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

Thank you for standing by. My name is [ Janice ], and I will be your conference operator today. At this time, I would like to welcome everyone to the AlRayan Bank Investor Conference Call. [Operator Instructions] Thank you. And I would now like to turn the conference over to Shahan. You may begin.

Thank you, [ Janice ], and hello, everyone. I want to welcome you to AlRayan Second Quarter and First Half 2026 Financial Results Conference Call. So on this call from management, we have Shahnawaz Niazi, the bank's Group CFO. 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. Hello, good afternoon, everyone. We'll start the investor script -- call script for H1 2026. So on the profitability, we reported a profit before tax of QAR 810 million in first half 2026 versus QAR 845 million last year. Profit after tax, which includes the impact of global minimum taxes is QAR 687 million. Earnings per share at QAR 0.074 versus QAR 0.088 in first half 2025. The book value per share slightly went up compared to H1 2025, QAR 2.60 versus QAR 2.59, respectively. Our return on average equity is 5.65% against 6.82% in H1 2025, of course, which is impacted by the global minimum taxes as well. And if we exclude the tax impact, profitability of the bank is only marginally lower in H1 '26 compared to H1 '25, which is mainly due to lower fees and commission income as a result of the geopolitical situation and lower recoveries from written-off accounts. Cost-to-income ratio is at 30.09%, going up from 27.6% and this is mainly due to our ongoing investments in our strategy, IT digitalization, core banking implementation and our transformation process. On the balance sheet, the group's total assets are at QAR 184 billion at H1 2026, which represents an increase of 1.6% compared to 31st December 2025. Customer deposits closed at QAR 120 billion. These were QAR 111 billion in 2025. Financing assets are at QAR 114 billion at June 2026, which is a decline of 3.8% from QAR 118 billion as of December. And this is -- this reflects the bank's proactive portfolio optimization strategy. As part of our ongoing balance sheet management, the bank has selectively exited low-yielding financing relationships and are redirecting capacity towards higher-margin opportunities and reinforcing its focus on profitable risk-adjusted growth. Investment securities increased to QAR 52 billion, which is 13.7% higher compared to year-end, reflecting our continued focus on value-generating assets. In terms of asset quality, 46% of financing assets is financing to government. 86% of our investment securities are sovereign debt and 83% of our investment securities is with the State of Qatar. The coverage ratio of Stage 3 financing assets is 74.9% against 64.4% in Q2 2025. The group's nonperforming financing assets represent 5.16% of the total financing assets. This was the same NPL ratio number was 5.38% as of June 2025. With regards to our ECL, 83.9% of total exposures subject to ECL are in Stage 1, 13% in Stage 2 -- last year was 15.1% in Stage 2 and 3.1% in Stage 3. Last year was 3.3%. This demonstrates the bank's consistent strong base of high-quality assets. Total ECL provision booked during first half 2026 is QAR 328 million. Compared to last year, we booked QAR 415 million ECL. I just make the overall coverage ratio stable at about 2.9% in H1 2026. Our full year 2026 guidance on the ECL continues to be in the range of QAR 750 million to QAR 800 million. In terms of our liquidity, we've seen the Qatar GCC markets remain sufficiently liquid despite the ongoing geopolitical situation. U.S. treasuries have been volatile as we saw some 50 bps swing since the end of 2025. Economists and markets have been adjusting their Fed rate projections. We're basically reversing from 3 to 4 rate cuts originally in 2026 to 1 to 2 rate hikes towards the second half of the year. Our liquidity position in GCC remains comfortable, and we continue to see funds flowing in from diverse investors despite the ongoing geopolitical situation. And this is purely for picking up some premium in deposit rates. Nonresident pool of liquidity in Qatar remains more or less at the same level, which is about 19%. High-quality liquid assets are roughly at about QAR 50 billion, reflecting strong liquidity position that continues to support financing asset growth in the wholesale banking sector. Our capital position continues to be strong and well above the minimum regulatory requirement of 17.4% as a result. The capital adequacy ratio stands at 25.6% and core capital CET1 is at 23.4% in first half 2026. I'd like to move on to questions. Shahan, over back to you.

[ Janice ], we can move to Q&A, please.

[Operator Instructions] Your first question is coming from the line of Salome Skhirtladze from Bloomberg.

I'm from Bloomberg Intelligence, Salome. I have a few questions. First of all, on the asset growth, we saw there was a decline in value. As you explained, it's related to the reshuffling of the assets. Could you give us your view and expectation for the second half of the year and from which sector you could expect any flows or if there are noticeable pipeline? On the margins, assuming the same level of interest rates, what could be your guidance for the rest of the year? And if you could give us also the sensitivity in case of 25 basis points let's say, 25 basis point increase. And on asset quality, it's -- we know part of the loan portfolios across the board are subject to deferrals. If you can give us some statistics of what part of your portfolio is under deferral mode and whether you have any revised expectation regarding the cost of risk charges for the year?

Okay. So I've got about 3 questions. So if I miss anything, so please do remind me. In terms of our asset growth guidance, -- like I said, the bank is now -- has consciously reviewed its portfolio. And we are selectively exiting and consciously nonprofitable deals that we entered into in the past. And that's primarily the reason, as I explained, why you see a decrease in our financing book from December. Now we've got -- we still have a very healthy pipeline. Because of the geopolitical situation, there are some timing differences, some delays in terms of execution of that pipeline. My guidance in terms of asset growth for the rest of the year continues to be what it was in Q1, which is we will see a low single-digit. We expect to see a low single-digit growth by the end of this year. The pipeline -- the good thing is that the pipeline is holding steady. We have not seen any decrease in the probability of execution of that pipeline even as a result of the geopolitical situation. So that's a good part. So that's the answer to your first question, which is the asset growth. We still continue to see -- we still have a lower single-digit growth expectation by the end of this year in terms of the financing book. Your second question was the sensitivity analysis. So if the interest rates do not move, my profit -- you would see in terms of NIM, you would see the same profitability that you see in Q2 extending to the rest of the year. If there is a 25 bps increase in the rates by the Fed, that will have a positive impact on my profitability because I will immediately -- my 90% of my loan book is variable. And about 60% to 70% of my deposit book is fixed. So as soon as the 25 bps rate increase happens, I will immediately reprice my loans and take the benefit of that. But the deposit book, about 50% to 60% will remain fixed. I will not reprice that immediately. So a 25 bps increase will add about QAR 20 million to QAR 25 million in terms of revenue over the -- it depends on the timing of the rate increase. If it happens in December, there is really no impact. But it happens in August or September, then yes, we can see about QAR 15 million to QAR 20 million of impact -- positive impact on my profitability as a result of that rate increase. Your last question was the asset quality and if we see any impact as a result of the geopolitical situation and any payment deferrals. I can confirm to you that we have not seen any request for any loan deferrals or any repayment deferrals from any of our customers. And we take a lot of benefit from the fact that 50% of our loan book is with the government. So that gives us a lot of comfort. And the other 20% is with high-grade corporate sector in Qatar. So, so far, no deferral requests. We've not seen any indications of any impairment in our -- in any segment in any of our contracts. So I hope I've answered all your questions.

The next question is coming from the line of Andy Brudenell with Ashmore.

Yes, just to follow up on the asset quality side of things. So in terms of what this means for cost of risk, you're sticking with the 70 basis points to 80 basis points for the year, I assume, as I think, obviously, the first half was quite a bit lower than that.

That is correct, Andy. We're sticking to the same guidance. And it's just the quarter-on-quarter phasing of the ECL is different. We will be picking up slightly higher ECL in Q3, Q4, and that will be in line with higher profitability that we expect to generate over the next 2 quarters.

Yes. Okay. And then just one, obviously, there's been some big moves in non-funded income last year. So trying to get a handle on what is normalized. If you could just remind me, please, like the sort of level you're hitting at the moment in non-funded income for the first half. Is that the kind of more normalized kind of level that we should sort of think about? Or are there still further one-offs in there?

So our normalized -- so clearly, as a bank, our strategy is not to look at these one-offs. But over the last couple of years, we've been benefiting from these one-offs because we've been getting a lot of recoveries from our very, very old written-off cases and the legal proceedings are now closing, and we are getting the benefit. So this year, the guidance on the one-off, the other revenue line is about QAR 200 million to QAR 250 million and the same guidance for next year. But because of the various strategic initiatives that we are running, over the next couple of years, you would see this number going down and will be replaced with a higher NIM, a higher fee and commission income. So the core business will go up and less reliance on the one-off. But for '26, QAR 200 million to 250 million and the same for 2027.

Sorry. And just to clarify, in the first half, is there about half of that QAR 200 million, QAR 250 million in there somewhere? Is that what you're saying?

That is correct [indiscernible]

That's right.

Your last question is coming from the line of Lee Beswick with QNB.

Just a question about what you mentioned earlier about the quarterly run rate of profitability. You said that if nothing changes, then Q2, you would have Q2 -- a repeat of Q2 in Q3 and Q4. Is that correct? That's what you said earlier?

Yes, that's our expectation, yes. That's the guidance that I've given to the market.

Okay. So does that mean then that it would be very different from 2024 and 2025? Because in 2024, 2025, you had quite a big provisioning, I think, in the fourth quarter in both years. You won't -- that won't repeat in 2026?

That is correct. That is correct. So the -- till 2024, we were doing 100 basis points of ECL cost of risk every year. Now that most of the provisioning for the legacy assets, we have significantly completed that process. So the level of ECL is slowly and gradually coming down. So '25, '26, I expect to have 75 to 80 basis points, a little less in 2027. And then 2028, I expect to have a business-as-usual kind of a cost of risk, which nothing from the legacy book.

And the plan is now to spread it out evenly throughout the year then?

So for 2026, the phasing of that was different. So far, we've done about 35 basis points, and we will do an additional about 45 to 50 basis points in Q3 and Q4 in terms of cost of risk.