AlRayan Bank Q.P.S.C. (MARK) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Masraf Al Rayan Conference Call. Please note that this call is being recorded. I'd now like to hand over first to our moderator for today, Shahan. Please go ahead.

Thank you. Hello, everyone. I want to welcome you to Masraf Al Rayan's second quarter 2024 financial results conference call. So, on this call from management, we have the Group CFO, Shahnawaz Niazi; Tahir Pirzada, Group Head of Treasury & FIs; and Alexis Neeson, Group Chief Risk Officer. So, as usual, we will conduct this call with, first, management reviewing the company's results, followed by a Q&A session. I will turn the call over now to Shahnawaz. Please go ahead.

Thank you, Shahan. Good afternoon, everyone. Thank you for joining the call, and welcome to Masraf Al Rayan's first half 2024 financial results conference call. We'll start with the profitability. We have reported a consolidated net profit of QAR 789 million versus QAR 765 million for the same period last year. This is first half 2024, of course. Earnings per share for the period is QAR 0.085 versus QAR 0.082. And the book value per share went up slightly compared to last year. It's QAR 2.52 this year versus QAR 2.47 last year. The net profit margin stood at 1.95%. Last year, it was 1.89%. And the return on average equity is 6.72% against 6.70% last year. Despite the rising cost of funds and the pressure on the margins, our profitability has improved in first half of 2024. As I've mentioned earlier, it's QAR 789 million versus QAR 765 million last year. So, that represents a 3.2% increase in our net profits. Cost-to-income ratio is at 26.2% this year compared to 24.6% last year, and the increase is only due to our continuous investments in our IT, digitization and our transformation workspace. On the balance sheet side, the group total assets are -- stands at QAR 162 billion as at June 30, 2024 compared to QAR 160 billion last year. That's 1% higher. And customer deposits closed at QAR 109 billion compared to QAR 89 billion last year. In terms of asset quality, 48.5% of our financing assets are to the government, 86% of our investment securities is sovereign debt, and 83% of the investment securities are the State of Qatar issuances. The coverage ratio of Stage 3 financing assets is 61.9%, and our group's non-performing financing assets represented 5.86% of our total financing assets, which is an improvement of approximately 55 bps compared to last year. On the ECL, 72.5% of total exposures subject to ECL are in Stage 1, 23.7% are in Stage 2, and 3.8% are in Stage 3, which demonstrates bank's consistent strong base of high-quality assets. Total ECL provision booked during first half 2024 was QAR 548 million compared to QAR 553 million same period last year. And this increases the coverage ratio of Stage 3 financing assets to 61.9% compared to 53.6% last year, and overall coverage ratio 2.86% compared to 2.74% same period last year. With regards to liquidity, Qatar and the GCC markets remain sufficiently liquid. The U.S. treasuries have performed well and have recently rallied by about 35 -- 25 bps to 35 bps, especially in the 5 and 10-year curve, on the back of improved data on inflation. There is a higher probability for Fed to do its first rate cut of circa 25 bps in September 2024. We continue to see increased liquidity from a pool of diverse investors flowing to Qatar and GCC, given the risk profile of this region. And as a result, the non-resident pool of liquidity in Qatar continues to decrease gradually. High-quality liquid assets are roughly at around QAR 33 billion, reflecting a strong liquidity position that continues to support financing asset growth, especially in the wholesale banking sectors. Lastly, on the capitalization, the bank's capital position continues to remain very strong and well above the minimum regulatory requirement of 15.89% as DSIB. Our capital adequacy ratio stands at 23.7% as at June 2024 compared to 21.3% last year. And the capital CET1 core ratio is at 21.6% this year compared to 19.57% last year. Thank you, and we are available for any questions.

[Operator Instructions] First question comes from Salome Skhirtladze from Bloomberg Intelligence.

I have 3 questions, if possible. So, in terms of the NIM, assuming the slight rate cut this year, would you still remain with the initial guidance? And would you expect a stable NIM over the year? The second question on the asset quality, so there was some increase in Stage 2 assets, and the coverage is still low relative to other Qatari peers. Do you have any updated internal target for the coverage ratios? And what is the cost of risk level you're expecting for the year? And the third one is on loan growth in first half of the year, there was some indication of the loan portfolio rise. Could you comment which sector contributed, and what is your outlook for the year ahead?

Okay. I'll take the first question, and then I'll hand over to Alexis for question 2 and 3. In terms of the guidance on NIM, yes, we are expecting a rate cut. And even with that rate cut, we expect our NIMs to remain positive. Our guidance continues to be the same. We expect slight increase in our overall NIMs because of our core concentration on profitable assets, investing in profitable assets, profitable financing opportunities. Alexis?

Sure. Salome, moving on to the other 2 questions, in terms of the asset quality, we did have some increase in Stage 2. We had a couple of clients that moved from Stage 1 to Stage 2. We -- as you may know, the rules here require QCB approval to shift anything backwards in terms of transition, in terms of stage transition. We are discussing some names with the QCB that may improve the numbers in Stage 2 in future. We have a couple of customers there that we believe are Stage 1. And you note the coverage is low. We agree. You'll see that the Stage 2 charge this quarter did increase. We ideally would like to get to the 5% to 7% coverage ratio. As we've discussed before, our target is to increase our Stage 3 coverage ratio to -- in the 70s. Then we're going to focus more on the Stage 2 side. The cost of risk will remain in the 100 basis points to 110 basis points. We've been very consistent with that message. We intend to stick to that 100 basis points to 110 basis points for cost of risk. In terms of loan growth, it comes mainly from the sectors that we are targeting with our strategy, which is government, trading and our private banking portfolios.

[Operator Instructions] As of right now, we don't have any raised hands. I'd now like to hand back over to the moderator for now and the management.

Well, if there are no more questions, we can wrap up the call. Okay, great. Thank you. I'd like to thank Masraf Al Rayan's management for giving us an update on the second quarter, and we'll pick this up again in the third quarter. Thank you very much.

Thanks, all. Have a good summer.

Thank you very much.

Thank you for dialing in today. Have a wonderful day. You may now all disconnect.