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

Hello. This is Ahli Bank team. So welcome to Investor Presentation, Investor Conference. Who is speaking, please identify if it's okay with you, we are just about to start in about a few minutes. Thank you. So we'll wait for about 30 seconds. So I would follow on, and then we will start, and we'll wait for few people to join, if possible, because it was well publicized in terms of date, time, et cetera. So the Board meeting was on 17, yesterday. It was a good result. And we have published the financials. It's on the website of Qatar Exchange. And the conference call also the date was booked well in time. So we'll just wait for a few more people to join in, particularly, the bondholders, if possible, and we will start and give our commentary, management commentary. Thank you. Okay. Good morning, everybody. We just kick off the investor call. So I'll just give a brief. My name is Shankar, I'm joined with Trevor as well as Johny. So we are familiar faces, we guess, for those who have been attending this regularly. So we had very good results, very satisfactory. The Board was quite thrilled to see their numbers. And the net profit was about QAR 837 million, which is 8.4% over last year. So it was a good result. Core income was its key drivers like net interest income, operating income, et cetera. So that was the most important part as far as we are concerned. There is no extraordinary something -- income to target. So our loans and advances also grew, customer deposits also grew. So those are good indicators, although it will improve at a slightly single digit, low single digit, but we can expect that after a World Cup that there will be consolidation in the marketplace. So we didn't expect a very high numbers and -- high numbers in a sense that it could be an averaging the same like as the previous year. So it was a consolidation of loan growth and deposit growth and the interest rate environment was quite stable in a sense, the Fed has stopped increasing the rates, and we saw some stability in the interest rate environment in the markets. No further increase in rates in terms of deposits as well as loans. So the market outlook looks very steady at this point in time from the interest rates point of view. And second most important indicators, which we have published is the NPLs. So the NPLs was lower than last year in terms of an absolute amount. And the provisions had gone up because, as always, we are doing it very conservatively -- provision. The NPL coverage has shot up by [ 35% ] to 234%. NPL ratio as such has also come down because NPL itself has come down. So all in all, the asset quality is very steady, very stable. The income is up, net profit, loan growth and customer deposit growth have been steady, in case of consolidation. So we expect the trend to kind of have good outcome as time goes. Actually, as a matter of fact, it's the highest ever profit in the history of ABQ, which is QAR 837 million. So we are very pleased to announce these results. The Board was happy. Strongly capitalized. So apart from asset quality, the other indicators are capital adequacy, which is at about 20.8%. So it has remain strong -- capital adequate, remains strong, gives us headroom for growth. So qualitatively speaking, there are other things that has happened when we all talk about digitization, et cetera. So we have launched Apple Pay, Google Pay, Samsung Pay, et cetera. So all that has taken off from the payment process and there's nice little fee income, which will be generated. So there's actually shot up in terms of number of transactions getting digitized, particularly on the payment side and particularly on the retail side. The other digital transformation that is taking place is the BPM, which is called the Business Process Management, et cetera. So every single process is getting digitized, less of paperwork, more and more of automation and so it is a very scalable model. So the processes are becoming very scalable. So any increase in volumes will not have an incremental increase in the cost. So the cost remains under control. And there are some very interesting things we are going to launch this year, like real-time payment, which is in line with QCB's vision for banking sector. So we are on that journey also. Another important thing which we want to publicize is the capitalization levels. The capitalization level, which is also attribution for QCB and we share as the Qatari Bank is about 28%, which is one of the highest in the sector. So all in all, it has a very pleasing results. And I'll just take a pause -- we'll just take a pause. Trevor is also here if you have any questions, please ask. Thank you. Good morning. This is Ahli Bank team. If there is any question on the results, please you're most welcome to ask. We are waiting for any questions. So we gave a brief about the results. So it's our highest ever net profit in the history of ABQ, QAR 837 million, a profit growth of 8.4%. The dividend was about 25% or QAR 0.25 per share. So that's a good outcome for the shareholders. We are committed to adding value to the shareholders. So all in all, it was a good result, steady results. Core income was up. Cost to income was under control. Cost, I'm talking about because there's a digitization process. There is an upfront investments. Overall, that is a very scalable model we are building now, transforming certain things in the back end as well as in the front end. So you'll see more and more of that digital bank, particularly on the retail side initially and then it around the corporate side also. So asset quality, among the other very interesting area to watch out the bank absolutely in control. So NPL ratio has actually come down a little bit, which is very pleasing to hear considering the kind of stress, some of the other colleagues are, of banking sector is going through. So it was actually absolute value of NPL was lower than last year, which is a fantastic achievement considering everything that kind of risk that has gone up. Provision, at the same time, has gone up. So that's very conservative on our part to have increased the provisions taken, making sure that the risks are already pretty covered even if it is conservative, so be it. Cost-to-income ratio was 22.8%, which is, I think, among the industry-leading. Costs are under control, as we have said. So we'll take any questions, please. If you have any questions or anything, the results are published. It is available in the Qatar Exchange, entire set of results. We just have to as a process wait for QCB to approve it. Prior to that, a lot of things -- discussion takes place with our Central Bank. So they are fully aware of the provisions and everything. We actually sent an approval separately for that. So all that has been done. We don't expect -- we expect this to be another smooth closure from a QCB standpoint. So I guess the results are very good, and we will just wait for any questions. And if you -- even if you don't have any, you can always reach out to us, myself, Trevor Bailey, familiar faces if you have been attending the investor calls. We will be happy to reply to any questions if you have -- if and when you have. Thank you. Good morning, good afternoon, good evening, wherever you are from. This is Ahli Bank team. Myself, Shankar and then Trevor, both of us are here. If you have any questions, we'll give a brief about the results from a management standpoint. The results are published and available in the stock exchange, Qatar Stock Exchange [Technical Difficulty] financials. If you have any questions, please feel free to ask. You can also drop an e-mail to us anytime, call us any time, and then we'll be happy to answer even if you're not able to ask question. Thank you. Good morning, good afternoon. This is Ahli Bank team. So welcome to the investor call. We have briefed the results from management standpoint. If you have any questions, please feel free to ask. You may also drop an e-mail, we'll be happy to reply to [Technical Difficulty].

Should I put on speaker.

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Should I put on [indiscernible]?

Hello. So we gave a brief of the results and the financial results are available on the website of Qatar Exchange. Dividend announcement was made, proposed dividend that is, subject to approval from the [ GAM ], which was 25% or QAR 0.25 per share. It was the highest ever net profit in the history of this bank, so it's very satisfactory results. All the metrics are good, particularly the capital is north of 20% capital adequacy, so well capitalized bank. Lot of headroom for growth. Single-digit -- low-single-digit growth in deposits as well as loans, which is okay because we there, in the quarterly results, update to investors that are saying it will be a year of consolidation after particularly a few years of very good growth considering the World Cup and then the kind of investments that are going on in Qatar. So we're happy to be where we are. Core income is strong and in terms of asset quality, once again, we have done well. The NPL absolute amount was lower than last year, non-performing loan that is. And then the coverage has gone up as a conservative measure -- we've been conservative. We have been briefing investors about our approach every quarter. So it's not a surprise that the coverage has gone up to 234%. So costs are under control. Overall, it's been a very satisfactory results. Please feel free to ask any questions. We are available. And then if not, in about 5 minutes, we will formally close this call. Thank you.

Hello?

Yes, please.

Can you hear me, okay?

Yes, Absolutely.

Yes, thank you very much for doing the call. I'm interested to hear your outlook for 2 things really. One is the outlook for loan growth for this year and what opportunities you're seeing? And two is rather a broad question, but your outlook for net interest margins and in what rate environment you're sort of anticipating in your assumptions?

So I think the loan growth, we are seeing a bit of uptick at this point in time. So as we speak, a couple of days -- we have signed up some good deals. So we expect another single-digit growth. So not high single-digits, but low single-digit growth, we do expect the growth. So on both sides, that is deposits as well as loans. So that is on the loan growth. And on the rates, as we all know that it is stabilized, we expect the cost of funds to come down. We all know the direction the Fed has taken and then the markets responds, particularly all the central banks. If Fed brings down the rate by Q3 2024, then you can see that everyone else will respond. So even if you look at the bond market as we speak, so there have been couple of issuance. We are tracking that for the rates. The yield curve, as we call it, is showing lower rates for 2 rate cuts this year. That's how the yield curve are indicating. So coming to that, so that's the background to the margin question. So if you talk about margins, 2 things we must remember and the way we have approached. One, we will defend the margin even the rate goes up or comes down. So which one goes up or down, depends upon the rate actions by various central banks, which means if the rate goes up, the loan price also goes up and the deposit takes time to reprice because they are locked for a period of time, it's a term. So assuming the rate goes down, the loans will have to be repriced because it's all pegged to certain rates. So obviously, there is going to be a lag between the price on the asset side that comes down immediately and the deposits that will come down on a term basis. But the way we have approached that eventually on a full year basis, we will be defending the margins. We have done that in the past, even when the rate cycle was going up or rate cycle were coming down. So rate being stable, I think we can say that on a net margin, we will continue to maintain the current margin of about 2.1% to 2.3%.

That's very helpful. If it's okay, I don't know if there's other people waiting to ask questions, but I did want a couple of follow-on questions as well if it's possible. I don't know if anyone else is there.

Yes, please go ahead.

Yes. I just wanted to talk about fees. And in particular, I mean, at some point, from personal experience, the Central Bank allowed a bit more of a spread on currency, both, I think, to retail and even to institutional clients between dollar and Qatari Riyal and others. So I want to ask 2 questions. One, what's your outlook for fees in general? And two, does those changes make any difference to you?

So it's a package of -- it's a whole package for a customer. So when we have a relationship, there is a loan, there is retail elements, for example, let me elaborate on this. So there is a customer, let's say, a corporate customer. So we not only give him a loan or other services like trade finance, like FX support, there's also a retail component, for example, salaries of their staff will come to us, there'll be -- credit card related. So there's a whole business proposition. So when you see this proposition, the way we look at it is the customer profitability. So the rates, FX rates, particularly the Central Bank might have allowed a certain flexibility for us to charge but we are -- being a very Qatari bank -- we are a Qatari bank. We don't go outside Qatar. We are conscious of this relationship, which is long outstanding relationship. Most of our customers are like banking with us for 20 years, 25 years things like that and then there are groups -- so there are a lot of family groups. So once again, I give you a background. So we would take our margins, irrespective of the fact that the Central Bank allows more margin or less margin. So we have in overall customer profitability in mind and supporting the customers is also important for us. The relationship is important for us. So the answer to that, with respect to the Central Bank action, we have our margins protected. That's been our approach, and it's been appreciated by customers. There are times when rates -- the Central Bank squeezes, we at that point in time negotiate with customers for our fair share of the service cost. And times when Central Bank allow us, at that point in time, we don't -- we encourage customers to go for volumes, but we don't squeeze our customers. So it's a relationship-based bank. We don't necessarily pass on the cost at some times, and we don't necessarily pass on the benefits at times. So we protect our margins. We help our customers. That's been our approach in terms of managing the customers. That's why you see a very steady income from noninterest in components. Hope I have answered your question. Hello?

Okay. Yes. Sorry. So to summarize, you'd expect your fee income to grow roughly in line with loan growth and general business without anything particularly extra coming from the FX because you've chosen to just keep your margins the same. Is that fair to say, right?

Yes. So if there is a volume increase, we benefit generally, if we don't necessarily benefit from the rate cycle. I mean, that margin, we don't fiddle with that too much because of the relationship. Yeah, you are right.

Okay. So just moving on to the sort of just asset quality. Could you talk a little bit about any new formations, where you stand in terms of NPLs, what your provisioning was this year and whether you think it's roughly stable and what your outlook on that is?

Yes. So it's something we would like to talk about it because the way we have managed it. So the NPL absolute value of non-performing loans came down year-over-year. So that's a very interesting development, positive development for us. And at the same time, the coverage has gone up because we have conservatively provisioned primarily on the Stage 2 type of loans. So the asset quality in terms of NPL ratio has actually moved positively from 2.57%, to 2.51%. Now given what is happening in terms of provisioning and the outlook. So we think that last 3 years -- you have to look at last 3 years, what we have done on this particular line item, we are provisioned very conservatively. And then we expect that the cycle of recovery and loan further provisioning will be roughly same, which means we expect some recoveries also. It's not just a provision alone, it doesn't work, I know that. So we expect that the recovery cycle and the provision cycle is roughly going to match up. So what happened the last 3 years is that we are providing more and recovering less. Now, we think that the balance will be kept in favor of almost in all kind of power. So there will be provisions, but they will be strongly backed by recoveries also. So we are -- I think we don't expect any negative surprise here. So the asset quality will remain stable because the worst is behind us, we think.

So where is coverage ratio now? And what's the sort of target?

So coverage ratio is 234% vis-a-vis 199% last year. So it's actually up. We have covered also very, very [indiscernible].

And that's pretty high, I mean over -- I mean I'm assuming you don't really want to raise it too much further unless, I mean, I don't know, but isn't that like seem like a reasonable level to you?

I think you're right. You have to add one more factor, which is the underlying collateral, which we have got. So I don't think you will see a further spike in coverage as such. You are right. So that is the whole idea. We want to make sure that every metric if you see the asset quality, the capital, the liquidity, everything is super strong. That is, you know, we have a stated goal, if you've been watching us, it is a stated goal for us, how do we manage liquidity, how do we manage capital, how do we manage asset quality, how do we manage coverage, et cetera. So all of them, we are a little bit above the markets. We carry a little bit more liquidity. We carry a little bit more capital. We carry a little bit more -- conservatively cover ourselves. We could have declared higher profit for faster growth, but we are steady in terms of growth. You can see last 5-year trend, we will exactly -- this year would have been a replica of the last 5 years, on an average.

Fair enough. Well, look, congratulations on the results. It seems like a very prudent and well-run bank that I don't have any further questions.

Thank you. Appreciate it. Thank you. So we also ran out of time, 12:30 was the scheduled time of closure. So if there is any question anybody has got, they can drop an e-mail, they can call us. We'll be happy to answer that any time. Thank you, everyone. I appreciate it. Thank you. Goodbye.