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

Hello. This is Ahli Bank team. Shankar -- my name is Shankar, and then I'm joined by Trevor, and then Johnny will be joining us soon. Okay. I thought we will anyway give a quick brief to whoever has joined. This is Ahli Bank team, we welcome you to the H1 2025 financial results briefing. If you have any questions, please ask or you can even send an e-mail post this conversation. So here are the brief highlights. I think we are quite another -- had another satisfactory results for the half year ending 2025 June. Net profit went up by 5.1% to 402%. This is almost the highest ever 6 monthly profit for the bank. We had a very, very good traction when it comes to loans and advances. It grew by about 7.1% once again, a solid growth. Customer deposits also grew by 2.5%. Investments book was very healthy, topping QAR 10 billion, highest ever investment book, mostly fixed income. We had issued an EMTN once again of QAR 500 million in the first quarter. So that is on track. But year-over-year, you'll see growth. Total assets also grew by about 4.2%. All in all, it's a very, very solid results under the given circumstances with so many things happening on the geopolitical side. A couple of more important numbers when it comes to asset quality. The asset quality and the NPL ratio stood at 2.95%. We had given a guidance that it will be around 2.8% to 3.1%. That's something which we will be kind of comfortable, but we are well within that guidance. So that's a pretty good outcome. And still, we are outperforming the markets in this metric. It's a very important metric. We all know that. Total coverage -- provision coverage stood at 240%. Once again, Ahli Bank continues to provision conservatively. This has been our trend for long years now where we're maintaining that north of 200% coverage since 2022 almost. So last almost 3 years, we have been above 200% provision coverage. We are maintaining that, and we will continue to maintain that. So this is a very high-level numbers, which we are right now highlighting. If you have any questions, please feel free to ask. What we will also do is we'll wait for some more people to join before we give a second kind of dive a little bit deeper into these numbers. Thank you. For those who have joined, please let us know if you have any questions. This is a published information published on Thursday morning in the stock exchanges and so on. So the numbers are there out in the open. So if you have any questions, please ask.

My name is Lee Beswick coming from QNB Asset Management. Just a question on the -- how the Board thinks about the dividend. I appreciate that there are always Board decisions, and that's the sort of the blanket answer that most companies give. And I know they are Board decisions. However, obviously, the Board use some kind of metrics to assess the dividend. So I was just wondering how the Board thinks about the dividend and how you as management think about it, too?

I mean there is really no change at this point in time, no trigger to change it. So we have -- it is also linked to the capital plan. So capital is adequate at this point in time. The capital adequacy ratio is north of 20%, around that range. So we don't need capital. That means we don't need too much retention at this point in time. So there is enough headroom for growth. So if you see what has happened in the last couple of years, the payout ratio has gone up. Historically, we honor those banks who have retained -- we have retained the profits and instead of going to the shareholders and asking for money to grow in terms of our increase the capital. So that's been our model. We also have AT1, $300 million, which is Tier 1 capital. So the Board has not -- and there's no change in that mindset that if the capital adequacy is adequate, and our guidance is north of 18% to 21% is what we have aspired in terms of keeping the capital adequacy. Then the dividend payout ratio can continue to be around what it is right now, it is about [ 70-odd ] percentage last year, 65% to 75%. So that's the baseline or that is our existing thought process. There isn't any change at this point in time from a management perspective. I think Board more or less supports what management says.

Just a follow-up if no one else is going. Can you just talk through how you see NIMs going for the rest of this year? Obviously, there was a little bit of NIM pressure in the first half and second quarter. So how do you see that going for the rest of 2025?

Yes. There is a background to this. You're right, there is a NIM pressure because of the rate reduction that Fed did last year and then the subsequent response of QCB. So we had to bring down the rates last year. So it's a full year impact of what happened last year. Primarily, that's the reason. And then we expect a few more rate cuts, which is -- it's a situation -- it's a gray area. We don't know all kinds of things with Fed and Trump saying I'll fire this guy and so on and so forth. So we expect NIM pressure to continue. And if there is a rate action by Fed followed by a rate action by QCB, it will bring additional pressure. We all know that the asset price in an environment where rates are falling, the asset price comes down faster than the liability price because obviously, the nature or structure of the liabilities, which is -- which matures -- which has a maturity rate, whereas the liability is priced as per QCB plus margins. So that -- I think that additional pressure might come in, in the short term. But overall, next 6 months, I think because there is no big rate action that has taken place vis-a-vis last year, it should stabilize at about slightly lower than where we are right now.

I have another question, but I'll just -- I'll let someone else ask if, no one else. Just a question on fees and fee income. Obviously, that was a very good performance this 3 months and the 6 months as well. What's the sort of primary driver behind that? And I just wondered sort of how sustainable that is because obviously, that's been a big part of how you've been able to keep revenue growing. So what's the driver behind that?

Okay. So it is not sustainable. It's a once-off big deal, which we did. So that's a honest disclosure. And -- but it has done its job in terms of -- we have been chasing this deal for long years, long time rather. And finally, we managed to clinch this. So we can also see some asset growth, strong loan growth, et cetera. So it is not sustainable in terms of -- we will not see additional -- a similar amount, similar growth in fee income, I think, for a long time to come. So that is the answer to your question.

But is that level sustainable as it is? Or do you think it drops back? This is what I mean?

So historically, we have had around 80-20, 80% net interest income, about 22% around this fee income. I think we'll go back to the long-term average in terms of where we see. This year, we will probably be okay. But I mean, over a period of next 12 months, if you ask, we'll go back to the long-term average of 80-20 around that level of net interest income because the loans have also grown. So that's going to be net interest income driver for future. And fee income is once off. So I think we'll go back to those levels.

So does that mean going into next year that you probably face a little bit of revenue pressure overall then if fee income drops back or can NIMs, do you think compensate for the potential drop in fee income going into next year?

I think the interest will go up. So we'll be okay in terms of next year guidance, we don't want to talk about it now. But as we said, we have always had a something offsetting something else, and we have been consistent in terms of our growth. If you look at sequential growth year after year, quarter after quarter. So we have managed to do something and keep the growth ticking. So probably I won't -- it's too soon to talk about next year. But since the loan has grown, loan book is quite healthy and then pipeline is also healthy. I think there will be something will happen in terms of a growth driver for next year. So you can always come back to us with any questions through e-mail or even through this call as a follow-up any time. We're more than happy to answer those questions.

Is anyone else going to ask any questions or...

Yes. So I think we saw somebody, but there's no question from that gentleman.

Can I then just ask about staff costs and just how you see those? They're sort of up around about sort of 10%. How do you see those sort of progressing in the future?

Yes. So once again, we have had some fairly good senior people joining us at some crucial roles, some minor restructuring has taken place, both in corporate as well as in back office, which is COO, a new COO is there. You can see that in the website. A new corporate head is there, you can see that in the website. So -- and then the team underneath that is also going through some changes. So -- but I think we are more or less done with these kind of recruitments. And we see some contribution there on a long-term basis or medium-term basis, which means about 1, 1.5 years down the line. So you can already see the loan book growth coming from actually some energy -- the area is energized, let's say that. So you can see that in some numbers. And we don't expect staff cost to keep growing at this rate. So it will stabilize. And probably if you look at 12-month period from now, it should stabilize at these monthly run rates.

And last question for me, unless anyone else goes. In terms of the stages of loans, obviously, your balance sheet is very healthy. I mean your NPLs are low, coverage is good. Has there been much movement or do you expect much movement between Stage 1, Stage 2, Stage 3 as we go into the second half of this year? Has there been any -- I know the discussions happen with QCB usually at the end of the year, but do you anticipate any changes between the stages at all?

Well, you are right, we are discussing with QCB. Certain names are under discussion. We also have -- I mean, there is a churn. There will be some names into that Stage 3 bucket. There will be some names out of that bucket because there is a recovery process, which is well underway. So we are confident that we will be -- so there will be -- yes, there will be some names. This is churn normal business as usual, which will happen. We are sure that -- but as we said, overall NPL ratio guidance is about 2.8% to about 3.2%. So right now, it's 2.9%. So that's the range we are talking about. So in and out will happen, yes. We also have potentially some recoveries, large ones and potentially some -- we are in discussion with QCB about some names which we may have to classify as Stage 3. So yes, both these things will happen. Overall guidance is about this in terms of NPL ratio. Coverage, as we said earlier in our commentary that we have -- our aspiration is to stay at that zone, which means about -- about 200%, et cetera, will be recovered. So we want to maintain this kind of level of provisioning. And when it comes to -- in terms of stage percentage to total, I think that will also go through some change if something moves from Stage 3, then Stage 3 comes down, something moves from Stage 2 to Stage 3, then Stage 2 comes down. So all this is likely to happen, yes. And the percentage overall will remain almost at the same level, yes. Anyone else, any questions? Greetings from Ahli Bank. Once again, we are waiting for any questions from the participants. My name is Shankar. We're just discussing a few things about the financial results for H1 2025. As we have disclosed, I think the numbers are satisfactory with a 5% growth in net profit with about 4.2% growth in total assets, I think all around growth, loans and advances, customer deposits, investments, EMTN. So yes, it's a tough environment, but we are holding the fort. It's been satisfactory results. If there's anything else, please let us know. We're waiting for any questions. We can also take e-mails and answer those -- any questions that you have. Thank you.

Was there ever a discussion on interim dividend? Or is that just not discussed?

Say that again, please?

Was an interim dividend discussed?

Interim dividend. No, it has not been discussed at the Board level. So -- but we have amended our articles, et cetera, to enable this because that process is complete. So at this point in time, I think there is -- that kind of agenda is not there. Yes. Of course, Trevor is saying something, he's my colleague.

Yes. I think basically -- thanks for the question. I think what we've obviously planned to have everything in place. And of course, this will be looked at potentially next year, subject to what other banks do and the market conditions. And as Shankar said also, we will continue to review our long-term funding strategy and our AT1 capital strategy over the next 3 to 4 months to start paying ahead for next year.

Could the AT1 be retired? Would you ever buy it back?

I think we will follow the market practice, which is normally after 5 years, it tends to get repaid so that investors -- we continue to get investor interest. We all know that it came at a price, which is now a dream rate kind of 4% and so on. So that's not going to happen again, and the investors expect certain things. So we will follow the market practice.

You say follow the market practice, but there are banks who need it and there are banks who don't. And the market is not uniform at all. I would say you fit into the category of healthy capital ratios and don't need it, but there are other banks who do need it because their capital ratios are less healthy. So there is no market practice.

Well, I think what Shankar may be alluding to is that the existing AT1 more likely than not will just be obviously repaid. And then whether we reissue another AT1 will be subject to the capital considerations during the next 3 to 4 months.

Right. Okay. Yes, because for ordinary shareholders to rank above -- the AT1 ranks above ordinary shareholders, and it's just expensive debt in a way.

Yes. Well, the current one is, but obviously, we will review obviously the P&L impact as well as the requirements of what the loan growth will also look like in terms of funding that moving forward.

Yes. I mean the investors are talking to us and the same question, what are they going to do, et cetera, and they're saying this is our expectations. And we have had a long relationship with investors who are also our bond investors, EMTN that is and so on. So that's a very healthy conversation that's going on. And that's what I said, whatever is the market practice, which means, as Trevor was alluding to, we might have to repay this, although it's 5 years and then issue a new one at existing rate, current market rate, I guess. Anyone else, any other question? Okay. So we'll wait for a few more minutes and then wrap this up. And we are always available through e-mail any other question, questionnaire or phone call subsequently. So good afternoon. This is Ahli Bank team. If there is no other question, we'll wrap this up. And thank you very much for attending this investor call and hope to see you next quarter, 9 months ended and so on. Thank you. Appreciate it. Thanks a lot. Goodbye.