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

Okay. Let's start -- kick-off the investor call. My name is Shankar. We're Ahli Bank team. I'm joined by Trevor and Johny in this call. We will just give you a brief of what happened during this YTD September 9 months ended. So we had a very good result. As you can see, very steady strong results, mainly driven by higher net interest income on the P&L side and growth in operating income. Overall, it was a very satisfactory performance. We had asset growth also on the loans and advances side. And all the strategy which we have put in place is seems to be working for us at this point in time. We had all the metrics, if you look at -- there was a net profit growth of 8.1%, total asset has grown, loans and advances have grown. And on the NPL side, the NPL ratio had come down versus December -- September last year from 3.74% to 2.54%. The coverage has gone up from 107% to 187%. So we've been very conservatively providing any indication of any -- something we just keep ourselves covered. So overall, we had a fantastic results. We're very satisfied with that. Operating expenses are in control. Provision, we have already discussed, which is the main topic. So overall, there's a income growth, that is driven by net interest income, particularly pleasing when you see the rising interest rate environment. So we managed to securement that at this point in time, mitigate that and then gave a very good results. On the balance sheet side, loans have grown by 1%. The results are there. It is uploaded in the Qatar Exchange, so we can take you line by line if you need. Total assets have grown as we discussed. So a couple of things which we wanted to talk about is the QCB support that has come down to QAR 500 million, and that will be -- that will completely vanish by December. So that's called special loans, as we all know, just to recollect. This was a COVID loan, COVID support from the government, where the loan was backed by funding from QCB, at a concessional rate. The loans are at 1.5%. So we are left with about QAR 269 million of such loans, funded by QAR 500 million of QCB support. This will also go out by December as per the regulatory instruction given to us. So this is the summary of what happened during September. If there is any question, I'll just pause if there is any question, please ask.

What is your capital market strategy? Do you plan to come to the market at some point?

Capital markets at this point in time with such a difficult market, I think we are evaluating various options. But at this point in time, we are not thinking of -- to do anything, we're on the sidelines watching the markets. Thank you. Anyone else has any questions, please. We have -- please feel free to ask. In case if you want to get back to us, please send us an e-mail, we will respond with any follow-up questions, any further questions that if you have on the 9 month ended results.

Could you talk about your capitalization levels that you saw for this quarter?

Capitalization levels, you said?

Yes.

Yes, so we have a capital adequacy of about 20%, which is very comfortable, in line -- slightly -- in fact, 20.3%, strongly capitalized, a lot of headroom for growth. You know that last year, we came out with a Tier 1 issuance, AT1 issuance, very attractively priced. So I think we are very adequately capitalized strong, in fact, very strong on capital. That's one of our strengths. And I think a lot of headroom for growth is a very comfortable zone from our management standpoint.

Sorry, just to follow-up. So could you also talk about your Tier 1 and CET1 ratios and also the minimum [indiscernible]

So almost all of it is Tier 1 because we don't have Tier 2 -- very little Tier 2. So almost all of it is Tier 1. 20.3%, approximately 20%, you can take it as Tier 1 ratio. That is all we have been historically. We don't have too much Tier 2 kind of a capital, we don't carry that much. It's also partly because of the Central Bank rules, which they don't encourage too much Tier 2 because most of the limits are based on Tier 1, limits like single obligor, et cetera, et cetera, are based on Tier 1. So we are encouraged to issue more -- have more Tier 1 capital. So Tier 1 capital, almost all of it is Tier 1, 20% roughly.

And do you also report CET1?

Say that again?

Do you also report CET1 ratio?

We don't report, but -- we don't separately report. But the CET1 is also close to 81, there is not much of a difference because structurally, most of it -- or most of our capital is paid up capital for reserves and things like that, which are all CET1 only. It's been -- it's a very simple structure, capital for us, mostly paid up capital and reserves and surplus. Any other question on the results, please feel free to ask.

This is [ Amit Jain ] from Franklin Templeton. So I had a couple -- actually, I joined a little late, so apologies if you have already covered this. But the first one is on net interest margin. I mean -- so what I see is some of the other Qatari banks have had like a significant jump in net interest margin. But I suspect I don't see the same for you guys. So if you could talk a little bit about that.

Well, I think our net interest income is in line with the Qatari banks, that's what we would claim. And in a rising interest rate environment, what happens is the loans get repriced because all the loans are benchmarked with QCB rates, et cetera. So automatically, that goes up. While the liability side will reprice at maturity, various maturities. So obviously, we are gaining at this point in time on the net interest margin. It is among the -- I think, among the top 3 -- 4 for NIM as far as -- it's close to 2.1%, and we are very comfortable with that kind of a number. So at this point in time, that is not causing any stress to us as a NIM. In fact...

So what has been the jump versus previous year?

No. As I said, in a rising -- interest rates are rising. So the loan is getting repriced automatically because it is benchmarked. It is a benchmark rate plus margin. When the benchmark rate is going up, the rates -- overall rate goes up for the customer. So that means more income for us.

Yes.

Yes. So for example, if it is Fed Plus something or SOFR Plus something, then SOFR keeps going up, and the overall rate keeps going up. That is why you see year-over-year rise in net interest income. And at a time when interest rates are going up, normally, you would associate that with the compression in NIM. But eventually, the liabilities will also be repriced at various maturities and NIM will go back to long-term average. So right now, we are gaining on the net interest income and the net interest margin. Just to give you one number here, last full year's NIM was 2.19%; for 9 months, it is 2.46%. So actually, we have gained on the NIM.

Okay. I see that. Another one is on asset quality. If you could talk a little bit about asset quality, what you are seeing? And what do you expect your cost of risk to be this year and maybe also next year?

So you can see specific to Ahli Bank, the asset quality has improved versus December. There was a credit event in our favor. And you -- that was the headline number, I'll just repeat. So our headline asset quality-wise -- just one sec. Yes, so the NPL ratio versus last year is right now -- there's an increase of 1.25% -- I mean, improvement. So 3.74% was the NPL ratio last year same time, it is 2.54% right now because of a recovery of one particular customer, big one. So we have improved on NPL ratio. At the same time, you can see that coverage has gone up. So we have been very conservatively providing from 107% to 187%. So the cost of risk has come down for us year-over-year. And it's a good news in a sense the churn has started. Churn means there will be one addition and then a couple of reduction or addition means addition into the NPL pool and then some names will move out of NPL pool. So that is a good news in terms of a churn. And overall, it is favorable. We expect -- the guidance is we expect the NPL ratio and NPL coverage to be at these levels throughout the year-end as well as probably next years. That means, around same level of percentage of NPL ratio and then very comfortable coverage.

So that would suggest that basically cost of risk could come down significantly?

Yes. Cost of risk will -- it is at least very stable.

Right. I have a last one, and this is on your loan-to-deposit ratio. I understand you do have debt securities and some of the other borrowings as well, but still with the LTD ratio at around 124%, how do you guys feel about that? And is there any plan around that?

So first of all, the LDR in regulatory -- as per regulatory rule, it includes , you have to add EMTN, the long-term funding as a part of LDR ratio. This is a QCB rule. So if you add that, we are at about 103%, not 130%, 120%, something like that. So we are very close to meeting the regulatory requirement. So we are comfortable. This is the QCB rule, and we will keep following that. So we have plans, of course, to mobilize more stable customer deposits locally. These are all ongoing initiatives. Some products you will see us coming out with segmenting the markets. We are working on that. That will help us aggressively pursue certain section of the segments, certain section of the markets where we think we can differentiate ourselves and mobilize more deposits. And that is a gap in the market itself. We see that there is an opportunity. So these are all the ongoing initiatives on -- regarding mobilizing deposit as a source of funding. And we are also keen, as always, among the best banks, if you look at not just LDR, but the long-term funding to total funding ratio, which is a key metric internally for us. We are one of the best banks, in fact, second best in the country. Close to 17% of our liability is long-term liability, which is where we gives us -- which is what gives us comfort and stability. And most of them are bonds, EMTNs, which means the rates are locked at the lower rate. Just to give you an example, last year, we issued EMTN at 2%. Prior to that, we came out with the issuance at 5-year money that these are 5-year money at 2%. Current rate is 6%. And we are enjoying that full year benefit this year, and we'll go -- keep enjoying that for next few years. Prior to that, we came out with the EMTN program under the EMTN program and $500 million at 1.825%. So this is the second year, so another 3 year in terms of the kind of money that we will -- in the books, I mean compare that 6% currently with that kind of a rate for 5-year money which we have right now. I think these are all fantastic strategies that is in play right now, and it's working in our favor at this point in time. So it's a long answer to your question about LDR, but since EMTN is part of LDR for us, the cost of LDR will keep -- will remain stable. A huge percentage of that is long term. This is Ahli Bank team waiting for any other questions from the investors. So we'll summarize this. Since we are also -- it's a 30-minute call, we are almost there. Summarizing what happened during the quarter, we had a very good results. 8% growth that I think we are kind of outperforming the sector, probably top 3-or-something in Qatari banks in terms of percentage growth, driven by operating income, so that's a good news, with some growth in total assets and loans and advances also. And the other key metric we track always and everyone is interested is about the NPL ratio. That has actually come down year-over-year from 3.74% to 2.54%, and the coverage has gone up. So we have provided conservatively. So the coverage has gone up from 107% to 187%. So we're sitting very comfortably right now as we go into the year-end. And in case there is any follow-up questions, please feel free to drop a email. We'll get back to you. Myself and Trevor and Johny, all of us are available anytime any questions, please ask -- feel free to ask. So with that, I think we'll just wait for a couple of minutes and then we'll conclude this investor presentation. Thank you. Thank you, ladies and gentlemen. This is a pleasure hosting you for today's investor call. This is Shankar, Trevor and Johny saying goodbye. If there is any further questions, please feel free to ask us. We're more than happy to send you replies. Thank you.