Ahli Bank Q.P.S.C. (ABQK) Earnings Call Transcript & Summary

Good morning, good afternoon, everyone. We are Ahli Bank management team consisting of Trevor Bailey; Shankar Mahalingam, that is me; Johny Alkhoury and Mr. Hassan. So good afternoon, all of you. Welcome to the investor call for the full year 2021 financial results. So in a normal -- normally, what we do we just give you a very high-level overview of what has happened, and then we'll take questions if that is okay with you. Before that, who's ever has joined, can you please identify yourself? Thank you.

[indiscernible]

Yes. Please go ahead identify yourself.

[indiscernible]

Okay. Anyone else?

Alexios Philippides from Moody's is also on the call.

Okay. All right. [ Stacy ], we know you, yes. So we just give you an overview of what has happened. This is in line with what we have been doing, how we have been conducting, how we have been programming ourselves on this kind of a call. So you have seen the financial results, it is published, but I'll just go you what was the key -- go through what was the key driver during the year. So we had a very strong net interest income growth. We'll go line by line on the overall financials, about 10.9% year-over-year. The key to this was the cost of funds, which was very favorable during the year. And overall operating profit was also good. That's driven by FX income, which was very strong. And that FX income thing, we'll just parse out a little bit over the course of this discussion. And then the net profit overall grew by 4.9%. Total assets, again, up by about 1.1%. The year had some key initiatives, which we did, which you all know. Most of the investors are aware that we did one more EMTN tranche as well as a $300 million issuance of AT1, both were very successful, and all the investors are aware of that. So overall, there have been, in summary, pretty steady results. We are known for that. A couple of things that changed, to be transparent with you, all is the NPL, which, in the last quarter, went up a little bit. It went to 3.74% because of 2 credit events. But we just want to let you know that, yes, those are 2 names, of course, we cannot give you. But both are fully collateralized, almost fully collateralized. So this is a process we have to go through. There's a liquidity situation where both were real estate in terms of sector, the 2 names we are talking about, which got added to the NPLs. And overall, if you look at our asset quality, it is very much within the -- in fact, below the sector average in terms of NPL ratio, but very much within the sector in terms of asset quality. We are well provisioned. As you can see, the provision evolution in terms of -- which we will put together as a presentation to you later after this call in a couple of days, the entire investor presentation pack. So we are well covered in terms of NPL provision. And then we are also covered in terms of collateral of those loans, which went bad during this year, current year. So that was the only thing, which, in the last quarter, was a kind of an event, which is not going upward. Everything else was very normal, steady quarter-over-quarter, in line with our previous quarters of very steady growth, consistent growth, predictable growth. Key drivers remain same, which is net interest income, operating profits. So a couple of more data points before we take some questions. We have published previously the kind of support, which we received from the QCB, pandemic-related support. So we will dwell on that a little bit. But before we go there, I just want to also let you know that capital adequacy ratio has a 20% post dividend. The dividend was 15% cash, 5% bonus. So we have done some retention also, managed to convince the Board to retain some profits. So capital remains strong at 20.62% post this dividend. The likely crystallization of this number will take place after the AGM, which is likely in February. So the -- on the loan side, on the balance sheet side, the support from QCB remains and continues for another 3 months in terms of special loans, which they allowed banks to grant funded by 0% QCB support for funding those type of loans. So that figure remains as is, $2.3 billion. We have drawn down at a 0% borrowing from QCB and has given -- advanced that to customers who have been impacted by pandemic. So that's at 1.5%. So that figure is close to Q3 figures. And in fact, throughout the year, it has remained as is. So this is the only major kind of difference between last year, let's say, and this year. Other than that, it's been a pretty steady year. So I'll just pause and leave the investors with some thoughts. And then if there is any question we can take.

I got cut off in the middle, so I don't know if you mentioned this already. So the 2 new NPL accounts that were added in Q4, can you mentioned the cash coverage level at the moment?

So we're talking about NPL coverage that is at about 107%. You're talking about specific to these 2 loans?

Yes. Specific coverage on those 2 accounts.

Okay. Just one second. Just give me a second, we have that number, I'll just take that out. So we have already made some provisions and the collateral coverage is about 68% in the -- in 1 case, which is the bigger amount collateralized. And we have already provided about 15% -- sorry, 20% for this loan. So we will do the balance coverage during the course of the year. For the second loan, the collateral coverage is 100%.

So for the second one, you haven't made any cash provisions yet?

So there is a provision for second case also, which is 10% because it's 100% collateralized. So we have done provisions for both these names, and it is adequately collateralized.

Okay. And are those 2 names -- are they in residential property or commercial property? And are they related to each other?

No they are not related to each other. They are all commercial, commercial real estate.

What kind of commercial? Is it like hotels, that kind of thing?

It's a building which is mortgaged. So there's some temporary cash flow problem. So we had to do what we do as a bank to take a conservative view of that and then pursuing the [ facility's ] recourse.

So the building is pledged to you as the [ client ] goes through, but the loan is for some other purpose?

No, the loan is for real estate only, and the building is collateralized to us.

Okay. And my other there is some big decline in the loan book in Q4? Is it related to some sort of government loan repayments? Or if you can give some color on that, please?

Yes, good question. So the -- it is related to government. So the State of Qatar overdraft went down by 78% year-over-year and that saw a big drop for the year-end. But as we speak, we are working with them to take -- kind of take some loan from us, which -- and they're doing that. So it's a drop from government exposure, State of Qatar.

Just your carrying on, on the NPL. So what is your outlook going ahead? Like how do you see the NPL formation going ahead? And also on the coverage, what kind of coverage level do you want to maintain?

Okay. Good questions. So the -- I'll take the coverage issue first. So we have a very clearly defined strategy, which we discussed with investors as well as rating agencies. In that, our metric -- this metric is also clearly defined and articulated by us. The coverage, we normally keep at 125%. And we intend to take it to that level over the course of period. That's on the coverage. And on the outlook for NPLs, I think we do explore some churn. Churn means there could be some recoveries, which we expect and there could be some new names possible. So I think, overall, we expect that it will remain at these levels for a period of time before the recovery -- strong recovery of these NPLs starts kicking in and lower NPL level goes down. That's just one more point. The NPL ratio is also a byproduct of loans and advances level. So if you see, unfortunately, for us, the government repaid all their loans -- almost all their loans during the year and particularly in the last quarter. So the loan level shows almost flat. So if the loan grows, then this percentage will also come down. And we will publish that an interesting data. We just don't want to talk about other banks who are actually our colleagues, but some of the other banks, the way they have written their NPL ratio is by writing off the loans, but we have not done that. And the third point for your consideration when you analyze the NPL ratio and the coverage, et cetera, is something called the risk reserve is in the balance sheet. It's a part of our Tier 1 shareholders' funds. Many banks have used this to increase their loan loss provision, but we have not touched that. So all these are, for us, kind of cushion or buffer for me to meet any contingencies. So we are actually quite strong and kept it very plain vanilla in terms of NPL and NPL and then the coverage. I hope we have answered your question.

Yes. Just another one on cost of risk. So I suspect that you could have a higher cost of risk given this year, I mean, your profitability definitely allowed it. So how do you see that next year? Like what level do you want to keep your cost of risk at?

Did you say cost of risk?

Yes, cost of risk.

So I think there is a 2-part answer. One is the retail segment, which is fairly stable. And our exposure is very, very domestic, or Qataries rather in terms of nationality on the retail side. And that we are very confident that the cost of risk is minimal. Just that you know that their jobs are secure, they are in demand, because Qatarization requirement demands that people hire Qatari. So that segment is very good, very stable. We have no issues on repayment. There's a very minor churn takes place once in a while, and that's all. The corporate side, again, we are very domestic. We don't have exposure in Turkey or places like that where there is a -- -- apart from that, there is a currency risk apart from credit risk. So we don't have all that exposure. So we know our customers very well. Everyone goes through certain difficult times, we have seen that in the past. So it is one of those things with some customers. But as we said, we are very well collateralized. We know the customers. We are deep rooted in Qatar with 35 years. We have very Qatar focused. We know each and every customer, their families and family businesses, everything. So cutting the long story short, the cost of risk will not go up. We don't expect that to go up. It will remain at these levels. They'll be churn and eventually it'll get resolved.

Understood. Sir, just moving on to the funding bit. I don't see your loan to deposit a see above 120% or so, which is broadly in line, I get there, the industries as well. So if you could explain like where would you ideally like it to be? And what is the funding situation like particularly deposit formation in the domestic market?

Yes, it's Trevor here. I think in terms of the funding, what we've always articulated is to make sure that we have an appropriate funding structure and not to be looking at hot deposits or looking at short-term deposits that can give you short-term financing risk. So the stability of funds remains very important for us for the funding structure. We've issued -- as is in the presentation, we issued a further $500 million tranche in June at very competitive rate after we repaid our tranche 1 in April, which was 3.625% versus the 2% that we did this year as well. We have a second tranche repayable in February, which is another $500 million which is a 3.5% coupon. So overall, the blended funding rate is very, very good for us at the moment, especially in lieu of the fact that the Fed rates are starting to look to go upwards, and that could start in March this year. That's been built into the market rates, et cetera. So we're very cautious of the overall balance sheet structure with that in mind as well as the deposit structure. We do not have very significant nonresident deposits at our bank, it's at very low levels. We are very focused on trying to get the right balance with customer deposits as well. But on the other hand, as we have also said before, we will not pay over the odds to get these deposits. And it's very, very clear and discussed with QCB on a regular basis that although the loan-to-deposit ratio may appear to be a little bit high, other instruments of liabilities are taken into account informally and that may be adjusted in the future. But for us the -- also the international standards of NSFR and LCR are predominant in terms of making sure that they are very strong and healthy as they are the NSFR ratio, the change ratio...

It's about 112%. So the long-term stable funding is absolutely fine. Our internal target is 103%, so we are very strong on that. The LCR is also very strong, that is short-term liquidity is more -- requirement is 100%, but we are at 400%. So very liquid and very stable on the overall funding structure side. Just to add on the LDR, loan-to-deposit ratio, there is 1 loan which we discuss -- or type of loan, which are special loans, we call it a 1.5% pandemic-related support, which is funded by 0% QCB repo. So the LDR will never be 100% at this point in time because some of them are funded by QCB itself, and they are themselves use this 0% funding from us, take it and then fund it to affected people. So LDR will ever be 100% at this point in time. So once we get to a normalized world, we will look into it. But as Trevor was alluding to, we are more focused on long-term stable funding. If you consider that, then we are -- as a structure, we are pretty solid considering NSFR and LCR are very elevated level.

Just one last one for me. If you could provide some guidance on your balance sheet growth and P&L?

Did you say the plans to grow the P&L? Was that the question?

Yes. I mean, what's your growth loan growth and the likes? And what do you expect to translate to in terms of P&L growth?

Well, the new business is what is likely to grow or drive this the P&L. As you know, this is -- especially here for Qatar, there's a 2022 World Cup. And we expect a lot of travel later, a lot of industries like the hospitality et cetera, is likely to be -- show some strong growth and come back. So that will be where as a local bank, our customers are likely to benefit. And then in terms of that, again, we are likely to benefit. And then let's not forget 2030 vision. Yes. So the 2030 vision does not stop with -- of Qatar does not talk with the World Cup. There's a lot of other events planned and a lot of other things are planned in terms of investment. For example, they're going to put another train, they call it, in terms of gas -- capacity of driving gas output, increasing gas output. So I think the fundamental growth driver as the country remains this year could be an extraordinary year and then further -- I don't know, you're tracking -- so there was Arab Cup, for example, football cup, again, was extremely popular. A lot of people came from around this area to watch the match et cetera. So I think this year, we should expect some growth from FX income, travel and tourism, which, in effect, gives us our customer benefit and we benefit. So we are okay on the P&L side. I think in a sense, we expect a very -- despite that, we expect single-digit growth. That's what our forecast is at this point in time.

If there's nothing else, I'd like to push one more through, and that is on ESG. Is there any -- is there any plans on like doing the ESG report, or have you done any work internally to -- based on some kind of ESG policy? I'd be really happy to hear about it.

Yes. Very good question. We are about to instruct a one of the top 4 to be involved with us in terms of actually formalizing a much more detailed and official ESG policy. That's also working with our Board Secretary and legal department. So yes, we have said before, especially to investors, et cetera, as well, but we do think seriously about this, and there will be some more efficient moves on this very, very shortly from Ahli Bank's point of view.

So any time line when could I expect something -- to hear something from you?

Well. As we say, certainly something will happen in the first quarter this year, yes.

Any other questions from any other investors, anyone else? Thank you, everyone, for joining us in this meeting. If anyone has any other questions, please feel free to contact us, me and Trevor Bailey or Shankar, that's me, at any point in time. We'll be more than happy to receive your questions and answer that and attend to that. And the investor relations presentation will be uploaded very shortly in our website. You can have a look at it and then we're open to any other questions. Thank you.

Thank you very much.

Thank you very much. With this, we'll end this call. And yes, we're most welcome at any point in time. Thank you.