has been revised down. We are noticing that on OTC, on fixing deposits, Al Rajhi Bank usually pays more than the average. It seems like you’re still aggressive on expansion.

Do you see any probability of overachieving the loan book and underachieving the NIM?

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: The first part related on the correlation between the financing book guidance versus the NIM. First of all, let me be 100% clear. The management has been saying for over the last six to eight quarters that the focus is onto the value rather than the volume. If you look at our financing book, probably it might be lower than the aggregate into the market, and we probably lost market share. The focus is to maintain a very healthy margin. We are not aggressive into the asset origination. If you can see our pricing in the consumer loans, it is considered to be the highest in the street to show that we are not looking for a price war. Mortgage is being capped at the SRC. Corporate, there has been many transactions that we walked away, and we didn’t like the margin, and we walked away.

The management is not aggressive. I wanted to be 100% clear and to reiterate the management focus is on value rather than a volume. As far as the NIM guidance and your points, if you recall, Abdullah, I’ve mentioned, and I think I sound like a broken record several times, NIM sensitivity is theoretical. It’s not taken into consideration the change in asset mix, nor liability mix, nor the asset repricing or the liquidity premium. What we have seen, and if you recall my earlier statement, SOFA cyber spread has increased to one of the highest elevated levels in the third quarter to be around an average of 119 basis points compared to 100 basis points in the same period last year. Third question is related to paying up for the deposit. I’ll leave it to my colleague, Abdulrahman.

Sulaiman Alquraishi, Head of Investor Relations, Al Rajhi Bank: This has also been mentioned several times throughout the year. The growth in demand deposits last year was driven mainly by transitory deposits from government-related entities. Now, these deposits are no longer within our CASA since the beginning of the year or the Q1 of 2025. That migration naturally has put some pressure on our cost of funds. As our CFO has mentioned, the SAIBOR-SOFR spread has widened since the beginning of the year, in addition to the increased premium on top of the benchmark to generate liquidity.

Yeah. Okay. Pretty informative. One question more regarding the non-interest income. We noticed you found other value extraction points given the Visa regulation that now you’re charging a fee on real payment if the merchant is a foreigner. Has this and other value chain value channels took full place this year, or are we still going to see some Visa regulation changes?

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: If you recall, Abdullah, there has been a regulatory change that was introduced back in July. I think the management.

I’m speaking about the response from your side. Has it taken full impact, or should we see further?

If you allow me to continue, please. We have seen, if you recall, in the third quarter, there has been a regulatory change, and I’ve been transparent, and he said that management has put lots of initiatives to counter impact that changes. I think if you see the result for the fee income growth in the third quarter or compared on a sequential basis, you can see that the fee income has further improved in the third quarter. I think second, you can see that on the second quarter, our fee income was close to SAR 1.4 billion, third quarter SAR 1.5 billion. I think the management has delivered their commitment. Now, do we see any further regulatory changes? Nothing that we are aware of.

I’m seeing further improvements as a precaution against those changes.

I’m not 100% clear on what you’re looking for.

You’ve taken a precaution measure to bring back those lost fee income. Has they taken full impact, or are we still to see further improvement in the fourth quarter?

The only comment that I can highlight is the management is still focused to improve the fee income contribution to the bottom line, whether from this initiative or any other initiatives.

Thank you very much.

Sam, Call Moderator: Thank you. Our next question comes from the line of Mohamed Al-Rashid from Hasana. Mohamed, please unmute locally and proceed with your question.

Mohamed Al-Rashid, Analyst, Hasana: Assalamu alaikum. Am I audible?

Sam, Call Moderator: Yes, you’re loud and clear.

Mohamed Al-Rashid, Analyst, Hasana: Just one question from my side. We noticed that the operational risk RWA has declined by around $10 billion on a quarter-over-quarter basis. May I understand what drove such a decline? Thank you.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: There has been a change or clarification from the regulator related to the recent Basel requirement on the operational risk, mainly related to the historical losses previously. I think we are in line with the regulation.

Mohamed Al-Rashid, Analyst, Hasana: Okay, we should expect it to be a trend across the sector as well.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: I can’t highlight on the other banks. I only know from my side, Mohamed, every bank has its own calculation of the operational risk.

Mohamed Al-Rashid, Analyst, Hasana: Okay, thank you for the feedback.

Sam, Call Moderator: Thank you. Our next question comes from the line of Adnan Farouk from Jadwa Investment. Adnan, please unmute locally and proceed with your question.

Adnan Farouk, Analyst, Jadwa Investment: Hello. Hello.

Sam, Call Moderator: Hi there, we can hear you.

Adnan Farouk, Analyst, Jadwa Investment: Thank you for the opportunity. I have two questions. One, I just wanted to clarify. You mentioned that there were securitization transactions during the third quarter as well. You said SAR 5 billion in mortgages and SAR 2 billion other retail products.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Yes.

Adnan Farouk, Analyst, Jadwa Investment: Can you give us an idea about what sort of gain did you book on this?

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: I’ll disclose that now.

Adnan Farouk, Analyst, Jadwa Investment: Okay. The other thing I wanted to ask was about exchange income. You mentioned fee income was exceptionally strong. Even exchange income was exceptionally strong this quarter. What led to this improvement? Are there any market-related factors that led to growth in exchange income, and we should see that normalize going forward? Are these part of the Harmonizer Group strategy, which is leading to better exchange income and should continue going forward?

Sulaiman Alquraishi, Head of Investor Relations, Al Rajhi Bank: Adnan, the FX income, as mentioned by our CFO, grew by 15% year over year. This is mainly due to our clear strategy, which we’ve been mentioning, to increase market share in both retail and corporate segments. We have focused on better pricing, improved customer experience, and enhanced our digital offerings. The strategy has worked very well, and we expect the growth momentum to continue going forward.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Also, if you have that, add, Abdulrahman, on the exchange income as well. I think you guys know that Al Rajhi Bank started as an exchange company back in 1955. We do have the highest market share in the remittance business. This is something that I would like to highlight. These are strategic initiatives that have been highlighted by my colleague, Abdulrahman. We’ll continue to focus to further improving our position in the remittance business.

Adnan Farouk, Analyst, Jadwa Investment: Great. Thank you so much.

Sam, Call Moderator: Our next question comes from Mehmet Sevim of JP Morgan. Mehmet, please unmute locally and proceed with your question.

Good evening. Thanks very much for taking my question. I just wanted to come back to your comments on the dividend payout. I was just wondering if you think you addressed your wish to improve the capital buffers now with the dividend decision that you took for this quarter, or will we see the payout at these levels for the coming period as well? I know you mentioned the medium term, just wanted to come back to this comment. You highlighted the public announcements recently for capital regulations, including the countercyclical buffer and the RRBB. Is there anything else you think that may come at some point? For example, maybe a potential increase in the DCIP buffer or anything like that, which makes you a bit more cautious right now? Thank you.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Thanks, Mehmet, for again coming to the points related to the dividend payout ratio. I think we are reviewing the environment, reviewing the operating environment on a regular basis. This is something that we believe that the decision to reduce the payout ratio is a short term to improve the buffer. We will monitor the situation on a regular basis. I think the management direction over the longer term is still to go back to the historical payout ratio while maintaining and expanding our ROE. This is something that we will review on a regular basis. We believe that is only short term, but over the medium term, we’ll continue to go back to our historical payout ratio.

As far as if there is any other capital requirement that we are anticipating from the information that we are having and the dialogue that we are having, we are not aware of any further changes into the capital requirement as we speak.

Great. Thanks, Abdulrahman. Much appreciated.

Sam, Call Moderator: Unfortunately, we have run out of time for any further questions. At this time, I would like to hand the call back over to the CFO, Mr. Abdulrahman Abdullah Al-Fadda. Please go ahead. Hi there, Mr. Abdulrahman Abdullah Al-Fadda. I think we are muted in the room. Hi there, team. Just confirming that we’re still not receiving any audio from the room.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Sam, am I audible now?

Sam, Call Moderator: Yes, you’re loud and clear.

Dr. Sultan Al-Tuwaim, Head of Research, Al Rajhi Capital: Thank you, everyone, for joining the call, and wish you all the best. Hopefully, we’ll speak to you soon in our full year earning call. Wish you all the best. Good luck. Assalamu alaikum.

Sam, Call Moderator: This concludes today’s webinar. Thank you all for joining. You may now disconnect.

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